Author: Eric Singular, Director Published: 6/12/2022 Hemp Business Journal
The U.S. hemp industry is in a period of correction after initially overheated production since passage of the 2018 Farm Bill. Over the past three years, there has been a significant decline in U.S. hemp acreage, but rather than perceived as a negative with fear that the crop has fizzled, it should be welcomed as a much-needed reset for an imperative balance between supply and market demand.
In 2019, the U.S. saw 511,442 acres registered for hemp production. That moon shot in acreage was driven by the CBD boom, and proved to be massively out of balance with the cannabinoid’s true market size. For instance, PanXchange’s Julie Lerner demonstrated how top brand Charlotte’s Web could have achieved its $95 million in 2019 production revenue from the biomass of 57 acres; that year, the manufacturer grew a reported 862 acres, more than 15x the demand.
Correcting the Hype
Rumors of hemp farmers making between $10,000-$50,000 per acre of cannabinoid-rich hemp for extraction fueled overproduction. At the time, the U.S. was still recovering from a trade war with China, and passage of the 2018 Farm Bill stirred a perfect storm as American farmers were dizzied by the promise of a new cash crop. In the four years since, commodity prices for staple crops like corn, wheat, and soy headed toward historic lows. Meanwhile, the per-bushel price of corn has increased 101% (from $3.70 to $7.43), 82% for soybeans (from $9.35 to $16.98), and 109% for wheat (from $4.98 to $10.41).
New Frontier Data documented the following hemp production licensing and acreage data for 2022 with 62% of State Departments of Agriculture reporting (84% of the top-25 producing states):
- 5,381 licenses issued (down 35% from 8,298 in 2021), and
- 51,016 acres licensed (down 53% from 107,702 in 2021).
Over the past three years, the average decrease in licensed versus planted acreage is 63%, with a 41% decrease from planted versus harvested acreage. While 51,016 acres is a conservative estimate (with all states reporting, it may be closer to 75,000 acres), U.S. hemp acreage has declined for the third-straight year.
By example, Colorado saw a 75% reduction in acreage from 2021 (from 18,715 acres), down to 4,727 in 2022. Minnesota meanwhile decreased its acreage by more than two-thirds, from 6,191 in 2021 to 2,005 this year.
PanXchange, a marketplace for ESG-Inclusive commodities, estimates the following breakdown by type:
- Floral: 26,266 acres
- Fiber: 15,000 acres
- Grain: 7,000 acres
- Seed: 2,750 acres
For the past two years, the acreage dedicated to cannabinoid extraction — what the U.S. Department of Agriculture (USDA) classifies as “floral” — has decreased dramatically. When tens of thousands of farmers jumped into hemp production in 2019, they produced a glut of biomass that was tenuously compliant with federal THC standards and often failed to meet the specifications of CBD product manufacturers. We can say with confidence that a balance has finally been struck between supply and demand for hemp-derived cannabinoids.
Demand and Court Decision Drive Delta-8… for Now
While the hype around CBD has cooled, the market for delta-8 THC has exploded. In fact, the delta-8 THC market provided an outlet for the glut of speculative, low-quality, CBD-rich biomass that had sat unsold on farms since 2019 (partially due to the presence of contaminants like pesticides or heavy materials). This is because delta-8 THC is commonly synthesized from CBD isolate.
Last month, the U.S. Ninth Circuit ruled that delta-8 THC and other cannabinoids derived from hemp are legal under the 2018 Farm Bill, regardless whether the substances have psychoactive properties. The legal decision will only continue to spur growth in that market, raising the possibility for an undersupply of hemp biomass for extraction come this fall.
PanXchange estimates that the demand for Delta-8 THC alone may require 25,000 acres of production. This may swing the pendulum of CBD pricing back in an upward direction, after faltering sharply over the last few years.
While the acreage dedicated to floral hemp has declined sharply since 2019, fiber and grain acreage has steadily increased. In the past 12 months, regional processors nationwide have become operational. While 2021 was a key year for processors in trialing varieties, undertaking research and development, and optimizing machinery and processing capabilities, 2022 marked a significant shift toward a larger scale. That is a critical progression as processors have invested millions of dollars to get operational, and their financial projections depend on being able to secure a certain amount of acreage to keep processing lines and shifts running year-round.
However, 2022 has proved challenging to get acreage contracted for U.S. fiber and grain processors. Amid volatility and global food supply fears, the price of staple agricultural commodities has skyrocketed. This is being driven by a confluence of the war in Ukraine, persistent drought, and insatiable demand.
Later this summer, the Farm Service Agency (FSA) will release its 2022 acreage report, which will provide a gauge of attrition from licensed to planted hemp acres. Farmers are required to self-report all crop acreage to FSA annually, so that the agency may determine payment eligibility and its calculations for various disaster programs. Yet, hemp producers face additional regulatory hurdles, including background checks, obtaining their state hemp licenses, coordinating with state agriculture regulators for THC testing of their crops, and timing their harvests to respectively remain within a 30-day period of a state regulatory official’s collecting a pre-harvest sample.
Currently, 44 states, and most tribes, manage their own USDA-approved hemp programs, and thus issue state-level production licenses. However, farmers in each Hawaii, New Hampshire, Mississippi, Wisconsin, North Carolina, and Utah file production applications directly from the USDA.
Regulatory Respites Available
With agriculture policy reform on the table given the upcoming Farm Bill, there are two industry-led initiatives seeking to mitigate the regulatory burdens on hemp producers. One is a blanket fiber and grain exemption to regulate a hemp crop by end-use; the other is a Certified Seed exemption similar to the regulatory scheme for Canada’s hemp production.