Cannabis Musings - November 8, 2023

Wait, the hemp-derived cannabinoids market is how big?

Nov 08, 2023

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Long-time readers of these Cannabis Musings know that there are a handful of evergreen discussion topics – interstate commerce, SAFE(R) Banking (and the ongoing lack thereof), knishes. Another one of those is the ever-growing presence of alcohol beverage and tobacco companies in the cannabis industry. So, it came as little surprise to me when Canadian licensed producer Organigram Holdings, Inc. announced earlier this week a large, follow-up equity investment by global tobacco company BAT. What else is new?

On the other hand, I was tsetummelt by another headline relating to another perennial Cannabis Musings topic – hemp-derived stuff. According to a new study by Whitney Economics, the U.S. hemp-derived cannabinoids market ($28.4bn in sales) was larger than the national market for licensed, non-hemp cannabis in 2022 (the study doesn’t provide a citation for this, but another report pins 2022 sales at $27bn). Oy vey, that’s a lot of CBD beverages.

Clearly the hemp industry is unfazed by the FDA’s clear stance that its existing regulations prohibit foods and beverages containing hemp-derived CBD. Nor does it seem like the years-long failure of the FDA to issue new regulations to permit the sales of those products has stymied the industry, despite the quite vocal (and understandable) protestations of the industry.

Those complaints now ring sort of hollow when you consider that the U.S. hemp-derived cannabinoids market is now, per the study, apparently the same size as the U.S. craft beer market. And those products, infused with psychoactive/psychotropic cannabinoids, not just hemp-derived CBD, may be purchased easily online and in liquor stores. Regulation (or the lack thereof) hasn’t held back the market. A number of states have banned certain hemp products, which federal courts have considered with conflicting results, but the lack of FDA and DEA enforcement of the Federal Food, Drug, and Cosmetic Act, as well as a certain Federal 9^th Circuit appellate case, has actually enabled the industry to flourish. Kinda like what the lack of enforcement of the Controlled Substances Act has done for the state-licensed non-hemp cannabis industry. Ver volt dos geglaibt? (“Who would have believed it?”)

We’ve talked about how much of this could come to an abrupt end (at least for the hemp products that get you high) fairly quickly if Congress were to close the hemp loophole that it inadvertently (hence it being a “loophole”) created in the 2018 Farm Bill. There’s precious little information out there about whether that’s going to happen, but there’s recent suggestion that Congress may not get to the pending Farm Bill renewal (required by law – the 2018 Farm Bill expired this past September) until next year.

Back when the 2018 Farm Bill passed, I watched as the hemp industry diverged from non-hemp cannabis. This made sense – with hemp legal, its entire supply chain and market transformed, and could prosper without the yoke of federal illegality. Now, hemp products are competing with, and outselling, licensed, non-hemp cannabis. Rhetoric between the two camps is heating up. The streams have been crossed. I’m concerned this doesn’t end well.

Oh, and mazel tov to those in the Ohio market.

Be seeing you!

Hauser Advisory provides advice and strategy on business lifecycle events and cannabis industry navigation, tapping into a deep, national network and twenty-five years of dealmaking and capital markets experience.