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From Promise to Peril: The Troubled State of the US Hemp Industry
Have you heard about the shocking decline of the US hemp industry? According to the latest report by the USDA, the total value of industrial hemp production in the United States in 2022 was a mere $238 million, which is a staggering 71% drop from the previous year. It's a disaster for an industry that has so much potential to benefit so many sectors. In this blog post, we'll explore the reasons behind this decline and uncover how a lack of regulatory structure and an immature industry are to blame.
Per the USDA’s “National Hemp Report”
The US hemp industry has been facing a steep decline in production, as per the latest report by the USDA. The report indicates that the total value of industrial hemp production in the United States in 2022 was $238 million, which is a significant 71% drop from the previous year. In this blog post, we will discuss the reasons behind this decline in production and how a lack of regulatory structure and an immature industry could be the leading culprits.
Reasons for the Decline in Production in the US Hemp Industry :
The report by USDA indicates that the decline in production is across all categories of hemp production, including floral, grain, fiber, and seed hemp. The decline in production has been attributed to several factors, including the lack of regulatory structure, a lack of maturity in the industry, and inconsistent quality standards. Additionally, the report indicates that hemp growers are facing issues related to seed quality, access to markets, and financial resources.
The lack of regulatory structure in the US hemp market has resulted in a decline in production and has led many financial institutions to reduce their capital allocations and shift their focus to primary agricultural markets where they have greater expertise and knowledge. Basel III capital standards have also made banks more cautious in their lending practices, especially in higher-risk sectors like agricultural hemp. With improved regulations, or the implementation of private standards like the Responsible Hemp Standard, there is a much greater potential for agricultural lending under Basel III, such as more stable lending practices and better risk assessment by banks.
In agriculture, offering loans for widely recognized, standardized products like consumer-focused vanilla offerings can be relatively low risk, as these products are traded on well-established commodity exchanges, have predictable demand patterns, and have reliable cash flow. However, lending to niche or emerging agricultural markets like industrial hemp may require voluntary certifications to reduce the risk of fraud or misrepresentation in the supply chain. Without these certifications, lending to emerging markets may not be approachable for lenders, which could further impact the already struggling hemp industry.
Whether you are a believer in regulations or not, there is no denying that historically voluntary certifications can play a significant role in managing the risks associated with unregulated markets like industrial hemp.
For example, certifications such as the Responsible Hemp Standard (RHS) can provide assurance to lenders and investors that the products being produced and traded meet specific standards, thereby increasing transparency and reducing the risk of fraud or misrepresentation in the supply chain. By implementing private standards like RHS, hemp growers and processors can demonstrate their commitment to market maturity and sustainability, making the industry more approachable for lenders. This, in turn, can lead to more stable lending practices, lower risk of default, and ultimately, better access to capital for hemp businesses.
Impact of Regulatory Structure:
One of the primary reasons for the decline in production is the lack of a regulatory structure. The hemp industry is relatively new, and regulations regarding production, processing, and sale of hemp are still in the nascent stages. The lack of regulatory structure has led to inconsistencies in quality standards, which, in turn, has impacted the overall value of the industry. Private organizations have had to step in and create voluntary standards to ensure the survival of the crop's future, as has been done in the past when markets have become destabilized.
There is no denying that the US hemp industry is facing a number of challenges due to its immature industry status. One of these challenges is a lack of regulatory structure. Since the industry is relatively new, regulations regarding the production, processing, and sale of hemp are still being developed. This creates a grey area in the crop's production and sales, allowing unscrupulous brokers to operate outside of traditional ethical practices. Without formal regulations, there is a lack of consistency in quality standards, which can harm the overall value of the industry.
Private organizations have stepped in to fill the gap left by the lack of formal regulation, creating voluntary standards to ensure the survival and growth of the industry. However, these standards are not mandatory, so not all farmers and producers may adhere to them. This lack of trust and consistency can ultimately hurt the farmers, who may struggle to find buyers willing to pay a fair price for their product due to concerns about quality and ethical practices.
When there is a lack of a regulatory structure this will lead to misunderstandings and confusion around the cultivation and processing of hemp, which will negatively impact the quality of the product, which can also contribute to a shortage of skilled workers, as there may not be clear standards or guidelines for training and education in the industry. The lack of regulatory structure is a significant challenge facing the hemp industry, and addressing it will be critical to ensuring the industry's continued growth and success.
Impact of Immature Industry:
The hemp industry is still in its early stages, and there are several challenges that the industry is facing. For instance, there is a lack of understanding of the crop's cultivation and processing methods, and the supply chain for hemp is not yet fully established. Additionally, the industry is facing a shortage of skilled workers, which is leading to a decrease in the overall quality of the product.
By adding voluntary certifications to a farming program in the hemp industry, farms have historically seen positive aspects of attrition rates with both white-collar and blue-collar workers, including seasonal, contractual, and part-time workers. These standards help ensure that each person, including management, understands their role completely and with confidence. This allows people to be held responsible for their roles, including taking responsibility when something happens. As a result, voluntary certifications can reduce accidents on the job, improving the overall quality of the product and the safety of workers.
The impact of an immature industry, such as the hemp industry, can be mitigated by implementing voluntary certifications. There is a lack of understanding of the crop's cultivation and processing methods, and the supply chain for hemp is not yet fully established. Furthermore, the industry is facing a shortage of skilled workers, which can lead to a decrease in the overall quality of the product. By establishing voluntary certifications, farmers and workers can become better equipped with knowledge of hemp cultivation and processing methods. This can result in a better supply chain and increased overall quality of the product. Additionally, voluntary certifications can attract more skilled workers to the industry, improving the industry's overall quality and reducing the shortage of skilled workers.
The decline in the production of the US hemp industry is not only concerning but also alarming. To ensure its survival and growth, immediate action is needed. Regulatory bodies must step in to establish consistent quality standards, and the industry must mature to attract skilled workers and establish a fully functional supply chain. Fortunately, there are services available to farmers to help them navigate this challenging landscape.
If you have any inquiries regarding the hemp industry, don't hesitate to contact Aaron Furman directly at afurman@controlunion.com. He oversees the Responsible Hemp Standard (RHS) program for Control Union and is available to arrange a call with you to discuss a path forward at no cost. Another option is to get in touch with Adrian Zelski from INCCert, a private organization based in Colorado that has been collaborating with Control Union on RHS. Both options are excellent for anyone who needs assistance or wants to have a conversation about what the future of the hemp market will entail.
Control Union is committed to openly discussing what stabilizing hemp means from a global perspective. It's time to take action and secure the future of the US hemp industry.