Most recently, Canada’s second-largest cannabis producer, Tilray, Inc. (NASDAQ:TLRY), last month furthered its growth strategy by acquiring Manitoba Harvest, the world’s largest hemp foods manufacturer. It bought the Winnipeg, Canada-based company from Compass Group Diversified Holdings (NYSE:CODI) and other shareholders of Manitoba Harvest, for CAD $419 million (USD $317 million) in cash and Tilray stock, plus up to an additional CAD $49 million (USD $37 million) in Tilray shares after Manitoba Harvest hits certain 2019 benchmark incentives. The Manitoba Harvest deal piggybacks on a December 2018 partnership entered into between Tilray and Anheuser-Busch InBev (NYSE:BUD), the world’s largest brewer, to research cannabis-infused beverages through a $100 million joint venture.

The Manitoba Harvest acquisition gives Tilray entry to the natural foods category, and (perhaps of more importance) a foothold into the now legal American hemp-derived CBD market. Manitoba Harvest produces, manufactures, markets, and distributes hemp-derived consumer products including granola bars, protein powders, hemp milk, hemp hearts (shelled hemp seeds), and hemp oils. The company likewise will be adding to its hemp product line in the coming months with hemp-derived CBD products. Tilray further benefits from Manitoba Harvest’s extensive and well-established distribution channels in North America — over 16,000 U.S. and Canadian major retailers (including Walmart, Costco, CVS, Amazon, and Whole Foods). Tilray plans to leverage that distribution channel, and expand it for the emerging Canadian and American hemp-derived CBD market.

The U.S. Food and Drug Administration (FDA) regulates the marketing of foods and dietary supplements and currently maintains that hemp-derived CBD cannot be marketed either as providing medicinal benefits or as dietary supplements without FDA approval. The FDA also announced that any health claims on hemp-derived CBD will be rigorously tested. Some restaurants in New York City began incorporating CBD-infused foods and beverages into their menus soon after passage of the 2018 Farm Bill, only to be fined and given warnings by health authorities. In Canada, CBD-infused foods and beverages remain off-limits until officially legalized later this year as part of Canada’s rollout of the Canadian Cannabis Act. Even with the passage of the 2018 Farm Bill, hemp-derived CBD will continue to be regulated, and can only be manufactured by licensed producers in the U.S.

As it is also illegal to transport CBD across the U.S.-Canada border, companies like Tilray are considering either opening or acquiring U.S. hemp farms and processing facilities in order to grow their American market shares. The 2018 Farm Bill permits different U.S. states to have their own regulations for hemp cultivation and processing if previously approved by the United States Department of Agriculture (USDA). Pennsylvania and Kentucky submitted plans to the USDA shortly after passage of the 2018 Farm Bill, and are banking on the growth of the industry.  Those regulations will most likely guide where companies like Tilray choose to operate in the U.S. A state that does not have its own regulations will be required to comply with USDA federal hemp regulations, which need yet to be drafted and adopted. The 2018 Farm Bill also explicitly permits interstate commerce for U.S. hemp by-products; as federal and state hemp regulations evolve, the production of CBD and other byproducts (such as paper, composites, building materials, insulation, and over 25,000 other identified uses) will grow exponentially, bringing with it more start-ups and M&A to the industry.

Thus, the outlook for hemp start-ups and M&A for the rest of 2019 is for continued expansion to surpass last year’s activity, as more businesses take advantage of the new benefits afforded by the 2018 Farm Bill, and as the FDA consequently communicates its stance with “regulatory pathways” both for hemp-derived CBD for human consumption and the lawful marketing of those products.