How Will the Hemp Industry Change Amid Evolving Regulations?
Canada’s nationwide legalization of adult-use cannabis in October 2018 was certainly historic. Meanwhile, in the US, the cannabis industry continues to experience a substantial incumbrance with federal illegality. While 11 US States (and DC) have legalized cannabis, the marijuana industry still has a long way to go before it reaches maturity. The good news is that the legal hemp industry is thriving – but how will the hemp industry continue to change amid evolving regulations?
As you probably already know, hemp is the non-psychoactive strain of the Cannabis Sativa plant (think of hemp as the “cousin” of the psychoactive, THC-laden stuff) that is being used for industrial products as well as cannabinoid-derived products such as CBD-based foods and supplements. Hemp is also being increasingly used in the health and wellness industry. Consumers throughout the US are reported to widely-use CBD hemp products alongside their over-the-counter drugs.
According to industry experts, the CBD industry in the health and wellness segment is likely to reach $20 billion by 2024. However, the lack of proper regulation in the hemp industry poses a huge challenge on this front. While the 2018 Farm Bill legalized hemp-derived CBD at the federal level, many states have contradictory laws. This uneven regulatory landscape creates plenty of uncertainty for the hemp industry.
Regulatory Uncertainty Poses a Huge Challenge for the Hemp Industry
After the Farm Bill was introduced in 2018, there was a sudden surge in the production of hemp due to the easing of restrictions on the use of hemp for commercial use. According to Vote Hemp, hemp production skyrocketed over 500% in 2019.
This led to a situation of overproduction while most hemp producers never saw a correlating rise in demand. Due to this supply-demand imbalance, hemp prices started tanking. As per this Hemp Grower report, by February 2020, the price had collapsed 74% to $1.01, per percent CBD per pound. The drop in CBD prices did not bode well for hemp production companies which resulted in lower profit margins and rising inventory – leaving many farmers bankrupt.
The 2018 Farm Bill excluded CBD from the list of Schedule I drugs under the Controlled Substances Act. However, FDA regulations are still evolving. The FDA currently restricts the marketing of CBD as a dietary supplement or a food additive as it is considered an “ingredient of a drug”. The removal of this limitation by the FDA would be a complete game-changer for the hemp industry.
The U.S. Presidential Election in 2020 might be a key deciding factor for the future of the hemp industry. Many folks in Washington are outspoken proponents of hemp and none other than Senator Mitch McConnell. McConnell has been championing the cause of legislation for CBD. McConnell continues to garner support for the legalization of CBD-dietary supplements.
The Future of the Hemp Industry Remains Exciting
Despite this current regulatory predicament, many other factors can steer the course for the hemp industry in 2020. Even though hemp prices have hit rock bottom, indications are that in 2020, hemp production and processing will continue to be on the rise.
Across the US, the availability of CBD processing facilities will continue to increase. Increased capacity for cannabinoid extraction processing as well as non-cannabinoid hemp processing is necessary to meet the rise in both supply and demand so that more farmers are able to sell the crop and more consumers will have access to CBD in foods and supplements.
In 2019, high-CBD smokable flower, as well as, cannabigerol (CBG) biomass commanded higher prices in the market than CBD-biomass. Hence, the industry must encourage increased price transparency so that businesses can make informed choices and plan their production and sales endeavors.
Certainly, the hemp industry would benefit from better storage facilities for hemp biomass. In the past, cultivators have lost much of their biomass to mold and mildew due to a lack of conducive drying and storing solutions. In a situation where there is oversupply in the market, these ancillary processes also need to be improved so as to maintain the quality of the biomass and command premium prices.
Several Hemp Stocks likely to Benefit from Evolving Regulations
The three hemp stocks that are poised to grow amid the evolving regulatory environment. As these hemp stocks were all first to market, they’ve got the first-mover advantage over other hemp stocks and we believe these particular hemp stocks are poised for substantial growth.
Canopy Growth Corp.
This hemp stock entered into a partnership with the alcohol industry darling, Constellation Brands in 2017, with a goal to develop CBD-infused beverages. In 2018, Canopy received an additional investment of $4 billion, from Constellation – increasing its stake to 38%.
In addition, Canopy is all set to acquire Acreage Holdings (CNSX: ACRG.U), a cannabis company, post federal legalization of marijuana in the U.S. Canopy would then be able to sell its unique CBD-derived beverages, vapes, chocolates, and edibles through Acreage’s extensive retail outlets in North America.
Canopy’s Q1 results have exceeded market expectations and much of the 13% year-on-year revenue growth is attributable to Canopy’s Cannabis 2.0 products. The hemp stock’s CEO, David Klein, intended to double Canopy’s cannabis beverage production in August to capitalize on explosive demand.
The hemp company has lost 12.3% year-to-date and continues to struggle with profitability. However, this marijuana stock does look prospective in the long-run amid its topline growth and cost-reduction initiatives.
After completing the acquisition of Grassroots, Curaleaf (OTC: CURLF) is all set to strengthen its foothold in California, where the recreational use of marijuana is legalized. The hemp stock also expanded its New Jersey operations in advance of imminent recreational legalization in the state. The state currently legalizes medical marijuana only but the legalization of cannabis for recreational use will likely happen in 2020.
The company focuses on an “organic route” for its expansion efforts. Its acquisition of Grassroots has propelled it to a position where it can claim to be the largest US-based cannabis company in terms of revenue. Curaleaf’s CEO, Joseph Lusardi indicated that the company’s organic expansion initiatives will continue and the company is poised for significant growth in the second half of 2020.
In the second quarter, the company’s net revenue surged 142% year-on-year to reach $117.5 million. What’s more interesting is that its net loss narrowed substantially during the period. It is commendable that this hemp stock has shown resilience amid the COVID-19 crisis and investors are highly optimistic about this hemp stocks growth plan. Including Grassroots and Select portfolio in its business would also give it an edge over its peers.
We’ve been recommending CURLF for a while now and this hemp stock has nearly tripled in value since March of this year.
Hemp, Inc. (OTC: HEMP) is considered by many to be a global leader in the industrial and cannabinoid-based hemp industry and we believe it’s one of the best penny hemp stocks to watch in 2020. They’ve got huge, state-of-the-art processing centers in North Carolina and Oregon, as well as operations in Arizona and Nevada. Their facility in Spring Hope, North Carolina is approximately 85,000 square feet and is used for both cannabinoid and industrial hemp processing. They’ve also got a couple of small family hemp farms local to the Spring Hope location.
Hemp, Inc’s operations in Golden Valley, Arizona, include approximately 500 acres of hemp farms as well as a retail store in the town of Kingman. In addition to this, Hemp Inc. has 55,000 SF of cannabinoid processing in White City Oregon.
Earlier this year, Hemp, Inc. was even featured in Benzinga’s article, “4 Highly Speculative Micro-Cap Stocks To Have On Your Radar.”
For over ten years, Hemp, Inc. has been one of the most important pioneers in the US Hemp Industry. The Company has developed critical hemp processing infrastructure throughout various regions in key US states. Yes, Hemp Inc. is a highly speculative stock but our analysts agree with Benzinga’s assessment that it’s certainly one of the best microcap hemp stocks to watch this year.
The Bottom Line
All eyes are on the Presidential election in November. There will likely be more clarity on the legalization aspect of CBD on which the future of the industry hinges. If CBD gains approval as a dietary supplement, the hemp industry will receive an immense boost and many hemp stocks will benefit. We believe that the hemp stocks with a first-mover advantage and currently operating in this space will be the biggest beneficiaries.
How Will the Hemp Industry Change Amid Evolving Regulations?
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