Marijuana’s misunderstood sister hemp is projected to be a $22 billion market by 2020, but can it overcome the social stigma and federal regulations that threaten to hold it back?
It’s been called the gateway crop. Thanks to its stalks topped with five leaves, hemp shares the same signature look as its intoxicating relative, the marijuana plant. And it’s true that both are varieties of cannabis sativa, a subtype of the cannabis plant, but their differences are much greater than their similarities.
Hemp stands tall, a willowy plant reaching 16 feet high with skinny leaves, while marijuana is a short, fat bush that usually tops out at five feet. And, most notably, hemp doesn’t contain high quantities of the psychoactive ingredient Tetrahydrocannabinol, or THC, like marijuana. Hemp’s THC content is less than 0.3 percent, while marijuana’s THC can be five to ten percent or more. Meaning: Marijuana will get you high. Hemp won’t.
“People think hemp is another word for marijuana,” says Giles Good, the Co-Founder of HALE, a wellness company that sells hemp oil extract products. “It’s not. The use of the words hemp and cannabis as synonyms for marijuana has to stop.”
“Marijuana will get you high. Hemp won’t.”
Why the obsession over nomenclature? Because one simple word means the difference between legal and illegal when it comes to cannabis.
“Cannabis is the species of the plant; think of it as the umbrella,” says Garrett Graff, Senior Attorney at Hoban Law Group, a firm specializing in Cannabusiness Law. “Citrus has many different types of citrus. So too does cannabis. It has one that is marijuana, and that is the psychoactive species. A separate subspecies of cannabis is industrial hemp. Under Schedule 1 of the Controlled Substances Act is marijuana and THC–not CBD, not hemp. Marijuana, not cannabis, is what is defined under federal law as being illegal.”
So while hemp is cannabis, it’s not marijuana, and that makes all the difference.
Change is in the Air
Even without the mind-altering THC compounds, many still confuse hemp’s derivatives, like cannabidiol, called CBD, to be categorized together with marijuana under the Controlled Substances Act as a Schedule 1 drug—the same class reserved for intoxicants like heroin, ecstasy and LSD. And although CBD is a compound that can be derived from marijuana, it is the marijuana that is the distinguishing factor rendering it illegal. If sugar is derived from marijuana, it would be illegal as well—not because it’s sugar, but because it’s derived from marijuana.
With federal and state officials still struggling to fully understand that important difference, any companies seeking to enter the hemp and CBD space will almost certainly face an uphill battle. “Hemp is not marijuana, and that’s the fight and the education you have to engage in with regulators at the state level,” Graff says. “They just don’t understand yet.”
But change is on the horizon. On September 28th of this year, the DEA announced that FDA-approved products containing CBD derived from cannabis that hold no more than 0.1 percent of THC would be categorized as Schedule V drugs, a class that includes household names like Robitussin AC and Codeine. This announcement, spurred by the approval of Epidiolex, a drug used to treat rare forms of epilepsy, does not legalize all CBD oil products, but the landmark decision means doctors could prescribe CBD drugs and have them filled by a traditional pharmacy, rather than referring patients to a medicinal marijuana dispensary. And a proposed amendment to the 1972 Controlled Substances Act that appears in this year’s Farm Bill would exempt hemp from being subject to regulations that relate to the high-THC marijuana plant, further expanding on the 2014 version of the bill which allowed for the domestic growth of hemp for the purpose of state pilot programs or for academic research.
“Domestic hemp farming has been legal in roughly 40 states under state programs since the 2014 Farm Bill,” Good says. “The real question was whether the trace amounts of THC in hemp oil extracts was also legal. The 2018 Farm Bill should resolve that issue once and for all.”
Many supporters of the changes found in this new Farm Bill believe the broader legalization of hemp and CBD oil products is the logical choice, especially when considering hemp’s rich American history.
America’s Past Relationship with Hemp
America’s preindustrial era, before plastic and synthetic materials became available, lauded hemp as a vital material known for its exceptionally strong and durable fibers. When the English navy used 10,000 acres worth of hemp to construct ocean-worthy sails that helped them beat the Spanish Armada in 1588, it paved the way for the Virginia Assembly in 1632 to order that every planter sow hemp seeds in their fields. As a result, hemp was grown throughout the American colonies and used for ropes, bedding and clothes, but its popularity increased as the rapport between Britain and America eroded, leaving America stranded by boycotts of British imports. As fighting ensued in 1775, the American navy depended on hemp products to survive, using hemp ropes, sails and cords on its ships.
But with the end of the American Revolution came the end of America’s dramatic demand for hemp. Although it remained a domestic cash crop for a time, it didn’t take long for the versatility and ubiquity of synthetic fibers to lessen the hemp plant’s appeal. Hemp was not irrelevant, but it was no longer unique, and the cons of the psychoactive properties found in its lookalike relative began to outweigh hemp’s resilience and usefulness. What was once a staple in the farming community quickly became illegal as state by state, and then the federal government, criminalized cannabis throughout the 20th century.
“We have a short memory about hemp in our society.”
— Giles Good, Co-Founder of HALE
Why hemp was included in legislation with its THC-rich marijuana plant relative, naming it a psychoactive hallucinogen and illegal to cultivate or possess, is a question with a variety of theories for answers.
Some believe hemp was included because it posed a threat with its five-fingered leaves, looking too much like its relative the marijuana plant, and making it easier for marijuana growers to hide their prohibited crop within its tall stalks. But scientists dispute this, explaining that the cross-pollination of the two would so drastically lower the THC levels in the true marijuana plant that it would destroy the high its growers chase.
Historians cite what they believe to be the lobbying of petrochemical companies, like DuPont, who allegedly used their influence to levy prohibitive tax laws and eventually ban hemp altogether in an effort to undermine what they saw as a threatening competitor.
Whatever the catalyst, the domestic growth of hemp has been federally regulated and marginalized since the Marijuana Tax Act of 1937, with the exception of a brief lift on the ban in 1942, when domestic hemp was again necessary to meet the demand for war supplies during a shortage caused by the Japanese occupation of the Philippines.
“We have a short memory about hemp in our society,” Good says. “The acceptance of hemp goes all the way back to our Founding Fathers who encouraged the Colonists to grow hemp for fiber to support the Revolutionary War effort. We can only hope that as time goes on and people come to relearn the difference between hemp and marijuana, the stigma will subside.”
America’s relationship with hemp is complicated. It’s legal, but also not, and the grey areas can be confusing. What’s certain is that America loves hemp—as long as its imported.
Differing Opinions Abound
The United States is the largest consumer of hemp products in the world, but the United States is the only industrialized country that restricts hemp farming, read a resolution passed without objection in the U.S. Senate in June of this year. It went on to describe hemp as having “great potential to bolster the agricultural economy of the United States.”
The total sales for the U.S. hemp industry last year exceeded $700 million, with almost a quarter of those dollars spent on hemp-derived CBD oil products.
“This is the greatest education opportunity of our lifetime, that I’ve seen so far, in terms of health and wellness product.”
— Steve Wallach, Youngevity Chief Executive Officer
So, if the domestic growing of hemp is still widely illegal, where is the hemp coming from? Canada, mostly. A recent Congressional Resource Services report listed the United States’ northern neighbor as supplying 90 percent of all annual hemp product imports, followed by China and Romania. Canada, whose commercial hemp industry only became legal in the late nineties, saw annual retail sales of their locally grown hemp seed products reach an estimated $40 million last year, while using only one percent of their available farmland.
But not all analysts have agreed in the past that hemp is the cash cow it appears to be. A 2000 USDA study reported that U.S. hemp markets would “likely remain small, thin markets,” and opponents say the intensive process required to harvest and process hemp would be a stumbling block for domestic profitability.
Money isn’t the plant’s only draw, and advocates tout environmental advantages to adding hemp to the American agricultural calendar. Hemp’s drought-tolerant properties and ability to grow in tough conditions has appealed to farmers who boast about the forbidden plant’s deep root systems that help loosen the soil for plants that follow it. Unlike tobacco and traditional crops, hemp does not deplete the soil of its nutrients, but instead restores nutrients to the soil through phytoremediation. And uniquely, it does not require pesticides or herbicides, making it an excellent rotation crop that could break disease and pest cycles without a negative environmental impact.
For opponents of hemp’s legalization, hemp is a risk not worth taking, believing the plant to be too similar to marijuana to be safe. Risky or not, industry experts don’t see the momentum for this niche market slowing down anytime soon. Market analysts expect the rise of hemp and CBD products to only increase in popularity and usage, although the projections for revenue vary widely. The Hemp Business Journal announced their projections for the U.S. hemp industry value as $1.9 billion by 2022, but a recent report by cannabis industry analysts The Brightfield Group projects that CBD will be a $22 billion industry by 2022. “It has been flying under the radar but is set to explode, having profound impacts on CPG and pharma,” their statement read.
“That’s great disparity, I’ll grant you that, but I’ll take either number,” Graff said. “Either way that shows great growth in this marketplace.” Even The New York Times has chimed in about CBD’s speed of acceptance, stating “It’s hard to understate the speed at which CBD has moved from the Burning Man margins to the cultural center.”
Will CBD Deliver?
Where there’s revenue potential, you’ll find entrepreneurs anxious to take their own bite out of the market share. The allure of an untapped product niche on the table has served as a carrot for many direct selling companies who have now appeared on the scene, selling supplements, creams, skin care lines and holistic wellness products formulated on the foundation of hemp.
Like any new product development, choosing the right delivery systems for hemp and its CBD extract will prove imperative for companies entering the space. With hemp’s versatility, the options are only limited by a formulator’s imagination, as delivery can be topical—creams, serums, oils—or internal—pills, capsules, sprays, inhalation, tinctures, sublingual application or strips placed on the tongue.
The trick, scientists are discovering, is creating a formula that is highly bioavailable, or readily absorbed by the body.
“A lot of the delivery systems—creams, pills, oils—majority of that is not bioavailable to you,” says SS BioMed Chief Science Officer Dr. R. Scott McKinley, PhD. “If we could increase the bioavailability of it we could get it into the human quicker and at a much higher dose. I can’t help but think that would be beneficial. Plus, we would need less of it.”
Why Customers Can’t Stop Talking About Hemp
Network marketing companies are discovering that while the cannabis market is unconventional, the controversy it inherently brings with it can be a plus. Kannaway CEO Blake Schroeder, who touts his company as the first in the direct selling industry to sell hemp-derived products, recently told Direct Selling News, “What we’re trying to do is be a professional company in an unprofessional space. Everybody has a viewpoint, whether it’s positive or negative, educated or uneducated, about cannabis. It’s the easiest thing in the world to talk about, and it’s something people want to talk about. It’s in the news every single day.”
And Kannaway’s revenue stats support that. When Schroeder joined the company in March of 2016, Kannaway was reporting $83,000 in monthly revenue. By July of this year, the company’s monthly revenue had rocketed to $5 million. There are a host of variables that could affect this revenue bump, like a more qualified leadership team or better marketing tools, but if the buzz about CBD wasn’t present, those higher revenue numbers wouldn’t be either.
What began as an eccentric business opportunity has now drawn a flood of investors and entrepreneurs, sending vibrations of excitement across the industry and encouraging pop-up organizations to flash onto the scene with surprising speed. This spontaneity has some executives worried that the reputation of quality hemp-derived products will be tainted by competitors following a get-rich-quick model, with no longevity or stability built into their business plans.
When people focus mainly on getting rich, bad decisions can be made. The direct selling industry wants to raise the bar on safety and quality while building trust and focusing on building brands that care about people, products and the planet. It’s about wellness, not money.
But among these budding companies are organizations who have been planting roots long before they entered the direct selling industry and are striving to make a name for themselves through quality control and reputation.
“What separates us from the rest of the pack is the boutique nature of our product as a result of our verticality,” Good says. “Our roots are literally in the ground. We started as hemp farmers and evolved into extraction, formulation, wholesale, and eventually network marketing. We control every step of the process from soil to oil.”
A Natural Fit For Direct Sellers
Cannabis has never been mainstream for the direct selling industry, but with the emergence of new legislation and drug laws that prove more favorable to companies selling it, a growing number of startups as well as established companies have begun announcing their entry into the new market trend.
In fact, in its most recent study, Direct Selling News has identified at least 25 direct selling companies that already have entered the CBD space and will sell $300 million worth of cannabidiol-related products in 2018, making direct selling the largest channel of distribution for the rapidly growing CBD product sector.
For existing health and wellness companies, adding a CBD oil or hemp product to their existing portfolio aligns well with the missions their companies already espouse.
California-based Youngevity International, a wellness company founded in 1996, is one of the first conventional direct selling companies to throw their hat into the cannabis ring. “We firmly believe in plant-based nutrition, and hemp (CBD) oil perfectly complements our product development philosophy,” says Youngevity Chief Executive Officer Steve Wallach. “Entering this market, which is growing almost exponentially, also should offer a tremendous advantage to our many Distributors around the world.”
When considering the implications of entering into such a controversial and legally complicated product niche, Wallach says he began consulting with legal experts as early as four years ago and received differing opinions about whether or not the hemp market was the right next move for Youngevity. Ultimately, Wallach says he believes the direct selling channel is the ideal vehicle for bringing hemp and CBD oil to market.
“Part of the challenge is the legal landscape out there because confusion is rampant,” Wallach says. “I actually love that about this category because it’s what our channel does. I see our channel as an education platform; I always have. From that standpoint, this is the greatest education opportunity of our lifetime, that I’ve seen so far, in terms of health and wellness product.”
Still A Lot of Work to Do
The wheels are turning but until—and only if—the new Farm Bill legislation passes, will hemp and all of its derivatives be clearly separated from its ties to marijuana and a Schedule 1 classification under U.S. drug laws. In the meantime, education remains the single most important element for creating a foundation of success within the hemp market.
“We can’t expect everyone at the federal level, we can’t expect everyone at the state level, to be on board on day one,” Graff says. “This is a crop that many haven’t even seen within their generation or within their lifetime.”
A recent report by cannabis industry analysts The Brightfield Group projects that CBD will be a $22 billion industry by 2022.
That means maintaining investors and funding supply chains remains delicate. State regulators and third-party retailers find themselves bound by the gray area that lies between hemp and marijuana, making business as usual difficult for companies seeking to partner with hemp-related companies. With the passage of the Farm Bill, the tiers of development behind the scenes could accelerate with the clearer understanding that would accompany hemp regulation and education.
The new Farm Bill would help generate momentum and clarity for state regulators to embrace hemp regulation and help third party retailers and service providers—like banks, merchant processing and insurance—that don’t understand the distinction between hemp and marijuana. It would help propel the growth and development of the industry, ramping up production, cultivation, investment and development of infrastructure.
The DEA’s loosened regulations on low-THC cannabis and the proposed Farm Bill, with its hemp-friendly language, is paving the way for an entirely new niche market of pharmaceuticals, nutraceuticals and natural care products.
“The hemp farming language in the 2018 bill has overwhelming bipartisan support,” Good says. “We don’t see any argument being advanced from any direction for going backwards, especially now that the FDA has acknowledged that CBD can be formulated into a syrup and prescribed by physicians to treat illness.”
Will an end to prohibition lead to a modern-day gold rush? Only time will tell. But with the potential for a $22 billion market up for grabs, the starting gate is beginning to get crowded.
Cannabis: A Safe Investment?
An article in the Wall Street Journal in September of this year compared the rise of the cannabis market to the internet in the late 90s: compelling and crowded. Investors smell blood in the water, and, like sharks, they’ve begun to circle, pouring money into speculative opportunities. But if history is the greatest teacher, then it’s important to remember that no market is a guaranteed bet.
Among the five dominant companies in Canada, the market value has risen from $4 billion to nearly $40 billion in the past year.
That’s why all eyes are on Canada. The only country other than Uruguay to legalize marijuana, Canada is experiencing a flurry of activity among the 120 cannabis-based companies on their Canadian Securities Exchange. Among the five dominant companies in Canada, the market value has risen from $4 billion to nearly $40 billion in the past year.
For now, U.S. banks have remained hesitant because of heavy federal regulations, but leaders within the U.S. hemp and CBD market are hopeful. “The resurgence of the American hemp industry is already well under way,” says HALE Co-Founder Giles Good. “Once the hemp farming language in the 2018 Farm Bill is passed, banks and merchant processors can feel safe doing business with hemp companies without fear of losing their charters or assets and investment in the industry will increase. We’re already seeing an influx of money from traditional industries in anticipation of these changes.”