Article was written by Sean Murphy, J.J. McCoy, and William Sumner
Why Revenues of Leading Hemp Companies are Sure to Increase
Pending President Trump’s signature next week, the 2018 Farm Bill is poised to restore industrial hemp to nationwide legal production for the first time since World War II, offering vast opportunities for the industry and investment in a market expected to triple in four years.
With removal of hemp from federal prohibition under the Controlled Substances Act of 1970 (CSA), the total U.S. hemp industry now looks to expand at a healthy 18.4% through a 5-year combined annual growth rate (CAGR) from 2018-2022. Hemp Business Journal estimates that, in leading all hemp product categories, the hemp-derived CBD market will grow from a $390 million-dollar market in 2018, to a $1.3 billion market (3.3x) by 2022, representing a 27.2% 5-year CAGR.
Removing hemp from the CSA will have immediate impacts, and create a financial domino effect. Banks will gain the confidence to provide accounts and more robust financial products to hemp companies. That, in turn, will allow credit card processors to process hemp-derived CBD accounts, both online and in mass-market retailers. Ultimately, mass-market retailers will have bolstered confidence to carry hemp-CBD brands. To date, the mass-market retail channel for hemp-derived CBD has seen less than $1 million in hemp-CBD products sales. By 2022, New Frontier Data estimates mass-market CBD alone to grow to $430 million in sales.
Readers should note in the chart (above) that the leading hemp companies are not currently in mass-market retailers like Walmart, Whole Foods, Target, or Costco. Yet, their revenues are already competitive versus the world’s leading cannabis companies. Now, the Farm Bill arrives to give hemp companies access to the largest retailers in the United States. Cannabis/marijuana-only companies will continue making investments and doing M&A deals with the hemp companies to develop their supply chains, and reduce their ingredient cost by cultivating and processing cannabinoids from hemp.
What remains to be seen is the FDA’s stance on the new policies. The industry should watch closely for any kind of public announcement or comment from the FDA to signal precisely how they will regulate hemp-CBD as a supplement: Will they ease regulations in line with the Dietary Supplement Health and Education Act of 1994 (DSHEA), or face backlash from Congress for not following the fullest intentions for the new law? Time will soon tell.
More broadly, the passage of the Farm Bill represents a sweeping change in the balance of power in global hemp markets. The United States has historically been an importer of hemp products from Canada, Europe, and China. Now, with the Farm Bill as its tailwind, the U.S. hemp market will expand to lead the global hemp industry by 2020, representing 32% of a 5.7 billion global market in 2020.
As the U.S. hemp industry matures, it will transition from being a seed, textile, and industrial product importer to a global exporter. Until now, the U.S. has lagged behind countries like Canada and France with hemp legislation. With final passage, the Farm Bill aims the industry to accelerate and establish itself as a global hemp powerhouse led by hemp-derived CBD.
“Now that we have lifted federal prohibition on hemp farming, it’s time to invest our energy in expanding hemp cultivation across the country so that all can reap the benefits of this of this versatile, historic American crop,” said Eric Steenstra, the President of Vote Hemp, a hemp industry leading advocacy group.
“Beyond hemp’s removal from the CSA, a key component of the bill is establishing legal protection for cannabidiol (CBD),” commented Jonathan Miller, general counsel for the U.S. Hemp Round Table. “By redefining hemp to include its ‘extracts, cannabinoids and derivatives,’ Congress explicitly has removed popular hemp products — such as hemp-derived cannabidiol (CBD) — from the purview of the CSA. Accordingly, the Drug Enforcement Administration no longer has any possible claim to interfere with the interstate commerce of hemp products.”
Over the last year, the hemp industry has experienced explosive growth, with most of the best of breed hemp “pure play” public companies experiencing double-digit growth as seen in the chart above.
CV Sciences (CVSI) experienced a 35% increase in revenue during the second quarter, followed by a slightly more modest 8% growth in the third. Charlotte’s Web Holdings (CWBHF) increased its revenues 6% in the third quarter, to a hemp industry-leading $17.7 million. With passage of the Farm Bill, such hemp companies will look to penetrate mass market retailers.
Additionally, the world’s leading cannabis companies are investing in and acquiring hemp companies to secure supply chains, reduce ingredient costs, and bolster their IP portfolios. Among them, Canopy Growth (CGC), Aurora (ACB) and MariMed (MRMD) continue to forge deeper into the hemp industry on increasing month-to-month revenue growth.
Fueling such growth has been the public’s growing demand for CBD products, and the expectation that Congress would approve the legislation to legally restore America’s next great agricultural crop and industry.
Assuming President Trump’s pledged signature, that growth will undoubtedly accelerate: By 2022, the hemp-only CBD market has been projected to grow to $646 million before taking the Farm Bill’s enactment into account. Now, it will accelerate to $1.3B by 2022. Once the bill is signed into law, stay tuned to the Hemp Business Journal for continued insight and analysis regarding the measure’s impacts within the legal hemp industry.