Speaking to an industry group in the fall of 2015, then-state Agriculture Commissioner James Comer said he saw a bright future for industrial hemp.
“This is going to be a big crop in the state of Kentucky,” Comer said, predicting farmers would grow tens of thousands of acres and that the industry would create thousands of jobs, with hemp fiber, seeds and oil being turned into everything from auto parts and construction materials to pharmaceuticals.
Kentucky “is going to be the epicenter of industrial hemp production in America,” said Comer, a key player in pushing to legalize the crop.
But this summer, the 10th growing season since hemp returned to Kentucky, hemp has not been the economic benefit many people hoped.
The industry grew steadily for a few years, with increases in the amount of hemp farmers produced and in the number of processors licensed to turn the crop into products.
But several large processors went bankrupt after a brutal market downturn in 2019 and farmers collectively lost millions of dollars, driving many out of the business.
Gross sales reported by hemp processors dropped from $193 million in 2019 to $43.5 million in 2021, and this year, the amount of hemp authorized for planting in Kentucky is the lowest since the early days of the program in 2015.
Advocates say the market for hemp is developing — that ups and downs are to be expected in a start-up environment — and that hemp still holds potential to boost farm income and jobs in Kentucky.
They say it will take changes to help that happen, however, with many calling for federal regulation that could boost the market for CBD products, and for more hemp processing infrastructure.
In the meantime, a lot of former growers are leery about reinvesting time and resources into an industry in which many lost hundreds of thousands of dollars.
“You mention hemp to a farmer right now and they’ll run and get in their truck and leave,” said Brian Furnish, a Harrison County farmer and longtime advocate for legal hemp who formerly headed the Kentucky Industrial Hemp Commission and the U.S. Hemp Roundtable.
STARTING SMALL
Growers planted the first legal hemp crop in Kentucky in decades in 2014, after Congress authorized pilot projects.
It was one of only four states, along with Colorado, Indiana and Vermont, to have crops that year.
Kentucky had hemp on just 33 acres in 2014, and none of it grew to a successful harvest, current Agriculture Commissioner Ryan Quarles said in a 2019 article.
But over the next few years, interest continued to grow as farmers and researchers worked to figure out the best varieties of hemp plants to use in Kentucky and fine-tuned growing techniques.
“Everything we did, we learned from,” said Asa Phillips of Owen County, who grows hemp and supplies plants to other growers.
In 2018 there were 210 licensed growers who planted 6,700 acres of hemp and harvested 6,000 acres, according to state records.
Another development along the way was the emergence of a market for chemicals derived from the flower of the hemp plant, called cannabinoids. Those include cannabidiol, or CBD, touted for use in food and beauty products and for relieving problems such as pain, anxiety, inflammation and insomnia.
As advocates had worked for decades to draw a distinction between marijuana and industrial hemp — hemp has almost none of the chemical that gets people high — and pushed to legalize hemp as an agricultural commodity, the discussion focused on the potential uses of fiber and grain, also called seed, from the plant to create bioplastics, building materials or other products.
But with the emergence of the CBD market, that came to dominate production in Kentucky.
Licensed hemp processors in Kentucky reported $16.7 million in gross sales in 2017 but that number jumped to $57.7 million for 2018, and the reported payments to growers for 2018 were $17.5 million, more than double the year before, according to the Kentucky Agriculture Department.
Industrial hemp took another major turn in 2018.
Late that year, decades after the federal government effectively outlawed hemp along with marijuana, Congress approved a farm bill that legalized hemp production by removing the plant and its derivatives from the list of drugs, and set up a framework for production.
The 2018 farm bill was “pivotal” in revitalizing the commercial U.S. hemp industry, said Alyssa Erickson, who helped start an educational platform on the plant, called Kentucky Hempsters, and is public affairs and marketing director for the U.S Hemp Roundtable, an advocacy group.
“Without this landmark legislation, we would be lacking a solid foundation for the current progress we see today,” Erickson said.
The law set the stage for an explosion of hemp production in 2019, as growers — some looking to replace a drop in tobacco profits — and processors rushed into the market to try to capitalize on a new opportunity, even though the size of the market wasn’t yet clear.
Kentucky approved the most acres of hemp in the nation, and while not all the approved acres were used, growers ultimately ended up setting 26,500 acres of hemp.
That was up from 6,700 the year before, according to state records.
Of that, 92% was intended for CBD.
The number of licensed growers in the state also jumped, from 210 in 2018 to 978 in 2019.
The same thing was happening around the U.S., which had the biggest hemp crop in 2019 since World War II, when the government pushed wartime production. for rope and other needs.
“We all had these visions of grandeur. It was gonna be like money growing on trees,” said Will Brownlow, who operated a tobacco warehouse in London but became a licensed hemp grower and processor/handler.
COLLAPSE
And then the bottom fell out.
Hemp production in 2019 swamped the market, causing prices to nosedive.
The price for hemp biomass started down in July 2019 and dropped a total of more than 80% into early 2020, according to Julie Lerner with PanXchange, which tracks prices and contracts.
“There was a gold rush mentality in the cannabinoid market when hemp became legal in late December 2018,” Lerner said, but “a little bit of hemp goes a long way in the CBD market.”
The fallout for farmers, businesses and investors was ugly.
AgTech Scientific, a large hemp processor in Bourbon County, ultimately sold out to pay its debts after a bank alleged the company was in default on $35 million in loans, and several well-known hemp companies declared bankruptcy in 2020.
Those included GenCanna and Atalo, both large processors in Clark County, and Sunstrand, a Louisville company that turned out hemp fiber for clothing, insulation and other products.
The market was so volatile that the state Department of Agriculture put out a guide for hemp growers in June 2020 on what to do if they were concerned about a processor going bankrupt.
Quarles said the agency has been careful to caution potential growers and processors about the risk of the hemp market.
Alice Peterson, president of a hemp extraction and processing company called Kentucky Heritage Hemp, said it is discouraging to see so many hemp businesses go under, though that was the “natural course of market correction when things get out of whack, as they did with hemp/CBD.”
Kentucky Heritage Hemp has seen significantly higher sales over the last year and expects growth as it rolls out its own line of retail CBD goods, Peterson said, but employment is down from two years ago.
The bankruptcies were contentious in some cases.
For example, a South Carolina company which processed hemp for GenCanna alleged that officials of the Kentucky company hid its pending bankruptcy in order to complete a deal to make its finances look better, and a group of farmers accused the company of perpetrating a “sham scheme” related to the 2019 crop and a planned hemp-drying facility.
GenCanna denied wrongdoing, but many farmers ultimately were left with little.
The list of largest creditors GenCanna provided the court included several farmers who were owed hundreds of thousands of dollars each.
Hemp growers said some processors made unrealistic promises about big payments for hemp that they ultimately couldn’t keep.
“‘Pay you later’ never came,” said Chuck Tackett, who raises tobacco, cattle and hemp in Scott County.
Leewood Cornett, a longtime farmer in Clay County, said he made money on the first two hemp crops he produced under contract for Atalo, but got nothing for his 2019 crop of 115 acres.
Cornett said his cost to produce the crop was $167,000, most of it for hired labor to plant and harvest the crop and prepare it.
He mortgaged his home to pay off his debt for the crop, and ultimately sold two farms to help pay the loan.
“You talk about getting shellacked,” Cornett said. “They didn’t treat us too good.”
Doris Hamilton, manager of the state’s hemp program, said in a December 2020 presentation that many growers planted hemp in 2019 without having a contract with a processor to buy it, but that many growers who did have a contract also didn’t get paid.
Unfortunately, Hamilton said, demand for hemp products “did not increase at the same rate as the excitement to grow this plant increased” after the 2018 farm bill.
“This is an industry that is still in its infancy,” she said.
‘VERY SKEPTICAL’
Tackett, who is 69 and has been farming since he was a teenager, said his farm lost money in 2021 for the first time ever as a result of the 2019 downturn, when he couldn’t sell all the hemp he grew.
He just finished selling the last of that crop this year. Other growers also have only recently sold the 2019 backlog at a loss.
“It crippled me,” Tackett said.
Alex Barnett, a former judge-executive in Harrison County, said his son, Brandon, had 200 acres of hemp in 2019 for AgTech Scientific for the CBD market, raising the crop in Harrison and Bourbon counties.
After the collapse, the company sent a letter saying it owed $800,000, but there was no money in the envelope, Barnett said.
The debt still hasn’t been paid, and Barnett estimates there was a loss of about $200,000 on the 2019 crop.
The family got into hemp as a way to diversify and replace some lost tobacco income, but it didn’t work out, he said.
It would take some firm financial assurances for them to get back in the hemp business, Barnett said.
“We’re very skeptical. We want money up front if we do anything in the hemp market,” he said.
Gross product sales that hemp processors and handlers in Kentucky report to the state dropped from $193 million in 2019 to $130 million in 2020, then tumbled further in 2021, to $43.5 million, according to the state Agriculture Department.
For 2022, reported gross sales held steady at $43.5 million, and processors and handlers reported paying farmers a total of $2.5 million, the department said.
For the nation, the value of hemp products totaled $238 million, down 71% from 2021, according to the U.S. Department of Agriculture.
Processors also reported a big drop in investments in projects in Kentucky. The figure for 2019 was $207 million, but totaled just $33.7 million for 2021.
The downturn also cut the number of licensed growers. There were 450 in 2021 — fewer than half from two years earlier — and fell by about half again for 2022, to 240.
Not everyone who gets a license to grow hemp does. Some people get a license so they can legally store and sell a crop from a prior year.
Of the 240 licensed growers in 2022, for instance, only 77 planted a crop, according to the state Agriculture Department.
The department licensed just 170 growers this year.
‘CARRYING THE MARKET’
The downturn also helped push the rise of products such as gummies and vape pens containing Delta-8 THC, an intoxicating substance that has caused concerns about accidental poisonings and other problems.
Through a chemical process, Delta-8, which people use to help with pain and sleeplessness but also to get high, can be synthesized from CBD, which doesn’t get people high.
There was a demand for the products, and some growers who had surplus hemp product converted it to Delta-8 in order to have some income, said Katie Moyer, who has a hemp business called Kentucky Hemp Works and is president of the Kentucky Hemp Association.
Delta-8 products became widely available at retail outlets such as convenience stores and vape shops.
“Delta-8 is definitely carrying the market,” Moyer said.
State lawmakers moved to regulate Delta-8 this year with a law that bars sales of the products to anyone under age 21 and requires the products to be behind the counter. It also requires labeling to spell out what is in Delta-8 products and testing for contaminants.
Moyer said she expects continued strong sales of Delta-8 under the law.
“We see this as a big win for the industry,” she said.
‘IT IS POSITIVE’
There have been some positive stories in Kentucky hemp as well.
Some of the examples people in the industry point to include:
▪ Victory Hemp Foods, which started in 2015 and has offices in Louisville and a plant in Carrollton, produces high-protein food from hemp seeds.
The company, which has 20 full-time employees, ships products across the U.S. and to Canada and Asia, and recently received its first orders from South America, CEO Chad Rosen said.
▪ Hempwood, which is in Murray, turns hemp fiber into flooring and dimensional lumber without using potentially cancer-causing compounds, and can help with the solution to deforestation with a renewable crop, the company says.
CEO Greg Wilson said the company has doubled in production and sales every year since opening. It now has 30 employees and buys hemp fiber from 20 farmers, he said.
“It’s this crazy little idea that’s actually working,” Wilson told legislators in February.
▪ Ecofibre uses hemp in creating health and food products and textiles. The plant in Georgetown, which has 40 employees on-site and 10 more working remotely, creates health-care products, said marketing director Chris Lee.
The company contracts to get its hemp from a farmer near the plant.
‘BIGGEST IMPEDIMENT’
These days, the market for CBD products is still uncertain, with some large companies facing financial stress.
Many people argue that a lack of regulation for hemp-derived products by the U.S. Food and Drug Administration is creating a drag on the industry.
Products containing CBD have become more popular in recent years and are widely available, but the FDA has approved CBD products for therapeutic or medical uses in only a couple of cases, and has not authorized CBD to be marketed as a food additive or dietary supplement.
Large food and beverage companies won’t take a chance on wider use of CBD in products without some firm FDA guidance, hemp advocates say.
“The biggest impediment to the hemp industry in America is the Food and Drug Administration not doing its job,” said Quarles, Kentucky’s agriculture commissioner. “Inaction is holding the industry back.”
The FDA has expressed concerns about the potential health effects of CBD, but the U.S. Hemp Roundtable argues the studies were based on high doses of the substance, while other studies have shown the ways people actually use it are safe.
There have been measures introduced in Congress to require FDA to come up with regulations on CBD, and the issue also could be addressed in the farm bill, which is up for reauthorization this year.
“We’ve got this gray area market where FDA says CBD is illegal but does nothing about it,” said Jonathan Miller, a former Kentucky treasurer and longtime hemp advocate who is general counsel for the U.S. Hemp Roundtable. “We just can’t wait another three to five years.”
Miller said he is “cautiously optimistic” there will be a framework developed this year for regulation, and that he believes the hemp market will increase.
Source: starbeacon.com
Photo Credit: gettyimages-fatcamera
Categories: Kentucky, Crops