What the Hemp? Industry Struggling in 2020
May 28, 2020

Reports of industries in decline are easy to find this year. A recent Politico Pro article (subscription required) titled “Hemp Was Supposed to Boost Farmers. It’s Turned Out to be a Flop” thus might not get significant attention. But it deserves some, as it illustrates the serious and ongoing challenges facing the industry, separate and apart from the challenges facing the U.S. economy more generally.

The article notes that a variety of things have gone wrong for the industry recently, and from our perspective it hits the nail on the head. The key takeaway is that the lack of coherent government policies is causing serious harm to this promising industry. In 2018, Congress passed a farm bill that legalized the cultivation of hemp. The result was predictable—entrepreneurs, farmers, and manufacturers rushed to enter. Hemp-derived CBD products were selling like hotcakes and farmers raced to meet demand. According to Brightfield Group, in 2018 there were roughly 78,000 acres being used for hemp cultivation. In 2019, it nearly quadrupled to 285,000 acres. According to Bethany Gomez of Brightfield Group, the industry was not necessarily ready for that rapid expansion. As she stated to Politico Pro, “This is Econ 101. The market can only support so many people.” But nevertheless, the industry was hot.

Unfortunately, state governments and the federal executive branch were not willing or not prepared to move in sync and support this rapid expansion. The FDA immediately declared its regulatory authority over hemp-derived products, but so far has refused to actually regulate despite significant pressure from Congress (as we wrote about here and here) and even former regulators (as we wrote about here). The states have issued a patchwork of regulations. So while farmers were producing significant quantities of hemp and CBD businesses were opening up, the uncertainty stymied the legal market. And as the legal market failed to materialize as expected, less scrupulous actors filled the void (see here), promoting CBD as a cure for anything and everything (see here). The result has been an oversaturated but underdeveloped market with potential investors on the sidelines and a skeptical consuming public.

From our perspective, it is hard to see improvements from the federal or state governments on the horizon. The FDA is now on the frontlines of a global pandemic. Congress is in an election year and bitterly divided. And while states are still moving forward with legislation and regulation, there does not appear to be significant coordination. Nevertheless, we remain cautiously optimistic about the industry as a whole. Hemp continues to be applied in practical ways throughout the country, and entrepreneurs and manufacturers continue to build the market despite the headwinds. Entrepreneur Brianna Kilcullen said it best: “It’s our job to create a market.”

Please check out our blog for continued updates on developments affecting the cannabis industry, as well as episode 7 of the Joint Status Report if you’d like to hear our interview with Bethany Gomez of Brightfield Group. Also, visit our COVID-19 Resource Center for up-to-date information to help you stay informed of the legal issues related to COVID-19.

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