Cannabis - Going Beyond Financial Profiteering
January 30, 2019 | By Saul Singer
The passing of the 2018 Farm Bill in late December has fueled speculative trading activity in global hemp markets. This has been particularly apparent in the North American CBD markets. We are seeing very strong demand for pharma-grade GMP or ISO certified CBD isolates on the CMTREX (Cannabis Mercantile Trading Exchange) Trading Platform with firm open buy requests for forward sales contracts for monthly delivery in large quantities.
From the supply-side perspective, there is almost a frantic ramping-up of production capacity by growers with some early-stage growers scaling their production by as much as three or five times. We are also noticing similar trends in the extraction segment with more and more new entrants into this space and existing players scaling-up capacity at a startling rate.
Notwithstanding the concerning fundamental economic risks involved in such exponential upscaling, many market participants are missing the inherent regulatory risks that have not yet disappeared even with the passing of the Farm Bill.
The Farm Bill essentially reclassified the regulatory scheduling of hemp (i.e. cannabis with a THC concentration of less than 0.3%) removing it from the Controlled Substances Act and thus allowing for the legal growing and cultivation of hemp under the auspices of the Department of Agriculture, shifting it away from the purview of the Drug Enforcement Agency. However, it is important to note that the Farm Bill does not affect the FDA’s authority to regulate the use of CBD and other hemp products. Essentially the growing of hemp has been federally legalized and shifted out from the regulatory clasp of the DEA, however the manufacturing of hemp-based finished products is still firmly under the guise of the FDA. This is particularly prevalent in the food, dietary supplements and cosmetic applications of CBD and hemp-based products which are the underlying demand-driving sectors of the hemp consuming market. In layman’s terms American Farmers can now freely grow hemp for the first time in decades but it still not yet clear under what terms American consumers may buy and use hemp-based products.
Clearly from a longer-term macro perspective the passing of the Farm Bill is overwhelmingly positive for the hemp industry, however we expect considerable volatility both in terms of demand and supply curves and consequently in terms of pricing in the near-term.