September 20, 2019
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While the number of acres of hemp grown in the U.S. grew from 9,770 acres in 2016 to 78,176 acres in 2018, it wasn’t until the 2018 Farm Bill was passed in December 2018 that the industry really had a chance. According to VoteHemp’s 2019 U.S. Hemp License Report, 511,442 acres of hemp were licensed nationally in 2019. However, while the U.S. hemp industry is growing, there are factors at work that are significantly limiting the industry’s growth potential.
Today, 48 states have laws allowing hemp production and 34 states have licensed hemp cultivation. Cannabiz Media is tracking all of those licenses in the Cannabiz Media License Database, and continued growth is expected.
Despite that positive growth, the hemp industry still faces challenges in the United States with three critical factors creating significant obstacles to hemp-related businesses: laws, perception, and money. Let’s take a closer look at how each of these factors affects the industry.
There are three key federal regulatory agencies involved in the U.S. hemp industry: the U.S. Department of Agriculture (USDA), the Food and Drug Administration (FDA), and the Environmental Protection Agency (EPA). To date, none of these agencies have issued regulations for the hemp industry. As a result, the industry’s growth remains limited.
The good news is that the USDA sent draft regulations to the White House Office of Management and Budget approval this month, and the rules are expected to be released within the coming weeks. At that time, members of the hemp industry will have an opportunity to provide feedback before the rules are finalized. The goal is to finalize the rules before the 2020 growing season.
The problem is once the USDA rules are finalized, states, which can create stricter rules, will need to update their own regulations. The result will be an industry that remains in flux for the foreseeable future.
In addition to USDA regulations, the FDA still needs to create rules related to hemp-derived food and drug products. So far, the skyrocketing growth of the CBD industry hasn’t motivated the FDA to hurry its rulemaking process. While the FDA was quick to release a statement on the same day the 2018 Farm Bill passed stating it had the authority to regulate hemp-derived CBD under the Federal Food, Drug and Cosmetic Act (FDCA), it also stated that CBD was not allowed in food products.
The FDA has also repeatedly stated that CBD brands may not make health claims about their products or enter interstate commerce until those claims are approved by the agency. In fact, the FDA has already sent multiple warning letters to CBD companies that have made such health claims.
Similar to the FDA, the EPA has not released rules related to pesticides or herbicides for use on hemp crops nor has it approved any specific pesticides or herbicide for hemp crops. This limits what farmers can apply to crops to keep them healthy.
While demand for hemp products is increasing in the United States, many people still have a negative perception of hemp. There is a large number of consumers, regulators, and law enforcement officials who still believe hemp is the same as or very similar to marijuana.
For example, misperceptions (and unclear laws) held by law enforcement officials and regulators are making interstate transportation of hemp difficult and expensive. In January 2019, a shipment of hemp traveling by truck from Big Sky Scientific in Oregon to be processed in Colorado was stopped for a random weigh station inspection in Idaho.
According to Idaho state laws, hemp is illegal. Therefore, Idaho law enforcement seized the hemp, arrested the driver, and charged him with felony drug trafficking – a charge that carries a minimum of five years in prison.
The seized hemp shipment was worth an estimated $1.3 million and the seizure caused a significant financial burden to all businesses involved. Unsurprisingly, the case went to court with Big Sky Scientific suing to get its shipment of hemp back. Earlier this month, a federal appeals court ruled against Big Sky Scientific saying the company “jumped the gun” by shipping hemp through Idaho before the USDA released its industry rules.
Until misperceptions about hemp change, these types of problems will continue to plague the industry. Education and media attention are both required to change the public’s perception of hemp. Until more people hear the true story about hemp, how many different kinds of products it can be used to make, how it can help people, and how it’s different from marijuana, the negative misperceptions will continue, and the industry’s growth will be limited.
The Hemp Industries Association (HIA) is already working to change people’s perceptions about hemp and to distinguish it from cannabis. In May 2019, the organization released a “Hemp is Legal” campaign with a goal to convince Facebook to change its advertising policies related to hemp-derived CBD products.
In August, HIA addressed law enforcement and banking officials’ misperceptions in its “Hemp is Legal” campaign saying in a press release, “According to federal law, states should not prohibit the transport of hemp across state lines. Yet commercial drivers continue to be stopped and arrested by police who cannot distinguish the crop from federally illegal marijuana.”
These efforts are starting to work as demonstrated by the U.S. Drug Enforcement Administration’s August 26, 2019 press release that clarified the legality of hemp and hemp-derived CBD products saying, “DEA registration is not required to grow or research it.”
Through the HempisLegal.org website and its “Hemp is Legal” campaigns, HIA is working to educate more people about the differences between hemp and marijuana and the fact that hemp is no longer a Schedule 1 controlled substance but rather, an agricultural commodity under the 2018 Farm Bill.
Most of the problems in today’s hemp industry go back to the lack of laws related to hemp and the misperceptions surrounding it, and this includes financial obstacles that hemp businesses face.
Since hemp is still illegal at the federal level, many banks won’t work with hemp-related businesses. If they do work with hemp businesses, they may charge significantly higher fees. Again, the problem is perception with many bankers still not understanding the difference between cannabis and hemp and the legal status of the latter.
Hopefully, banking will get easier when the USDA releases its final hemp industry rules, but in the meantime, there have been some positive changes that remove some of the financial obstacles related to banking.
For example, in August 2019, the National Credit Union Administration (NCUA) issued guidance on banking services for hemp businesses, which stated federally insured credit unions can provide banking to hemp businesses. While the NCUA also stated its guidelines may change based on the USDA’s final rules, this is a big step in the right direction for the industry.
In addition to banking, hemp businesses need insurance to protect their assets and stay afloat should something go wrong. However, it can be very difficult for businesses operating in the hemp industry to get insurance.
Again, the hope is that the insurance problem will be solved when the USDA’s rules for the industry are released. In the meantime, the USDA’s Risk Management Agency (RMA) has developed whole-farm revenue protection coverage for qualifying cultivators that will be effective for the 2020 grow season. While this doesn’t solve the problem, it is another step in the right direction.
The hemp industry is growing fast, but the industry and the businesses operating within it won’t have the chance to grow to their fullest potential as long as laws are unclear and misperceptions exist.
One thing is certain, Cannabiz Media will be tracking all of the hemp licenses in the Cannabiz Media License Database as this industry quickly grows and evolves. Schedule a free demo to see it in action and learn how it can help your business grow.
Originally published 2/26/18. Updated 9/20/19.
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