Predicting the future, an activity historically relegated to gypsies, crystal balls and soothsayers, is now open to anyone with an internet connection, a willingness to research, and an imagination.
Today’s predictions often arise from financiers armed with advanced algorithms, leveraging the integrative capabilities of supercomputers.
Historical data, on agricultural market cycles of common crops, are readily available for those with the intestinal fortitude to digest and extrapolate such tedious analyses.
Hemp, in particular, poses a number of challenges when trying to predict the pathway and trajectory of the industry. According to a 2018 report, titled, Hemp As An Agricultural Commodity, “Current challenges facing the industry include the need to reestablish agricultural supply chains, breed varieties with modern attributes, upgrade harvesting equipment, modernize processing and manufacturing, and identify new market opportunities.”(1)
Hempgrower.com recently surmised, “Unfortunately, the promises of massive returns on a per-acre basis seem to have been overstated, and the immature nature of market creates volatility that established markets are able to avoid.”(2)
What is ‘Hot Hemp’
A critical compliance step for hemp farmers is ensuring their crop fulfills federal guidelines of THC levels. Hemp plants testing above .3% THC are considered hot. “Under the current framework, producers are faced with 100% crop loss if the sample is higher than 0.3%, as well as legal repercussions if that sample exceeds 0.5%. This problem does not solely fall on the hemp producer, as seed genetics are not stabilized on a plant-to-plant basis.”(2)
Too Much Hemp on the Market?
According to a blog article on acslabcannabis.com, “The value of industrial seeds more than doubled from May to October 2019, according to Hemp Benchmarks. As of October, hemp seeds are selling for $5.59 per pound. “(3)
The blog states that in contrast to industrial hemp, the value of CBD biomass decreased 42% from June to October 2019. The same trend occurred for crude hemp oil. “Of all wholesale hemp products, crude hemp oil has experienced the sharpest decline in value, dropping from $2,066 per kilo in June to $1,016 in October–a 51% decrease!”(3)
A recent Bloomberg article states, “Hemp biomass prices reached a high of over $40 a pound in July, just before the 2019 harvest came in, according to PanXchange Chief Executive Officer Julie Lerner. Today, it’s trading under $10 a pound following a quadrupling of supply from 2018 to 2019.”(4)
Analysis of trends in 2019 point to a continued decline in both biomass and crude values.
For example, Lerner estimated that Charlotte’s Web Holdings Inc., the largest publicly traded CBD company, needed less than 500 acres of hemp to service an estimated $95 million of sales in 2019. Assuming Charlotte’s Web accounts for approximately 2.4% of the $4 billion U.S. CBD market, that means about 20,000 acres of hemp are needed in total. Instead, Lerner estimated that approximately 115,000 acres were harvested in 2019. And it’s only going to get worse.”(4)
“According to trading platform, PanXchange, this type of volatility and oversupply is normal in emerging markets and will ultimately correct itself. After all, the U.S. hemp market is projected to grow to $2.6 billion in sales by 2022 with plenty of profits to go around.”(3)
The beneficiaries of increased competition amongst hemp farmers will eventually be the consumer, with anticipated lower costs of CBD related products. Amazing – the power of a little seed. One thing is assured – 2020 will bring an ample supply of hindsight.