Michael Deliberto, Hilbun, Brian M.
Staff Report No. 2019-50, September 2019
Dr. Michael A. Deliberto and Mr. Brian M. Hilbun
Assistant Professor and Research Associate
Department of Agricultural Economics & Agribusiness
Louisiana State University Agricultural Center
This economic perspective presents information compiled from both academic and professional sources in the areas of agronomy, policy, production economics, risk management, and legislative sources as pertaining to the production of industrial hemp within the U.S. Information contained herein is presented for educational purposes in regards to this emerging industry.
The 2018 Farm Bill amended the Controlled Substance Act and Agricultural Marketing Act of 1946 to address how industrial hemp is to be defined and regulated at the Federal level. The 2018 Farm Bill defines “hemp” to mean “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or nor, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3% on a dry weight basis.”
Industrial hemp belongs to the plant group cannabis sativa, a plant family consisting of long fiber plants with variable concentrations of tetrahydracannibol (THC). It is an annual plant that grows each year from a seed produced by the plant. Marijuana and hemp are different varieties of the same species, cannabis sativa l. By definition, industrial hemp “refers to the strains of cannabis sativa l. containing less than 1% THC” (MAFES, 2016). In most developed countries where industrial hemp is cultivated, production is limited to hemp varieties that contain less than 0.3% THC. The largest difference between hemp and marijuana is that marijuana usually contains about 4% to 20% THC (MAFES, 2016).
Industrial hemp can be cultivated for seed, fiber, or as a dual purpose crop for both seed and fiber. The 2018 Farm Bill expanded efforts to legalize the production of hemp as an agricultural commodity while removing it from the list of controlled substances. The inclusion of hemp as an agricultural commodity and directed the Federal Crop Insurance Corporation (FCIC) board to streamline the process for developing hemp crop insurance policies. The 2018 Farm Bill also directs the USDA to determine the economic viability of a domestic hemp market. However, while newly enacted farm legislation expands the potential for hemp production, it does not create a system in which producers can grow it as freely as other crops. The Farm Bill also mandates shared state and federal regulatory authority over the issue, outlining the steps that a state must take in order to develop a plan for the regulation of hemp and then calls for that plan to be submitted to the USDA for its approval.
Policy advancements coupled with considerable interest are two driving forces that have caused industrial hemp production to substantially increase since the inclusion of a pilot program contained within the 2014 Farm Bill. With hemp now being grown in the U.S., finished hemp products and raw material inputs are still being imported and sold for use in manufacturing for a wide range of product categories. Hemp fibers are used in a wide range of products, including fabrics and textiles, yarns and spun fibers, paper, carpeting, home furnishings, construction and insulation materials, auto parts, and composites. Hurds are used in various applications such as animal bedding, material inputs, papermaking, and composites. Hemp seed and oilcake are used in a range of foods and beverages, and can be an alternative food protein source. Oil from the crushed hemp seed is used as an ingredient in a range of body-care products and nutritional supplements. Hemp seed is also used for industrial oils, cosmetics/personal care products, and pharmaceuticals, among other composites.
The global market for hemp consists of more than 25,000 products in nine submarkets: agriculture, textiles, recycling, automotive, furniture, food and beverages, paper, construction materials, and personal care. Hemp can be grown for fiber, seed, or as a dual-purpose crop. The stalk and seed are the harvested products. The interior of the stalk has short woody fibers called hurds; the outer portion has long fibers.
The reported retail value of the U.S. hemp market is an estimate and is difficult to verify. Underlying data for this estimate are from SPINS survey data (SPINS tracks data and market trends on the Natural Product Industry sales) however, because the data reportedly does not track retail sales for The Body Shop and Whole Foods Market—two major markets for hemp-based products—as well as for restaurants, hemp industry analysts have adjusted these values upward to account for this gap in reported survey data. Available industry information indicates that sales of some hemp-based products, such as food items and body care products, are growing. Growth in hemp specialty food products is driven, in part, by sales of hemp milk and related dairy alternatives, among other hemp-based foods. Information is not available on other potential U.S. hemp-based sectors, such as hemp products being used in construction materials or biofuels, paper, and other manufacturing uses. Data are not available on existing businesses or processing facilities that may presently be engaged in such activities within the United States.
No official estimates are available of the value of U.S. sales of hemp-based products. The Hemp Industries Association (HIA) reports total U.S. retail sales of hemp products of nearly $700 million in 2016, which includes food and body products, dietary supplements, clothing, auto parts, building materials, and other consumer products. HIA claims that U.S. hemp retail sales have increased by about 10% to more than 20% annually since 2011. Much of this growth is attributable to sales of hemp-based body products, supplements, and foods. Combined, these categories accounted for more than two-thirds of the value of U.S. retail sales in 2016. Little detailed information is available on some other hemp-based sectors, such as hemp products used in construction, biofuels, paper, textiles, or for other manufacturing uses. Data are also not available on existing businesses or processing facilities.
Over the past few decades, hemp imports have been growing, reaching a value of nearly $80 million in 2015, before declining to just under $70 million worth in 2017. Nearly two-thirds of the value of hemp imports was derived from hemp seed. As is the case with many U.S. imports, Canada is the largest supplier of hemp to the U.S., accounting for as much as 90 percent.
Private estimates (published by Vote Hemp) show that although the overall acreage is modest, the growth rate is very strong. Vote Hemp, an organization that promotes hemp in the marketplace, estimates that in the last three years hemp acreage has increased from 9,800 in 2016, to 26,000 in 2017, to 78,176 acres in 2018. According to Vote Hemp, 2019 acreage is expected to undergo a massive area increase to 511,442 acres.
In the past two decades, researchers at the USDA and various land grant universities and state agencies (for example, Arkansas, Kentucky, Maine, Minnesota, North Dakota, Oregon, and Vermont) have conducted several feasibility and marketing studies. More recent available market reports indicate that the estimated gross value of hemp production per acre is about $21,000 from seeds and $12,500 from stalks.
Studies by researchers in Canada and various state agencies provide a mostly positive market outlook for growing hemp, citing rising consumer demand and the potential range of product uses for hemp. Some state reports claim that if current restrictions on growing hemp in the United States were removed, agricultural producers in their states could benefit. A 2008 study reported that acreage under cultivation in Canada, “while still showing significant annual fluctuations, is now regarded as being on a strong upward trend.” Most studies generally note that hemp “has such a diversity of possible uses, [and] is being promoted by extremely enthusiastic market developers.” Other studies highlight certain production advantages associated with hemp or acknowledge hemp’s benefits as a rotational crop or further claim that hemp may be less environmentally degrading than other agricultural crops. Other studies claim certain production advantages to hemp growers, such as relatively low input and management requirements.
Other studies differ from the various state reports and provide a less favorable aggregate view of the potential market for hemp growers in the United States, highlighting challenges facing U.S. growers. A CRS report (Johnson, 2018) concluded that small scale, profitable niche markets for hemp products could make hemp an economically viable alternative crop for some regions of the USA. Recent reviews are relatively optimistic overall. A variety of imaginative, innovative hemp fiber and hempseed products have appeared in the marketplace in the last two decades, and have provided considerable impetus to increasingly promising industries
Given the absence since the 1950s of any commercial and unrestricted hemp production in the United States, it is not possible to predict with any degree of confidence the potential market and employment effects of relaxing current restrictions on U.S. hemp production. While expanded market opportunities might exist in some states or localities if current restrictions on production are lifted, it is not possible to predict the potential for future retail sales or employment gains in the United States, either nationally or within certain states or regions. Information on these types of probable effects is not available from previous market analyses that have been conducted by researchers at USDA and land grant universities and state agencies.
Scant official data exists on the value of retail sales of hemp-based products in the U.S. The Hemp Business Journal estimated 2017 U.S. hemp sales at $820 million, an increase of 19% over 2016’s estimated $688 million in sales. There have been many feasibility and market studies conducted by both universities and the USDA. A majority of researchers from these studies concur that industrial hemp has the prospect of being potentially very profitable. At the same time, these researchers note the uncertainty surrounding that potential market ascribing this uncertainty to a general lack of information and research.
Total sales for the U.S. Hemp Industry in 2017 were $820 million. Sales for Hemp-Derived CBD products amounted to $190 million, $181million were for personal care products and $137million were for hemp food products. Food sales were led by the Snack Food category and Industrial Product sales were led by the automotive category. The U.S. hemp industry grew 16% in 2017 amidst continued domestic legal and regulatory challenges. The hemp industry was bolstered by explosive growth in the hemp-derived CBD category that grew from a market category that did not exist five years ago to $190 million in sales in 2017. The U.S. hemp industry is poised to reach a $1 billion dollar in sales in 2018, mainly from demand for hemp-derived CBD, food, personal care and industrial products (Hemp Business Journal, 2019). As legal and regulatory barriers are removed and consumer education spreads, Hemp Business Journal estimates that the U.S. hemp industry will grow to a $1.9 billion dollar market by 2022 with an estimated 5-year CAGR of 14.4% (2018-2022).
Mr. Eric Steenstra, President of Vote Hemp, made the statement “[However], hemp is not yet a commodity and while demand for biomass has been high, it is not yet clear what the total market demand will be for 2019 and 2020. Due to this uncertainty, I strongly recommend that farmers only grow hemp with a contract to sell it in hand and carefully vet their partners. It is also advisable to start with a small crop the first year as there is a significant learning curve. Bottom line, don’t grow more than you can afford to lose” (Let’s Talk Hemp, 2019).
U.S. producers and hemp seed exporters have requested assistance from the USDA to provide an avenue for hemp seed exports to the United States. The USDA regulates the importation of all seeds for planting to ensure safe agricultural trade. Under this authority, the USDA is providing an alternative way for the safe importation of hemp seeds into the United States. Hemp seeds can be imported into the United States from Canada if accompanied by either: 1) a phytosanitary certification from Canada’s national plant protection organization to verify seed origin and confirm that no plant pests are detected; or 2) a Federal Seed Analysis Certificate for hemp seeds grown in Canada. Hemp seeds may be imported into the United States from countries other than Canada if accompanied by a phytosanitary certificate from the exporting country’s national plant protection organization to verify the origin of the seed and confirm that no plant pests are detected (USDA AMS, 2019). Hemp seed shipments may be inspected upon arrival at the first port of entry by Customs and Border Protection (CBP) to ensure USDA regulations are met, including certification and freedom from plant pests.
Hemp for seed can be planted in rows, like corn, or with a grain drill, like small grain. Because there are no herbicides currently labeled for hemp use, hemp grown in rows will require some mechanical weed control. Hemp can also be grown in a tilled seedbed similar to that prepared for forage crop establishment: firm, level, and relatively fine. It can also be established with no-till methods using burndown herbicides to control existing weeds. Planting rates for industrial hemp depends on the variety, but in general rates from 25 to 35 pounds per acre are recommended. Planting depth should be ½ to ¾ inch. A dense, drilled stand should provide some control of weeds. Fertilizer requirements are best determined by a soil test. Hemp can be affected by disease and insect pests in the field. While these have not been common in initial trials, they could increase with more cultivation. Several diseases have been noted, including gray mold (Botrytis cinerea), white mold (Sclerotinia sclerotiorum), bacterial leaf spots, viruses, and Pythium root rot and blight during establishment. It would be best to avoid growing hemp in fields formerly planted in soybeans or canola with a history of white mold or in wet fields where seed rot could be a problem. Many of the insects that cause issues with other crops, such as cutworms, grubs, flea beetles, grasshoppers, and aphids, have also been reported in hemp (Penn State Extension, 2018).
For seed production, hemp is harvested when seeds begin to shatter. The plants will still be green. At this time about 70 percent of the seeds will be ripe and the seed moisture is often about 22–30 percent. If harvesting is delayed, then grain losses can increase from shattering, bird damage, and grain quality. There is also a greater problem with the fiber in the stalks wrapping in the combine. Avoiding taller varieties can help reduce the amount of material going through the combine (Penn State Extension, 2018).
For fiber production, planting is best done in drilled stands at seeding rates of 35–50 pounds per acre, which should result in stands of around 15 plants per square foot. Taller hemp varieties provide more competition with weeds than do shorter grain type varieties. Fertility recommendations are slightly different for hemp that is grown for fiber as compared that grown for seed. Hemp for fiber is generally harvested when plants are between early bloom and seed set depending on the fiber quality. After the hemp is cut it must undergo a process called retting. This helps to break the bonds between the two different types of fibers in the hemp plant, the bast (the outer long fibers) and the hurds (inner short fibers). Field retting is the most common process utilized to accomplish this separation and involves leaving the crop in the field for up to five weeks to allow for field decomposition. Windrows are raked two or three times before harvest to dry and remove leaf materials. Then the crop is dried and baled in round or square bales and hauled to a storage facility. From there the hemp is processed and separated into the bast and hurds for further processing into finished products. Individual processors may have different harvest procedures (Penn State Extension, 2018).
Perspective hemp growers need to be aware that plant stresses (drought, flooding, excessive nutrients, not enough nutrients, heat, cold, etc.) can result in THC spikes. According to Paul Adams with the North Carolina State University Cooperative Extension Service, in 2017, the NCSUCES processed 135 hemp samples and 14 came back with THC levels above 0.3%. In 2018 they processed 400 hemp samples and 38 samples came back above 0.3% THC. About 10% of hemp fields are ‘going hot’ – lingo used to describe a spike in THC. This is a serious risk to hemp producers and there is currently no provision for crop insurance to mitigate this risk. Altitude or cooler weather at certain stages of plant development may affect THC. Variety selection will most certainly play a role in THC content of the hemp varieties (Place, 2019).
A third variety of hemp is grown for cannabidiol (CBD) compounds, owing to popularity for potentially calming and medicinal benefits. Cannabidiol production initiates through the same physiological pathway as THC, but does not offer the same psychoactive effect. The flowering parts of the plant contain the highest concentration of cannabidiol, so only female plants are grown when CBD is the desired product. Once harvested, those parts of the plant containing the highest amounts of CBD can be dried and consumed in a number of ways or extracted as oil. Hemp grown for seed or fiber often resembles a typical crop field, such as ones used for wheat or soybeans. Hemp grown for CBD has been more frequently grown like vegetable crops or tobacco, with wider plant spacing, and often on black or white plastic (Snyder and Lovejoy, 2019). One of the challenges with the burgeoning hemp industry is that farmers will be growing hemp in close proximity to one another but with different end products as their goal. Growing male and female plants, as required for seed production, in close proximity to an all-female hemp field being cultivated for CBD, can lead to pollen transfer to the female CBD plants. Once pollinated, CBD plants will often have a much lower CBD content and will also produce seed, creating difficulties during processing. This can reduce grower revenue, affect yields even to the extent of rendering the crop as unmarketable. These proximity concerns could become a major point of discussion in statewide hemp programs as more and more growers get into the business (Snyder and Lovejoy, 2019).
Harvesting hemp is a critical stage for CBD production. The presence of molds and mildews will lower the value of hemp floral biomass so a timely harvest is essential. There are visual clues on the hemp bud that growers should monitor. When trichomes on the hemp bud shift from white to milky white it may be time to harvest. Weekly testing of CBD content can inform the grower of when harvest should be initiated (Place, 2019).
Once hemp is harvested, growers should immediately move the floral biomass to the drying facility. This could be a simple structure like a barn. The facility should be under roof, out of direct sunlight, and well ventilated. Growers need to set up several fans and have them blowing continuously. Significant ventilation is crucial. Ideal temperatures for drying and curing are 60 to 70 degrees F at 60% humidity. The hemp flower needs to be thoroughly dried before marketing. Crops destined solely for CBD oil extraction can be dried at ~100 degrees Fahrenheit with ample fans and air circulation. Dehumidifiers will likely also be necessary in order to dry material quickly enough to prevent molding. Flower material must remain completely mold-free in order to be marketable (Boylan, 2019). Some processors say that hemp growers should not dry their floral biomass at the same temperatures as flue-cured tobacco. Those temps are too high and dry the hemp too quickly. Gradual drying with high airflow will cure the hemp, produce a higher quality end product (better cannabinoid and terpene spectrum), and fetch a higher price. It is difficult to estimate the square footage of drying space needed per plant (Place, 2019). Hanging entire plants upside down on wires in the drying barn is a common practice. Unfortunately, as those plants dry the branches droop down in the formation of a closing umbrella. That closing umbrella shape results in less air flow to the center of that entire hemp plant. Thus more mold and mildew will grow in that center portion (Place, 2019).
Many aspects of risk for industrial hemp are difficult to determine. Production risk from fluctuating yields is unknown. Price volatility for fiber and seed might be considerable. In this case, policy risk is especially uncertain because of the possibility of changing legal conditions. Questions remain as to whether crop insurance markets will arise if industrial hemp should be legalized and whether or not it will be subsidized. Effects of hemp on yields of other crops in rotation as well as competition for resources are important. For example, how do field time spent, capital usage and cash flow associated with hemp production compete relative to other possible crops in the rotation? A related issue regards the ability to use assets such as machinery for other enterprises. Retrofitting some machinery for hemp comes with an investment that is not recouped in the event it is altered later when exiting hemp production (Robbins; et al., 2013).
Consequently, net returns are highly speculative for the U.S. market given unknown market and non-established infrastructure and cost of compliance (Robbins; et al., 2013). Prices and yields are difficult to predict which leads to wide ranges in estimates for both costs and returns. The authors note that when hemp is harvested for fiber only, it is generally harvested when the male plants start to pollinate. As a result, producers are harvesting both male and female plants simultaneously. When hemp is harvested for both seed and fiber the male plant has already died and has largely disappeared. Thus, for hemp cultivated for only fiber, yields will likely need to be close to double in volume as compared to fiber and seed production and need to be of a much higher quality.
The reintroduction of industrial hemp production in United States has sparked significant interest. However, the infancy of the industry makes it difficult to secure well documented revenue and cost projections for the construction of enterprise budgets (Mark and Shephard, 2019). Estimates developed by the University of Kentucky use revenue and cost projections that are based on anecdotal prices, yields and costs. These budgets only address potential gross revenue and cash operating expenses associated with hemp production. These budgets are completely absent of any fixed or economical costs.Inclusion of these missing costs would impact profitability. Current observations of the industry reveals that production methods are highly varied but generally fit into one of six production methods represented in these budgets. Yields are also highly variably between and within each production model. Unlike a traditional crop enterprise budget, where using default production costs estimates may be a reasonable approximation of a given producer’s actual costs, the lack of publically available empirical research centered around hemp production requires potential producers to adjust each line to tailor the specifics of their operation. Cost and revenue estimates provided in these budgets should be critically evaluated and adjusted for each producer’s scenario (Mark and Shephard, 2019).
The Penn State University Extension Service has developed industrial hemp budgets for both grain and fiber production. Because of the growth habit of the hemp plant, producers must decide beforehand if they plan on to grow the crop for either grain or fiber production. Because no pesticides are labeled for use on industrial hemp, conventional tillage practices are used to prepare the seedbed and help control weeds. The cost of a rye cover crop for soil erosion control and weed suppression is also included in the budget (Peen State Extension, 2018). Production costs for grain was estimated at $304.23 per acre while production for fiber was estimated at $279.23 per acre. What is not included is a detailed listing of the cultural practices required. Initial resource requirements for grain production (assuming 100 acres) include tillage equipment, planter or grain drill, cultivation equipment, combine, grain dryer and storage facility/structure. These capital costs were estimated at an additional $440 to $475. Likewise for fiber production, tillage equipment, a grain drill, a mower, a rake, and a baler are required. These capital costs were estimated at an additional $425 to $475. In total, cost estimates from Penn State University would be comparable to those estimates from Mark and Shephard (2019) with hemp for grain costs approaching $800 and fiber production costs approaching $750 per acre. Although these costs vary due to fertilization, soil type, and climate; a production comparison on the types, and to a lesser extent, the intensity of inputs can be obtained.
Information presented in Mark and Shephard (2019) presents several pieces of information that are specific to the state of Kentucky, but may not be applicable to other states. Chief among these items are cash rent, hauling costs, application and license fees, and lab testing fees. In the following table, the aforementioned input parameters are removed. One can observe that total production costs are reduced in the absence of application and testing fees in excess of, in some cases, $700 per acre.
Less the cash rent (which are not typically included in the costs and returns estimates compiled by the LSU AgCenter), hauling, application, and testing fees; the production cost for hemp are comparable to corn and soybean systems in Louisiana. However, harvesting costs and methods are not clearly established as related to the incorporation into a potential Louisiana hemp production system. The University of Kentucky tobacco model has not been deemed feasible for Louisiana industrial producers. The application fee for Louisiana industrial hemp producers, assessed by the Louisiana Department of Agriculture and Forestry, is estimated to be at a maximum level of $150. Hence, this fee should be added into the above-mentioned total costs per system. As such, total costs now range from $386.61 to $9,510.38 per acre.
Referring to a tomato vegetable enterprise production budget from the Mississippi State University Extension Service (2018), the practice of fertigation is used to apply calcium nitrate in addition to the variable and fixed costs associated with a drip irrigation system. Individuals in the industrial hemp sector have hypothesized that the practice of plastic bedding (plasticulture) coupled with the practice of fertigation may be a production alternative for the production of industrial hemp in the southern/southeastern region of the U.S. However, limited economic information specific to industrial hemp production is obtainable. The direct (variable) cost of a drip irrigation system (utilizing six foot row spacing, pumping 16 gallons-per-minute, with 7,260 feet of drip strip) is estimated at $296.63 per acre. This includes the fertigation system, lines, pipe adapters, fittings, and header. The labor cost of fertigation is estimated by the Mississippi State University Extension to be $31.14 per acre for each application. In tomato production, the practice is performed three times within the same season. Similar to mulch and drip irrigation itemized in the plasticulture estimates from Mark and Shephard (2019), the authors estimate the combined costs to be $515 per acre. Costs of a single-row mulch lifter is estimated to be $19.15 per acre with an associated labor fee of $155.70 (15 total field hours). In total, considering the cost of ownership (fixed costs), the Mississippi State University fertigation and mulch system would be $486.31 per acre. This is considered consistent between the two examples in terms of the expected costs associated with a particular production practice in differing production regions.
Additional work by the LSU AgCenter will focus on the estimated costs and returns associated from industrial hemp production in Louisiana.
With so few pesticide options, growers should consider utilizing as many cultural pest control tactics as possible. Aphids are most effectively managed when the Integrated Pest Management (IPM) protocol is practiced. In short, IPM is the use of multiple control strategies in a comprehensive and preventative approach to reduce pest populations, to maintain plant health, and to minimize the use and impact of pesticides in the environment. These management strategies include mechanical, physical, biological, cultural, and chemical controls (Clemson Cooperative Extension, 2019).
There are currently no labeled herbicides, insecticides, and fungicides approved for use in industrial hemp production. In new developments, the EPA has announced that ten pesticides are under review for hemp labeling. A major concern among farmers interested in growing the crop, which was legalized in the 2018 farm bill, has been a dearth of crop protection products. There are currently no pesticides registered by EPA specifically for use on cannabis. All of the products being considered for use on hemp “contain active ingredients for which EPA previously determined the residues will be safe under any reasonably foreseeable circumstances,” the Federal Register notice says. The agency has “established tolerance exemptions, as indicated below, for those residues in or on all raw agricultural or food commodities.”
The active ingredients under consideration include a few examples of the same products mixed together at different levels. All ingredients are biopesticides except for Potassium Salts of Fatty Acids, are:
Hemp is a very costly crop to grow with labor being one of the most significant costs. There are no synthetic pesticides currently labeled for use on hemp, thus making weed, insect and disease control very labor intensive. A great deal of time and labor is also spent identifying male plants in greenhouses and fields. As mentioned above, the presence of male plants will drastically reduce CBD oil production in female plants. Hemp harvest labor is also very costly. Historically, hemp has been harvested by hand and hung in barns to air dry. This process is both slow and inefficient. Many farmers are taking a more mechanized approach, using modified tobacco strippers and tobacco bulk barns for more efficient harvest and drying. Once dried, the hemp is delivered to a processing facility (Williams, 2019).
There are significant risks with growing hemp for CBD. If markets get saturated, prices could drop quickly. Production costs are estimated at $13,000 to $15,000 per acre primarily due to the high cost of female clone plants (Place, 2019). Prices vary with the market and how the processor will accept the biomass.
The 2018 Farm Bill allows FCIC to offer crop insurance policies for industrial hemp. At present, there is no coverage available for hemp, though hemp production will not cause a farm to be ineligible for the Whole Farm Revenue Protection policy (WFRP). The USDA RMA Manager’s Bulletin (MGR-19-002 on February 25, 2019) states that Cannabis that qualifies as hemp, as defined in the AMA, is not regulated under the CSA and is not considered a controlled substance for the WFRP as of the passage of the Farm Bill. Accordingly, production of hemp will not cause a farm operation to be ineligible for WFRP under section 3(c)(6) of the WFRP or void the WFRP under section 17(c)(2)(v) of the WFRP.
However, at the time the 2019 WFRP was issued, cannabis was a controlled substance and was uninsurable by WFRP in accordance with section 36(c) of the WFRP policy. Because cannabis of any kind was an uninsurable commodity at the time the 2019 WFRP policy was published on August 31, 2018, hemp is not insurable under the WFRP program in the 2019 policy year. As with other uninsurable commodities, expected and historical revenue produced by hemp must be excluded from allowable revenue and revenue to count in accordance with section 10(b)(9) of the WFRP policy.
A provision to help hemp farmers get crop insurance has been added to a federal disaster-relief bill. A bill that passed in the Senate includes an amendment to ensure hemp farmers access to crop insurance prior to the 2020 growing season. The provision states that the Federal Crop Insurance Corp shall offer coverage under the whole-farm revenue protection insurance policy for hemp by next year (2020). However, for whole-farm revenue protection policies, historical revenue records must be presented for the farming operation. This may be a hurdle for new producers, as they will lack the sufficient production records needed in order to qualify under requirements set for forth for policy purchase. Likely, producers that were part of the 2014 Far Bill’s hemp pilot program will have the sufficient records and revenue history for the whole-farm policy. If producers are part of a Section 7606 state or university research pilot as authorized by the 2014 Farm Bill, they can get WFRP coverage for hemp. Other producers cannot obtain coverage until a USDA-approved plan is in place, according to the USDA
In April, Senate Majority Leader Mitch McConnell wrote to four federal banking and financial institutions asking them to open up financial services to the hemp industry.
Some credit unions have lawfully operating hemp businesses within their fields of membership. Businesses dealing with hemp and hemp-derived products include manufacturing, distribution, shipping, and retail, among others. With recent changes in federal law, more hemp-related businesses may be founded, and existing ones may expand.
Growth in hemp-related commerce could provide new economic opportunities for some communities, and will create a need for such businesses to be able to access capital and financial services. Credit unions may provide the customary range of financial services for business accounts, including loans, to lawfully operating hemp related businesses within their fields of membership. The information in this alert is intended to help credit unions better understand what they should consider in providing financial services to lawfully operating hemp businesses.
Many credit unions have a long and successful history of providing services to the agriculture sector. Hemp provides new opportunities for communities with an economic base involving agriculture. The National Credit Union Administration (NCUA) encourages credit unions to thoughtfully consider whether they are able to safely and properly serve lawfully operating hemp-related businesses within their fields of membership. The NCUA will issue additional guidance on this subject once the USDA’s forthcoming regulations and guidelines are finalized.
In response to questions raised concerning provisions pertaining to the interstate transportation of hemp and who may obtain a license to produce hemp, the U.S. Department of Agriculture’s Office of the General Counsel (OGC) has concluded the following:
The Agriculture Improvement Act of 2018 (2018 Farm Bill, Section 10113) directs the U.S. Department of Agriculture (USDA) to issue regulations and guidance to implement a program for the commercial production of industrial hemp in the United States. The USDA has begun the process to gather information for rulemaking. Once complete, this information will be used to formulate regulations that will include specific details for both federally regulated hemp production and a process for the submission of State, and Indian tribal plans to the USDA.
Regulations for States or Tribes who submit plans will include procedures and information collections regarding: land to be used for planting; testing; effective disposal of plants and products; compliance with law enforcement; annual inspections; submission of information to the USDA; and certification that resources and personnel are available to carry out the practices and procedures described above. State or Indian tribal nations do not need to submit plans for approval until regulations are in place; however, should a state submit a plan, the USDA will hold that submission until regulations have been promulgated. As required by law, the USDA is committed to completing its review of plans within 60 days once regulations are effective.
The USDA is also required to establish a plan to monitor and regulate the production of hemp in those States or Indian tribes that do not have an approved State or Tribal plan. It is the USDA’s intention to issue regulations in the fall of 2019 to accommodate the 2020 planting season. The rulemaking will provide for the publishing of a proposed rule, comment period, and a final rule.
For the 2019 planting season, the 2018 Farm Bill provides that States, Tribes, and institutions of higher education can continue operating under authorities of the 2014 Farm Bill. The USDA provided additional guidance to these programs in the August 2016 multi-agency Statement of Principles on Industrial Hemp (FR 53395). The 2018 Farm Bill extension of the 2014 authority expires 12 months after the USDA has established the plan and regulations required under the 2018 Farm Bill.
The USDA’s Agricultural Marketing Service (AMS) is formulating regulations that will include specific details for both a USDA plan for the production of hemp and a process for submission of state, territorial, or tribal plans to the USDA. The AMS is currently developing the needed regulations, and it is anticipated these newly formulated regulations will post to the Federal Register later this year, according to the USDA press release. “Once rulemaking is complete, RMA, the Farm Service Agency (FSA), the Natural Resources Conservation Service, and other USDA agencies will share eligibility information on their programs, which include safety net, conservation, farm loan, and disaster assistance programs. This includes FSA looking at additional coverage options through its Noninsured Crop Disaster Assistance Program and through RMA-administered crop insurance,” the USDA stated in its Tuesday release.
Louisiana House Bill 491 was signed into law by Governor John Bel Edwards on June 6, 2019 (Louisiana State Legislature Regular Session, 2019). Legislation recognizes industrial hemp as an agricultural commodity in Louisiana and authorizes the cultivation, processing, and transportation of industrial hemp in Louisiana under the 2018 Farm Bill. The law requires the Louisiana commissioner of agriculture and forestry (LDAF) to promulgate rules and regulations for the cultivation, processing, and transportation of industrial hemp. In addition, as required by the 2018 Farm Bill, the commissioner will also create a state plan to monitor and regulate the production of industrial hemp that shall be approved by the Louisiana House and Senate committees on agriculture and the U.S. secretary of agriculture before the cultivation of industrial hemp may begin in the state. The plan shall be submitted to the USDA no later than November 1, 2019.
Any person desiring to work in the hemp industry in Louisiana must apply for a license with the LDAF. A fee will be associated with each application and shall not exceed $500. There are several classes of industrial hemp licenses that will be available to interested parties:
The Louisiana Department of Health (LDH) is responsible for developing rules and regulations for industrial hem-derived CBD products and shall provide oversight to the manufacturing, packaging, and labeling processes. The Louisiana Office of Alcohol and Tobacco Control (ATC) will also promulgate rules related to the regulation of cannabidiol (CBD) product sales. Each business is required to have a permit from ATC for each location prior to CBD retail sale.
There is certainly interest surrounding industrial hemp production. Efforts to estimate the potential range of farm gate values for industrial hemp production in Louisiana are presented for three categories: grain and fiber; seed; and Cannabidiol oil (CBD) as presented in Deliberto (2019). Assumptions regarding the yield per acre for fiber, seed and CBD (dry matter) were obtained from the existing economic literature (Robbins, et. al., 2013; Smith and Kantrovich, 2019; Mark and Shepherd, 2019). Yields for fiber (grain and straw) production were assumed to be 3 tons per acre; 700 pounds of certified seed per acre; and 2,500 pounds of dry matter (single crop) per acre for purposes of extracting CBD. Market price data were assumed based from the existing literature and presented over a range of market values for the purposes of this analysis. Market prices were estimated to range from $40 to $200 per ton for fiber (grain and straw); $0.70 to $1.50 per pound for certified seed; and $10 to $42 per pound (raw value) of dry matter harvested for CBD extraction. Pricing for CBD oil was estimated from industry observations in Journal-Advocate, 2018; Bennett, 2019. The potential acreage devoted to industrial hemp in Louisiana was set to vary from an imposed lower bound of 200 acres to a proscribed maximum of 1,000 acres. Although no production currently exists, these ranges are suggestive of possible ranges for the cultivation of hemp in Louisiana.
Deliberto (2019) provides an estimate of the gross farm value from the production of industrial hemp used for fiber (grain and straw production) ranging from $24,000 on 200 acres to as much as $600,000 on 1,000 acres. The estimated gross farm value from the production of industrial hemp used for seed production is estimated to range from $98,000 on 200 acres to as much as $1,050,000 on 1,000 acres. The estimated gross farm value from the production of industrial hemp used for CBD oil production is estimated to range from $5,000,000 on 200 acres to as much as $105,000,000 on 1,000 acres.
It is unlikely that industrial hemp will immediately compete for acres with traditional row crops produced in the state such as corn, cotton, rice, soybeans, and sugarcane. Collectively, these crops account for the significant majority of principle row crop acreage in the state. The production costs and market contracts (when established) for industrial hemp will determine the financial competitiveness of industrial hemp as compared to traditional crops already in production within the state. Relative net returns of each enterprise, including hemp, will need to be evaluated after research on variety performance has matured in the state. Prices of relative crops will likely be a driver in hemp’s ability to compete for, and sustain acreage. Market sales via contracts/buying points may also be a limiting factor to the amount of acreage coming online. This, coupled with the regulatory aspects of production licenses, will be another factor that may initially limit hemp’s acreage expansion. Industrial hemp may be a viable enterprise on a small scale, given marketing contracts/buying points participate in some production cost-sharing. This may be need to defer to cost of seed (e.g. transplant seedlings produced in a plasticulture system), drying, and processing costs incurred by the producer.
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