Following the passage of the Farm Bill and its legalization of hemp cultivation, the market for CBD products in the United States is growing at a breakneck pace. The huge expansion that the industry has seen in recent months, though, can make it easy to forget that the Farm Bill wasn’t the end of the conversation around CBD’s legal standing, but the beginning.

Recently, the FDA sent a warning message to CBD companies – cautioning a major player in the industry, Curaleaf. And a recent FDA hearing in June left the industry concerned about the future.

Here’s what we do know: there is no hitting the brakes on CBD. A new market study has evaluated that the CBD industry could hit over $20B by 2024. Some estimates are putting it even higher than that.

The new forecast takes into account products sold through licensed dispensaries, pharmaceuticals and in general market retail, which includes cafes, smoke shops, grocery stores and pharmacies.  However, BDS Analytics predicts that the majority of CBD product sales will soon occur in general retail stores instead of cannabis dispensaries. When you consider how cannabis has become increasingly integrated into mainstream society, as represented by the number of states that have legalized recreational or medical markets (33 and D.C for recreational use and 10 states plus D.C. for adult use), the BDS prognostication makes perfect sense.

As the US enters into trade wars with foreign nations, US farmers are seeing a cash crop literally handed to them. More farmers across the country are switching to farming hemp, as profits realized are much higher than other crops.

Investors are pouring money into massive CBD extraction facilities and processing plants in the U.S., hoping to be ready when Coca-Cola Co., Procter & Gamble Co., and other consumer giants finally embrace cannabis.

The biggest issue, however, is the legal banking & financial system. Currently, cannabis related businesses are barred from banking with US banking institutions, & from processing debit & credit card payments. Because of this, bank loans are not an option for cannabis & CBD companies- leaving business owners struggling to expand, pay bills, & stay in business.

A pernicious dynamic has emerged in legal cannabis: Costly states regulations, combined with a lack of access to small business bank loans (due to federal prohibition) is de facto redlining all but the richest 1% out of legal cannabis.

Meanwhile, larger corporations are taking in hundreds of million in investment capital, a luxury small businesses can’t afford. This dilemma is leaving 99% of the country out of the industry. Only the massively wealthy can take on the current marketplace.

A ton of the top brands that were winning Emerald Cups and High Times Cups year after year have just fallen off the radar because they weren’t able to walk in and pitch to venture capital firms. They were cultivators and medicine makers. They weren’t able to put together a business plan. 

It’s perverse, but cannabis prohibition was once one of America’s most successful small business programs.

The threat of arrest and incarceration boosted cannabis crop prices ten-fold to a peak of $5,000 per pound in the late 1990s, enriching growers. Police couldn’t go after everyone, so they targeted the largest-scale producers. As a result, a multi-billion cottage industry of smaller operators flourished after California legalized medical cannabis in 1996.

That’s gone now. California opened its legal adult-use cannabis system in 2018. With prohibition waning, prices are collapsing, margins have thinned, and profits come from large-scale growing and sales.

US banks had $618 billion in outstanding loans to small businesses in 2016. They’re a major source of funds for startups. But none of the cannabis industry’s growth can come through small business loans from banks.

Federal prohibition creates too big a risk to lenders, explained Dana Chaves at the First National Bank in Florida. Several hundred small banks and credit unions around the country handle basic services like checking accounts and payroll for licensed cannabis business, in exchange for massive fees. First National Bank serves many small independent businesses, but no bank will give a cannabis business loan, she said.

With small bank loans off the table, small cannabis business operators have to get very resourceful. They can try to bootstrap the business by tapping retirement or investment savings. If possible, they try to raise money from rich relatives and friends, or convince an individual or institutional venture capitalists to invest. Results vary.

So what happens next? In order for the industry to thrive, & allow the masses to benefit, rather than a handful of VCs & corporations, fair banking laws must be established, as well as a clear path to federal legalization. If we continue down the road we’re on now, we’ll only end up worse off than we did when it was totally illegal.

One thought on “What Does the Future of the CBD Industry Look Like?

  1. Pingback: What Does the Future of the CBD Industry Look Like? - Los Angeles Cannabis Reviews

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