Recently, Asia Pacific Pharmaceuticals issued the "Announcement on the Progress of Liquidation and Cancellation of Joint Ventures". A Biotech company that it established with an investment of approximately RMB 35.84 million in 2019 has completed the deregistration procedures.

Asia Pacific Pharmaceuticals is mainly engaged in pharmaceutical manufacturing and CRO service businesses, covering chemical pharmaceutical preparations, chemical APIs, and pharmaceutical research and development. Its main products include roxithromycin capsules, cephalexin capsules, azithromycin dispersible tablets, and azithromycin for injection.

The Biotech business area that was deregistered and liquidated this time was the new track that Asia Pacific Pharmaceuticals first contacted at the time - industrial hemp.

It is reported that according to the different mass concentrations of tetrahydrocannabinol (THC) contained in hemp, hemp can be divided into industrial hemp, intermediate hemp, and recreational hemp. Industrial hemp refers to hemp with a THC content of less than 0.3%, which does not show psychoactive properties and has a high fiber content. It can be used in textiles, papermaking, medicine, daily chemicals, bioenergy, functional health foods and other fields.

For pharmaceutical companies, cannabidiol (CBD) isolated from cannabis has great potential in the development of therapeutic drugs for epilepsy, Alzheimer's disease, depression, Parkinson's disease, etc.

At that time, the only provinces in China that allowed the cultivation of industrial hemp were Yunnan and Heilongjiang, while cannabis had been fully legalized in Canada and other places. Asia Pacific Pharmaceuticals chose to cooperate with overseas companies.

In May 2019, Asia Pacific Pharmaceuticals and Canadian companies Benchmark Botanics Inc. (hereinafter referred to as BBT) and Rippington Investment Inc. (hereinafter referred to as RI) jointly invested 14 million Canadian dollars (equivalent to about 71.68 million yuan) to establish YATAI & BBT Biotech Ltd (hereinafter referred to as the joint venture).

The registered capital of the joint venture is 14 million Canadian dollars, with Asia Pacific Pharmaceuticals and RI contributing 7 million Canadian dollars (equivalent to about 35.84 million yuan) and 3.5 million Canadian dollars in cash respectively; BBT used the cannabis cultivation, extraction and sales license issued by the Canadian Ministry of Health owned by its wholly-owned subsidiary to apply for a license for the company's cultivation site as a consideration to contribute 3.5 million Canadian dollars.

Asia Pacific Pharmaceuticals hopes to enter the industrial hemp field through the joint venture, make strategic layout as soon as possible, focus on developing the European and American industrial hemp CBD market, seize the opportunity of industrial hemp development and application in the medical field, and improve the core competitiveness of future development.

But things did not go as planned. In the initial investment announcement, Asia Pacific Pharmaceuticals clearly mentioned that if the newly established joint venture company could not obtain relevant licenses, there would be certain uncertainties in subsequent operations. This is the core reason for the cancellation and liquidation of the joint venture company this time-the project has been stagnant for a long time without obtaining the cannabis cultivation, extraction and sales license from the local government.

At present, the remaining property distribution funds of 14.111 million yuan allocated to Asia Pacific Pharmaceuticals after the cancellation and liquidation of the joint venture company have been recorded.

Before investing in the establishment of a new company in May 2019, Asia Pacific Pharmaceuticals maintained a double-digit growth in revenue - in 2018, it achieved operating income of 1.31 billion yuan, an increase of 20.94% over the same period of the previous year; in the first quarter of 2019, it achieved revenue of 366 million yuan, an increase of 14.71% year-on-year.

However, its net profit attributable to the parent company faced stagnation or even decline during the same period - in 2018, the net profit attributable to the parent company was 208 million yuan, an increase of 2.79% year-on-year; in the first quarter of 2019, the net profit attributable to the parent company was about 57 million yuan, a year-on-year decrease of 13.21%.

In order to seek new growth points, Asia Pacific Pharmaceuticals turned its attention to the industrial hemp track that it had never been involved in.

Affected by factors such as the legalization of industrial hemp overseas, industrial hemp became a hot sector in the A-share market in early 2019. Before Asia Pacific Pharmaceuticals entered the market, the number of listed companies in the industrial hemp concept sector of Tonghuashun increased 4.5 times in two months, from 11 to 50.

Looking around the world, some pharmaceutical companies have achieved performance growth through industrial hemp and CBD-related businesses. For example, Israel's Innocan Pharma achieved revenue of $6.8 million in the first quarter of this year, a year-on-year increase of 334%, mainly driven by the rapid development of its subsidiaries in the CBD field.

However, in China, due to strict CBD policies and unclear market demand, many companies have reduced or stopped industrial hemp-related businesses.

In March 2019, Shouxiangu announced that it would invest 12 million yuan and hold 60% of the shares to jointly carry out industrial hemp planting and downstream product research and development and market sales with Shunhao Co., Ltd.; in April 2020, Shouxiangu announced that its subsidiary had not obtained an industrial hemp planting license and decided to cancel the subsidiary and no longer deploy industrial hemp projects.

In April 2019, Erkang Pharmaceutical signed a cooperation intention with Suma Biology and others to establish an industrial hemp medicinal research center; in June 2020, the cooperation intention was announced to be terminated.

In April 2019, Huaren Pharmaceutical announced that it would jointly invest with Suma Biotechnology and others to establish a joint venture company to cooperate in building an industrial hemp green factory in Yunnan and create China's first industrial hemp greenhouse planting base; in July 2020, Huaren Pharmaceutical announced that it decided to terminate the industrial hemp project due to the impact of domestic and foreign economic situations and changes in the market environment.

In April 2019, Zixin Pharmaceutical established a wholly-owned subsidiary to increase its industrial hemp business; it took about a year to successfully introduce industrial hemp seeds from the Netherlands and planned to breed them in Heilongjiang; but until its last annual report before delisting in 2023, Zixin Pharmaceutical still stated that "there is still uncertainty as to whether the relevant technology of the Dutch subsidiary can be introduced into China."

In May 2019, Hanyu Pharmaceutical signed a "Strategic Cooperation Agreement" with Dali Economic and Technological Development Zone, planning to build an industrial hemp planting and deep processing base in Dali and layout the entire industrial hemp industry chain; 3 years later, its subsidiary obtained an industrial hemp processing license.

There are also some companies that are still continuing to develop related businesses, such as Rhine Bio and Shunhao Co., Ltd., which are also mainly targeting overseas markets.

In 2019, many pharmaceutical companies "took advantage" of the popularity of industrial hemp and achieved a short-term increase in stock prices, but after the heat of the capital market dissipated, most projects cooled down and stock prices gradually fell. Whether it is pharmaceutical companies or investors, they may need to be more cautious when facing the hot track.

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