Legal Hemp, Notably CBD, Generates Astonishing Revenues. So Why Is The Industry Struggling So Hard?

Legal Hemp, Notably CBD, Generates Astonishing Revenues. So Why Is The Industry Struggling So Hard?

Original Source: Legal Hemp, Notably CBD, Generates Astonishing Revenues. So Why Is The Industry Struggling So Hard?

Hemp, legalized a mere two years ago, is already one of America’s top ten agricultural crops. Its best-known product, CBD, is a $2 billion industry: Its medical applications are booming; food products also promise to be huge. And the potential for industrial hemp, meanwhile, remains wide open. So why is hemp struggling so hard?

A new report from Whitney Economics details the setbacks this past year that have seemed so incompatible with hemp’s seeming success:

·     A collapse in wholesale hemp biomass pricing: Hemp is now fetching $2.50 or less per pound, versus $40 to $45 in 2018 when hemp became legal. A major cause for the collapse has been the 135 million pounds of over-supply in biomass left over from 2019.

·     Inexperienced farmers having problems scaling up

·     Confusion about hemp regulation

·     Holes in the industry’s infrastructure

·     A lack of buyers and cash at multiple industry levels: notably, 63 percent of farmers surveyed this year said they couldn’t find buyers.

“Confusion” here is key, says Beau Whitney, the report’s writer and cofounder and chief economist of the Portland, Ore.-based cannabis consulting company bearing his name. As Whitney said in an interview this week: “There’s this general confusion between hemp and marijuana; people tend to think they’re the same thing.

“That general confusion is also entering into the policy level on the federal side,” Whitney continued, “and [regulators] are trying to draw this line of demarcation about what hemp actually is without necessarily understanding the agricultural potential of the crop.”

In fact, hemp was legalized by the 2018 Farm Bill, following four years of state pilot programs that permitted cultivation. Today, legal hemp can have no more than 0.3 percent THC, the psychoactive ingredient in cannabis, particularly marijuana. Given that threshold, legal hemp has wide support, even from no less a conservative than Senator Mitch McConnell, R-Ken. (whose home state is a big hemp grower).

Still, the plethora of different regulations by state, combined with the federal limitations, has caused a “regulatory quagmire slowing down growth and suppressing investment.” And this issue has been critical to building out infrastructure, adds the Whitney report, titled “Déjà vu: An Economic Analysis of the U.S. Hemp Cultivation Industry.”

According to its survey of 8,000 hemp operators in 27 states (47 states are legal for hemp), some 243,232 acres of CBD were planted in 2000, yielding average per-acre revenue of $8,000, or $1.9 billion for the U.S. crop overall.

For grain, the numbers were 18,561 acres, $638 per acre and $25 million overall. For fiber, the numbers were 14,831 acres planted, $300 revenue per acre and $4.5 million overall.

That may sound good but, alarmingly, too many farmers jumped in without sufficient forethought, Whitney said. The total number of licenses for 2019 was 16,939, according to his company’s 2019 survey; in 2020, the number has risen to 22,473.

This excess of operators struggling to survive in a nascent industry has produced negative results: In 2020, 48 percent of farmers surveyed have reported left-over inventory. In 2019 the average excess biomass figure was 24,795 pounds, adding up to 135 million pounds nationwide (“biomass” for CBD, refers to flower and leaves).

“Hemp farmers developed a false sense of security, given the high pre-[Farm Bill] wholesale prices,” the report says. According to Whitney, the 2018 price was $40 per pound of biomass pound. But then that figure dropped precipitously, to $25 by early 2019, and to $10 to $15 by that year’s harvest. In 2020 the price has been $2.50 or less.

A big reason for this collapse in prices has been that the supply chain is still being set up. Buyers have also been too few in number: 63 percent of hemp farmers surveyed this year said they did not have a buyer, and that figure was only a slight improvement over the buyer-less 65 percent of hemp farmers in 2019.

Processing infrastructure has been another issue: In 2019 there were 5.33 licensed growers (according to that year’s Whitney survey) for every processing license; in 2020 that ratio dropped to 3.54 growers per processor.

Clearly, processors, the intermediary step between farmers and product manufacture, cannot keep up. In 2019, a cultivator harvesting an average 2,000 pounds per acre needed a processor able to take on 900 pounds a day. Processors, however, had just one tenth of this capacity.

For now, Whitney says, hemp is a “sleeping giant” with unrealized potential. But first a number of challenges need to be addressed:

·     Many farmers have trouble limiting their crops to that USDA 0.3 percent THC threshold. Inadvertently producing what’s called a “hot” crop has been an issue for 25 percent of the crop overall, and therefore a significant financial risk factor for farmers.

·     The DEA’s Interim Final Rules have applied that 0.3 percent threshold to every part of processing, which “sent shock waves” through the industry, particularly among processors themselves, the report says. A sample problem: Oils and extracts commonly test above the threshold at some point in the process. What’s needed is a nonpunitive, normalized remediation policy, Whitney advises.

·      The FDA’s still-unfished regulations for foods and beverages have prompted a nerve-racking wait-and-see game for an industry – hemp – from which fully 25,000 products are derived. Clarification of the FDA’s position on CBD is especially needed to shore up the industry’s uncertain future, the Whitney report says.

·     Banks and other ancillary services like insurance were approved for hemp in the 2018 Farm Bill, but many banks, like regulators, are still having problems differentiating hemp for industrial products from cannabis for medical uses and from marijuana for adult use.

“Hemp is poised to become a transformational crop that can rival corn, soy, wheat and cotton,” the report declares. But solving those regulatory and agricultural sector problems has to come first.

After that, the sky’s the limit, according to an industry cheerleader like Beau Whitney. “It’s just getting started,” he said.. “I think that’s the key message: It’s just getting started.”

This article was republished on CBDNewsFeed.com from the original article, Legal Hemp, Notably CBD, Generates Astonishing Revenues. So Why Is The Industry Struggling So Hard?, which was originally published on 2020-12-24 14:30:00 (based on the date that was listed on the original article at the time it was republished). We shared this article on CBDNewsFeed.com because our editorial staff believed that its context was useful and helpful to our readers. If you have any questions regarding this article, please email us at .

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