Why the Hemp Industry is Poised to Profit

Ryan Allway

February 19th, 2016

Exclusive, Feature Stories, Policy

The hemp industry is projected to grow from $400 million to $1.5 billion by 2020, according to the Hemp Biz Journal‘s The State of the Hemp Industry report, driven by the lifting of legislative barriers. The Farm Bill of 2013 cleared the way for industrial hemp research activities, while the Industrial Hemp Farming Act of 2015 went a step further by removing hemp from the definition of marijuana. With the separation between marijuana and hemp made clear by law, the industry appears ready to turn a corner.

Companies in Colorado and Kentucky started hemp production for the purposes of extracting cannabidiol (“CBD”) over the past year. Many researchers believe the non-psychoactive cannabinoid may have therapeutic benefits spanning several indications. Hemp has also been used for centuries for a variety of other purposes. For instance, a single acre of hemp can produce as much fiber for clothing as 2-3 acres of cotton – and it’s twice as durable!

The U.S. has lagged behind many other countries when it comes to producing hemp, according to Hemp Biz Journal, because it has been embroiled in a prohibition dating back to the 1930s. Industry advocates are hoping that new legislation is just the beginning of the repeal of these archaic laws. In the future, they are hoping to see the USDA and EPA establish federal programs for organic certification and pesticide use to create a regulated and viable market.

All of this could translate into big opportunities for the hemp industry, where many different companies are positioning themselves to take advantage.

Hemp’s Unique History

Hemp has a rich history in the United States before being outlawed. In 1776, the Declaration of Independence was drafted on hemp paper and the U.S.S. Constitution was outfitted with 60 tons of hemp sails and rigging. In 1916, the United States Department of Agriculture showed that hemp produced four times more paper per acre than trees. And in 1942, Henry Ford used hemp fiber – which is ten times stronger than steel – to build an experimental car body.

The industry was abruptly halted in 1957 due to the U.S. government’s confusion over hemp and drug varieties of the plant. At the same time, new government incentives targeted plastics rather than natural fibers as the preferred medium for industrial usage. The combination of these two events bankrupted many key hemp processors and ultimately stopped the industry in its tracks, despite the many beneficial qualities of the substance.

In 2004, these laws began to finally change to reflect the scientific realities of the hemp plant – that it contains no psychoactive THC. The landmark case between the Hemp Industry Association and Drug Enforcement Administration opened the door to hemp foods and body care products. A year later, a bill was introduced to regulate hemp farming. And in 2014, Obama signed new legislation permitting hemp research and growing ops in several states.

“The hemp industry will continue to evolve as hemp legislation is already moving forward in 24+ states for 2016,” said Ted Jorgensen, VP of Sales at Sipp Industries, a conglomerate with an interest in hemp oil manufacturing. “States like North Carolina fully legalized in 2015, and other states like Maine, North Dakota, South Dakota, Indiana, Hawaii, and others continue to move forward with specific state legislation for hemp.  As momentum continues to build state by state, we hope the government will fully legalize the cultivation of hemp on a federal level in the near future.”

Capitalizing on Hemp

There are many different companies that are active in the hemp industry – both publicly traded and privately held – that could translate to opportunities for investors.

On the growing side of the business, CBDrx, GenCanna and Foliumbiosciences are three companies focused on growing hemp to extract CBDs and other beneficial elements. The largest industrial processor will likely become Hemp Inc. (OTCQB: HEMP) with its large-scale investments in processing equipment via its Industrial Hemp Manufacturing LLC subsidiary. On a smaller scale, PureVision is another company focused on hemp processing and engineering.

The product side of the business is much larger and growing. Private companies like BlueBird Botanicals and Mary Medicinals are producing hemp-based CBD oils and other products, while companies like Sunstrand are leveraging hemp for the materials industry. Larger public companies, like GW Pharmaceuticals (NASDAQ: GWPH) are also leveraging hemp-based CBDs in clinical trials of cannabinoids to treat a growing number of conditions.

Other companies that are active in the space include CV Sciences – formerly  CannaVEST Corp. – (OTCQB: CANV), which leverages hemp-based CBDs for a wide variety of products and Stevia Corp. (OTCQB: STEV), which expressed interest in entering the market as a farm operator.

“Hemp is such a diverse crop that anyone from a start up to large scale business can enter and be profitable,” added Mr. Jorgensen. “We are still in the very early stages of one of hemp’s most profitable extracts, Cannibidiol or (CBD).  Farmers will be harvesting hemp that will result in millions of dollars of CBD sales in 2016.  Outside of CBD, using hemp fiber for building materials is another lucrative segment.  The opportunities truly are limitless because of hemp’s diverseness.”

Looking Ahead

The hemp industry moved from a predominant source of fibers for over 25,000 applications to a bankrupted industry thanks to the government’s confusion between hemp and marijuana. With new bills making the distinction clear as of 2015, the hemp industry is uniquely positioned to expand over the coming years. A number of private and public companies could benefit from this expansion, while larger agricultural growers could also become involved.

Ryan Allway

About Ryan Allway

Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.

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