A glut of industrial hemp spurred by overplanting after full legalization in 2018 has led to falling prices for the crop, but industry backers predict a solid future as the industry develops new products and markets.
And Colorado and the Boulder area should help lead the way, bolstered by a concentration of companies focused on hemp cultivation, distribution and product development, as well as a natural-products sector that could spur further growth.
Steve Hoffman, founder and managing director of Compass Natural Marketing in Boulder, said he is “really bullish on Colorado as the center of the hemp marketplace. It is really in its infancy, in its renaissance,” he said. “The technology and sustainable practices we’ve learned now can be applied to a crop prohibited for 80 years. Think of all the technologies that were never applied to it. There’s a real potential renaissance well beyond CBD.”
Colorado voters legalized both hemp and marijuana in 2012, and state farmers later capitalized on a federally sanctioned hemp pilot program — the first in the nation. That pilot program placed the state at the forefront of the hemp industry nationwide.
Since then, the Colorado and U.S. industrial hemp market has seen its fair share of ups and downs. The biggest hurdle has been the differing regulations between state and federal levels. For 80 years, the industry was heavily regulated because hemp is a cannabis product. And even though most hemp products don’t have high enough THC levels to give users a psychoactive experience like its more famous cousin marijuana, that hasn’t stopped many areas from enacting stringent rules for the industry to follow.
That changed in 2018, when Congress passed the federal Farm Bill that made it clear that both hemp and hemp products are legal throughout the United States and they are no longer considered a controlled substance like marijuana. The act also allowed the commercial cultivation and manufacture of hemp outside of the 2014 Farm Bill’s pilot projects, according to the Colorado Hemp Advancement & Management Plan report that came out in March. That is when many farmers and entrepreneurs decided to jump into the market.
Before the bill passed, plant breeding wasn’t allowed, but now many companies in Colorado and across the country are developing different strains of hemp to express higher levels of compounds such as CBG, CBD and THC, Hoffman said. And even though CBD-based products can be found in many natural foods markets across the country, the U.S. Food and Drug Administration has never been clear about its CBD policy, putting it at odds with the U.S. Department of Agriculture, which has said those products should be legal to sell in the U.S.
Colorado-based CBD company Charlotte’s Web Holdings Inc., which recently relocated its corporate headquarters from Boulder to Denver, petitioned the FDA to recognize its CBD product as a dietary supplement, but its application was denied in August.
“The FDA is holding back growth of the cannabinoid marketplace,” Hoffman said. Most people don’t realize that CBD and THC aren’t the only cannabinoids found in hemp. There are over 100 different cannabinoid compounds in hemp and hemp has less than 0.3% THC, he added.
Despite the FDA’s stance on CBD, it can be purchased in many forms across the country, and it is where the majority of hemp producers have focused their attention to date.
Hoffman points out that the industrial hemp market took a major hit before the COVID-19 pandemic arrived because it was already suffering from oversupply, as farmers, scientists, brokers and entrepreneurs rushed in to take advantage of the new and seemingly limitless opportunities in the hemp market once the Farm Bill was passed.
“People saw it as a gold rush without really understanding what it takes to bring a material from seed to sell through,” said Jeffrey Cole, founder and president of U.S. Hemp Brokerage in Lafayette. Many of the farmers who jumped in to grow hemp didn’t have a buyer for their crops before they started planting hemp. They ended up harvesting their crop with no buyer and “it was a total train wreck,” he said.
Rather than starting small over two or three years, many farmers “went big and then got stuck with thousands of pounds of poorly or unprocessed hemp that never found a good home. That has been the biggest obstacle, a gold rush, a hemp rush.”
According to the state report, 13% of all hemp acres registered and planted in the U.S. in 2019 were in Colorado, the most of any state in the country.
There also “was a sharp increase in production accompanied by a price collapse in the commodity market driven by both supply and demand. On the supply side, expansion of hemp production to new states and a dramatic expansion of planted acreage over a short period of time made hemp biomass relatively more abundant than it had been before. A lack of extraction and processing capacity, coupled with slower-than-expected consumer demand for CBD and other hemp products, yielded an environment in which hemp supply exceeded 2019 processing capacity or demand,” the report stated.
Over the past three years, hemp acreage increased substantially in Colorado and across the nation in response to its legal status, but by July 2020, the number of registrants or registrations in the industrial hemp industry dropped 40% to 45% below their comparable 2019 levels. Registrations went from 2,634 in 2019 to 1,443 in 2020, while the number of registrants went from 1,947 in 2019 to 1,150 in 2020.
The massive oversupply of hemp in Colorado and nationally “drove prices through the floor,” Cole said. Most businesses that were backed by outside investor dollars were hurt because “prices fell faster than any hope of a return and many farmers and hemp businesses went bankrupt and out of business.”
At the beginning of 2019, crude hemp extract oil was going for about $2,300 per liter, with the average price ranging from $1,500 to $1,900 per liter. Toward the end of that year and heading into 2020, those prices went to $400 per liter on the low end with an average of about $900, Cole said. “That’s a massive fallout.”
The companies that stayed strong during the collapse of the hemp market and are still growing today are “vertically integrated companies who grew their own hemp to make their own products,” said Marc Brannigan, co-founder of Diesel Water and many other hemp companies in the area.
“Companies who decided to grow hemp and sell it, that is not a feasible market right now. Right now, it is more of a relationship-driven market because processors can choose who they buy from based on a relationship or based on price and so there’s demand but supply completely outweighs it,” said Brannigan, whose other companies include Longmont-based HempMyPet, which makes CBD products for animals.
Hoffman added that “supply is not something we talked about two years ago, but now it is top of mind.”
Seeking new markets
Finding and developing new markets for hemp and its byproducts — in addition to CBD — remains a goal for hemp farmers, processors and manufacturers.
“The market is maturing, but we are not quite there,” Cole said. CBD seems to be the product most people are racing to get involved with but even that market hasn’t reached “full maturity.”
Cole represents 15 of the top CBD brands in the country, many of which are based in the Boulder area. His company, U.S. Hemp Brokerage, helps bring these products to market nationally. But CBD isn’t the only market for industrial hemp. There are many commercial and industrial markets that have yet to be tapped, some that are just beginning to be commercialized.
“We will see that over the next three years. There is more machinery than ever before serving the hemp markets and more technology and more material,” Cole said.
Colorado’s hemp market is moving away from growing hemp flower outdoors for CBD oil to more fibrous varieties that are better suited for fiber markets, including paper, building materials, textiles and animal bedding. Hemp for CBD will move indoors to prevent cross-pollination with other cannabis varieties.
“This year we have more fiber acres than ever before. Next year we will have far more fiber acres, and we ourselves are targeting a fiber farm within Boulder County,” Cole said. U.S. Hemp has 300-plus acres in Boulder County to farm hemp. The reason it hasn’t been planted yet is that it “didn’t want to have a negative impact on outdoor CBD farmers in the region. We didn’t want our fiber crop to pollinate their CBD crop,” he said.
That’s because most hemp farmers are growing their crops for a specific market or purpose.
Hemp plastics and hempcrete are two of the top up-and-coming applications that use hemp. Hemp plastic is made with the cellulose from hemp fiber, while hemp mixed with lime makes a biocomposite building material that absorbs CO2 during the curing process and is also fireproof, making it desirable for wildfire-prone areas like California and Colorado.
And the region’s natural-products sector can help spawn other uses. Boulder-based Weller makes CBD-infused sparkling water. John Simmons, co-founder of the company, said that he and his partner chose to build their company in Colorado because of its deep roots in the natural products industry.
“We’ve had really good luck creating beverages that are just delicious, approachable and consistent,” Simmons said. The company released a line of immunity beverages that don’t use CBD earlier this year to “address the immediate need in the marketplace because of the pandemic but also to reach retailers and distributors that are not selling CBD yet,” he said.
Because of the patchwork of laws governing hemp-based products, there is a “really fragmented distribution channel and retailer base” for CBD, but “overall, we are seeing strong incremental growth by channel and by region and state,” Simmons added.
Weller actively targets states that have CBD or hemp CBD legislation in place, selling its products in more than 3,500 retail locations in the U.S.
California, for instance, was the first state to create guidelines for using CBD in food and beverage a few weeks ago.
“An economy the size of California is probably a leading indicator of where we think federal legislation is going to go. We think states are taking the right approach by creating safe guidelines,” Simmons said. “There’s still some unanswered questions regarding potency, testing and quality controls but we think the industry is growing at such a pace and there is a huge demand for these products, which is evidenced by states passing legislation.”
Weller’s CBD water is made with Colorado-grown hemp, and the company works with a Denver processor that provides it with a form of hemp CBD that is soluble in water.
“There has been a learning curve with beverages in particular to ensure that the CBD remains in solution in the beverage and that you can reliably state the potency of every can that we sell,” he said.
Like many others in the industrial hemp market, Simmons believes that consumer adoption will dictate how quickly the industry expands into new and different markets.
“I think Colorado is definitely the leader in the U.S. as far as advancing hemp farming and using hemp in different categories of products,” he said. The market has grown at a slow pace because hemp has been “stigmatized as intoxicating, which couldn’t be further from the truth. It is cannabis, technically, but those stigmas are evaporating over time especially with the rate of cannabis legalization across states. The world is moving rapidly in embracing healthier alternatives to an unhealthy lifestyle.”
