‘A FINANCIAL CASCADE’
How the U.S. Farm Bill could potentially unleash the multibillion-dollar hemp industry
In mid-2018, U.S. Senate majority leader Mitch McConnell proposed legislation that would remove hemp (the less-exciting, non-psychoactive cousin of the cannabis plant) from the Controlled Substances Act, effectively making it federally legal in the United States.
For those following the rapidly growing cannabis industries on both sides of the border, the ramifications could be massive.
While hemp has industrial uses, it is also a source of cannabidiol (known more commonly by its acronym CBD) a non-psychoactive component it shares with cannabis that is touted by many as having therapeutic properties.
Legal hemp would mean a legal and more cost-effective source of CBD, and one that could be transported without restriction and sold on a national level, something that could unleash a multi-billion dollar CBD industry almost overnight.
While McConnell’s proposal, which is included in the 2018 Farm Bill, could pass at any point, companies are already jockeying to take advantage.
The sheer scale of CBD’s potential was more than evident at a recent marijuana conference in Las Vegas where hundreds of booths sold products such as CBD capsules geared specifically for combating anxiety, CBD -derived antiaging treatment dispensed using a syringe, and CBD -derived coconut water.
“CBD is for everyone and anyone,” said David Rendimonti, CEO of LiveWell Canada, a cannabis and hemp company that sells wellness products.
“The reason why CBD is an extremely fast-growing industry, especially in the U.S., is because people are into self-directed care. And these same people don’t want the high that THC provides that you’ll get from cannabis.”
Unlike THC, the psychoactive compound found in cannabis, CBD does not get you “stoned,” though some say it can induce a “bodyhigh” or feeling of calm that can reduce anxiety.
Hemp, and by default hemp-derived CBD, have straddled a legal grey area for years now. Industrial hemp, used for commercial items such as textiles, rope, and biodegradable plastics, is grown legally in 19 states, primarily Colorado, Oregon and Kentucky.
But in a state like California, industrial hemp can only be cultivated by registered growers and certain specific agricultural research institutions.
Data from cannabis research company New Frontier Data suggests that CBD is already by far the prime driver of hemp cultivation: their recent study shows 70 per cent of all hemp cultivation in 2017 was for CBD, versus 20 per cent for hemp seeds, and only 10 per cent for hemp fibre or industrial hemp.
McConnell has specifically proposed removing any mention of hemp from the Controlled Substances Act.
That’s the key thing to understand, said Sean Murphy, editor and publisher of the Denver-based Hemp Business Journal. “Now if that happens, the DEA and other government agencies will start leaving the hemp industry alone, and then big financial interests will feel like it’s safe to get involved. I think of it as a financial cascade.”
Murphy, who is also the director of hemp analytics at New Frontier Data, said a recent report he authored for the firm showed the CBD industry grew by nearly 40 per cent in 2017, with $367 million in sales of marijuana- and hempderived CBD.
If McConnell, whose base in Kentucky includes tobacco farmers itching to make the switch to hemp, successfully pushes the Farm Bill through the House and the Senate, Murphy predicts that CBD sales could surge to $845 million by 2019, and more than $2 billion by 2022.
Rendimonti believes that the passing of the U.S. Farm Bill will be a game-changer for the CBD industry mainly because there simply isn’t enough CBD from cannabis that can be isolated in its pure form without THC to meet market demand.
“You grow hemp in fields on thousands of acres so the ability to produce large quantities of CBD, efficiently, cheaply, is there,” Rendimonti said. “We’re as happy as clams with what’s going on right now.”
While hemp-derived CBD sales exceeded those of marijuana-derived CBD for the first time in 2017 — US$190 million to US$177 million in the United States — John Kagia, chief knowledge officer at New Frontier Data, thinks that gap will only widen.
“CBD from hemp will have a natural advantage,” Kagia said. “The objective of the Farm Bill is to treat hemp as any other kind of agricultural commodity, so you’re going to be dealing with far fewer regulatory oversights and prohibitions.”
What then does that mean for cannabis companies touting an array of CBD products?
Murphy believes that once hemp becomes fully legal in the United States, large cannabis companies are going to swoop in and start acquiring smaller hemp companies that focus on CBD products.
“The big Canadian example is Canopy Growth Corp. acquiring Ebbu largely for the intellectual property it holds on hemp,” he pointed out.
More recently, MariMed, a Massachusetts-based cannabis company operating in multiple U.S. states poured $30 million into GenCanna a hemp-derived CBD business based in Kentucky, one of the three largest hemp-growing states.
The situation is slightly different in Canada, where anyone selling hemp-derived CBD goes through the same licensing process from Health Canada as cannabis producers, which effectively means that large licensed producers such as Canopy will be able to offer a diversified portfolio of products through a singular licensing process.
But that has not prevented Canadian cannabis companies from trying to snag a piece of the looming CBD pie south of the border. Canopy Rivers, the investment arm of Canopy Growth, has pumped a large sum of money into LiveWell, Rendimonti’s firm. British Columbia-based Ascent Industries also recently inked a deal to acquire high-CBD hemp from AgTech Scientific, a hemp cultivator located in Kentucky.
To remain competitive, Kagia believes cannabis growers are simultaneously going to have to start prioritizing the research and development of other cannabinoids found in the cannabis plant.
“We will likely see, because of the cost shift, the greatest demand for hemp-derived CBD specifically going forward.”
The Farm Bill’s fate could be known as soon as this month. McConnell and his fellow Republicans announced an “agreement in principle” with the Democrats late November, paving the way for passage by the end of the year.
In a recent news conference, the top Democrat on the House Agriculture Committee, U.S. Rep. Collin Peterson, said he was optimistic the bill would be passed by mid-December. If the bill gets filed next Monday, Peterson expects the House will take it up on Wednesday or Thursday, and the Senate the following day.
Republicans too, are incentivized to push the various pieces of legislation through before a Democrat-led House comes into power.
But if finalizations around the bill’s language fail, and negotiations go into 2019, hemp lobbyists may have to convince a slew of new representatives of the benefits of taking hemp out of the Controlled Substances Act.
“This is largely a bipartisan issue. That’s the easy part. The hard part is that there are all these other partisan issues in the bill like food stamp provisions that the Democrats want included, and the GOP is pushing back on,” Murphy said. “It’s unfortunate that hemp has been tagged on to all of that.”
“I think about the future of CBD like I think about what Coke used to be,” Rendimonti said. “Coke started out in one place in the U.S., and now it’s in every country except North Korea and Cuba. That’s where we’re headed in this industry.”