On Monday night US Congress passed a version of the 2018 Farm Bill that includes a major win for industrial hemp growers and CBD products companies.
The legislation defines hemp and a cannabis sativa plant that contains 0.3% or less of THC, the compound responsible for the “high” associated with cannabis, as a regular agricultural crop.
The legislation also allows hemp farmers to obtain federal crop insurance, providing a major safety net that has proven time and time again to be a major asset for commodity crop farmers.
The bill contains language that modifies the Controlled Substances Act to effectively legalize products containing cannabidiol, or CBD, which is derived from hemp but does not cause the psychotropic effects of cannabis’s THC. CBD is used by a range of products companies for supplements and in other formats to promote health and wellness.
The clarification regarding the legal status of industrial hemp and hemp-derived CBD products also means that investors will finally be able to invest in hemp production and hemp-based CBD products without worrying about the industry’s murky legal status. Hemp isn’t just used for CBD products; it’s also used to make everything from building materials to clothing.
“It is encouraging to see the US Congress finally end the 80-year prohibition on hemp production. It was illogical and nonsensical to prohibit the production of this non-psychoactive, durable, eco-friendly product just because it shares a common ancestry with cannabis,” Kris Krane, president of multi-state cannabis operator 4Front, wrote to AgFunderNews. “American farmers will now have an opportunity to compete in the growing hemp market, both for CBD production as well as fiber for textiles, and hemp seed for nutrition.”
According to USDA data, the number of acres of industrial hemp planted in the US has skyrocketed from less than 5,000 acres in 2015 to over 30,000 acres in 2018, which also suggests that the legislature may be keying into the increasing consumer demand and clear market viability for industrial hemp and CBD products. As of August 2018, 40 states permit the cultivation of hemp for commercial uses, research, or pilot programs.
As far as economics go, the passage of this bill could boost the CBD products market to $22 billion by 2022 according to a Brightfield Group report released in September. The CBD segment has already shown considerable growth while operating in legal limbo with limited marketing and distribution options.
Some reports suggest that one of the main drivers behind Congress’ decision to bring hemp into mainstream agricultural production is to provide tobacco growers with a viable alternative that allows them to maintain productive farming operations, particularly in Kentucky where tobacco has been the state’s primary agricultural commodity. The addition of the hemp and CBD provisions in the current version of the Farm Bill are largely attributed to Senate Majority Leader Mitch McConnell, a Republican from Kentucky.
“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.”
Hemp and tobacco prefer the same soil and weather conditions for optimal growth, making it a promising transition for Kentucky’s tobacco farmers. Farmers in the state, which some refer to as the Hemp Capital of the World, have even indicated that hemp is outperforming traditional tobacco crops.
Others have wagered that the legislation stems from a desire to increase domestic production while tamping down on imports of CBD oil from China, Canada, and Europe. Imported oils have led to some discrepancies and labeling issues that caught the FDA’s attention. In 2017, the federal agency issued a warning letter in 2017 to several CBD companies indicating that the makers’ products did not contain the stated level of CBD or that the companies were making health claims about CBD that were not backed by scientific research.
Will CBD Overtake the Legal Cannabis Market?
A legal greenlight for CBD products, which are already exploding in popularity across a variety of segments including health and wellness, has some folks asking whether the legal cannabis market will take a hit.
“The newly legal CBD market should have little impact on the legal cannabis market because they will largely exist separate from one another,” said Krane. “CBD products can be sold in normal retail outlets, while state legal cannabis is confined to regulatory regimes set up in each state and distributed through state-licensed dispensaries. Because CBD products sold outside of the dispensary system will not be allowed to contain small amounts of THC and other cannabinoids that make up the entourage effect, many patients will continue to prefer high CBD products available in dispensaries over those available elsewhere.”
Industry Comment on Hemp’s New Legal Status
“This is a watershed moment for CBD in the United States. With hemp and all of its derivatives officially removed from the controlled substances act, CBD moves from a legal gray area into the light. That legal gray area has kept the industry small and fragmented – this shift will allow for CBD to make its way to the shelves of larger scale, mainstream distribution channels and pave the way for the large mainstream consumer packaged goods companies in industries like drinks, beauty, pet, skin care and tobacco to develop CBD products and capitalize on this emerging industry. Even while operating in a legal gray area with minimal marketing budgets, limited distribution channels, and only small brands, CBD has catapulted to the national stage this year, growing by more than 80% to reach $590 million. Now that the Farm Bill has gone through, we expect the US market for CBD to hit $22 billion by 2022.” — Bethany Gomez, Director of Research, Brightfield Group
“While how long it has taken is disappointing, it is exciting to see hemp back in the fold as a main cash crop opportunity for American farmers. Hemp is an environmentally friendly, sustainable resource that is incredibly versatile. In addition to this being a win for farmers, it is a boon for Americans as a whole to receive expanded access to hemp products” — Jeffrey M. Zucker, Co-Founder, President, Green Lion Partners.
“With the passage of the farm bill, farmers will now have the option of growing hemp without fear of running afoul of the federal government. By treating hemp as just another commodity, it gives farmers an opportunity to be part of a growing economy as new markets develop for hemp to be used as paper, cloth, building materials, plastic, and bio-fuel. This could be a real shot in the arm for struggling farm families.” — Barry Grissom, SVP – Global Development & General Counsel, Electrum Partners, LLC.