Just outside Louisville in Henry County, Victory Hemp Foods is actively embarked on a business plan to bring its plant-based hemp protein products to mainstream consumers at interested stores, including major retailers Whole Foods and Kroger. It presents its product as superior to soy protein, which does $9 billion in business annually.
As part of its high-growth vision to make the Campbellsburg agribusiness a $50 million company within a decade, it has become a certified public-benefit B Corp. The designation is a relatively new organizational format where shareholders agree that a corporation may allocate some portion of its assets and energies to a “public benefit purpose.” There are 2,100-plus certified B Corps in 130 industries across 50 countries.
Founder Chad Rosen took this step because he believes hemp is important as food and other ways including bio-composites, animal feed and biofuels. He wants to be a factor in transforming the global economy in key areas around nutrition.
Family and friends made the initial investments of just under $200,000 to launch the company in 2014 and start field operations. The Governor’s Office of Agricultural Policy, which matches county agricultural development grants in Bourbon, Fayette, Henry and Jefferson counties and elsewhere in an ongoing effort to diversify agribusiness in the state, provided another $100,000.
As 2018 opens, Victory Hemp Foods is finishing its $1.5 million “seed” round of financing in January from private equity and angel resources, who have gotten pitches at a variety of venture funding events, like the Three-Rivers Venture Fair in Pennsylvania in fall 2017. Meanwhile, the company graduated the Washington, D.C.-based Village Capital Agriculture Accelerator program last year. Village Capital has been active in looking at investments in the Louisville market for several years.
Victory Hemp Foods takes its name from the famous USDA “Hemp for Victory” film during World War II that recruited farmers to raise fiber for military use. Today’s battle is against climate change and for rural agribusiness income streams created by providing nourishment to health-conscious consumers.
Federal legislation could create boom
The company anticipates a big boom for hemp food products to kick off when federal legislation removes industrial hemp from the list of controlled substances, which could assist the commercialization of hemp nationwide. U.S. Rep. James Comer, R-KY1, introduced the Industrial Hemp Farming Act of 2017 (H.R. 3530) last July 28. In September the U.S. House of Representatives referred it to the Subcommittee on Crime, Terrorism, Homeland Security and Investigations, and it awaits further discussion.
By way of background, hemp is not marijuana, but both are in the same genus or “family” of plants known as cannabis. The main difference is that hemp generally contains less than 1 percent of tetrahydrocannabinol or THC, the component responsible for marijauana’s euphoric high. Hemp historically has been grown for its high-quality fiber and for seed that yields protein and food oils. In the past decade, cannabidiol or CBD oils are gaining adherents for alternative medical treatment of fibromyalgia and muscle and joint pain, anxiety and seizures.
With the Controlled Substance Act in 1970, the federal government defined cannabis and all its derivatives as a Schedule I substance. However, the National Institute of Food and Agriculture, an arm of the USDA, is authorized to support industrial hemp research where such activity complies with state law, as in Kentucky. (Read more about hemp and federal government classifications at nifa.usda.gov/industrial-hemp.)
Kentucky law firms are watching companies like Victory Hemp Foods and participating in hemp-related federal legislative efforts. Frost Brown Todd represents over two dozen businesses in the emerging industrial hemp space, representing the full range of the industry, from seed to sale, said Jonathan Miller, the member-in-charge of Frost Brown Todd’s Lexington office who also leads the firm’s Kentucky government relations practice as principal of its public affairs affiliate CivicPoint.
One of its clients, the U.S. Hemp Roundtable, has been recognized as the industry’s leading national advocacy organization, involving all of the major hemp grass-roots organizations, and nearly 30 companies, including Kentucky vanguards GenCanna of Winchester, Ananda Hemp of Cynthiana, and KY Hemp Industries of Louisville.
The Roundtable is working closely with Rep. Comer because if H.R. 3530 passes it would permanently establish industrial hemp as an agricultural commodity, transforming the nascent industry into an economic powerhouse for Kentucky farmers and businesses like Victory Hemp Foods.
Potential revenue growth spurt
The company last fall filed for two patents on its hemp-based protein, which CEO Rosen expects to displace soy protein in over-the-counter purchases for baby formula, for example. Rosen, Kentucky president of the Hemp Industries Association, believes hemp represents a $1 billion industry for Kentucky in the next five years. This vision has boosted his profile as an entrepreneur to the degree that he was asked to represent Kentucky in 2016 at the White House Global Entrepreneurial Summit attended by 1,200 people, including top tech industry leaders.
Victory Hemp Foods in the next five years will sow over 25,000 acres of hemp for seeds, stalk and production of other plant parts, providing farmers with a crop estimated to yield 30 percent more net profit than corn.
The two main components of the plant, the seed and the stalk, each have their own unique uses. Hemp seeds are considered nutritious for the human body in health food circles. Everything from bread to animal feed can be derived from hemp seed proteins. Raw hemp seeds are credited with lowering blood pressure and cholesterol, weight loss, improving immune systems, controlling blood sugar levels and reducing inflammation. Hemp seed oils, in addition to food uses, have applications in fuel, lubricants, paints, cosmetics and more.
Hemp stalk fiber, meanwhile, can be used as a wood replacement in certain products and takes fewer resources to grow, according to its supporters.
Revenue from products containing hemp increased 30 percent to $262 million nationwide in 2016, according to the Hemp Business Journal, which reports that large increases in revenue are ahead – to more than $1 billion by 2020.
The CBD market is exploding for health purposes. According to Forbes.com, the CBD market is expected to grow to a $2.1 billion market in consumer sales by 2020 with $450 million of those sales coming from hemp-based sources. That’s a 700 percent increase from 2016. CBD made from hemp contains a very small amount of THC, but the CBD eliminates the psychoactive affects usually associated with cannabis products. CBD products are mostly used for medical purposes.
In 75 groceries – and the research lab
Victory Hemp products are for consumption and now include: hemp hearts, also known as raw shelled hemp seeds; hemp oil; and hemp protein. It does not produce CBD oil, which comes from hemp leaf.
In less than one year, Victory is now at 75 groceries, and works with several bulk consumer brands, including Smiling Hara, Thunderbird, Apogee, Sweet Grass Granola, and Severino’s, sold in health food stores and the organic food areas of groceries.
Rosen said Victory’s patent-pending hemp protein isolate can be judged favorably to soy protein on nutrition, flavor and formulation, offering more benefit to the human body. Hemp protein is considered the most digestible, allergen-free, non-GMO super food available, he said. Soy protein today is a $9 billion market, he notes.
Medical research has shown that hemp has nine essential amino acids and is absorbed more easily than soy, Rosen said. The nine essential amino acids are histidine, isoleucine, leucine, lysine, methionine, phenylalanine, threonine, tryptophan and valine.
Hemp protein is anticipated to be widely used in meat alternatives, dairy alternatives, baked goods and beverages. Hemp hearts, one of the company’s current products, are considered an antioxidant and are used in snacks and smoothies, as well as on top of yogurt, cereal and salads.
Victory Hemp Foods is also participating in new research with the University of Louisville’s Conn Center for Renewable Research since June 2016 in the areas of fiber and biodiesel applications.
“VHF has provided seeds, samples and materials that we used to grow hemp and kenaf on our small farm at Conn Center,” said Dr. Jagannadh Satyavolu, theme leader for Biomass and BioFuels there.
Industry infrastructure growing
Rosen said he saw the market attitude around industrial hemp changing, and saw a need for a high-value commodity crop in Kentucky. After an early career in construction, he entered the market along with a team that includes Mallory Sanborn, director of operations; Madison Meredith, regional sales manager; and Collin Gallis, production manager.
“Farmers can sell three parts of the hemp plant, and the protein isolate is an important step for our U.S. food markets. Various channel partners in the food industry and retailers will allow us to focus on the processing infrastructure and build a clear and predictable revenue stream,” Rosen said.
Through a de-oiling process, he was able to isolate the protein. The company’s Henry County facility – 6,000 s.f. with another 10,000 s.f. planned – allows for grain bins, processing and equipment areas that can continue to expand.
There are 15 states that allow CBD-only sales, as of 2016, according to Matt Karnes of Greenwave Advisors, a New York City-based research firm specializing in hemp and marijuana.
Mergers, investments, and acquisitions have already begun in the hemp playing field, both in the U.S. and Europe.
As hemp food products grow, the industry can expect to see more need for standards and quality testing, according to Kangming Ma, president of Eurofins Scientific’s Quality Trait Analysis Division in West Chester, Ohio. Luxembourg-based Eurofins soon will have its own standards to offer for the commercial use of hemp and testing for key categories of interest in CBD production.
Dawn Marie Yankeelov is a correspondent for The Lane Report. She can be reached at [email protected].
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