SOPA Images/LightRocket via Getty Images
It is not easy to tell hemp and cannabis apart. Just ask police in Oklahoma and Idaho, where they recently arrested truckers hauling hemp from state to state and impounded their cargoes because the legal hemp looked like illegal cannabis.The biological distinctions between hemp and cannabis might only be visible to botanists, but they are crucial for investors.
That is because hemp, one of the first crops cultivated by humans, now offers a narrow, but legitimate, path into investment in the cannabis industry. If that sounds confusing, let me explain. The legal landscape around cannabis in the U.S. is increasingly byzantine, but there is no ambiguity about hemp: It has been federally legal since the government passed the Farm Bill in December 2018. This means that both the crop and hemp-derived products can now legally cross state lines, even if the cargoes occasionally arouse suspicion.
Industrial hemp-based goods include clothing, food, paper, automotive parts and housing material, but investors are not excited about the plant’s potential for lightweight drawstring pants or thermal insulation. They want a slice of the market for one of the naturally occurring chemical compounds that can extracted from the tall, fibrous hemp crop: cannabidiol, or CBD.
CBD can also be extracted from cannabis, but the crop remains off-limits to investors, even though two-thirds of US states have now legalized the plant in some form. That is because the federal government still classifies cannabis as an illegal Schedule One drug, giving it the same status as heroin. Businesses that grow and sell cannabis or manufacture cannabis-derived products still cannot accept credit cards, let alone list on U.S. financial exchanges. It makes everyday business a real headache and severely restricts the industry’s access to capital.
This is why the Farm Bill represents a watershed moment for investment in the cannabis industry. In theory, there are now zero restrictions on businesses that sell CBD derived from hemp. But the CBD industry remains a legal minefield: CBD that is derived from anything other than hemp remains illegal at the federal level.
The legal distinction over origin is not really about CBD at all, but about another cannabinoid: the psychoactive compound tetrahydrocannabinol (THC). Hemp-derived CBD gets the green light because the crop naturally contains 0.3% or less of THC. The THC content of cannabis is usually much higher. Central government reasons that legalizing all CBD would only incentivize the growing of cannabis and the subsequent production of THC-rich flower, edibles and topicals, all of which are federally illegal.
In the meantime, the Farm Bill allows investment in CBD to catch up with soaring demand. Our research indicates the U.S. CBD market could be worth $2.1 billion by 2020. Around 65 million Americans have tried CBD and 63% found it effective. The U.S. and global market also look well-positioned for further growth. The country’s Food and Drug Administration has already approved the use of CBD-infused topicals. The same organization may have reaffirmed a ban on the hemp extract’s use in food and drink on 31 May, but experts believe that the FDA appears to be clamping down on companies that are making egregious claims while it explores the regulatory landscape. Observers think that the FDA will have a policy framework for food and drink in place by mid-2020.The World Health Organization has found no adverse effects from the use of CBD.
The Farm Bill has also fueled interest in growing hemp. The crop is a boon for U.S. farmers who are grappling with climate change, as well as flagging tobacco and dairy industries. Industry group Vote Hemp noted that U.S. farmer cultivated 77,000 acres of hemp in 2018, which was a 230% increase compared to the previous year. It is likely that number will be much higher in 2019: Kentucky alone has already approved over 42,000 acres for the crop this year.
Hemp has plenty of room for growth in coming years. Despite hemp’s new federal status, it is ultimately up to individual states to decide whether they want agriculture and commerce programs for the crop. There are currently 41 U.S. states that permit the cultivation of hemp, although only 24 states had farmers actually growing it in 2018.
Legal hemp also means tens of thousands of new jobs, and not just for farmers and truckers. The industry will need accountants, lawyers, scientists, compliance officers, regulators, IT workers, financial experts and academics. Some folks would do well to learn the difference between hemp and cannabis – and fast.