With industrial hemp’s removal from the controlled substances list in the 2018 Farm Bill, any legal barriers for the cultivation of hemp in the U.S. were effectively eliminated, subsequently enabling the transfer of hemp-derived products across state lines for commercial or other purposes. Also, under its reclassification, prohibitions on the sale, transport or possession of hemp-derived products have been removed if those items are produced in a manner consistent with the law. 

It should be noted that industrial hemp and marijuana are not the same. While both industrial hemp and marijuana belong to the same species, Cannabis sativa, industrial hemp and marijuana have been developed through selective breeding for different purposes. Hemp varieties have been selected for their seed oil and fiber properties as hemp can be raised for either seed, fiber or flower. Most U.S. production is focused on growing hemp for flower primarily for the CBD market. CBD, or cannabidiol, is one of over 100 cannabinoids identified in hemp plants. Marijuana has traditionally been cultivated for its narcotic properties. Cannabis that can be smoked for a “high” contains more than 10% tetrahydrocannabinol, a psychoactive ingredient often abbreviated as THC; in fact, most marijuana contains 20% to 30% THC. Industrial hemp by law must contain less than 0.3% THC. 

Louisiana Regulatory Policy

The laws governing industrial hemp production in Louisiana can be found in ACT No. 498, which was passed in the 2022 Regular Session of the Louisiana Legislature and should be read and understood to ensure compliance. There are six separate licenses for industrial hemp in Louisiana: grower, seed producer, handler, processor of nonconsumable hemp products, processor of consumable hemp products and retailer. The licenses for grower, seed producer and handler, as well as processor of nonconsumable hemp products, are issued by Louisiana Department of Agriculture and Forestry. The processor of consumable hemp products and retailer licenses are issued by the Louisiana Department of Health and the Louisiana Office of Alcohol and Tobacco Control, respectively. 

State law allows for cultivation of industrial hemp seed for planting purposes as well as permitting licensees to produce, transport and sell industrial hemp seed and transplants to other license holders. Growers must provide the actual physical address and GPS coordinates for each place where industrial hemp will be grown or stored. Maps of each of the aforementioned areas must also be provided with proposed acreage or square footage. Information regarding the name, origin and seed-certifying agency of planned varieties to be grown must also be provided. The cost of the license is $500. 

Growers must report when plants are flowering so they can be tested for THC. Growers must submit hemp samples three to five weeks into the flowering stage. If the level of THC is above 0.3%, the crop must be destroyed. Growers need to be aware that plant stresses like drought, flood, heat or cold can exacerbate spikes in THC levels. 

Economics

Industrial hemp markets are growing. In 2015, U.S. hemp-based product sales totaled $573 million. In 2016, sales grew to $688 million, and in 2017 sales reached $820 million. Those sales include hemp-derived products that were used in food, industrial applications, fiber products and products from CBD oil. The hemp industry is still in its infancy and is largely being funded by venture capital as opposed to traditional financing means. This means that funding volatility is more prevalent in the hemp industry than for other traditional agricultural sectors.

In the past, soaring prices for hemp, driven by demand for use in producing CBD, have driven increases in planting. Producer interest in hemp production is driven by the potential for high returns from sales of hemp flowers to be processed into CBD oil. The median acreage planted by U.S. hemp operations decreased between 2018 and 2019, while the average size increased — a trend driven by both the risks and opportunities associated with hemp production. The diverging trends in median and average hemp acres planted are likely the result of hemp producers initially entering the market with low acreage and scaling up over time. Given how experimental and risky hemp currently is, and with limited seed availability and scarcity of agronomic data, producers are entering the market with relatively few acres.

Although producing hemp stalks for fiber and seed for grain have a lower production cost than producing hemp for flower, many producers — motivated by economic and regulatory forces — are growing hemp for flower. There are significant risks with growing hemp for CBD. If the markets get saturated, prices could drop quickly. Prices vary with the market and with how the processor will accept the biomass.

Hemp Acres

In 2022, planted area for the U.S. for all utilizations totaled 28,314 acres, down 48% from 2021. The leading hemp-producing states include Utah, Kentucky, Oregon, Colorado and California. The U.S. Department of Agriculture Farm Service Agency (FSA) reported 21,931 planted acres and 278 of prevented or failed acres of hemp for 2022. The USDA National Agricultural Statistics Service reported that Louisiana had 19,000 square feet of industrial hemp area in 2022, down 41% from 2021. USDA FSA reported acreage for Louisiana was slightly over 20 acres, with the vast majority of industrial hemp being grown for fiber (15.5 acres). The rest were produced for cannabidiol products.

Production Economics

Once a producer has obtained a license, the producer must obtain plants or seed. Currently, the most common planting method is from clones or cuttings from “mother” plants in the greenhouse. A producer growing hemp for CBD must have all female plants. Even one male can cause pollination that will greatly reduce CBD production. Because feminized seed will still have some males, experts recommend that producers plant female clones. Female clones are expensive — $5 to $10 each. Producers currently growing hemp for CBD are spending $14,000 to $15,000 per acre with clones and labor as the top expense. Pollen drift also is a challenge. Producers try to control and limit seeds in the field by destroying male plants, but hemp pollen can drift for several miles. So, if one producer is not controlling male plants, it can cause problems for other producers in the area.

Hemp harvest labor is also a very costly process that is both slow and inefficient. Historically, hemp has been harvested by hand and hung in barns to dry. Because of the intensity of labor required, hemp is quite costly to cultivate, with labor being a major contributor to underlying costs. Many producers are taking a more mechanized approach, using modified tobacco strippers and employing tobacco bulk barns for more efficient harvesting and drying. Once dried, the hemp is then delivered to a processing facility.

Significant work is being done to make planting from seed more viable. 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.

Production Costs Risks and Budgeting

Traditionally, industrial hemp has had two main commercial uses: food and fiber. The two uses have distinctly different storage needs. For food, hemp grain storage is often kept on-farm. Unlike grains, which are often heavily processed, hemp is served as a raw food. When grown for fiber, hemp is baled in large, round bales in a method like storing hay as feed for animals. Hemp bales can weigh up to 1,000 pounds and offer compact storage. Production methods (costs per acre) are influenced by hemp’s end-use: grain production, fiber production, row crop model for CBD oil or plastic-culture model for CBD oil.

Industrial hemp and marijuana are genetically different cultivars of the same plant species and are distinguished based on their intended use and levels of THC. Fiber yields, fiber quality, seed size, oil content and oil composition vary among hemp cultivars.

Labor needs per acre, according to Canadian-sourced production data, are similar to other specialty grain and oilseed crops. Small fields can be hand harvested with sickle bar mowers or with hay swathers. Larger fields necessitate the use of mechanical harvesters such as combines, forage harvesters or specialized machinery.

Over the past four to five years, published production estimates from Southern agricultural extension services in Alabama, Georgia, Kentucky, Missouri, North Carolina and Tennessee suggest that hemp for fiber is the less costly production system for industrial hemp production. This is partially attributable to the lower management intensity of the production system. However, a common theme among all estimated production costs for CBD oil per acre production is the costs associated with the regulation and testing of seeds and plants. CBD production systems can be double or triple the per acre cost of fiber production.

Market and Price Risk

The U.S. hemp sector, yet in its infancy, faces some formidable economic challenges. Low wholesale prices for hemp and processed products have persisted despite a drastic contraction in production. Uncertainty surrounding hemp markets on a variety of issues has also persisted despite the efforts of stakeholders pushing for regulatory clarity.

One big issue for hemp stakeholders is how hemp will be represented in the upcoming 2023 Farm Bill. Because hemp was only formally legalized in the 2018 Farm Bill, there are hopes that industry will assist Congress in reconciling incongruencies in federal hemp laws and regulations while improving conditions for the national hemp market.

Processors may have minimum CBD oil thresholds to purchase the crop. Producers are encouraged to have discussions regarding processor requirements, such as minimum CBD percentage, production methods, and delivery and payment terms, prior to planting industrial hemp. Producers are looking for companies that will process their crop into CBD without contracts. There was nearly a threefold increase in hemp production since 2019 that has resulted in lower prices for CBD oil. Many stakeholders see fiber ultimately developing into the largest sector of the hemp industry, but significant hurdles remain.

Price information as well as the transparency in reporting of those prices varies by end-use for industrial hemp. The retail prices for hemp seeds and oil are now reported by the USDA Agricultural Marketing Service. Prices for CBD oil vary and are often reported by third-party services or groups. The CBD oil market segment dominates the hemp market, accounting for the largest market share among the fiber, seed, and CBD segments due to increasing demand by the pharmaceutical industry.

Prices for hemp fiber vary, ranging from $1 to $5 per pound. The end uses for hemp fiber can be in textiles for clothing, home goods and rope and industrial uses such as construction, composites and some renewable fuels. For hemp grown outdoors, USDA has reported prices of $1.50 for fiber, $1.51 for grain and $39.60 for flower.

The National Weekly Hemp Report issued weekly by USDA AMS Specialty Crops Market News contains the weekly retail advertised prices for selected hemp commodities as well as total import volumes and values of all hemp commodities entering the U.S. for both the current week and for the year to date. While the frequency of retail price reporting varies by hemp product and size categories, 16-ounce protein and 8-ounce seed products ranged from $13 to $23 and $6 to $11, respectively, thus far in the 2023 calendar year. Hemp oil ranged from $10 to $20 for a 16-ounce container. The USDA does not report pricing information on CBD products.

Cannabinoid crops continue to make up most of the hemp grown in some of the larger hemp-cultivating states. Those percentages are changing in some regions as most notable interest being shown is in the production of hemp for fiber. The use of CBD oil has seen a surge in popularity in recent years, and with that, there is an ever-growing range of prices for products containing CBD oil. CBD oil is usually more expensive than other forms of CBD because of the additional processing required to produce it. CBD oil is typically made by combining CBD extract with a carrier oil, such as medium-chain triglycerides (MCT) or hemp seed oil. This additional step increases the cost of the product. The price of CBD oil is determined by several factors, including the concentration of CBD, the type of CBD extract used and the quality of the product. The cost of production and shipping will also influence the price of CBD oil, as well as the level of demand for the product. Finally, the retail markup and the brand name can also help determine the price of CBD oil.

There are several factors that account for the discrepancies in CBD oil pricing as there are many variables that affect the average cost of products in the CBD industry. The process of extracting CBD oil can be expensive, and additional costs may arise from creating specific products. Plus, the potency of a bottle can greatly affect the price. Additionally, variables, such as whether the product is a full-spectrum CBD oil, an organic CBD oil or if it was extracted from organic hemp plants, can also play a part in how CBD brands establish proprietary CBD oil pricing.

Markets and prices for industrial hemp are still in their infancy, so variability in prices is likely to remain a factor for some time. Prices are subject to dramatic change between planting and harvest. The percent of CBD oil is a key determinant in price and is itself varietal and environmentally dependent. Significant variability in CBD oil content may occur, thus having a direct impact on producer net returns.

The market for intoxicating hemp-derived cannabinoids remains volatile. Market participants in the intoxicating hemp-derived cannabinoid space continue to report generally brisk business and have expanded into marketing a wide array of THC isomers, which are compounds that are structurally related to THC produced from CBD. Notably, this sales channel for extracted CBD, which is used as a precursor in manufacturing these synthetic cannabinoids, has not resulted in discernible upward pressure on prices for CBD extracts. This suggests supplies of such material remain robust, in part due to declining consumer demand for CBD products generally.

Summary

Industrial hemp production comes with some degree of risk. Risk will always be a part of commercial agriculture. Precipitation, weed pressure or destruction due to THC levels could result in total economic loss unless somehow addressed in the production contract. It is important to consider both the capital invested in the current crop and the forgone revenue/cost from an alternative crop that could have been planted in lieu of industrial hemp. Price and marketing risk are also concerns prevalent with emerging crops. Most hemp production is expected to occur under contract, which will include a financial agreement that would seem to, initially, ease the minds of risk-averse producers while observing fluctuations in commodity prices through the year. As the hemp market matures, logistical and processing capacities should further develop and stabilize. Another strategic risk to accounted for is that market price data for hemp fiber and seed are difficult to authenticate. Contract production hampers the visibility of commodity prices because they are not bid for or auctioned.

As with any new enterprise or industry, advocates for industrial hemp are enthusiastic about the potential of industrial hemp, especially as it provides producers with a potential new crop that can be incorporated into their traditional crop rotation. Many questions do remain—mainly those related to the existence or creation of a robust industrial hemp market and how such a market would be able to take industrial hemp and transform it into value-added products that consumers would demand in a manner both profitable and sustainable in scale for both producers and industry. There is promise, as industrial hemp and its byproducts can be harvested for its seed, fiber, and flowers that can be incorporated into a multitude of goods for both the industrial and consumer retail markets. With scarce agronomic data on best cultivation practices for industrial hemp and lack of data relevant to other challenges surrounding its cultivation, it is evident that much research is yet to be done to be able to better understand this crop and its potential.

Michael Deliberto is an associate professor in the LSU AgCenter Department of Agriculture Economics and Agribusiness.

This article appears in the fall 2023 issue of Louisiana Agriculture.

Small hemp plants grow as part of a research project at the AgCenter Doyle Chambers Central Research Station in Baton Rouge. The project is led by molecular breeding specialist Babitha Jampala. Photo by Kyle Peveto

Table 1. Summary Statistics of Industrial Hemp Production in the U.S.

Source: USDA NASS.

REFERENCES

USDA Agricultural Marketing Service (AMS). National Weekly Hemp Report.

USDA National Agriculture Statistics Service (NASS). National Hemp Report. April 2023.

Clawson, S., A. Hagerman, and S. Ferrell. Industrial Hemp Production: Risk Management. Oklahoma State University Extension Service, AGEC-1086, August 2019.

Cui, X. and A. Smith. 2020 Industrial Hemp Extract Biomass (CBD) Production Budget. University of Tennessee, Department of Agricultural and Resource Economic, June 2020.

Hemp Benchmarks. Spot Price Index. July 2023.

Mark, T. and J. Shephard. Industrial Hemp Budgets, 2019. University of Kentucky, Department of Agricultural Economics, 2019.