In 2017 the state of Tennessee licensed 200 acres for the cultivation of hemp. That figure shot up to 3,338 acres in 2018 — and 38,000 acres in the first seven months of 2019.
The exponential growth in acreage is one of the startling new data points revealed in a report released Nov. 7 examining the U.S. hemp cultivation industry since the signing of the 2018 U.S. Farm Bill, a law that legalized the production of hemp.
The study, titled “Field of Dreams,” is based on interviews with 431 licensed hemp cultivators and processors from across the U.S. One of the key findings is that 65% of the respondents did not have buyers for their crops.
“People really jumped into the market because it was legal, and they saw the economic opportunities, particularly with CBD,” Beau Whitney, the founder and CEO of Whitney Economics and a report co-author, told FreightWaves.
“But in jumping in, they didn’t necessarily do their due diligence with respect to setting up a new business.”
Fits and starts
Legalization laid the groundwork for a new industry. But the regulatory environment is still in development, and the industry is fraught with business risk. The supply chain is in its infancy, and lack of processors and transportation providers hinders farmer efforts to bring their product to market. Although banks are permitted to offer services to hemp companies, many have yet to do so.
The report is called “Field of Dreams” for a reason, Whitney said. “People thought, ‘I’ll grow this and have buyers lining up,’ and that just not the case. They had a leap of faith, but it’s not going to turn out successfully for everybody.”
Whitney Economics estimates that only $3.96 billion of hemp will be able to be realized in the market in 2019. That equates to 320 million pounds or only 160,000 acres of the total 453,220 acres licensed.
The report is not all gloom and doom. Although the challenges facing the market are considerable, the report predicts that commercial hemp cultivation could become the nation’s third-most lucrative crop in coming years.
If the supply chain issues are resolved and the full value of the acreage is realized, the total value of the hemp biomass is an estimated $11.3 billion, or roughly 6% of the total value of the entire U.S. cash crops, the report states.
“Even in this unregulated environment, the scale with which it deployed — and to find it’s poised to be the third-largest crop — that was really staggering,” Whitney said.
How hemp will save the world
Among the report’s most intriguing data points are the statewide breakdowns, which provide snapshots of regional economies in transition.
Along with Colorado, Kentucky, Oregon and Wisconsin, Tennessee registered the greatest increase in licensed hemp acreage.
One explanation is Tennessee has a long history of illegal cannabis cultivation for export, Whitney said. The state also is looking for alternatives to some of the economic impacts associated with a decrease in tobacco cultivation and consumption.
The state of Kentucky, facing declining coal production, licensed 42,000 hemp acres in 2019. Kentucky Sen. Mitch McConnell played a key role in getting the hemp provision into the U.S. Farm Bill last year.
The report makes a few other prognostications about the market going forward:
Hemp will be traded on an exchange.
Big agriculture will enter, pushing smaller growers to the side.
CBD-related demand will wane as the craze peaks.