More than a year has passed since the 2018 Farm Bill made hemp farming, production, and sales legal in the United States again. During that time, a lot of farmers and entrepreneurs have jumped into the hemp industry, and with the release of interim hemp rules by the U.S. Department of Agriculture (USDA) in late 2019, many people hope 2020 would be a huge year for hemp.
With that in mind, let’s take a look at what’s coming for the U.S. hemp industry in 2020.
1. More Licenses, Less Acreage
One of the biggest hemp industry stories in 2019 was oversupply and subsequent plummeting prices. When hemp farming was allowed in many states, many farmers and entrepreneurs jumped into the industry without comprehensive business plans, sales contracts, or enough money to harvest, dry, and store their crops. As a result, prices plummeted as supplies eclipsed demand, and many crops were left unsold.
For example, in Vermont, more than 1,000 growers were registered with the state by October 2019 (double the number in 2018), and those growers covered 9,000 acres of land. At the same time, hemp prices dropped by 80% because there wasn’t enough demand. Farmers simply couldn’t sell their crops.
In 2020, expect states to issue more hemp licenses, but farmers will likely plant less acreage or forgo planting in 2020 entirely.
2. Consolidation and Integration
With the oversupply problems and money losses that many hemp farmers experienced in 2019, it’s highly likely that many people will exit the hemp industry in 2020. However, lost money isn’t the only thing that will force people out of the market or to consolidate with other industry players. New regulations will also force people out of the market.
As the USDA and Food and Drug Administration (FDA) release new and updated rules in the coming year, compliance will become an expensive burden for farmers, processors, and sellers across the hemp supply chain. Businesses that aren’t well-funded won’t be able to keep up with the regulatory demands.
In addition, many industry players will take a closer look at vertical integration. In 2019, those hemp businesses that had vertically integrated their supply chains – growing, processing, and retail sales – often performed better than those that were not vertically integrated.
Bottom-line, expect small farmers and processors, as well as those entrepreneurs who entered the industry without solid business plans and funding, to either exit the industry in 2020 or actively seek consolidation and integration opportunities.
The USDA hopes to finalize its hemp industry rules within the next two years. The FDA has yet to release any kind of hemp rules at all. The lack of regulations not only creates confusion for businesses and consumers, but it also limits the profits that companies in the hemp industry can make. This is something Charlotte’s Web, a leading CBD company in the U.S., made clear to its investors in November 2019.
Confusion will also be prevalent in 2020 as farmers work to meet strict testing requirements that leave only a very small margin for error. In fact, the USDA estimates that one in five lots of hemp will exceed the legal THC limits based on current rules and will need to be destroyed, which will cost farmers more money.
In order to reduce costs, streamline processes, meet testing requirements, and meet the changing needs of more educated consumers, hemp businesses will need to make significant investments in research, equipment, and technology. Many of these investments will be necessary in order to comply with new USDA and FDA regulations.
Not only will investments in technology increase in 2020 but also expect to see more innovative technologies in the hemp industry, particularly as businesses work to create additional opportunities to use hemp beyond CBD products.
5. Consumer Awareness
As hemp and CBD products become more mainstream, consumers are becoming more educated. Furthermore, as more news stories draw attention to CBD companies that aren’t complying with FDA rules or making false claims, consumers will start to understand that not all brands and products are alike. They’ll demand higher quality and proof of that quality across the entire supply chain.
As a result, expect to see many companies that can’t meet consumers’ quality requirements exit the market in 2020. Those who stay will make strategic investments to develop new products that meet the changing demands of more educated consumers.
Key Takeaways about the Hemp Industry in 2020
Based on the losses that many hemp farmers experienced in 2019 and the uncertainty surrounding federal and state rules, 2020 will be a “wait and see” year for many in the hemp industry. One thing is certain, those businesses that don’t have access to cash or a solid business plan will have a challenging road ahead of them.