Growing pains: Hemp industry deals with oversupply, shifting retail landscape

By Danielle Masterson

- Last updated on GMT

@ Getty Images Grejak
@ Getty Images Grejak

Related tags Hemp CBD and Hemp coronavirus

The boom in hemp cultivation after the passage of the 2018 Farm Bill has created a supply bulge that the industry is still working through, observers say.

The bill's passage cleared the way for a variety of businesses and products to pop up, especially the hemp-derived CBD market, which produced about $5 billion in US sales last year, according to Motley Fool.

The 2019 growing season appeared to be off to a good start. However, the young industry experienced a series of hurdles that highlighted the need for infrastructure development and regulatory guidance. 

Kat Merryfield, the founder of CBD brand Kat’s Naturals in rural Tennessee, said even pre-COVID, hemp farmers were experiencing setbacks.  

“It has taken a huge hit not just this year. It actually started last year around May, when the banking industry shut a large majority of our e-commerce sales down and then it was followed by coronavirus.”

Merryfield said that throw in an explosion of growers following the 2018 Farm Bill and companies without proper regulation, created a recipe for disaster. 

Quality control 

“So you have companies like mine and Charlotte's Web and MedTerra and these companies that are really, really trying, are getting bombarded by these cheaper companies that don't have any overhead because they're building products in their basements,”​ said Merryfield.

Michael Chernyak, President, CK Nutraceuticals in Ontario, Canada, said the raw material suppliers who are well-positioned and investing for the long-term in quality assurance are the ones who will come out on top. 

“The industry has suffered numerous setbacks as result of poor quality material (i.e. residual plant particulate, residual solvents, present heavy metals, inconsistent viscosity, unstable viscosity, on and on) that buyers are willing to pay up for raw material of consistent high quality. Fortunately, for the high-quality producers, there will be ample business to remain viable while regulations are in somewhat of a gray area. The producers who were unable to produce a quality product lost a great deal of money.”

Supply and demand 

How the pandemic has impacted the hemp market is yet to be known. With the industry still in its infancy, information on the crop’s supply and demand is hard to come by.

Chernyak told us that supply chains largely appear not to be affected to any significant degree, as many companies had secured ample biomass and built inventory positions in processed hemp/CBD raw materials.

With the exception of the farmers with contracts to uphold, Merryfield noted that overall, farming is down. 

“Business overall has gone down as our storefronts that carry our products have started to disappear and close their doors. It’s trickling down through the industry and it’s going to be interesting to see where this lands.” 

Merryfield said last year saw an overproduction of hemp across the country, which could come in handy this year. She said a large quantity of hemp was processed into extracts in 2019, but the buyers just weren’t there. 

“We may be able to utilize last year's supply which would be great. But it will be interesting to see who is left standing at the end of this year.” 

David Hasenauer, CEO, Green Point Research based in Fort Lauderdale, FL, said farmer interest has been great. "I think what you’re seeing is farmers take a more thoughtful approach toward their hemp crops this year. The interest in gaining more hemp education for farmers is also significant as farmers look to make educated choices about crop selection."

Evolving industry

“I mean, the state of the industry is a little chaotic, but it's a burgeoning industry. It has not even reached its pinnacle yet, let alone it’s plateau,”​ noted Merryfield. 

Hasenauer said the ​growing interest in hemp is encouraging. "Educational opportunities are significant for farmers and the general population as hospitals and universities expand new medical trials that will benefit from hemp-derived solutions."

“The science around hemp/CBD continues to evolve,” ​said Chernyak. “In spite of regulatory clarity at the federal level, companies are thriving in the space, and consumers continue to demonstrate interest in hemp/CBD and other (minor) cannabinoids. As additional clinical research is published which will substantiate and broaden hemp/CBD’s therapeutic value, it will only serve to grow the consumer market, and when the FDA lays down a legal pathway for hemp/CBD, then the floodgates will really open, and there will be no turning back.” 

Merryfield likened the hemp industry to the cautionary tale of the dot-com era’s implosion: “They survived and we will too.”

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