Oversupply or shortage? No matter the numbers, let’s stay optimistic

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By Mike Leago

The sky is not falling.

There’s no fox in the henhouse.

There’s no blood in the water (yet).

However, there is no shortage of speculation taking place in the hemp industry these days. Whether you’re a seasoned veteran or a fresh face to the hemp and cannabis industry, we’re all facing the same type of risk right now. We are entering harvest season in the U.S. for the 2019 crop, and everyone is wondering how the market will react.

Let’s get one thing straight: Nobody knows all the answers and numbers. We’re all making educated (and sometimes not so educated) assumptions about acreage, failures, yields, and percentages.

Editor’s note: Our Analysis Massive oversupply means a violent crash is on the way for CBD drew this response from Mike Leago

Here’s what we do know: More than 400,000 acres in the U.S. were registered to grow hemp this year. Best estimates show that fewer than 150,000 were planted, but I think it’s closer to 100-120,000. If every farmer knocks it out of the park on this acreage and it all ends up as isolate, we could have more than 4 million kilograms of CBD isolate on the market in the U.S. That’s a lot of isolate! Or is it?

What we hear

Here are some of the assumptions and anecdotes that our companies are seeing and hearing in the industry that have me believing we are not heading into a dramatic surplus scenario:

  • Tens of millions of seeds sold this year ended up being bad genetics (non-feminized, inaccurate cannabinoid production, poor germination, etc). This often led to failure early in the season or will pose problems for many at the end of the season. Some of these farmers replanted, many experienced a loss.
  • Of the acreage that did get planted, many are dealing with small canopies as a result of late planting, poor genetics, or plant spacing strategy. This will mean low yields on those acres.
  • A concerning number of farmers still don’t seem to know how they are getting their crops out of the field and dried. Many are crossing their fingers for a solution to present itself at the last minute. Mother nature could still do serious damage.
  • Up to 21% of acreage registered in 2019 was for truly industrial production, not high cannabinoid production, according to industry expert, Tim Gordon, of Functional Remedies and Bija Hemp. In addition to this, a small but growing percentage of the acreage planted is growing for CBG or alternative cannabinoid production/R&D.
  • One of the largest farming and processing companies in Kentucky has hit a roadblock in their expansion project and the effect is rippling to farmers and operators across the state. Many didn’t plan on equipment or crews to get their crops harvested, dried, and processed.
  • According to the Oregon Department of Agriculture, farmers in the state were only able to plant about 60% of the acreage they registered on a statewide level. If this is happening in a mature market with ideal conditions this past spring and early summer, think about how bad it may have been in states new to commercial hemp and cannabis.

Real deals out there

Now on to some more positive notes:

  • There are seemingly real deals out there right now that could take 10-20% of extractable material out of the marketplace to one buyer. (And don’t be so sure that it’s going into extraction vessels.) The point is, more and more material is being spoken for by existing brands and supply chains.
  • We’re beginning to see new market segmentation occurring that is creating demand for premium hemp material. A growing segment of the industry seems to be planning on harvesting top flowers to sell into the smokable hemp market. When you consider that 5.5 trillion tobacco cigarettes were sold last year, it makes sense that this could be a large new category for the industry.
  • Stores like Whole Foods, Kroger, CVS, and Walgreens are expanding both their product offerings of CBD and the number of stores carrying them. You can’t blame them when CBD has taken over as the best selling supplement in natural sales channel for 2018 and shows now sign of stopping according to the American Botanical Council.
  • According to the Brightfield Group, CBD sales have grown seven-fold from 2018 to 2019, with more than half of this growth coming from big box retailers that have just started testing the waters on a small scale. We could be at just the beginning of this category boom, rather than the end as some others may believe.
  • Facebook and Google have just started allowing the first CBD ads to begin running on their platforms. Topical products are the only ones currently allowed, but it’s a start. Once these digital channels allow advertising, the online sales sector will go through the roof.
  • Just this past week, a historic bill was passed in the U.S. House of Representatives that will provide a safe harbor for banks and financial institutions in the U.S. working with hemp businesses if it passes in the Senate. Additionally, in Indiana, a federal court ruled that the ban on smokable hemp in the state was unconstitutional. Mitch McConnell recently pressed the FDA to, “issue a policy of enforcement discretion in regards to certain products containing CBD within 120 days. These victories for the industry and the plant continue to trend the same positive direction.

So yes, if half the U.S. population took 10mg daily of CBD, we would only need 600,000 kg of CBD to fill this need. And the U.S. could be on track to produce up to 4,000,000 kg of CBD if nothing goes wrong this season.

Stay on the flip side

But what if the increased supply influences the market to consume more CBD daily, and in more product forms and categories? Maybe consumers will be taking 100mg – 400mg daily. If that happens, we won’t have nearly enough CBD to keep up with the demand.

But is it time to raise the alarm to everyone that we might be facing a shortage of CBD based on this speculation? Probably not.

Good luck farmers. Remain optimistic this harvest season. We’re all in this together.

Mike Leago is the Founder and President of International Hemp Exchange (iHEMPx), and the COO of High Grade Hemp Seed (HGH). iHEMPx was the first licensed and bonded hemp broker in the United States and has been connecting buyers and sellers since 2016. The company is a sales and production partner to High Grade Hemp Seed and also produces biomass and smokable flower. HGH focuses on developing hemp seeds with high feminization and germination rates, and high cannabinoid levels.

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