The hemp industry is bracing for layoffs, production reductions and billions in lost revenue after Congress passed a government funding bill late Wednesday containing a surprise provision that may ban nearly all hemp-derived consumer products.
Hemp, a derivative of the cannabis plant, was legalized within the 2018 Farm Bill for industrial uses like rope, textiles and seed. However the law’s broad definition created a loophole in federal rules on THC — the psychoactive compound answerable for a high — experts said, allowing producers to extract psychoactive cannabinoids from federally legal hemp. Firms used that opening to flood the market with gummies, drinks and vapes able to delivering a marijuana-like high.
The brand new ban, tucked into laws ending the longest shutdown in history, outlaws products containing greater than 0.4 milligrams of total THC per container. Industry executives said that threshold will wipe out 95% of the $28 billion hemp retail market when it takes effect in a yr.
For reference, a single hemp gummy typically accommodates 2.5 to 10 milligrams of THC, in keeping with the Journal of Cannabis Research.
“We now have lost the battle this time,” said Jonathan Miller, the U.S. Hemp Roundtable’s general counsel. “In effect, this can be a total, all out, complete ban on hemp products in the US.”
Cannabis beer and other cannabis-infused drinks will likely be available at a stand on the “Mary Jane” hemp trade fair.Â
Monika Skolimowska | Picture Alliance | Getty Images
The brand new cap replaces the 2018 Farm Bill’s definition of hemp, which was based on THC concentration and allowed products with lower than 0.3% THC by weight as a substitute of total amount.
“We now have a yr to figure this out but within the meantime you possibly can see losses across the industry if we will not,” Miller said.
Greater than 300,000 jobs tied to the hemp economy are in danger, in keeping with Whitney Economics, a hemp and cannabis research firm, from farmers and extractors to manufacturers, logistics firms and retailers.
The ripple effects could hit land use, contracted acreage and equipment financing, as farmers who scaled up hemp cultivation after 2018 could suddenly face canceled or restructured contracts, said Michael Gorenstein, CEO of marijuana producer Cronos Group. States with the largest hemp infrastructure like Kentucky, Texas and Utah are more likely to face the steepest economic fallout, hemp executives said.
“There’s plenty of the small retailers, small businesses and farmers which can be counting on hemp sales to survive,” Gorenstein told CNBC. “It may create plenty of pressure once they start losing business, losing jobs and losing crops.”
The crackdown marks a dramatic reversal from 2018 when Sen. Mitch McConnell, R-Ky., championed hemp legalization to create a brand new national agricultural commodity and economic driver for Kentucky.
But after that bill passed, the absence of federal rules allowed a patchwork market to emerge, with widespread questions of safety from mislabeled and untested products to items with potency rivaling recreational marijuana, in keeping with government officials and industry experts.
McConnell and other Republicans argued the brand new restriction “restores the unique intent” of the Farm Bill. Closing the loophole, McConnell has said, is essential to protecting his agriculture-policy legacy before his retirement next yr.
“This was his [McConnell’s] signature law, the hemp law, and he desired to correct it,” Boris Jordan, CEO of cannabis company Curaleaf, told CNBC. “Normally the Senate will back a retiring senator, particularly someone as senior as him, as their last motion. This was a request by him on the last minute.”
But not all Republicans agree. Kentucky Sen. Rand Paul has sparred together with his colleagues for months over hemp and blasted the availability as an overreach that’s “killing jobs and crushing farmers,” adding that “every hemp seed within the country can have to be destroyed.”
“That is probably the most thoughtless, ignorant proposal to an industry that I’ve seen in an extended, very long time,” Paul said after the ban was passed.
On this July 5, 2018 photo, Senate Majority Leader Mitch McConnell inspects a chunk of hemp taken from a bale of hemp at a processing plant in Louisville, Ky. McConnell led the push in Congress to legalize hemp.
AP Photo | Bruce Schreiner
While leaders like Jordan said the legal market will sharply contract from a ban, they caution the buyer demand for hemp-derived THC is not going to. Studies have shown demand for marijuana and other THC-based products has continued rising in recent times as some consumers move away from alcohol and drink less overall.
Cannabis executives warned that rising popularity could drive billions in black-market sales, where products face no testing, no age restrictions and no tax compliance.
“What this ban goes to do is it may force all those little players right away into the illegal market,” Jordan said. “Firms have gotten way an excessive amount of money invested on this and the demand continues to be there and growing. They [companies] aren’t just going to go away, they’re just going to enter the illicit market and put more people in danger.”
And as products move underground, law enforcement agencies could struggle to trace supply chains, Gorenstein said.
“Bad actors thrive when things disappear from the formal economy,” Gorenstein said.
State and native governments could also lose out on tens of millions in tax revenue tied to hemp sales, Gorenstein and Miller said. Several states use those funds to support addiction services, county budgets and public health programs.
Moving forward, industry leaders argue the one durable solution is federal standards, not prohibition. Many favor a model splitting responsibility between agencies: the Food and Drug Administration for oversight for product safety and the Alcohol and Tobacco Tax and Trade Bureau for taxation and distribution.
Executives have also compared the present environment to the early e-cigarette boom, when products like Juul offered fruity and candy-like cartridges that spread quickly, with uneven oversight, before the FDA intervened.
“Too many individuals have taken liberties that put the tip user in danger,” cannabis company Verano Holdings CEO George Archos told CNBC. “We just like the tight regulation. We would like the protection of the buyer being set in mind for each product that is being produced and that is what we hope is being achieved.”
Within the meantime, the industry is preparing a full-court lobbying push aimed toward replacing the ban with federal testing, labeling and age-restriction rules.
“We have already got members of Congress introducing regulation bills. We’re pledging our support and we’re working on the grassroots to get residents activated around the problem,” Miller said. “We’re activating across the sector.”
Concurrently, the Trump administration is “” reclassifying marijuana from a Schedule I drug — alongside heroin and LSD — to a Schedule III drug. The move wouldn’t legalize recreational marijuana, but it surely would make it easier to sell, advocates said.
“Big changes are expected across the board next yr but what they will likely be could determine the longer term of investments and the industry,” Gorenstein said.
