When Congress passed the Farm Bill of 2018, which included provisions from the Hemp Farming Act, it was a major victory for cannabis legalization advocates around the country. The President signed the 2018 Farm Bill on December 20th, 2018, marking it a historical moment in the battle to end the prohibition of hemp. It has been illegal to grow, sell or possess hemp ever since The Marihuana Tax Act became law in 1937. He made no comment referencing the legalization of hemp but applauded Sen. Mitch McConnell for his efforts in spear heading the 2018 Farm Bill through the Senate.
The Hemp Farming Act does not remove CBD from the Controlled Substance Act, but it legalizes everything extracted from the hemp plant itself. It will also open the door to banking for hemp based businesses. The Kentucky Senator Mitch McConnell led the charge for the addition of hemp on the Farm Bill and plans of his state being one of the leaders in hemp production around the country. Unfortunately for much of the CBD industry, since the FDA approved GW Pharmaceuticals drug Epidiolex before the Farm Bill was signed, it by default made any CBD products marketed as a supplement illegal. The decision by the FDA to approve Epidiolex by default makes CBD a drug instead of a supplement which puts it into direct conflict with the FD&C Act.
Regardless of the decision to make CBD a drug, products with CBD isolates have become a much larger market with more visibility after the passage of the bill. The new law also means access to more affordable clothing, paper goods, food supplements, fuel and building material. From an investment perspective, tradable hemp futures have to be on the near horizon.
The possibilities for hemp seem nearly limitless. Now, the way economics is supposed to work, minus adding money to the economy by lowering interest rates, hemp will likely take money from other industries like lumber and cotton. It’s a zero sum game, but it will stir the pot and may bring a focus back to farming here in the United States. If it means we do not need to import as many goods and that we end up employing more people to work hemp farms, that all amounts to a lot of positives to the United States economy. Supposedly hemp is better for our soil and for crop rotations as well, which means it could help out other crops as well. Another environmental benefit is that hemp needs less water than many other crops and does not require as many pesticides either. The environmental benefits of hemp farming are not to be ignored.
I would speculate that hemp futures on the Chicago Mercantile Exchange will not be too far down the road either. Futures are forward contracts that traders and investors can buy and sell similarly to a stock. Manufacturers will want commitments from hemp farmers for certain amounts of hemp to be delivered to them at some future date when they believe they may be running low on their supply. The price they settle on today is the price the buyer will receive the hemp for regardless of any price fluctuations before delivery is fulfilled. Eventually their will be enough open interest in these forward contracts that the CME will have every reason to created hemp futures contracts knowing that traders and investors will add that much more liquidity to the market. It will be a big day for the CME because unlike new companies joining the equity markets, they certainly do not see new commodity contracts introduced very often..
Hemp is not marijuana. While there is an abundance of CBD in hemp, it is not not psychoactive, it will not get you high. Hemp’s legalization likely means that researchers like Dr. Yasmin Hurd should be able to access CBD more easily for her research in addiction relapse. She believes CBD may be the key to stopping relapses which is the equivalent of curing people of addiction. Hemp legalization is certainly not unique to the United States. In fact, Italy legalized hemp in late 2016 and they are crazy for it. They actually smoke hemp and call it cannabis light. There are over 60 strains of hemp they grow in Italy and it is an incredibly popular market. I doubt we will see many people in the U.S. smoking hemp, why would they need to? But, we will find many other uses for it.