The hemp industry is bracing for layoffs, production cuts and billions in lost revenue after Congress passed a government funding bill late Wednesday containing a surprise provision that would ban nearly all consumer products derived from hemp.
Hemp, a derivative of the cannabis plant, was legalized in the 2018 Farm Bill for industrial uses such as rope, textiles and seeds. But the law’s broad definition created a loophole in federal rules on THC — the psychoactive compound responsible for the effects — experts said, allowing producers to extract psychoactive cannabinoids from federally legal hemp. Companies have taken advantage of this opening to flood the market with gummies, drinks and vapes capable of causing a marijuana-like effect.
The new ban, enshrined in legislation ending the longest shutdown in history, prohibits products containing more than 0.4 milligrams of total THC per container. Industry executives have said the threshold would eliminate 95% of the estimated $28 billion retail hemp market when it takes effect in a year.
For reference, a single hemp gum typically contains 2.5 to 10 milligrams of THC, according to the Journal of Cannabis Research.
“We lost the battle this time,” said Jonathan Miller, general counsel for the US Hemp Roundtable. “In fact, this is a complete and utter ban on hemp products in the United States.”
Cannabis beer and other cannabis-infused drinks will be available at a booth at the “Mary Jane” hemp trade show.
Monika Skolimowska | Alliance in pictures | Getty Images
The new cap replaces the 2018 Farm Bill’s definition of hemp, which was based on THC concentration and allowed products containing less than 0.3% THC by weight instead of the full amount.
“We have a year to figure this out, but in the meantime, if we don’t, we could see losses across the industry,” Miller said.
According to Whitney Economics, a hemp and cannabis research company, more than 300,000 jobs related to the hemp economy are at risk, from farmers and extractors to manufacturers, logistics companies and retailers.
The ripple effects could affect land use, contracted acreage and equipment financing, as farmers who ramped up hemp farming after 2018 could suddenly find themselves facing canceled or restructured contracts, said Michael Gorenstein, CEO of marijuana producer Cronos Group. States with the largest hemp infrastructure, such as Kentucky, Texas and Utah, are likely to face the greatest economic fallout, hemp industry executives said.
“Many small retailers, small businesses and farmers rely on hemp sales to survive,” Gorenstein told CNBC. “It’s going to create a lot of pressure when they start losing business, jobs and crops.”
The crackdown marks a dramatic reversal from 2018, when Sen. Mitch McConnell, R-Ky., championed the legalization of hemp to create a new national agricultural product and economic engine for Kentucky.
But after that bill passed, the lack of federal rules allowed a patchwork market to emerge, with widespread safety concerns ranging from mislabeled and untested products to products whose potency rivals recreational marijuana, according to government officials and industry experts.
McConnell and other Republicans argued that the new restriction “restores the original intent” of the Farm Bill. Closing that gap, McConnell said, is essential to protecting his farm policy legacy before he retires next year.
“It was his [McConnell’s] signature law, the hemp law, and he wanted to fix it,” Boris Jordan, CEO of a cannabis company Cure sheettold CNBC. “Usually the Senate will support an outgoing senator, especially someone as senior as him, as a last action. This was a last minute request on his part.”
But not all Republicans agree. Kentucky Sen. Rand Paul has argued with colleagues for months over hemp and blasted the provision, calling it an overreach that “kills jobs and crushes farmers,” adding that “every hemp seed in the country will have to be destroyed.”
“This is the most thoughtless and ignorant proposal to an industry that I have seen in a long, long time,” Paul said after the ban passed.
In this July 5, 2018 photo, Senate Majority Leader Mitch McConnell inspects a piece of hemp extracted from a hemp bale at a processing plant in Louisville, Kentucky. McConnell led the campaign in Congress to legalize hemp.
AP Photo | Bruce Schreiner
While executives like Jordan have said the legal market will contract sharply due to a ban, they warn that consumer demand for hemp-derived THC will not. Studies have shown that demand for marijuana and other THC products has continued to rise in recent years as some users give up alcohol and drink less overall.
Cannabis industry executives have warned that growing popularity could generate billions in sales on the black market, where products face no testing, no age restrictions and no tax compliance.
“This ban is going to have the effect of forcing all of these small players into the illegal market,” Jordan said. “Companies have invested far too much money in this area and the demand is still there and growing. They [companies] won’t just disappear, they’ll just move into the illicit market and put more people at risk. »
And as products move clandestinely, law enforcement could have difficulty tracing supply chains, Gorenstein said.
“Bad actors thrive when things disappear from the formal economy,” Gorenstein said.
State and local governments could also lose millions of dollars in tax revenue from hemp sales, Gorenstein and Miller said. Several states use these funds to support substance abuse services, county budgets and public health programs.
Looking ahead, industry leaders say the only lasting solution lies in federal standards, not a ban. Many favor a model that divides responsibilities among agencies: the Food and Drug Administration for product safety oversight and the Alcohol and Tobacco Tax and Trade Bureau for taxation and distribution.
Executives also compared the current environment to the start of the e-cigarette boom, when products like Juul offered fruity, candy-like cartridges that spread quickly, with spotty oversight, before the FDA intervened.
“Too many people have taken liberties that put the end user at risk,” George Archos, CEO of cannabis company Verano Holdings, told CNBC. “We like strict regulation. We want consumer safety to be considered for every product produced and that is what we hope to be achieved.”
Meanwhile, the industry is preparing a large-scale lobbying campaign aimed at replacing the ban with federal rules on testing, labeling and age restrictions.
“We already have members of Congress introducing regulatory bills. We are pledging our support and working at the grassroots level to mobilize citizens around this issue,” Miller said. “We are activating throughout the sector.”
Simultaneously, the Trump administration is “considering” reclassifying marijuana from a Schedule I drug – alongside heroin and LSD – to a Schedule III drug. The move would not legalize recreational marijuana, but it would make it easier to sell, advocates said.
“Big changes are expected across the board next year, but their nature could determine the future of investment and industry,” Gorenstein said.