Texas Hemp Convention Recap: Where Is Hemp Headed?
Starting this post with “everything is bigger in Texas” is too easy and too cliche. But that expression sure rang true during the 3 day Texas Hemp Convention that took place in Dallas at the end of January. I was skeptical that 10,000 people would be in attendance, but upon arrival the lines to get passes took an hour on Day 1. There were nearly 200 booths in the Exhibitor Hall which felt like a street fair in a crowded city, and the education break out rooms stretched halls.
What excited me most about the event was the wide array of audience members, cannabis veterans andoung entrepreneurs grinding to stay afloat. People that simply wanted to learn what this whole hemp thing was all about. And no matter who they were, they approached you with a smile, a story to tell about their journey with hemp, and their thoughts on the future of it all.
There were certainly differing opinions regarding the future of the hemp industry. I’ve always found it best to take some things with a grain of salt, collect as much information as possible, and then truly reflect to gather my own conclusion.
One such person that I personally felt did the best job of summing up the industry’s future was Alex Seleznov, founder of Advanced Extraction and Board Member for the National Hemp Association. Alex is a hemp veteran with a wealth of knowledge and experience. That was on full display when he led his session titled “Emerging Cannabis Market: New Trends Materializing.” The following information is a summary of Alex’s discussion topics, his view of where the industry is going, and how to best prepare. Read carefully, reflect and form your own conclusions.
Market Regulation / FDA
Everyone has access to hemp, but not all access is equal per state. Standards are all over the place depending on what state you operate in. It’s going to take the USDA time to develop their ruling, but one thing you should absolutely plan for is growing your hemp below 0.3% Total THC. The 2014 Farm Bill has always said that 0.3% is meant for Total THC; those thinking USDA will change that is not going to happen. So your best bet is to ensure the cultivars you grow meet this standard.
On the topic of THC, all of the major hemp associations are pushing to take the burden off the grower for the destruction/fines of hot crops that test above the legal THC limits. Rather than burning crops and penalizing farms, crops that fall within 0.3% - 0.5% should have an action plan that must be followed out by the farmer to bring the crop back into compliance / limit the production stream. Our government should set up a system that encourages farms, not enforces and puts fear into an industry trying to grow and succeed.
Many states are sticking with their existing 2014 Bill instead of adopting the USDA’s proposed 2020 plan. This is the states’ way to show the USDA that their interim ruling wasn’t in line with what farmers want. One such impact this could have is how the third party lab testing market will shake out in 2020. The USDA’s interim ruling was that these labs need to be DEA approved, which could cause a severe bottleneck due to the lack of sheer number of approved labs. If your state chose to stick with its existing regulations, it could allow you to test with non-DEA labs.
We’ve all heard of the cannabinoids THC, CBD and CBG. But there are many others that are currently being explored (CBT, CBC, CBN). In order for this type of cannabinoid exploration to continue to grow and advance this industry, scientific and clinical trials need to happen and the results made known to the public.
A personal hope is that in 10-15 years THC will be de-stigmatized. There is no reason to treat it this way. Also, there is no other product in the world that demands such rigorous labelling and lab testing; this is because of the stigma of THC and people’s need to see test results showing only trace amounts of THC before they’re willing to purchase the product.
Marketplace / Retail
Most sustainable products will be sold through mass market retail, but it’s all based on timing to move the products forward. It’s going to be hard to be a hemp specialty store when Walmart starts carrying a full line of products. With that said, we’re a few years away from Big Box stores taking over.
More Marijuana / THC companies are getting involved with hemp by producing their own CBD or purchasing it and then mixing it with their THC products. They can create THC:CBD ratios and can get really creative on making new products that really use all the cannabinoids without THC restrictions.
Similar to the THC companies, dispensaries will be a big channel to start testing with full cannabinoid profiles because of their ability to create the patient/customer consultation experience in a legal limit.
Novelty stores like smoke shops are currently carrying CBD products, but they won’t be able to hold when mass market retail and Big Box stores fully enter the market. They’ll be able to keep up by selling low level / novelty products.
Kiosks are sprouting up all over the place in advanced markets such as Colorado. Kiosks could have a huge impact moving forward. Closely related, vending machines will also begin trending up. If you’re a product creator, how are you going to package and orient your product to sell in vending machines/kiosks?
Selling CBD online is still very strict with the Internet giants that control most activity. Google restricts advertising and Amazon restricts sale. Regardless, expect to continue seeing competition online. You can focus on SEO efforts to rank organically, but once Google allows for paid advertising it is going to open the door for the companies with the biggest wallets to dominate listings.
As an industry we should be supporting a QR code system to prove the value/validity of the product. This will help put an end to junk brands and only let the quality products and companies thrive in the marketplace.
Production / Supply
When looking at consumer demand data, it is possible that just one facility could produce enough cannabinoid supply for every person in the US. It’s also worth pointing out that it would only take 500 acres of hemp to hit sales goals for some of the largest brand/suppliers currently selling in the market.
Translation: too many people are growing for CBD
If you want to keep growing for CBD, make sure it’s boutique, organic, and of the highest quality. As more people enter, the cost will be driven down and quality/precision will improve. The only way you’ll be able to keep up is ensuring your quality while keeping your margins.
International production is accumulating – the US is not the best place to grow hemp compared to many other countries. Countries in South America (and even Puerto Rico) can grow three times a year because of their climate.
CBD isn’t going to change the world, but industrial hemp-derived products can. For that reason, farmers should consider growing for industrial hemp. Note that industrial hemp already has consumer demand in place but the challenge is that the United States does not currently have the proper infrastructure to process and manufacture that type of hemp for its given applications.
If you can become a specialist in terpenes, you can differentiate your product. There is a synergistic impact between terpenes and cannabinoids. Once it’s proven, it’ll move the market demand for niche products with specific terpenes.
What can you create that can be yours and patented? That can be your long term ticket to financial success. You need $100MM to start a vertically integrated (VI) company. But you don’t need to be VI to earn money. Intellectual Property is one of the most profitable ways to survive in this industry. It is easier said than done, but creating something that can be patented and can last will help you survive the market.
Question from the Crowd: What is the quality of the supply right now?
The biggest challenge around the quality is that quality is a matter of perception. Moving forward, quality will be a matter of legality. Many people were only complying with Delta 9 THC, and this ended up hurting a lot of farmers and their crops.
Realistically, compliant hemp isn’t going to go over 9% CBD, .3% Total THC. Despite this, extractors are looking for the highest CBD there is because anything below 10% becomes a challenge. It gets more costly to get the right output in place to extract for product that is less than 10% CBD.
Extractors will be desperate to keep operating and will try to come up with splits and profit share agreements. But when they run out of material they’ll either have to go buy it, try the tolling arrangement, or wait for next year.
In 2020 higher grade hemp may not be available because everyone will be complying to Total THC and now the compliant hemp will only be 10% at best.
If you do have biomass right now, don’t try to wait out the market for the price to increase. It’s not going to get much higher in price and you run the risk of CBD degradation. Your best course of action is to get your biomass to extraction ASAP. It doesn’t matter about the format (Co2, Ethanol, Propane, etc). What does matter is getting it into oil and stabilized from a trusted, licensed processor.