The CBD Bust is Already Happening

It was predicted to be liquid gold. “The Green Rush” – a term coined ironically to mimic the gold rush that sparked mass migrations to California in 1848.

The gold rush brought over 300,000 people to California in search of fortune. Some made it, but most left with shattered dreams.

But history has ways of repeating itself. As most farmers struggled to recoup their costs from growing hemp in 2019, the one’s making money in the industry are akin to merchants selling shovels to gold miners.

In 2019, with the passage of the Farm Bill, farmers across the country were given the go ahead to plant hemp – a once banned & ostracized plant. Over half a million acres were planted last year, up from 78,000 the previous year.

But the boom in acres planted wasn’t without it’s own faults. Many farmers were left with several dilemmas & difficulties, including plants testing above federally allowed THC % limits, leading to crops being destroyed, problems with finding outlets to sell their harvest, & quality issues due to poor farming practices.

Not only that, but consumer demand is nowhere near the current supply on the market. Although many news outlets and economists have projected the CBD industry to hit $25+ Billion over the next few years, sales of CBD products have fallen short of projected amounts.

The oversupply of hemp in the market has led to dramatic price decreases. A few analysts have predicted that the US can only reasonably consume 22.5M lbs of 10% CBD Hemp in a year, and we’re currently growing closer to 180M. That’s 8X what we need which is leading to a massive price crash.

If 50% of the US population (327M) consumed 10mg of CBD per day then we would consume 596,775 kg per year as a country and those consumption numbers are generous.

Here’s the standard sequence that leads to the price crash:

  1. Legalization occurs suddenly
  2. Prices spike due to immediate increase of demand and limited supply
  3. Farms raise capital and universally increase production based on inflated prices
  4. Due to the seasonality of farming no one knows how much other farms are producing Unfortunately, everyone ramped production at the same time
  5. Harvest occurs, prices crash
  6. Farms go out of business

The price crash should only happen for around 18 months. Unfortunately, in Oregon and Washington price crashes tend to last around 36 months. Prices in the Washington cannabis market only started to stabilize this year after 3 years of consistent price decreases. The reason it takes so long for price to stabilize is because after suffering losses the first season, farms grow a second and third year and focus on efficiency in order to dig themselves out of a hole and survive.

Currently, the spot price for bulk CBD isolate is around $1500-2,000/kg, and that’s being generous. This is down from around $5500/kg in May, and $10-12,000/kg in January, further highlighting the dramatic price crashes.

Just a few days ago, a leading hemp processor predicted to be an industry giant filed for bankruptcy. Gencanna Global USA announced Chapter 11 bankruptcy, putting a serious toll on hundreds of Kentucky hemp farmers who had contracts lined up with the company.

Kentucky Agriculture Commissioner Ryan Quarles said the bankruptcy filing was the latest sign that the national hemp industry is facing “strong headwinds.” Kentucky positioned itself at the forefront of hemp’s comeback and Quarles is an enthusiastic advocate for the crop.

Beyond just farming, the industry has seen in influx of thousands of brands, retailers, MLMs, & related businesses entering the market.

Beyond having a competitive & oversaturated market, the risks of running a business in the industry are bountiful. Savvy entrepreneurs entering the industry face a multitude of challenges such as finding payment processors, banks to work with, limited marketing options, social media restrictions, and problems with the FDA.

Right after the Farm Bill passed, the FDA passed regulations restricting CBD as a dietary supplement. Over the last six months, there’s been uncertainty in the rules surrounding CBD products—rules which many companies have largely ignored.

A big issue with the influx of brands is little to no differentiation. Most businesses create the same products, with similar labeling, and market to the same audience “Everyone age 21-85”.

Not only that, but many brands entering the space are selling snake oil, or rather, claiming their products contain CBD when in reality, have little to none. This act has made prompted consumers to start to lose trust in the industry as a whole, only furthering the bust of the industry.

Overall, consumer interest in CBD is on the decline. A report pulled from Google Trends shows that we’ve gone beyond the peak interest on the subject, and are slowly hitting the decline.

But while all the bad news surrounding the bust may be a deterring factor for those looking to make it in the industry, it should be said that CBD isn’t the end all be all of hemp.

As the industrial processing & manufacturing capacity is gaining speed & interest, we’ll hopefully start to see more mainstream products like textiles, paper, and building materials replaced with hemp. Popular clothing brand Levi’s® has already begun using hemp as a replacement to cotton in their jeans & clothing.

Not only that, but we’re seeing other cannabinoids start to gain hype, like CBN & CBG, which have shown promising research & medicinal uses.

Only time will tell what the industry brings us, but one thing can be certain – this is an industry full of gray areas, demonization, misinformation, & wonder.