The U.S. hemp industry is poised for growth, but there are serious financial, regulatory and agronomic risks farmers and investors must understand before jumping in, according to a report released by RaboResearch Food and Agribusiness.
The report notes that the 2018 Farm Bill set off a process to completely overhaul hemp industry regulations, including the legalization of hemp and hemp-derived products. The USDA plans to release the new rules in the fall, but those new regulations won't take effect until the 2020 planting season.
"The market is highly fragmented, and there is no reliable source for pricing and production data," noted Bourcard Nesin, the report's lead author and analyst at Rabobank, a leading global food and agribusiness lender. "The road ahead is rocky, risky and untraveled. If hemp really is a good long-term opportunity, there's no harm in being methodical about how you approach it."
Hemp crops grown or processed during 2019 still have to operate within the state pilot programs authorized by the 2014 Farm Bill.
"It's no surprise that confusion reigns," Nesin said. "Headlines have a lot of people excited in the hemp world, but farmers, investors and even regulators and lawmakers are unsure about what to do."
Here are some of the additional risks, which are laid out in Rabobank's report:
Hemp can't be treated like other commodities. Growing hemp requires paperwork and careful recordkeeping, and regulatory infractions could result in the seizure and destruction of the crop.
Hemp production is not legal in all 50 states — states can still choose to ban hemp.
CBD, the most lucrative segment of the hemp industry, is illegal as both a food additive and a dietary supplement. If the FDA decides to allow CBD to enter the food supply, the approval process could take several years.
The U.S. may soon face an oversupply of hemp grown for CBD extraction, which could result in major losses for farmers once prices adjust.
International supply and demand for hemp grain and fiber is already at equilibrium. U.S. growers will have to be able to compete on price to make a meaningful profit.