... and no longer a Controlled Substance. The United States Senate voted to approve an $867 billion farm bill, which allocates billions of dollars in subsidies to American farmers, legalizes hemp, and bolsters farmers markets. The bill is now moving to the House, where it is also expected to pass after lawmakers worked out a House-Senate compromise this month. From our vantage point, the critical provision of the bill authorizes the production of hemp, a form of cannabis with lower THC levels than marijuana. Our Subjective Probability algorithm (SP-GTM) projects that hemp will grow into a $25 billion industry by 2025.
Up to now, industrial hemp production in the U.S. has been restricted to research and pilot programs. The long-awaited bill would remove industrial hemp from the federal government’s list of controlled substances, making it a lawful agricultural commodity. The hemp legislation introduced by Senate Majority Leader Mitch McConnell, R-Ky., earlier this year also allows states to become the primary regulators of hemp cultivation, enables researchers to apply for federal grants and makes the crop eligible for crop insurance. The lion’s share of the roughly $800 million U.S. hemp market today is for products that include the non-psychoactive compound CBD, cannabidiol. Products infused with CBD are used for a wide range of medical conditions, ranging from epilepsy and multiple sclerosis to arthritis and chronic pain. However, laws involving CBD products differ in each state. Up to now, industrial hemp production in the U.S. has been restricted although imports from Canada, China, and Europe have helped fill domestic demand for everything from hemp seeds to fibers. The legalization of hemp cultivation could boost investor interest across the sector. From a longer-term perspective, hemp will be managed and controlled by the U.S. Department of Agriculture, as corn, soybeans, etc. As an agricultural commodity, hemp qualifies as an investment grade product for institutional funds. The same footprint is likely for marijuana when the federal government establishes a pathway. Hemp is a cannabis cousin of marijuana, but it contains low levels of THC, the chemical that produces a “high” for pot users. Industrial hemp is used to make everything from apparel, foods, and pharmaceuticals to personal care products, car dashboards, and building materials. However, in retail branding, our analysis projects that hemp-derived CBD consumer market will reach between $2.5 billion and $3.1 billion by 2022. At least 40 states have legalized industrial hemp farming or done pilot programs, usually research through a university or state agriculture agency. The hemp legislation, as sanctioned under the bill, will allow states to become the primary regulators of hemp cultivation, and for researchers to apply for federal grants. The data compiled from our SP-GTM algorithm suggests that Hemp will be more profitable to grow than tobacco or even some other vital crops; at least for the time being. It is possible to generate $50,000 an acre on hemp, depending on the percentage of CBD. Otherwise, fiber and hemp seed crops will produce lesson per-acre basis, but twice as much as corn. In October, Gov. Jerry Brown of California signed state legislation allowing industrial hemp cultivation starting in 2019. Given the favorable climate in parts of California, farmers can get up to two crops per year of hemp plants.
Again, be careful. With a commodity governed by the rules of supply and demand, don't jump into the hemp cultivation game unless you understand the long term pricing curve.