Hemp CBD: A Current Look at the Industry
In late 2019, the United States Department of Agriculture (USDA) established the U.S. Domestic Hemp Production Program. States and Native American tribes must now submit plans to the USDA for approval to regulate hemp production in their areas. Additionally, the program provides a federal plan for producers in states or territories without policies.
The earlier passage of the 2018 Farm Bill set the stage for producers of hemp-derived cannabidiol (CBD) when it designated crops with a THC content no greater than 0.3% exempt from the Controlled Substances Act of 1970. The act had not previously distinguished Cannabis sativa L. (hemp) from its psychoactive cannabis cousin.
The popularity of CBD products has financial soothsayers predicting sales up to $20 billion by 2024. Hope for hemp is heady as this historically versatile plant enjoys a renaissance. Before the plant’s cultivation was outlawed, it was as American as apple pie. Colonists were required to grow it, and hemp rigging hoisted hemp sails on Navy ships.
While food, textiles, building materials, and some of the world’s strongest rope come from hemp, producing it for the CBD market presents unique challenges. We have some tips to help you navigate the emerging hemp CBD market.
Infusion of Confusion: State & Federal CBD Laws
When it comes to the legalization of medical and adult-use cannabis it’s been up to state and local governments to say yea or nay while the federal stance is still a hard no. The Farm Bill of 2018 created a role reversal with hemp CBD. Though federally legal, some state laws still prohibit or limit sales of hemp CBD infused drinks or supplements.
In Idaho, CBD must contain zero THC and be made from plant parts that exclude the flower. Kansas currently takes the same stance. South Dakota has long been hemp-averse. However, in March 2020, the governor of South Dakota finally signed into law a bill that legalized industrial hemp and CBD oil made from it.
Other states lagged in their approval and understanding of hemp-derived CBD. Delays have resulted in product seizures and arrests of retailers and transporters.
The FDA Puts the Brakes On
If there weren’t enough confusion stemming from the states versus the Farm Bill, the federal government has created an apparent tug-of-war with itself.
The federal bill says yes to hemp CBD products with less than 0.3% THC. However, the Food and Drug Administration (FDA) currently says no to foods, beverages, and supplements that contain THC.
The passage of the 2018 bill shifted THC-compliant CBD from the purview of the Drug Enforcement Administration (DEA) to the FDA, where products containing THC have hit a regulatory purgatory. Hold-ups such as this may serve to hamper the market appeal for some investors who are waiting to see how product legislation evolves.
There is no shortage of CBD products on shelves and online. However, as of March 5, 2020, the FDA has approved just one: the epilepsy drug, Epidiolex. Further, the FDA has warned companies for violations that include marketing CBD products for therapeutic uses and for adding it to human and animal foods. Topicals within guidelines get a pass.
In March 2020, the FDA reopened their public docket regarding CBD encouraging “stakeholders to submit comments, data, and information relating to CBD to the public docket” — and providing a link to submit text and documents.
Hemp Market Gyrations
Meanwhile, back at the hemp farm, prices have taken a plunge. In July 2019, hemp biomass prices were over $40 a pound — a new high. However, prices began to steadily decline through the end of the year. Declining prices have played out against a backdrop of quadrupling supply.
Due to oversupply combined with regulatory uncertainties and a host of brokers that focus on price over quality and consistency, hemp CBD is experiencing growing pains. Some are literal. Hemp farmers must contend with soil and weather issues that all farmers navigate, but they face some additional challenges.
Avoiding a Hot Crop
The USDA anticipates that up to 20% of hemp grown in 2020 will test hot. A “hot” crop is one that exceeds the 0.3% THC limit. Lucky for growers, they won’t be considered in violation unless their harvests test higher than 0.5%. Most growers are aiming for 10% CBD. Unfortunately, some proven low THC cultivars test at just 2-5% for cannabidiol.
According to Bob Pearce, Ph.D., a professor of agronomy at the University of Kentucky, “Cultivars that produce predominantly CBD also produce small amounts of THC, typically in a pretty consistent ratio for that cultivar. So, as CBD increases, so does THC.”
However, seeds aren’t the whole story when it comes to maximizing CBD while minimizing THC. Climate, soil biology, genetics, and harvest time are all factors. For example, seeds developed for West Coast climate and soil may yield different results if grown in Kentucky.
“Then,” Pearce adds, “you throw in environmental stress and management on top of a marginally compliant cultivar, and you start to see problems with hot hemp.”
As research continues and seed-certification programs become better established, hot crops will likely become a thing of the past. In the meantime, the need to vet seeds and sources with utmost care is critical.
The Bright Side of Hemp CBD
Unbridled consumer enthusiasm and research identifying health benefits derived from CBD and its constituents continue to grow. CBD products produced from hemp are less expensive and more widely legal than those grown from other cannabis.
Interstate commerce and the transport of hemp and hemp products are legally sanctioned so that money can flow through banks and credit card companies to service the industry. Further, investment and capital infusion are allowed in the hemp oil and fiber business.
Importantly, crop insurance is available to hemp farmers through the 2018 Farm Bill, and hemp futures trading is on the table.
Planting Confidence in the Future
Hemp CBD is a new but viable industry that will eventually reach equilibrium. Established farmers, would-be growers, processors, brokers, and investors will have to sift through challenges and uncertainties. For those who remain committed and engaged, it’s possible to experience a future with robust returns.
At Higher Yields Consulting, we can help you access the most reliable vetted sources for seeds while helping match buyers, sellers, and processors of hemp biomass and derivatives.
We have consultants to help you create a viable business plan in an industry that’s still in the process of planting its feet. Reach out to us to schedule a free consultation.