It’s official! HEMP IS LEGAL!
President #Trump signed the 2018 Farm Bill into law and one provision legalizes industrial #hemp as an agricultural commodity. Here is a look at some of the provisions and why it is game changer for the broader #cannabis market.
The most significant impact is that it removes industrial hemp from the Schedule 1 Controlled Substances List. Hemp was linked with marijuana and placed on the list in 1970 with the passing of the Controlled Substances Act. The irony of the decision was that hemp contains less than 0.3% of THC (the psychotropic compound in cannabis) Therefore, it can not get you “high”. Further, by definition, Schedule 1 drugs contain no known medical benefit whatsoever. Yet, many claim a number of health benefits from CBD, an extract of hemp and cannabis. Still, the fact that industrial hemp is being removed from Schedule 1 at all is a dramatic step and one that, I think, paves the way for hemp’s cousin, marijuana, to be removed at a later date.
Other provisions include interstate commerce and access to crop insurance for hemp farmers. The USDA will regulate hemp production, and producers will have to submit plans for approval either directly or through state agencies.
But what about CBD production?
I believe that the CBD revolution has helped bring this provision of the law into effect. CBD, a NON-psychotropic compound, can be derived from cannabis OR hemp. Of note, the FDA will be responsible for regulating how CBD is used in foods, dietary supplements, and cosmetics. Given the popularity, I think the FDA will likely move quickly on a framework for regulation.
Another investment consideration is that this law allows large food and beverage companies to bring CBD products to market. The skill, expertise, and knowledge base of these companies will likely increase the level of consumer education with hemp and CBD as well as credibility (and thus - demand for the product). Further, general research on hemp (and marijuana) has been limited due to being listed on Schedule 1 of the Controlled Substances List. Again, the removal of hemp allows for more studies and research to be done by reputable institutions. This, of course, could be a double-edged sword in that it could legitimize/expand the anecdotal and limited research to date OR it could undermine it. Time will tell.
The most interesting provision is that while CBD from hemp is legal now, CBD derived from cannabis IS STILL ILLEGAL. However, at this point (to my knowledge), there is no way to know whether or not the CBD was derived from one or the other. So how would a regulatory official, or DEA agent for that matter, know a company received its CBD extract from hemp or marijuana?
My thesis is that a “tracking” system will be adopted to follow the product from seed to final packaging. This is already being done in some of the legal cannabis states. As federal regulation steps in, I imagine the process will become more standardized which is beneficial for the industry in the long term. Even if the final rules are somewhat onerous, the clarity will at least allow companies to adopt compliance procedures and replicate across states.
Various cannabis companies are already talking about spinning off the hemp divisions of their companies to take advantage of the new legal status of hemp. With the numerous uses of hemp (CBD, paper, clothing fiber, plastics, etc.), there are many investment implications and opportunities…