Hemp's Rocky Road To Market Domination

Many believe that the hemp market could prove to be bigger than the recreational marijuana market. While it’s true that there are thousands of products that can be made out of hemp, the road to success in this crop is full of potholes.

It’s difficult to determine just exactly how big the market for hemp could be in the U.S. The Hemp Industries Association (HIA) reported that in 2015, retail sales for hemp products reached $600 million. This is much lower than the $5.4 billion for marijuana sales in 2015 as reported by ArcView. HIA says that hemp sales on average grow by 15% each year and that most of that growth can be attributed to more people buying hemp-based body products and supplements.

A majority of the hemp for these sales was imported from China and Canada. Hemp imports for 2015 were nearly $78.2 million according to U.S. trade statistics. However, there is no trade data for products like hemp-based clothing or construction materials, paper products or even carpet made from hemp. Thus, it’s difficult to determine what exactly the hemp market is in the U.S. So, if the market can’t be accurately assessed, why do people think it could be bigger than marijuana? “Given the absence since the 1950’s of any commercial and unrestricted hemp production in the United States, it is not possible to predict the potential market and employment effects of relaxing current restrictions on U.S. hemp production,” stated a Congressional Research Service report penned by Renne Johnson a specialist in agricultural policy. The report provides policy analysis to U.S. legislators.

One argument for market domination is that the global market for hemp consists of 25,000 different products in nine submarkets: agriculture, textiles, recycling, automotive, furniture, food and beverages, paper construction materials and personal care. Hemp has even been considered as a potential biodiesel feedstock according to a report from the Virginia Department of Agriculture. Researchers at the USDA have documented the many different types of commercial uses of hemp, but all of these mainstream uses for this plant can’t overcome the stigma associated with marijuana.

Hemp and marijuana, both medicinal and recreational come from the same species of plant, Cannabis Sativa. In the 2014 Farm Bill passed by Congress, industrial hemp was defined as Cannabis Sativa, but with less than 0.3% of Delta-9 tetrahydrocannabinol, which is the dominant psychotropic chemical found in the marijuana that gets people high. The Farm bill said that it was okay to grow cannabis plants that had little ability to get people high. The DEA does not agree with this definition and consistently points out that both plants come from the same genus and are therefore the same plant and so subject to the Controlled Substances Act.

Congress has blocked the DEA from interfering with state agencies and hemp growers with regards to hemp.The USDA has been blocked from prohibiting the transportation, sales or use of industrial hemp. Despite these measures, hemp is still subject to drug laws and hemp growers have to get permission from the DEA. In addition to that, harvesting and processing is labor intensive, which can drive up costs. Since the U.S. has been out of the hemp game for some time, harvesting innovations haven’t occurred. A study by the University of Wisconsin-Madison concluded that hemp production “is not likely to generate sizeable profits” and also noted that international competition would affect the U.S.

None of these roadblocks seems to be slowing down the hemp supporters. Advocacy group Vote Hemp says that the number of acres of hemp has doubled in 2017 from 2016. The group also noted that hemp seed is among the fastest growing categories in the natural food industry.

Within the cannabis industry, big players, especially in Canada, are also betting that hemp will be a huge market. Future Farm Technologies (FFRMF) in Vancouver purchased a 120-acre farm that produces industrial hemp, while Global Hemp Group (GBHPF) of Vancouver acquired a 25% stake in a U.S. company called Space Cowboys saying, “Space Cowboys has extensive expertise in growing high cannabinoid (CBD & CBG) hemp for extraction.” Also out of Vancouver, Aurora Cannabis (ACBFF)  invested millions into Hempco Food and Fiber in order to get into the health supplement market. Hempco is one of the world’s largest producers of industrial hemp products.

Canada is the major supplier of U.S. hemp imports according to production data from the United Nations. Canada first began issuing licenses to grow hemp in 1994 and in just 23 years, the country is up to 90,000 acres. So there is hope for the U.S. Vote Hemp says that “To date, thirty-three states have defined industrial hemp as distinct and removed barriers to its production. These states are able to take immediate advantage of the industrial hemp research and pilot program provision, Section 7606 of the Farm Bill: Alabama, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Kentucky, Maine, Maryland, Michigan, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New York, North Carolina, North Dakota, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia and Wyoming.”

Brian Furnish was one of the first farmers licensed to grow hemp in 2014. He started with two greenhouses and this year he was approved to plant 12,000 acres. “My history is in tobacco, but I’m trying to diversify away from tobacco.” He is an eighth generation farmer and he believes hemp will help him keep the farm. Furnish noted there has been almost a $10 million investment in Kentucky over the last two years for hemp farming.

The Industrial Hemp Farming Act of 2017 was introduced by Kentucky Congressman James Comer in July of 2017 and currently has 34 co-sponsors. The bill would remove hemp from the controlled substances list. So far the bill has only been referred to two subcommittees and has not been scheduled for a vote.

Still, despite all of the negative and challenges facing the market, supporters have faith. The congressional research service concluded, “Given the existence of these small-scale, but profitable niche markets for a wide array of industrial and consumer products, the commercial hemp industry in the United States could provide opportunities as an economically viable alternative crop for some U.S. growers.”

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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