The Agriculture Improvement Act of 2018 (Farm Bill)—signed into law in December that year—removed hemp (Cannabis sativa L.) and its derivatives, with no more than 0.3% THC on a dry weight basis, from the definition of marijuana in the Controlled Substances Act.

In 2018, there was much more demand for CBD than was actually licensed to produce. Pricing for CBD isolate was upward of about $40,000 per kilo, according to Beau Whitney, an economist, consultant, and supply chain expert who has authored several reports analyzing the hemp value chain. “The numbers were outrageous.”

Following passage of the Farm Bill, “there was a tremendous surge in the number of acres licensed,” by an order of 580% year over year, Whitney noted.

The “Green Rush” that anticipated soaring demand for products derived from industrial hemp, led to a scenario in which newly-licensed farming operations began planting seeds without buyers lined up yet. “Because there was this opportunity for economic gain and because there was a constraint in terms of supply relative to demand, there was an assumption that if you jumped in and planted your crop then there would be buyers for it.”

According to a 2019 survey of hemp farmers that Whitney fielded, 65% of respondents said they didn’t have a buyer. That’s why Whitney titled his hemp cultivation report in October 2019 “The Field of Dreams.” If you build it, they will come, right? So they hoped.

A Dream Deferred
Building a car while you’re driving it is, obviously, a risky endeavor, especially if things don’t go exactly as planned. It doesn’t help if the road ahead is currently under construction as well.

A lack of commercial farming experience among those rushing to meet potential demand, coupled with not-yet-established infrastructure for the value chain of cultivators, processors, product manufacturers, and retailers, was met with stalled regulatory action at the U.S. FDA. To date, the agency has held to the position that CBD cannot be used in foods or dietary supplements.

With large product manufacturers sitting on the sidelines waiting for a green light from regulators, farmers and processors couldn’t sell all their material. In fact, Whitney reported there were 135 million pounds of leftover biomass from the 2019 harvest, or 66,000 tons.

The situation did not improve in 2020. In fact, Whitney predicted it’ll get worse. He said he anticipates 215 million pounds of excess in the market when it’s all said and done. “That doesn’t bode well for processors or cultivators.”

Whitney’s December 2020 report titled “Déjà vu,” found that 65% of cultivators yet again didn’t have a home for their biomass. While mature markets reduced the number of acres dedicated to hemp and CBD production, farmers from newly licensed states “jumped in with both feet,” and unfortunately, didn’t learn from the issues and challenges of other farmers.

“Before even planting your seeds into the ground, you need to know where that biomass is going to end up,” he cautioned. “Not just at the processors; you also need to understand who the product manufacturers are and who the retailers are.”

Whitney conducted a separate survey of licensed processors in the U.S., finding 54% didn’t have an end customer either. Moreover, on average, they were only running their machines at about 42% capacity. “Those machines are expensive. Any time you’re not running at 90% or above that’s costing a lot of money.”

“At some point, this is unsustainable,” he added.

Like the product manufacturers waiting in the wings, investors have been hesitant too given the regulatory uncertainty. Meanwhile, some processors ran out of money. For example, Kentucky-based GenCanna filed for bankruptcy in February 2020 following legal issues with creditors.

Market Adjustments
Until the regulatory situation gets resolved, the market could get uglier, Whitney said. “Regulators right now are creating uncertainty in the market, and so there’s a hesitancy by investors to enter into this space and provide funding that’s desperately needed for the infrastructural development of the industry.”

“It’s going to be bloody for quite some time—probably a couple of years until a couple of things happen,” he predicted. “One, regulators need to understand they are more of an obstacle in the development of the industry and their policies are too restrictive.” Pro-growth policies and regulations that consider CBD as an agricultural product instead of a drug will help move the market in the right direction, he said.

There also needs to be a “shakeout and expansion” of product offerings in the manufacturing sector “to consume that bubble of excess supply,” he added.

Absent some form of “transformational technology,” or “killer app(lication)” that rapidly increases the demand for hemp products or hemp manufacturing, market stability could be a couple years away. 

In the meantime, regulation can help moderate the market for stakeholders. “State departments of agriculture get it, and they want to be solutions partners,” said Whitney. “USDA has been very supportive of the hemp industry. They are listening. Things get murky at FDA and the DEA (Drug Enforcement Administration). They are struggling to toggle between a legal viable agricultural crop and an illegal drug, and this line of demarcation of 0.3%. Instead of choosing one side or the other, they are trying to toggle back and forth, and as a result they’re just creating more problems and unintended consequences.”

From FDA’s perspective, “hemp is a square peg they’re trying to put in a round hole,” Whitney continued. “Hemp is a massive outlier for them and they just don’t know how to deal with it.” By taking more time to study CBD, the agency has negatively impacted the value chain, “creating uncertainty, inhibiting growth of the industry, and dissuading investors from entering the space.”

Pressure is building on FDA. With “100s of millions of pounds of products coming out of the field, there’s all this momentum. FDA doesn’t have the bandwidth to put the genie back in the bottle,” Whitney said. 

In Congress this year, Representatives Kurt Schrader (D-OR) and Morgan Griffith (R-VA) re-introduced bipartisan legislation that would provide legal clarity on the regulatory status of CBD products. Re-introduced as the “Hemp and Hemp-Derived CBD Consumer Protection and Market Stabilization Act of 2021,” the bill directs FDA to use its authority and resources to set a clear regulatory framework for hemp and hemp-derived CBD, which proponents say will serve to protect both consumers and companies by ensuring product safety and consistency of quality.

The bill would require FDA to set a clear pathway to allow hemp and hemp-derived CBD to be sold legally as dietary supplements, so long as manufacturers comply with new dietary ingredient requirements and other mandates for dietary supplements under current law. A legal pathway to market would put in place necessary safeguards to protect consumers, and provide certainty to hemp farmers regarding the legal status of their products, advocates have argued.

Meanwhile, U.S. Senator Rand Paul (R-KY) has also proposed raising the THC limit for hemp from 0.3% to 1% along with protections for intermediate processing.

Transformative Potential
Despite the supply/demand challenges and regulatory headaches, it’s become clear that demand for cannabis and CBD products among consumers has gone mainstream.

“While adult-use and medical cannabis is sexy, industrial cannabis is transformational,” said Whitney.

Cannabis can be a powerful tool for economic development around the world, he suggested. “A lot of people are saying that ‘hemp is a savior for all things. It’ll cure old age. It’ll cure all disease. You plant it and global warming goes away. It’s this panacea.’ And that’s just not the case. However, if you think about it, there are remediation qualities. It does take carbon out of the air at a greater rate than old growth forest. So there’s carbon and soil remediation. Applications can also displace other more harmful industries, like petroleum. It’s a sustainable product. In that sense, it’s transformational.”

Along with fiber, grain, health and wellness applications, construction material (hempcrete), and more, there’s also significant potential for hemp as animal feed for poultry and cattle, Whitney noted. In terms of grams-per-acre for protein relative to commodities like soy and corn, “there’s no question, hemp for animal feed is this massive opportunity just waiting for FDA approval.” And efforts are ongoing to lobby for that authorization.

Overall, Whitney predicted that as more states realize the economic potential of industrial cannabis, the more pressure they’ll put on regulatory bodies, and hopefully the Field of Dreams will attract the audience it deserves.