Hemp producers and product manufacturers face a tough year ahead as they contemplate whether to keep their businesses going on high hopes.
Industry advocates and politicians have wasted no time fighting a hemp-THC ban that slipped into federal appropriations legislation that ended the government shutdown on Nov. 12.
Rep. Nancy Mace, R-S.C., has was first to file a bill that would repeal the ban language. Then Wednesday, Dec. 10, Oregon Senators Ron Wyden and Jeff Merkley introduced the Cannabinoid Safety and Regulation Act to regulate hemp-derived cannabinoid (HDC) products, including a minimum age limit at 21 years old, as well as testing, serving size, labeling and manufacturing requirements.
“We learned from the failed war on drugs that a one-size-fits all approach banning hemp products from the market outright does nothing to protect kids and consumers, and will be a gut-punch to thousands of jobs and small businesses across the country,” Merkley said in a press release. “My legislation takes the thoughtful and measured approach necessary to implement strong consumer protection regulations while fostering growth and innovation in this growing industry.”
Meanwhile, hemp businesses have one year to continue sales, which spiked immediately following the news. While some cultivators may continue to plant as they anticipate an extension or changes in the law, new financing could be harder to come by.
Panicked consumers initially stock up
Immediately following the signing of the legislation, some retailers and manufacturers saw a jump in sales as panicked consumers bought up their favorite brands.
Chris Karazin, CEO of Carolindica in North Carolina, said on Nov. 13 his website saw three times the amount of traffic as some people bought an entire stock of a product. A few weeks later, he said the spike in sales hasn’t dropped off, although Black Friday promotions have made the data less clear.
“In fairness, I don’t expect that trend to continue as the weeks go on,” Karazin said.
Adam Terry, CEO of New Jersey-based beverage maker Cantrip, said in a Dec. 9 email, “We did do a whopping 50% month over month [increase] in November and my team seems to think that was actually a direct impact of the ban.”
Terry said sales spiked when the company contacted customers and told them about the ban language in the reopening bill, and sales stayed high for the rest of the month.
Hemp cultivation may drop
The most shocking part of the legal language is the limit of 0.4 milligrams of THC per container of a consumable product, which would effectively ban full spectrum non-intoxicating CBD products as well. Typically, HDC products contain five to 50 mg of THC per serving.
“If intermediates can never rise above the 0.4mg/container and 0.3% [total] THC limit, you cannot even create CBD isolate without breaking the law at some point,” said Terry.
He explained a topical product with 500 mg of CBD would still contain 20 mg of THC with a ratio of 25:1. For a 10 mg CBD gummy, “which is frankly very low for a CBD dose,” he said, the ratio would need to be 20:1, “and then you could only put one gummy in a jar.
Terry said the inability to create minor cannabinoids will also impact licensed cannabis dispensary businesses, as dispensaries in most states source CBD, THCV, CBG and CBN from hemp since it is far more cost-effective than low-THC marijuana flower. There also appears to be a prohibition on seeds that will impact how the marijuana industry legally obtains new genetics for their grows, he said.
“In short, it’s such a mess that they have to reopen this matter before the deadline or millions more people will be affected than they thought,” Terry said.
“In fact, our farmers are under fire right now,” said the Hemp Roundtable in a Nov. 24 email. “A member of the Roundtable’s Farmers Advisory Committee shared that he could be left with over $1 million of unsold biomass from this year’s harvest due to broken contracts. And next year’s crops are in serious jeopardy — farmers need to make decisions in the next few months whether they can lay seed in the ground.”
Terry believes “unequivocally” that hemp production will decline in the next year.
“I expect most distributors to abandon ship in less than 180 days so they’re not at risk of carrying Schedule 1 narcotics in inventory, and retailers soon thereafter – unless something changes in Congress,” he said. “Farmers right now cannot plan to plant hemp in the spring and so unless we can convince Congress to create an extension of this timeline while proper legislation is debated and worked on, hemp supply will dwindle by spring and there may not be much left to manufacture with.”
However, Karazin said most of the producers he spoke with told him they’ll continue to grow hemp until the deadline rolls around.
“Some may pivot to growing other crops, but doing that is much easier said than done,” he said in an email. “Generally speaking, all levels of the hemp industry have the same views we do of continuing to operate as we have until we are forced to stop.”
Minnesota pressing on
Many in the hemp industry hold up Minnesota as the model of how HDCs can be regulated effectively. It allows 5 milligrams THC per serving/50 milligrams a package for edibles. Beverages can have up to 10 milligrams per container. The hemp-derived THC market now brings in $200 million in annual sales, generating more than $11 million in state tax revenue, The Minnesota Star Tribune reported.
The state is just starting to launch its low-potency hemp edible licensing program (LPHE) as it simultaneously builds its licensed marijuana market.
As of Dec. 4, the Minnesota Office of Cannabis Management has issued 33 LPHE retailer licenses from just over 2,000 businesses that have applied. The rest remain under review. Beginning the first week of December, OCM sent out invoices for the $250 licensing fee.
The state has received 119 applications for LPHE manufacturer licenses and 94 for wholesaler licenses. None have been issued yet. OCM said they will not be sent invoices before the end of the year.
“The recently passed federal ban on hemp products and the resulting bipartisan discussions about that legislation has shown that Minnesota’s nation-leading approach to regulating cannabis and hemp-derived products—a robust business licensing process, required product testing, clear guidelines for uniform packaging and labeling, and mandatory age verification—is the best way to ensure that the products that Minnesotans enjoy remain available and safe,” said OCM Public Information Officer Jim Walker in an email.
He said the state is working with Minnesota’s Attorney General’s Office, congressional delegation, state legislature and local hemp and cannabis industry leaders to “determine possible solutions” to maintain safe regulation and preserve the thriving HDC industry.
Terry of Cantrip said Minnesota Rep. Tom Emmer, the House majority leader, also “understands that this will shut down a burgeoning, regulated hemp market in MN.”
Hemp financing may get more difficult
Adam Stettner, chief executive of Fund Canna, said he’ll be watching how this plays out very closely. Fund Canna has funded more than 4,000 loan transactions for the state-legal marijuana and hemp industries, Stettner said. At any given time, hemp deals comprise between seven and 15% of its portfolio.
He said he’ll be reticent to start new lending facilities until there’s more clarity.
Businesses with current lines of credit will probably be fine until the ban takes effect. Loan agreements typically have provisions to recall the loan if the business is engaging in illegal operations.
“If the law doesn’t get revised, letters will go out,” usually with 90 days’ notice, Stettner said.
When it comes to banking services, Stettner said Fund Canna works with about 80 banks and he doesn’t expect a knee-jerk reaction from them. “I don’t think banks that agree to bank hemp and cannabis will stop banking,” he said. However, “Until this is in effect, banks will be extra cautious or diligent.”
Terry said banking hemp has already been as challenging as marijuana — a problem that won’t be fixed.
“Cantrip used to operate inside marijuana dispensaries, and so back then our banking was restricted but permitted. In switching to hemp only, we haven’t lost any restrictions – it still is challenging,” he said. “We have no ability to obtain debt and not even really credit cards at reasonable rates. Once the hemp industry is dead, banking and financing won’t be a problem because there will be nothing to bank or finance — everything will be marijuana again, but the restrictions are pretty much the same for both right now anyway.”
Stettner’s working with the Coalition for Adult Beverage Alternatives, National Cannabis Industry Association, the Hemp Industry Association and hemp brands to produce change at the federal level.
“This is an existential fight, and we can’t let perfect be the enemy of the good — so we are laser-focused on what’s politically possible,” the Hemp Roundtable said in the Nov. 24 email.
