What is the 2018 Farm Bill?
People around the country – and indeed the world – are watching closely as the U.S. Congress deliberates and decides on the final fate of the 2018 Farm Bill. If passed with Mitch McConnell’s hemp provision included (as the Senate Majority Leader has guaranteed would be the case), the Farm Bill will remove hemp and its extracts from the federal list of controlled substances – fully and unambiguously legalizing hemp-derived CBD nationwide.
What is happening with the Farm Bill on Capitol Hill?
McConnell has made it no secret that he is highly motivated to get this legislation through as soon as possible, and led by his charge, Congress is looking to pass the Farm Bill during the “lame duck” session – taking place now and slated to end the first week of December. This period between the mid-term elections and the ushering in of the newly elected representatives (which in this case will flip the House to a Democrat majority) is often a source of rapid-fire legislation wherein the dominant party seeks to use their advantage to get through agenda items quickly, and the Farm Bill is no exception.
With this important deadline looming, key lawmakers were motivated to reach a tentative deal at the end of November that not only includes the hemp provision but also resolves some significant outstanding issues, such as the hotly-debated work requirements for SNAP or “food stamp” recipients set forth previously in the House proposal. The bi-partisan resolution of hot-button issues that have plagued the bill’s progress over the past several months paves the way for the bill to meet legislative and executive approval. While the compromise bill still needs to undergo budgeting review and language finalization—after which it must be committee approved and signed off on by both chambers of Congress as well as the president—its prospects look excellent now that the major pain points have been addressed.
Within a matter of days, hemp-derived CBD may be federally legalized in the United States, opening the floodgates for the establishment of a fully operational, normalized CBD industry unhindered by the myriad of legal and regulatory hurdles that hold it back today.
Predictions for hemp CBD legalization: How will hemp CBD legalization play out?
The most significant change resulting from the Farm Bill will be the removal of industrial hemp from the controlled substances list, which will legalize the production and sales of hemp and its extracts (CBD) across the country. This will allow for mainstream retailers and manufacturers to safely enter the space without concerns over grey area legal issues at the federal level (burdensome tax requirements such as those stipulated in 280E, crop insurance, interstate shipping, banking challenges). It would also allow for better-funded CBD research that includes human trials and is broader in scope.
Some major manufacturers have already begun taking steps to conduct trials to test the safety of their CBD products. Once the product is legal and human trials are permitted, this process is expected to move quickly. FDA approval of one product applies to like products, so each manufacturer will not need to repeat this process.
With that door open, what will manufacturers need to do to get their products authorized and onto shelves, and then scale? When can major retailers start stocking CBD products?
The short answer is: it depends.
First – it depends on which states they are established in and planning to roll out the product to. The language in the proposed Farm Bill dictates that individual states will be tasked with establishing regulations surrounding hemp and overseen by the U.S. Department of Agriculture (USDA), and regulations are bound to differ between states. Some will elect to form regulatory agencies in-house, others may relegate CBD regulation to an existing state body, such as the Department of Health, Revenues, or Medical Marijuana Authority, and many will likely defer to the standards set out by the FDA or other federal agencies.
This has already begun taking place in cannabis legal states. California’s Department of Public Health recently released a FAQ indicating that: “Until the FDA rules that industrial hemp-derived CBD oil and CBD products can be used as a food or California decides that they are safe to use for human and animal consumption, CBD products are not an approved food, food ingredient, food additive, or dietary supplement.” In California’s case, there are multiple pathways to the legal sales of CBD, and one of them is FDA approval. The Golden State is not alone, many others are expected to follow suit and defer to the FDA.
This brings us to our second variable: Much of the industry’s success will depend on how the FDA decides to approach CBD (as a food additive, supplement, cosmetic) once it has been legalized. Promisingly, the FDA has shown signs of openness and friendliness toward CBD, having considered the medicinal value and safety of the cannabinoid in the past, and even approved CBD-based Epidiolex seizure medication after concluding in a May 2018 letter to the DEA that “CBD and its salts…do not have a significant potential for abuse and could be removed from control under the [Controlled Substances Act] (CSA)”. A bold statement during a time when the DEA was adamant about hemp-derived CBD remaining a controlled substance.
Only time will tell how each regulatory body responds to this unprecedented potential legal change, but hopes are high that significant political and financial interests— as well as overwhelming consumer demand for hemp-derived CBD —will drive rapid and positive change among the regulatory bodies involved, just as it has among legislators.
Where will hemp be sourced from? Is it being produced already?
There will likely be a supply bottleneck as new rules are established, U.S. farmers are registered, and as they begin establishing or ramping up their cultivation efforts to meet the demands of companies looking to scale up quickly. There are cultivators all over the country already hard at work growing hemp in states where authorized (e.g. CO, KY), but their numbers and volume of production will need to expand significantly before supply catches up with demand. In the meantime, international imports will help fill the gaps, as is occurring today.
If the Farm Bill passes - what happens next?
Immediate implications of the Farm Bill’s passing: De-scheduling and federal-level legalization.
The policy change will lift interstate supply chain limitations, remove burdensome tax requirements, and provide the industry with its first access to formal financing, insurance, and advertisement, among other things. Investor, manufacturer, retailer, and consumer confidence will be heightened, bringing a flood of capital into the space.
Medium-term implications: Expanding growth
Chained retailers will be eager to stock products in thousands of brick-and-mortar locations across the country in 2019. From pet owners to chronic pain patients to glam users, consumers across the spectrum will be able to learn about, understand, accept, and more easily access CBD products. Research (including human trials) will be better financed and broader in scope.
Mainstream consumer packaged goods (CPG) companies will set themselves up to enter the space with scalable nutritional supplement lines, CBD-infused food, and beverages, cosmetics, topicals, or other products. FDA approval is expected to drive much of CPG growth.
Farm Bill update:
When did the Farm Bill Pass?
The Farm Bill was passed on December 11, 2018.
Our Director of Insights, Jamie Schau writes, “A compromise bill to legalize hemp and its extracts (CBD) across the United States has been developed, and both the Senate and House have signed off on it. It awaits only the President’s signature to become a law. The President has indicated that he approves of this bi-partisan legislation.”
|Related reading: Hemp CBD market to reach $16 billion by 2025.|
Why are your growth figures higher than those of other market research firms?
Each of the implications listed above will equate to tremendous growth in the market. But beyond product versatility, formal advertising, channel growth, and increased capital - it is important to step back and start looking at CBD growth as completely separate from that of cannabis.
Cannabis growth has been siloed and stifled by the regulatory structures in place, which make leveraging resources to scale very challenging due to restrictions on interstate commerce. This has caused growth to be incremental in the cannabis space. CBD, however, will have all the opportunities afforded to other commodities on the mainstream market - and with the lifting of this barrier, will grow exponentially.
Our latest market forecast for the US CBD market can be found in our free 2021 mid-year report.