(Yicai Global) April 23 -- China's Renhe Pharmacy plans to start growing industrial hemp for medical use in northeastern China's Heilongjiang province, climbing on the red-hot cannabis bandwagon.

Renhe and the local municipal government penned a cooperation agreement under which the drugmaker will spend CNY1.1 billion (USD160.8 million) to build the project, the Jiangxi province-based firm said in a statement. The construction will start next month, and the company aims to set up a research institute in the area later. 

Besides southwestern Yunnan, Heilongjiang has excellent environmental conditions for growing hemp and last year the northeastern province also secured regulatory approval to legalize the production of industrial hemp. However, companies still need to apply for special permits to extract cannabidiol for medical use. 

Renhe will focus on the pharmaceutical value of cannabidiol, the active ingredient in cannabis, and hopes to improve its product offering by entering the industrial hemp industry, it added. 

Chinese firms, including Tonghua Golden-Horse Pharmaceutical Industry and Shunhuo New Materials Science & Technology, have stepped on the hemp train this year by announcing plans to grow the fashionable plant, causing their stocks to rally.

The local government will support Renhe by preferential policies, and make sure that the planting area will be no less than 13.3 square kilometers by 2020, according to the agreement. 

Renhe's stock price [SH: 00650] has fallen 0.11 percent to CNY8.8 (USD1.30) today. 

Editor: Emmi Laine