What's Next for Hemp?

Published on: 14:29PM Jul 15, 2019

When I last blogged about industrial hemp about a year ago, the Senate Majority Leader, Senator Mitch McConnell (R, KY) had been successful in inserting a number of provisions related to the legalization and encouragement of the production of industrial hemp in the United States, which had been barred since 1970 with the passage of the Controlled Substance Act.

On December 20, 2018, the Agricultural Improvement Act was enacted, and the legislation included 11 different provisions in four different titles that set the stage for farmers to begin producing this crop across the country.  These provisions included not only making it legal for American farmers to grow industrial hemp, but to have the crop made eligible for coverage under the federal crop insurance program and allowed access to federal research funding to evaluate the production and processing of this newly legal crop.

In a bill passed in June 2019 intended to provide disaster assistance to farmers and other parties harmed by a range of natural disasters that occurred in 2018 and 2019, a provision was included at the insistence of Senator McConnell instructing USDA’s Risk Management Agency to expedite development of a policy for industrial hemp, to make sure such policies will be available for the 2020 crop year.

Most of the remaining policy actions that have been taken since last year to facilitate the emergence of production and processing of industrial hemp is occurring at the state level, primarily to bring state laws into alignment with the new federal status of the crop.  Since the completion of the 2018 farm bill last December,  a total of 43 states now have in place laws that make it legal for farmers to cultivate and sell industrial hemp, many of them passed in the last few months (such as in Iowa, Florida, and Georgia).

In Florida, new state agriculture commissioner Nikki Fried (first elected in November 2018) has expressed the hope that farmers in her state can have hemp growing by the end of the year.  She envisions industrial hemp as a major cash crop in Florida, to provide an alternative to farmers whose citrus groves have been devastated by citrus greening, which is a bacterial disease that is one of the most highly destructive citrus diseases in the world.  In New York, the state government allocated $5 million in 2017 to help kick-start a hemp industry for its farmers.

Since the farm bill passed late last year, a number of organizations, both in the public and private sector, have held workshops or seminars across the country aimed at providing farmers with more information about the pros and cons of adding industrial hemp as a crop to their operations.  In 2018, the Pennsylvania state extension service put out a publication that estimated that farmers could generate a net return over variable costs of $74 per acre for hemp destined for producing fiber, and of $675 per acre for hemp destined for producing grain that is processed into cannibidiol (CBD) oil or hemp oil (labeling rules are not yet in place for this product) and other marketable byproducts, such as wax and fertilizers.  Some Kentucky farmers growing hemp in 2018 under the pilot program reported earning as much as $2,500 per acre for their crop.

There were about 78,000 acres of industrial hemp cultivated in 2018 under the hemp research provisions enacted in the 2014 farm bill.  There is no estimate yet of total hemp acreage for 2019, but based on early reports from licensing authorities in a few key producing states, total hemp area is expected to increase significantly.  Some portion of that crop is expected to be cultivated in commercial greenhouses--media reports indicate that a number of large facilities plan to convert some of their growing space to hemp, away from raising flowers and nursery crops.

The size of the market for hemp and its products in the United States, especially for CBD oil, is not yet clear.  Prior to 2014, when the Agricultural Act of 2014 made hemp production legal under state research or pilot programs, the United States annually imported about $600 million worth of hemp products from other countries, especially Canada and China.  Recent industry forecasts for the market size in this country within a few years range from $10 billion to $20 billion.

A number of food and cosmetic companies have already begun incorporating CBD oil into their products, even though the U.S. Food and Drug Administration (FDA) has not yet promulgated regulations for use of the ingredient in products consumed by humans.  In recent weeks, the FDA has sent warning letters to some manufacturers about their use of CBD oil, especially in cases where unverified health claims are being made.

While many farmers have expressed interest in growing hemp, a number of them are holding back on actually producing a crop until certain regulatory steps are taken at the federal level.  Many are reluctant to plant a novel crop without the ability to purchase a policy under the federal crop insurance program to cover their risks.  In addition, no pesticide has been approved for use on industrial hemp, and it may take several years for such approvals to be finalized.   In addition, farmers need to make sure that a local plant that specializes in processing hemp is available and ready to purchase their crop--this crop will not be moving through the normal marketing channels that producers of commercial grains and oilseeds typically make use of.