August 13th, 2020
Arnau Valdovinos
The approval of The Farm Bill in 2014, allowing the implementation of hemp pilot programmes by individual states, was the trigger for a hemp resurgence in the US, a crop which had been effectively outlawed for the previous 40 years. Successive legislative reforms in 2018 differentiated cannabis, a controlled substance, from hemp, an industrial commodity with under 0.3% THC. The reform allowed interstate commerce, further bolstering the increase in hemp cultivation.
Today only Idaho is left to legalise hemp farming even if other states are still quite restrictive in their approaches. Unlike France or Canada, where the industrial uses of hemp seeds or stalk represent a well-established sector, a wide majority of harvested hemp in the US is used as biomass for further extraction of CBD and other cannabinoids.
The increase in agricultural output attempted to keep pace with rising demand for CBD. However, several signs of overcapacity in the market began appearing since wholesale prices dropped following the 2019 outdoor harvest, a fall that has reverberated along the supply chain, with retail prices continuing to fall during the pandemic.
While prices have dropped for finished consumer goods, the falling price of raw materials coupled with the high cost of extraction and storage has meant that cultivators that are not vertically integrated are struggling, and risk losing crops to rot or selling products for less than market value. Even if hemp remains more profitable per acre in comparison to alternative crops, it is no longer the lucrative cash crop that many farmers thought it to be 24 months ago.
Data compiled from state regulators in June suggests that the national hemp footprint has decreased in the 2020 season in leading hemp growing states, like Colorado, where it has fallen from 80,000 licensed acres to just over 60,000. New licensing schemes like that of California, implemented last year, have seen acreage doubling to over 30,000 acres, while some early states such as Tennessee are also booming.
The large increase in the number of licensed farmers, up 27% since last year, coupled with the reduction in licensed acreage, means that the average size per hemp farm in the US has fallen from 30 to just 22 acres (9 hectares). However, average cropland size widely varies depending on the state. States with larger exploitations of hemp are falling the most (Montana from 160 to 123 acres; Kentucky from 55 to 33 acres), while states with smaller crops like New York are actually increasing their average farm size (from 18 acres in 2019 to 45 in 2020).
Interim data suggests that smaller producers are still surviving, despite predictions of bankruptcy by many analysts, while the medium-sized and larger players, which had developed large cultivation spaces, are adjusting their goals to meet market conditions.
While there may be a trend towards more capital-intensive methods requiring less use of land, such as indoor crops, hemp indoor footprint has experienced similar drops in most states that record them, with the notable exception of Colorado, where it has jumped 71%.
The pressure is now on to focus on the quality of the product, to meet stricter testing standards and achieve differentiation in a crowded market. The future value of hemp and CBD will depend more on quality, consumer engagement and regulatory compliance than sheer size and scale.
For more in-depth information, consumer data and strategic support, contact the Prohibition Partners consultancy team at info@prohibitionpartners.com or download one of our industry-leading reports.
