The hemp industry is bracing for layoffs, production reductions and billions in lost revenue after Congress passed a government funding bill Wednesday night containing a surprise provision that will ban nearly all hemp-derived consumer products.
Hemp, a derivative of the cannabis plant, was legalized in the 2018 Farm Bill for industrial uses such as rope, textiles and seeds. But the law's broad definition created a loophole in federal rules on THC, the psychoactive compound responsible for euphoria, experts said, allowing producers to extract psychoactive cannabinoids from federally legal hemp. Companies took advantage of that opportunity to flood the market with gummies, drinks and vaporizers capable of producing a marijuana-like effect.
The new ban, included in legislation that ended the longest shutdown in history, prohibits products containing more than 0.4 milligrams of total THC per container. Industry executives said that threshold will eliminate 95% of the $28 billion retail hemp market when it takes effect a year from now.
For reference, a single hemp gummy typically contains between 2.5 and 10 milligrams of THC, according to the Journal of Cannabis Research.
“This time we've lost the battle,” said Jonathan Miller, general counsel of the U.S. Hemp Roundtable. “In effect, this is a total, total and complete ban on hemp products in the United States.”
Cannabis beer and other cannabis-infused beverages will be available at a booth at the “Mary Jane” hemp fair.
Monika Skolimowska | Image Alliance | fake images
The new limit replaces the 2018 Farm Bill's definition of hemp, which was based on THC concentration and allowed products with less than 0.3% THC by weight instead of the total amount.
“We have a year to figure this out, but in the meantime we could see industry-wide losses if we can't,” Miller said.
According to Whitney Economics, a hemp and cannabis research company, more than 300,000 jobs tied to the hemp economy are at risk, from farmers and extractors to manufacturers, logistics companies and retailers.
Ripple effects could affect land use, contracted acreage and equipment financing, as farmers who expanded hemp cultivation after 2018 could suddenly face canceled or restructured contracts, said Michael Gorenstein, CEO of marijuana producer Cronos Group. States with the largest hemp infrastructure, such as Kentucky, Texas and Utah, will likely face the most pronounced economic consequences, hemp executives said.
“There are a lot of small retailers, small businesses and farmers that depend on hemp sales to survive,” Gorenstein told CNBC. “It's going to create a lot of pressure when they start losing business, losing jobs and losing crops.”
The crackdown marks a dramatic shift from 2018, when Sen. Mitch McConnell, R-Ky., championed the legalization of hemp to create a new national agricultural product and economic engine for Kentucky.
But after that bill was passed, the absence of federal rules allowed a fragmented market to emerge, with widespread safety problems, from mislabeled and untested products to items with potency rivaling recreational marijuana, according to government officials and industry experts.
McConnell and other Republicans argued that the new restriction “restores the original intent” of the Farm Bill. Closing the loophole, McConnell has said, is key to protecting his farm policy legacy before his retirement next year.
“This was his [McConnell’s] signed law, the hemp law, and I wanted to correct it,” Boris Jordan, CEO of cannabis company Curaleafhe told CNBC. “Usually the Senate supports a retiring senator, especially someone of their rank, as a last-ditch action. This was a last-minute request of theirs.”
But not all Republicans agree. Kentucky Sen. Rand Paul has argued with his colleagues for months about hemp and criticized the provision as an overreach that is “killing jobs and crushing farmers,” adding that “every hemp seed in the country will have to be destroyed.”
“This is the most thoughtless and ignorant proposal for an industry that I have seen in a long, long time,” Paul said after the ban was passed.
In this July 5, 2018, photo, Senate Majority Leader Mitch McConnell inspects a piece of hemp removed from a bale of hemp at a processing plant in Louisville, Kentucky. McConnell led the effort in Congress to legalize hemp.
AP Photo | Bruce Schreiner
While leaders like Jordan said the legal market will shrink dramatically due to a ban, they warn that consumer demand for hemp-derived THC will not. Studies have shown that demand for marijuana and other THC-based products has continued to rise in recent years as some consumers shift away from alcohol and drink less overall.
Cannabis executives warned that the growing popularity could generate billions in sales on the black market, where products face no testing, age restrictions or tax compliance.
“What this ban is going to do is force all those small players into the illegal market,” Jordan said. “Companies have invested too much money in this and the demand is still there and growing. [companies] “They're not just going to disappear, they're going to enter the illicit market and put more people at risk.”
And as products go underground, law enforcement agencies could have difficulty tracking supply chains, Gorenstein said.
“Bad actors thrive when things disappear from the formal economy,” Gorenstein said.
State and local governments also could lose millions in tax revenue tied to hemp sales, Gorenstein and Miller said. Several states use those funds to support addiction services, county budgets and public health programs.
Looking ahead, industry leaders maintain that the only lasting solution is federal regulations, not prohibition. Many favor a model that divides responsibility between agencies: the Food and Drug Administration for product safety oversight and the Alcohol and Tobacco Tax and Trade Bureau for taxation and distribution.
Executives have also compared the current environment to the early e-cigarette boom, when products like Juul offered fruit- and candy-flavored cartridges that spread quickly, with uneven oversight, before the FDA intervened.
“Too many people have taken liberties that put the end consumer at risk,” cannabis company Verano Holdings CEO George Archos told CNBC. “We like strict regulation. We want consumer safety to be taken into account in every product that is produced and that is what we hope to achieve.”
Meanwhile, the industry is preparing a full-scale lobbying campaign aimed at replacing the ban with federal testing, labeling and age-restriction standards.
“We already have members of Congress introducing regulatory bills. We are pledging our support and working on the groundwork to activate citizens around the issue,” Miller said. “We are activating throughout the sector.”
At the same time, the Trump administration is “considering” reclassifying marijuana from a Schedule I drug (along with heroin and LSD) to a Schedule III drug. The measure would not legalize recreational marijuana, but it would make it easier to sell, advocates said.
“Big changes are expected across the board next year, but what they will be could determine the future of investments and the industry,” Gorenstein said.
