Hemp and derivatives markets are highly fractured, and one of the underlying factors that keeps these markets siloed is a lack of standards and product specifications. It is certainly an obstacle to hemp price reporting, or attributing hemp prices to a specific product. These product specifications aren’t directly related to product safety and best practices, aspects of production that are overseen by regulators typically, but in 2020, this is not so.
Hemp policy issues nationally are a head spinning cacophony of state agencies, legislatures, local municipalities, and then a great big vacuum at the federal level. As far as federal policy goes, any operator in this space must rely in their own good judgment, with rumor and inuendo to round out the available information on where federal policy is headed.
Most look to standards for dietary supplement manufacturing, adhering to cGMP. In cannabis, GMP and ISO certifications are typical, and many operators in hemp, particularly extractors, are utilizing this, preparing for upcoming FDA oversight. Generally speaking, organic certification is the only real oversight for hemp producers. The US Hemp Authority has had some buy-in with their certification, particularly well capitalized, larger companies positioned to service major retailers.
ASTM International (American Society for Testing and Materials) is an international standards organization that relies on a membership engagement vis-s-vis a committee structure, to facilitate standards by consensus. Committee D37 on Cannabis was formed in 2017 to begin to add some structure to cannabis markets, facilitating market growth, aligning best practices, and even agreeing on a common language.
Hemp does not have this yet. Markets have certainly settled on some common language, inherited from MJ, which also is responsible for wholesale extracts traded and priced by the Kg, rather than the volumetrically appropriate liter. Extracts are priced by the Kg because end use was typically vape cartridges, in .5 and 1 gram sizes. These products will continue to evolve as we inch towards product standardization, but there is ongoing innovation, and much will change.
Hemp extracts are complex. Our understanding of them, and their manufacture, is extremely fluid. Many THC remediators will probably be using a different method within several years, as new, more efficient techniques emerge. The entire segment will evolve with new discoveries in medicine, and new research to inform cannabinoid therapy.
The Jacobsen is eager to contribute to standardizing wholesale hemp flower through participation in the D37 Committee. For market development, a standard grading system for cannabis flower would increase liquidity in these markets, creating supply at scale Craft producers will sidestep this, both through existing relationships, and by virtue of product quality.
Millions of pounds of hemp flower are being produced annually, and early market makers have established trade flows that don’t rely on the type of structure that enables agricultural markets to move high volume. Product safety issues are high priority, because beautiful, top shelf flower can be highly contaminated. Standardizing lab analysis is one aspect of market development, but a common grading system for cannabis flower, including general descriptors for sensory characteristics, like size, color, and nose are needed to facilitate transactions.
Current markets rely on existing relationships or a mélange of new ones. Reliable counterparties in hemp have been hard to come by for many market participants. Standards and specifications allow for contracts and will facilitate far more confidence with unknown counterparties.
The Food and Drug Law Institute (FDLI) hosted a two-day virtual conference last week to discuss “legal and practical issues in the evolving world of cannabis regulations”, as reported by CannabisWire. Our research has revealed that representatives from CV Sciences, Canopy Growth, and Solari Hemp were members of the planning committee.
Joseph Franklin, policy director for Amy Abernathy, spoke about the FDA’s approach CBD. Abernathy, a principal deputy commissioner at FDA, has led the agencies work in crafting CBD regulations thus far.
One attendee asked about the agencies’ timing in releasing regulations for CBD, to which Franklin replied:
“The only thing that we can say, from the FDA perspective, is that it was submitted in July for OMB review as part of the normal process. That’s the only comment we can provide on that at this time.”
The reality is that the FDA is quickly playing catch up in cannabis, both MJ and hemp. The 2018 Farm Bill created a seismic shift in the agency, having no framework for effectively regulating cannabinoids of any kind. They have apprised congress of their effort to regulate CBD with periodic reports, including their progress in developing product categories. FDA handed off their work to the White House in July. A number of individuals representing companies and advocacy groups had meetings at OMB this summer, as reported in previous Hemp Bulletin commentary.
Data continues to be the most significant shortcoming in the process to regulate CBD. Franklin was enthusiastic about new ways to collect data, utilizing new technology – presumably the ubiquitous smartphone, for one. The FDA is also identifying other stakeholders, like government agencies and state regulators that “can perform the studies or collect the data.” No doubt the holidays, as well as an imminent changing of the guard in the Executive Branch, will prevent further progress in 2020.
The FDLI hosted a panel focused on federal approaches to CBD regulation, predominantly representatives from DOJ and FTC. John Claud, assistant director for the consumer protection branch of the Department of Justice said this, as reported by Cannabis Wire:
“The Farm Bill being what it is, when Jeff Sessions became the attorney general, that changed the landscape. Because in Jeff Sessions’ view, I think the quote is that ‘good people don’t smoke marijuana,’” Claud said. “So there was a very limited and restricted view of what DOJ could do with its enforcement powers.”
Claud added that no new cannabis-related policies have come out of the DOJ since 2018, and that in the later years of the Trump Administration, “there hasn’t been as much focus on that.”
“In the light of the pandemic, the Administration hasn’t had that as a main focus. But as I sit here today as an employee of the Department of Justice, there is still that very strict sort of division in the minds of our leadership that is presumably about to change,” Claud said.
One outcome of the pandemic is the shift to virtual meetings. This has provided stakeholders far more access to regulators and and other thought leaders in the industry.
All eyes are on the upcoming transition to a Biden/Harris administration. This is certainly the case with the emerging hemp sector, after slogging through significant headwinds in 2020. The pan-cannabis sector has plenty to be excited about with inevitable policy changes on the horizon.
The Department of Justice – overseen by the Attorney General – is a pivotal role as the US navigates cannabis policy reform. As noted in yesterday’s commentary, the predominant agency culture of DOJ was established at the outset of Jeff Session’s tenure. Sessions is known for his disdain for cannabis markets, and this has helped to keep outdated views on the crop entrenched at the agency, regardless of the emergence of the legitimate hemp industry. The DOJ is amidst a crisis after the President’s attacks on prosecutors, the FBI, and judges, while also eroding confidence in DOJ ‘s ability to act independently from the Executive Branch. One Obama era US prosecutor, characterized the upcoming transition as a “salvage operation” at DOJ.
Sally Yates, who served as acting Attorney General for a short period in 2017 is one potential pick for Attorney General. She was fired for refusing to enforce Trump’s travel ban. Yates issued a scathing editorial in the Washington Post in 2017, criticizing Sessions’ MJ policy changes. Among these, was the reversal of Cole memo. This 2018 policy move by AG Jeff Sessions had grave impacts on the hemp industry, particularly with access to financial services. Session’s memo only reaffirmed the Banking Secrecy Act, in the very same year the Farm Bill legalized hemp production coast to coast.
Xavier Becerra, California’s AG was a favorite pick for US AG, but has already been named for HHS. Doug Jones is another finalist, and voiced support for removing cannabis from the CSA in 2019. He also co-authored a bill to facilitate loan access for hemp farmers.
The USDA will also transition to new leadership, ostensibly Tom Vilsack, pending confirmation. Vilsack led the USDA during the Obama administration, so he’ll be hitting the ground running. What impact he may have on the agencies’ hemp plan is unknown, but his previous experience, and a demonstrated support for the hemp industry bodes well. Jonathan Miller of the US Hemp Roundtable said the following to Hemp Grower magazine:
“the USDA under Vilsack recognized that ‘market research’ under the 2014 Farm Bill included product sales … and facilitate[ed] the initial growth of the program, setting the table for the 2018 Farm Bill.”
One cannot underestimate the importance of this to the development of hemp markets.
The article goes on to say how pivotal his support was following the passage of the 2014 Farm Bill, when producers encountered new obstacles. For instance, the Drug Enforcement Administration’s (DEA) seizure of hemp seeds that the state of Kentucky imported into the U.S. Miller also noted that the DEA “registered public objections to the sale of hemp products, claiming that the Farm Bill was [for] research only,” he said.
Another cabinet appointment that could have a meaningful impact on CBD policy is the White House Office of Management and Budget (OMB). OMB has had the FDA’s CBD enforcement recommendations since July, which as yesterday’s commentary revealed, is the only update FDA has. Regardless of the OMB pick, the office will likely take action on the FDA’s policy, after they dig it out from under the pile of coronavirus documents. What this will mean is up for interpretation; the FDA has been airtight. Biden’s pick for OMB, Neera Tanden, is a political lightning rod it seems, though she may be meant as a sacrifice to the hyperpolitical Senate, where her confirmation seems unlikely.
Product differentiation could not be more critical to the success of newly formed hemp enterprises. Declining hemp prices have intensified the urgency for operators to attain profitability, but regardless of current hemp pricing, agricultural markets are generally accompanied by slim margins. Current marketing models in agriculture reflect this.
Hemp farmers have adopted a number of strategies to market their hemp products. Smaller, vertically integrated operations selling craft products use social media to drive e-commerce, and also local sales. There are thousands of these brands vying for consumer dollars, but there are also thousands of brands of other agricultural products that are sold through various channels, including tailgate markets, where some CBD products will also capitalize on consumers looking for LATTE: local, authentic, traceable, transparent, and ethical.
Vertically integrated production is not unique to small hemp producers. Larger companies emerging in the hemp sector have maintained control of their production, rather than contract production with farmers. There’s plenty of precedent for this in other segments of agriculture, with companies like Kroger producing ~40% of their own milk, and Walmart has developed a 250,000 ft2 milk processing facility in Ft Wayne, IN. Hemp provides even more impetus to control all aspects of production, given the regulatory pressures, and the broad lack of production and processing knowledge.
Private label products are abundant throughout the agricultural value chain. Think store brand butter and cheese. This is done at scale, and leverages an operator’s existing supply chain and manufacturing processes, culminating in product that bears a client’s label.
Small grassroots hemp coops have sprung up in several states. Regardless of the ability for farmers to join forces with one another, they still confront a market with weak demand. These coops generally cannot rely on major partnerships with existing extractors, and will need to produce a brand, and market it effectively.
The contract production model gained a great deal of momentum last year because of the large numbers of producers entering the market. Companies provided the seed genetics or starts and provided varying levels of support throughout the growing season. Some offered agronomic services, others offered drying services – or intended to anyway. The poultry and swine industry also provide unique genetics to their contract producers, who never actually own the animals they’re raising.
Specialty branding will be an important tool for operators in the CBD arena. Kumatoes at Trader Joes, Vidalia onions, and Angus beef are some of the many examples, but the apple industry has embraced branding big time. Trees are asexually propagated, creating some exclusivity on new varieties, and generating another revenue source for patent holders, who receive royalties on every tree produced.
The hemp flower market is rife with branding opportunities. Currently, there is no consistency with many of these varieties, so that a cherry xxx variety could be phenotypically and chemotypically dissimilar to the same named variety grown elsewhere, or even within the same stand. Cannabis breeders will continue to try and develop unique plants that provide for differentiated branding opportunities, but the hemp genetics segment is in its infancy. GMO hemp provides for the most immediate opportunities here. Conventional breeding will take years to develop varieties that, for instance, are devoid of THC, whereas biotechnology is already there. Consumers will reject this to some extent, but there could be ample demand for GMO hemp in commodity markets.
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