Three Exciting Trends Transforming The Hemp Business
Sustainability, refocused farmers, and new finance products will make a huge impact.
I frequently speak at conferences on the opportunities and challenges of the emerging US agricultural hemp industry. One of the hot topics is the emerging trends in both the producer and consumer markets that are driving a transition in American agriculture to meet new market demands of transparency, brand authenticity, regenerative practices, and social engagement.
Here are some transformative things happening in hemp right now.
1. Regenerative agriculture
Sustainability is a hot-button topic that's become increasingly important as commercial hemp farms begin to scale up. At its core, sustainability means providing the correct inputs for a healthy and thriving ecosystem as you take outputs from the land. But sustainable farming alone is not answering the needs of our environment. As a result, more and more hemp farmers are adopting regenerative agriculture practices.
What is regenerative agriculture? It's a system of farming principles and practices that increase biodiversity, enrich soils, improve watersheds, and enhance ecosystem services. While these practices have been around for centuries, many of these approaches have been replaced by those that favor commercial farms with large yields.
While there isn't a policy in place to incentivize farmers to adopt regenerative agriculture practices, we are starting to see an emergence of private hemp companies supporting the movement—a great reminder that the market is capable of inciting change even when policy can't keep up. This is because the market can quickly and directly respond to consumer needs, like the recent demand for transparent farming practices.
2. Refocused farmers
For well over a year, worries about a farm crisis have rippled across rural America, touching every industry. One example: Wisconsin is estimated to be losing two small dairy farmers per day, corn prices are down more than 15 percent, and grain farmers are having to take out expensive loans in order to operate. As a result of these hardships, roughly 91 percent of farmers and farmworkers have financial issues that affect their mental health and 87 percent are afraid they'll lose their farms, according to a survey commissioned by the American Farm Bureau Federation.
Amid this farming crisis, many in the industry are turning to hemp in an effort to save their farms, their families, and themselves. Since the passing of the Farm Bill in December 2019, hemp cultivation has expanded at a rapid rate—an estimated 285,000 acres of hemp were planted nationwide compared with about 78,000 acres in 2018, and we anticipate that this trend will continue into 2020 and beyond, with the CBD market expected to reach $23.7 billion by 2023.
Many of the individuals that are turning to hemp are veterans. I've witnessed that those who have served our nation have an inherent desire to be back out on the land. They want to do their part to ensure that our nation is food secure. Farming has also been found to treat PTSD, so many of these vets are finding solace in growing food and are using farming as a way to heal mental and emotional wounds. The military offers resources for its members who are interested in pursuing farming, anyone interested in learning more should visit: https://www.military.com/benefits/veteran-benefits/usda-assistance-veteran-farmers-ranchers.html.
3. New finance opportunities
Because banks are skeptical and conservative by nature, they have guarded optimism about the hemp industry. To change this perception and make hemp mainstream, many things need to be accomplished—especially in regard to insurance products. Thankfully, in the upcoming crop year, there will be limited insurance plans available that permit hemp farmers to operate in a manner consistent with other agricultural crops through the lens of the finance sector. These pilot products, mandated by the 2018 Farm Bill, will be offered in a limited number of states and counties.
There will be an "experience requirement', which will limit its participants to those farmers who have a history of hemp production under programs compliant with Section 7606 of the 2014 Farm Bill. What does this mean? Widely available multi-peril insurance products are coming— but not soon. A typical insurance policy developed for new agricultural crops takes an average of 3-5 years to be market-ready. We've taken the first step.
But there is some good news. Federal financial regulators issued new guidance in early December 2019 to banks and credit unions regarding working with the hemp industry. Because hemp is no longer a Schedule I controlled substance under the Controlled Substances Act, banks are not required to file a Suspicious Activity Report (SAR) on customers solely because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations. This recent regulation is a sign that while we may have a ways to go, things are certainly moving in the right direction.