Experts weigh in on financial impact of hemp-friendly Farm Bill

Patrick Rea is co-founder and CEO of CanopyBoulder, a seed-stage business accelerator and venture fund for ancillary cannabis start-ups.

He suggested the 2018 Farm Bill has the potential to be a “game-changing event for the hemp and the CBD space,” spurring an influx of investment like what occurred following the passage of the Dietary Supplement Health and Education Act of 1994 (DSHEA).

“What would be the result” from passage of the Farm Bill? Rea asked in an interview conducted in late October. “Institutional capital that has stayed away from hemp, CBD and cannabis would be unleashed.”

The unleashing of institutional capital could be right around the corner. Congress on Monday released an 807-page document on the 2018 Farm Bill, including language that would exclude hemp from the definition of a controlled substance and grant state agriculture departments and tribal governments the right to regulate the crop.

The Senate late Tuesday voted to pass the legislation, and the House is expected to vote on the bill this week as well.

“Every step of the way, where there’s a signal that we’re moving toward federal legalization, the amount of capital flowing into the industry grows, and the valuations of the companies grow,” Rea explained.

Asked what has weighed down opportunities in the hemp space and created practical impediments to such things as investment and access to banking, Rea responded, “There’s one. It’s federal law. It’s still a Schedule I substance.”

Hemp’s status as a Schedule I substance has been the subject of debate for years ever since Congress passed the 2014 Farm Bill, which authorized industrial hemp research under certain conditions. Passage of the new legislation would remove any ambiguity concerning DEA’s jurisdiction over hemp and whether certain compounds derived from the crop like CBD are controlled substances, sources said.

“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 [Controlled Substances Act],” Jonathan Miller, general counsel of the U.S. Hemp Roundtable, wrote in a two-page summary, commenting on the conference committee report released Dec. 10 by the House and Senate on the Farm Bill. “Accordingly, the Drug Enforcement Administration no longer has any possible claim to interfere with the interstate commerce of hemp products.”

Alan Brochstein is founder of 420 Investor, a resource to help investors capitalize on the opportunities in the cannabis space. During an interview in October, he also expressed optimism Wall Street would invest in the hemp industry if the Farm Bill incorporating language championed by Sen. Majority Leader Mitch McConnell (R-Kentucky) passed.

Passage of the Farm Bill, he said, opens the U.S. hemp market to “institutional investors, for sure.”

Lex Pelger is head of education and outreach at Bluebird Botanicals, a marketer of CBD oil. He was asked Tuesday to weigh in on the investment implications if the Farm Bill passed.

“It’s going to very much sweeten the investment for the industry because the idea is that a lot of the major players in the natural retail market are waiting for this final confirmation before they pull the trigger,” he said Tuesday in a brief interview.

Pelger suggested “major retailers already know who they want to be buying from.”  

Todd Harrison of the hedge fund CB1 Capital viewed the removing of hemp from the Controlled Substances Act as a landmark event, helping to draw institutional investors.

“The demand is going to be strong to quite strong,” he said in an interview in October.

Sean Murphy is the founder of Hemp Business Journal. He forecasted U.S.-based CBD product sales of US$646 million by 2020. That’s only his conservative estimate. Murphy has a more aggressive estimate, forecasting sales of $800 million to $1 billion by 2020.

What would influence whether the industry meets the conservative or more aggressive target?

“There’s one primary factor and that’s what happens with the 2018 Farm Bill,” Murphy said during an interview in October, “when that’s passed, how that’s passed.”

Murphy said he anticipated passage of the Farm Bill would lead to mass-market retailers selling CBD products, and banks and credit-card processors offering services to support the industry.

“All of that ties in to hemp coming off the Controlled Substances Act as part of the Farm Bill,” he said.

Miller agreed.

Commenting on the Farm Bill, he wrote, “This should give comfort to federally regulated institutions—banks, merchant services, credit card companies, e-commerce sites and advertising platforms—to conduct commerce with the hemp and hemp product industry.”

Josh Hendrix is director of domestic hemp production at CV Sciences Inc., a marketer of CBD products.

Among the Farm Bill’s benefits highlighted by Hendrix: Farmers can qualify for crop insurance, banks can lend money to the hemp industry, and credit-card processors won’t shut down businesses.

“Essentially, all of the hiccups we’ve had along the way hopefully—at least at the federal level—get wiped away,” he said Tuesday in an interview after the Senate passed the Farm Bill. “We can go concentrate at the state and local levels in terms of legal … and legislative issues moving forward.”

Hendrix agreed the Farm Bill’s passage would result in more investments in the hemp industry.

“I think a lot of big money has been sitting on the sidelines waiting for the federal government to make a determination on hemp and hemp-derived products all the way through,” he said.

The Farm Bill, he said, provides significantly “more clarity at the federal level.”

“Obviously, it answers a lot of questions for some of these investors, and the capital that a lot of people need is going to start to flow in,” added Hendrix, who predicted “massive expansion in industry.”