What does the Farm Bill mean for hemp and marijuana stocks?
QUESTION: "The 2018 Farm Bill passed the U.S. Senate and has now been given final approval by President Donald Trump. What does this mean for hemp and marijuana stocks?"
B.L. from New York, New York
ANSWER: I am only looking at it from a hemp point of view but I see economic activity, jobs and growth for the agricultural sector. All factors that appeal to the President.
When the Farm Bill is signed into law, hemp will be removed the Controlled Substances Act. The effect will be for hemp to become a normal agricultural crop in the U.S. Hemp can be grown outdoors in large, open fields just like wheat and other agricultural crops, and because hemp is one of the fastest growing plants known, farmers can have two full harvests a year.
To understand what is happening in the law, it is important to understand the difference between hemp and marijuana. Both hemp and marijuana have been in use for a long time. There is archeological evidence that 10,000 years ago, humans were making hemp into fiber. It has also been used over the centuries in making paper, textiles including the canvas used for sails, more eco-friendly paint, non-petroleum based plastics, insulation, food, as a cooking oil and animal food. When you read that President George Washington and his contemporaries advocated for and grew hemp, it was for these industrial applications.
As we now know, marijuana and hemp are related but different. When Raphael Mechoulam, “the father of marijuana” discovered THC and CBD at the Hebrew University of Jerusalem in 1964, science began to understand the difference but the politicians didn’t. As a result, in 1970 when all species of cannabis were added as Schedule 1 drugs under the Controlled Substances Act, hemp was included.
That is how marijuana and hemp became illegal at the same time. If the Farm Bill passes before the end of the current session as is expected, the U.S. government will recognize the difference between the two and hemp will become totally legal while marijuana remains illegal at the federal level.
The scientific difference between marijuana and hemp is that cannabis is a family of plants with two main classifications: indica and sativa. Marijuana and hemp are species of cannabis on the cannabis sativa side of the family. Cannabis contains compounds called cannabinoids. Two of the more dominant and well researched cannabinoids of the 113 known are tetrahydrocannabinol (THC) and cannabidiol (CBD). Both THC and CBD benefit human health, however, THC produces psychoactive effects while CBD does not, that is, THC makes the user “high” while CBD does not.
Here is where the differences begin. The hemp plant typically has very low concentrations of THC, less than 0.3%, and higher concentrations of CBD that offsets the effects of the THC while marijuana can have THC concentrations of up to 40% but generally lower concentrations of CBD. However, the marijuana plant also has higher concentrations of CBD, up to 15%.
Marijuana based CBD also commonly known as cannabis oil is produced from the flowers, leaves and stalks of the marijuana plant. Hemp based CBD also known as hemp oil is normally produced from the seeds of the hemp plant although CBD is present in the body of the plant as well. There are also non-North American strains of hemp that have much higher concentrations of THC.
Assuming the Farm Bill passes, the short term benefits probably accrue to those early growers of hemp in the United States. It would be a mistake to think farmers will grow hemp only for CBD. Growers will use the entire plant as part of the cash value of the crop. Since hemp is starting from ground zero, there will be a sudden increase in hemp growing in the U.S.
Although it sounds rather silly, hemp-based CBD will be legal and can be transported and sold nationwide. Marijuana based CBD will remain illegal in those states that have not approved medical marijuana and will remain illegal at the federal level so it can only be sold in those states where it is grown. Thirty-two states have approved medical marijuana so a major opportunity is available for hemp based CBD in the other eighteen. DC has already approved medical marijuana.
From a CBD point of view, the hemp growers will have the advantage of being able to brand and market their products nationally.
However it is not all clear sailing for the hemp growers. Hemp is “bio-accumulator,” a plant that is known for its ability to leach toxins from the soil. It is sometimes used to clean up toxic spills. Combined with the fact that CBD occurs in such small concentrations, a more plant material must be processed to extract the same amount of oil meaning the potential for contamination is greater. Also in Canada where the production of marijuana is tightly regulated, cannabis based CBD oil is controlled to ensure it is pharmaceutical grade. This is important when dealing with your health.
An important consideration is CBD and THC are synergistic, that is, the benefits are improved when combined. This is called the “entourage effect” which often requires a higher THC content than the hemp plant can contribute legally in controlled areas such as the U.S. Terpenes and flavonoids not found in hemp are also important to the entourage effect.
Over time as hemp becomes “just another crop,” there will be a coincident increase in the supply of and a decrease in the price of CBD and related products as well as the parts of the plant used in industrial applications. In time, hemp farmers will probably be like almost all farmers and have to deal with cyclical prices and profits. But this will likely be a few years in the future.
Conclusion: On balance, hemp growers in the U.S. will likely do well when the Farm Bill is passed. Unregulated, outdoor growing will give them a cost advantage as will the ability to immediately brand and sell nationwide. How long this latter advantage persists depends on if and when the Trump administration decides to legalize medical marijuana.
In the medium term, hemp and marijuana based CBD are likely to evolve into two completely different product lines. The tightly regulated marijuana growers will probably evolve into the higher quality, higher priced pharmaceutical products while the hemp oil produced by unregulated growers will supply the lower quality, lower priced life style product lines.
I appears hemp growers will have an advantage over marijuana growers for at least months to perhaps a few years when it comes to CBD oils. It appears it won’t be a long wait for the hemp growers.