Also: What does the hemp supply landscape look like today?
Hemp cannabidiol (CBD) product demand is growing quickly. In September, the American Botanical Council’s latest HerbalGramHerb Market Report projected that in 2018, sales of CBD supplements in the U.S. natural channel grew a whopping 332.8% to nearly $53 million in total sales, now ranking as the channel's bestselling herbal supplement. With so much demand out there, is there enough supply of hemp ingredients to make these products? More than you’d think, according to companies Nutritional Outlook interviewed at last week’s SupplySide West trade show in Las Vegas.
“I don’t think there will be a shortage [of hemp supply]; I think there will be an oversupply issue,” said Elaine Yu, president of Layn USA (Newport Beach, CA). At SupplySide West, Layn highlighted its newly formed, wholly owned affiliate, called HempRise LLC (Jeffersonville, IN), which so far offers full-spectrum and broad-spectrum hemp oil, and water-soluble CBD extract.
Part of the reason for oversupply is that so many farmers are now growing hemp. This fall, the group Vote Hemp reported in its 2019 U.S. Hemp Grower License Report that the number of licensed hemp acreage in the United States has quadrupled since 2018, with 46 states now legalizing hemp farming. In 2019, Vote Hemp reported, more than 510,000 acres of hemp had been licensed across 34 states.
Meanwhile, while demand for CBD and hemp extract products seems high, consumer product growth is still restricted by FDA’s stance on the ingredient in products like dietary supplements. FDA has said CBD is not a legal dietary ingredient, and many view the regulatory environment for CBD as stiffling.
Even market leader CV Sciences (San Diego, CA), which in Q2 2019 reported record revenue of $16.9 million (36% growth over Q2 2018 and, in fact, 14 consecutive quarters of revenue growth), said that the market potential for CBD is far from being fully realized.
“The only thing that’s going to limit it right now currently is, I believe, the federal government,” said Jesse Karagianes, vice president of sales for CV Sciences, at SupplySide West. “Until they can make a decision with USDA and FDA on how to put rules and regulations in place-from faming, extraction on the manufacturing side, and then actually finished-product FDA guidelines, such as what’s an appropriate percentage, form, factors, all of that-that’s the limiting factor right now. We will never get to that market cap or size if we can’t have some guidelines and guardrails to play with.”
Interest in farming hemp will not wane soon. Farmers continue to look to the crop as a way to diversify their business. Plus, said Layn’s Yu, “I think on the farming end, it’s way too easy to expand-buying seeds, growing, and harvesting.” It’s easier to grow these crops, she surmised, than to get a finished product onto the retail shelf.
Other companies interviewed at the show, such as BI Nutraceuticals (Rancho Dominguez, CA), say that hemp is not an easy crop to grow. Still famers continue to forge ahead with hemp. “It’s worth so much money,” said Randy Kreienbrink, vice president of marketing for the company, at the show. “That’s why people guard and watch the hemp fields because there’s a lot of money out there per acre.” At SupplySide West, BI Nutraceuticals showed off its new full-spectrum hemp extract powder, as well as a “soft extract” liquid version designed for applications such as softgels and tinctures, plus a line of hemp protein concentrates.
“I think right now is the Wild West, but a lot of people have quickly turned overnight to growing hemp,” Kreienbrink continued. “It’s just incredible. Anyone who has the land has looked into it.”
Still, the fact remains that demand will have to catch up with supply. “Is demand really there already to support all this vast, rapid growth on the farming side? I think the answer is no,” Yu said. “It takes time for any market to mature and reach a sustainable market size. People are not allowing time for the market to grow, and the farming side is speculated to be too big already.”
“We’ve Seen It Before”
Several of the herbal companies who, for the first time at this SupplySide West show announced they are now offering hemp extract ingredients, said they’ve seen this type of situation before: an herb becomes very popular, then many farmers start growing that herb until supply outstrips demand.
Said BI Nutraceuticals’ Kreienbrink, “Having been in this industry for over 40 years, we’ve seen this happen with so many other products: ma huang/ephedra, kava, saw palmetto. The list just goes on. I would say this is one of the more electric times. It’s definitely a big gold rush. But we’ve seen it before, and we’ve gone through it before.”
Both Kreienbrink and Layn’s Yu believe the balance between demand and supply will eventually recalibrate.
“It’s always going to curve,” Yu said. “We have seen it a lot in the past with stevia, for instance. It’s always like that. A newer ingredient comes to the market, people see this opportunity for the market, but the market always takes time to grow to its full size. Then, there is balance.” Eventually, she said, demand will again start to outgrow supply, and then people stop growing crops as “aggressively,” and the market corrects again.
She continued: “It’s market dynamics, and fortunately or unfortunately, you can’t control it to perfection.” As a long-time herbal supplier, she said, Layn knows how to prepare for these ups and downs, but she said “a lot of newcomers in the industry might not see this. A lot of people are still investing a lot of money into the farming, into the extraction facility-but you need to give time for the market to grow as well.”
Kreienbrink has an optimistic view: “Yes, the demand might still be a little off-pace with the actual raw material, but I think it’s going to catch up quickly. The good thing with hemp is that it can either be grown hydroponically in greenhouses, or outside, so with those combinations, I think they can get up to speed pretty fast.”
Much of the hemp being used to supply the U.S. hemp extract and CBD market is still coming from U.S. growers, suppliers at SupplySide West said.
“A lot is coming from Colorado, California, Oregon, and Washington, but hemp is also being grown in tobacco country, like in West Virginia and the Carolinas,” Kreienbrink said.
Many supply chains are still based on contracts with U.S. growers. CV Sciences, for instance, does not own the U.S. farms from which it sources ingredients; it contracts with farmers, Karagianes said. “We feel that’s a better way to do it,” he said. “We contract the farmers and say, ‘Hey, for this season, can you grow 500 acres of these two crops, Fedora and Futura”-the two cannabis varietals CV Sciences uses.
Karagianes continued, “That way, it allows us to work with other individuals. It’s almost like this: With Coca Cola, the magic of Coca Cola isn’t really a Coca Cola plant. It’s really the syrup. That’s their special thing that they do. And they have different manufacturers who can run Coke syrup all over the place. So that’s the real thing. Our [company’s] PlusCBD Oil Gold formula is the holy grail, and we can do that as long as we have Futura and Fedora. It just has to have the same qualitative and chemical matrix as our GRAS oil, so we can pretty much grow it anywhere. We’re pretty nimble in that regard.”
Companies are also expected to further expand the region from which they obtain their ingredients. Yu said that Layn and HempRise are looking for sources “throughout the U.S., not just specific to certain regions anymore.” This is possible because of the growth in hemp agriculture nationwide. “States previously not growing hemp are stepping into growing hemp, so we are broadening our selection of agricultural partners,” Yu said.
CV Sciences, which has grown much of its hemp in Holland to date, plans to focus more intently on U.S. hemp supply. It recently introduced a domestic hemp-sourcing initiative through which it committed to more than 500 acres of U.S. hemp production in 2019 thanks to supply agreements in Wisconsin, Illinois, Indiana, and Kentucky. (Extraction of these crops is done at the company’s San Diego, CA, production facilities.)
Diversification will also protect the company, Karagianes said. “By not pigeonholing yourself to one farm or one plot, and if you grow seeds in different states, it makes you more nimble. So if something goes awry, your entire supply chain isn’t out of commission.”
This expansion will also benefit more farmers across the U.S. looking to get into the hemp business. For its part, CV Sciences is even teaching farmers new uses for their plants. Recently, Karagianes said, on one test plot the company has begun using the top third of the hemp plant for cannabinoids while repurposing the bottom two-thirds to produce other textiles and hemp foods, showing that “you can have a dual-purpose crop.” This practice is more popular in Europe, he said, and CV Sciences is encouraging the practice in the U.S. “We want the top for the CBD, but you can use the bottom for all sorts of other fantastic things,” he said.
Hemp is also still being imported globally from Europe, Canada, and China. So, while “I think that still a lot of what we see here is from here, I do think that’s going to change,” Kreienbrink said.