Hemp Legalization Included in New Farm Bill Could ‘Open the Floodgates’ on Nascent Industry12/10/2018
The final 2018 Farm Bill is expected to be voted on as early as next week. The bill would legalize hemp cultivation and could be a catalyst for explosive growth in a nascent industry that some forecast could top $20 billion by 2022.
The long-awaited bill would remove industrial hemp from the federal government’s list of controlled substances, making it a lawful agricultural commodity. The hemp legislation introduced by Senate Majority Leader Mitch McConnell, R-Ky., earlier this year also allows states to become the primary regulators of hemp cultivation, enables researchers to apply for federal grants and makes the crop eligible for crop insurance.
“This open the floodgates for this industry to grow very rapidly and scale on a national level,” said Bethany Gomez, director of research for Brightfield Group, a cannabis market researcher based in Chicago.
The lion’s share of the roughly $800 million U.S. hemp market today is for products that include the non-psychoactive compound CBD, cannabidiol. Products infused with CBD are used for a wide range of medical conditions, ranging from epilepsy and multiple sclerosis to arthritis and chronic pain. Laws involving CBD products differ in each state.
Up to now, industrial hemp production in the U.S. has been restricted to mostly research and pilot programs although imports from Canada, China and Europe have helped fill domestic demand for everything from hemp seeds to fibers. The legalization of hemp cultivation could boost investor interest across the sector.
“In the long run, it’s all going to be managed and controlled by the U.S. Department of Agriculture, just like corn, soybeans and everything else,” said Chris Boucher, CEO of Farmtiva, a California-based hemp cultivation company. “It will also become an agricultural commodity, which in turn will allow crop insurance and Wall Street will be able to invest institutional funds into the hemp industry.”
House Agriculture Committee ranking member Collin Peterson, D-Minn., told reporters Tuesday the farm bill could be passed as early as next week.
“With any luck it’ll be passed by the end of next week, but knowing how things go around here it may drag into the week after,” said Peterson, who is expected to become chairman of the House agriculture panel in the new Congress.
A day earlier, Peterson told Minnesota Public Radio he was considering becoming a hemp producer.
“I may grow some hemp on my farm,” he said. “I’m looking at it. There’s a big market for this stuff that we’ve been ceding to Canada and other places.”
Hemp is a cannabis cousin of marijuana but it contains low levels of THC, the chemical that produces a “high” for pot users. Industrial hemp is used to make everything from apparel, foods and pharmaceuticals to personal care products, car dashboards and building materials.
“The vast majority of the market right now is going for CBD products,” said Brightfield Group’s Gomez. “You can find some hemp seed-based beauty products or hemp in some cereals and things like that, and there’s such usage on the fibers for like clothes and other industrial purposes, but that’s really minimal right now.”
Brightfield Group estimates the domestic hemp market could reach $22 billion in the next four years. The estimate factors in the hemp amendment in the farm bill becoming law.
Hemp Industry Daily projects the hemp-derived CBD retail market will reach between $2.5 billion and $3.1 billion by 2022, which assumes growth in retail penetration but a scenario of no major change in current federal policies concerning hemp.
Tobacco states push hemp
“There are three words why we have hemp now, and those words are tobacco state Republicans,” said Kristin Nichols, editor at Denver-based Hemp Industry Daily, a publication owned by MJBizDaily. “There’s been strong support from lawmakers and politicians up and down in former tobacco states looking for a replacement crop.”
The hemp provisions in the 2018 Farm Bill were in the Senate version of the legislation sponsored by Senate Majority Leader McConnell. The Kentucky Republican put himself on the joint Senate-House conference committee formed to hammer out the details of the final farm bill.
“I know there are farming communities all over the country who are interested in this,” McConnell said in June when discussing the hemp legalization legislation before the Senate Agriculture Committee. “Mine are particularly interested in it, and the reason for that is — as all of you know — our No. 1 cash crop used to be something that’s really not good for you: tobacco. And that has declined significantly, as it should, given the public health concerns.
According to Nichols, cannabis generally grows well in areas where tobacco production once thrived, such as Kentucky and North Carolina. In the case of Kentucky, the state received over $2 billion in Tobacco Master Settlement Agreement funds and is using some of money to invest in growing its hemp industry.
Both chambers of Congress passed the farm bill in June but major differences between the bills caused a delay in finalizing an agreement. An agreement in principle on the bill was reached in late November.
Hemp legalization is just one element of the wide-ranging farm bill. The legislation also covers farm subsidies and food stamps as well as trade and rural development policy.
The House’s version of the farm bill didn’t originally include hemp legalization amendment. But the final version expected to be filed Monday and be voted on as early as Wednesday or Thursday in the House includes McConnell’s amendment.
The farm bill is usually renewed every five years and the last one expired Sept. 30. The previous farm bill, from 2014, relaxed hemp laws and allowed farmers in a handful of states, including Kentucky, to grow the crop as part of research projects.
“This will open up a lot of new markets for retailers who have been cautious,” said Lex Pelger, science director for Bluebird Botanicals, a Colorado-based company producing hemp derived CBD products. “What we’re doing is already legal under the 2014 Farm Bill, but the power of the 2018 Farm Bill is that it clearly clears hemp for general commerce.”
Easy to grow crop
Pelger said hemp is growing in Colorado despite the state not having a reputation as a farming hub. “It grows really well in a large range of climates and a large range of soils,” he said.
More than 77,000 acres of hemp were planted in research and development programs this year, according to VoteHemp, an advocacy group. That is up sharply from 2017 when there were nearly 26,000 acres of hemp crops planted.
At least 40 states have legalized industrial hemp farming or done pilot programs, usually research through a university or state agriculture agency. The hemp legislation also allows states to become the primary regulators of hemp cultivation, allows researchers to apply for federal grants and makes the crop eligible for crop insurance.
California is the nation’s largest agricultural state but so far has lagged when it comes to hemp production. Hemp can be more profitable to grow than tobacco or even some other key crops.
“You can make $20,000, $40,000 or $50,000 an acre on hemp, depending on percentage of your CBD,” said Farmtiva’s Boucher. He said fiber and hemp seed crops will produce less on per-acre basis but still be “maybe twice as much as corn.”
In October, Gov. Jerry Brown signed state legislation allowing industrial hemp cultivation in the state starting in 2019. Given the favorable climate in parts of California, farmers can get up to two crops per year of hemp plants.
“California is the big agricultural monster and if these farmers really get into hemp, they could take a good chunk of the supply chain,” said Farmtiva’s Boucher. “Unfortunately, we’re three or four years behind Colorado, Kentucky and Oregon and so we have some catching up to do.”
Source: Jeff Daniels, CNBC