The burgeoning market for CBD, a health product derived from cannabis plants that avoid the “high” from marijuana, is considered “low-hanging fruit” for the nearly 600 Michigan farmers now growing hemp.
Over the past two months, officials have launched the state’s first regulated agricultural hemp farming pilot program. The Michigan Department of Agriculture and Rural Development oversees the growing, processing and selling of hemp, including the rapidly expanding market for CBD, or cannabidiol.
Largely because of commodity prices and uncertainty over hemp byproducts, farmers and experts say most of the hemp being grown in Michigan is heading for the multi-billion-dollar CBD market, which shows no sign of slowing down.
“Right now, the low-hanging fruit is the CBD flower. It’s what most people are getting involved in, and it’s an opportunity for a substantial cash crop,” said Dave Crabill, vice president of the iHemp Michigan LLC, the trade association for the industrial hemp industry in Michigan.
Michigan hemp plots vary from a half-acre up to 200 acres, Crabill said. He estimated that 90 percent of Michigan hemp is destined for the CBD market, but mostly via out-of-state processors as Michigan’s sector grows.
“People are scrambling now to get that in place,” Crabill said of hemp processing sites in Michigan. “It’s a fairly substantial capital investment.”
However, the regulatory environment for hemp production and processing for CBD raises several policy and legal questions, including how the federal government will oversee a product that until last year was considered a Schedule 1 drug.
State pilot program
The passage of the federal Farm Bill and multiple state laws in December jump-started hemp farming in Michigan. The Farm Bill delisted hemp as a Schedule 1 drug and also allowed states to establish their own regulatory programs. Michigan developed its pilot under guidance from the 2014 Farm Bill, and experts expect little to change specific to hemp growing when the federal government finalizes its regulations this fall.
In April, MDARD held four events in East Lansing that granted temporary licenses onsite. Between the four events, the state issued 600 licenses for hemp growers and processors — a vastly different process compared to how it awarded licenses for medical marijuana businesses.
As of July 31, the state has issued licenses for 530 growers spanning 32,222 total acres, along with 380 processor licenses, according to MDARD. Information on where hemp is grown and who processes it is exempt from public records laws.
Most operators growing hemp are doing so for CBD products, said Gina Alessandri, MDARD’s Industrial Hemp Program director.
“I think there’s a lot of potential for (hemp) here. We have a great climate for it,” she said.
States are now waiting on federal rules related to hemp cultivation and CBD products, which are expected this fall and should be in place for the 2020 growing season. Once the U.S. Department of Agriculture has approved the state’s hemp plan, “we’d basically move from pilot programs to commercial programs,” Alessandri added.
Agriculture groups have pointed to hemp as an alternative during the Trump administration’s trade war with China and uncertainty over commodity prices for corn and soybean crops.
Crabill said commodity prices for hemp could range from $20 to $100 per pound, and “conceivably” yield 1,500 to 2,000 pounds per acre. The prospect of up to tens of thousands of dollars per acre for certain uses is a “substantially more profitable crop” than commodities like corn and soybeans, he said.
Eric Anderson, a field crops educator in Southwest Michigan with the Michigan State University Extension, said selling hemp for CBD oil is the “wild west” compared to markets for seeds and fibers.
“I’ve seen estimates all over the map, but that’s the most lucrative and why people in hemp steer towards that,” Anderson said of CBD. “That will completely depend on market development and how quickly it becomes saturated.”
MSU has three hemp-growing pilot projects in East Lansing and one in the Upper Peninsula testing various varieties, Anderson said. The MSU projects look at the potential for growing hemp for seeds and fiber and do not explore CBD.
From video rental stores to gas stations and grocers, retailers increasingly have made CBD ubiquitous in Michigan’s retail health market in the wake of cannabis laws being relaxed.
As well, hemp plant varieties serve different purposes. The flower and oil from female species are processed for CBD, while male plants are harvested for fiber and seeds.
The Grassy Knoll, a Grand Rapids-based CBD retailer that opened two and a half years ago, has been on the front lines of the boom.
Co-owner Janet Tombre said she was approached by Woodland Mall to establish a location there, which opened in April. The Grassy Knoll sells a wide variety of CBD products for humans and pets, including tinctures, CBD flower and edibles.
Customer interest and education has grown exponentially over the past few years, Tombre said.
“When we first opened in Eastown, most of our time was spent explaining what CBD is and the benefits of it,” she said. “Now that’s maybe 10 percent of our time. People seek us out, and there’s more elderly people coming in feeling comfortable once they figure out it’s not a pot shop or something like that.”
Tombre said the company works with at least three Michigan-based distributors and is consistently seeking out new products from suppliers. While she looks forward to potentially selling more products with Michigan-grown hemp, the popularity explosion has its downsides, she said.
“The biggest downside to all of this is every Joe Schmo is offering CBD at their place,” she said, mentioning video rental and grocery stores. “They’re just selling it; they don’t know what’s in it and don’t know how to tell people how to take it.”
Family Video, for example, now sells CBD products at its stores across the state. Company officials have reportedly said it’s a natural fit for customers looking to relax by renting films.
Tombre at Grassy Knoll said the situation is especially “frustrating” because her company has been dropped by four credit card processors because its main business is selling CBD and hemp products. Meanwhile, video rentals and grocers that sell a variety of products don’t face the same challenges, she said.
“We’ve lost a ton of money. We were cash-only for a while,” Tombre said.
‘So new for everybody’
Key questions over growing patterns, economics and regulations remain for both hemp production and CBD sales.
“This is so new for everybody,” MDARD’s Alessandri said. “It’s a brand new law.”
Given the early stages of the state’s hemp pilot program, farmers are still determining which varieties are best suited for Michigan and how they will respond to disease and pests.
Cory Roberts, who founded Michigan Cannabis Farms LLC in Newaygo County and holds hemp growing and processing licenses, said pests have been a major hurdle during his first crop of around 1,800 plants. The company also faces a regulatory barrier to using CBD in food products, Roberts said, adding that officials have said his license could be revoked if he processed food products.
“Fortunately, there is a huge market for CBD flower and extract,” Roberts said. “I have several local retailers request all of our end product come this fall, and even a few companies that are national CBD product brands. I think we are sure to see West Michigan become a major player in hemp cultivation.”
Another lingering question for farmers is cross-pollination. If male hemp plants are grown near females used for extracting CBD, the females could be pollinated and grow flowers with THC, the psychoactive ingredient in marijuana. Hemp plants with THC counts higher than 0.3 percent have to be destroyed under state rules.
“It can destroy their entire investment,” Crabill said.
Finding space to dry the harvested hemp and processors — along with identifying supportive banks — also pose challenges for farmers, Crabill said.
Then there’s the retail aspect of hemp and how products can be sold in stores, which could be affected by federal regulations. MDARD also maintains that anyone selling CBD products in Michigan needs a processor’s license to do so, even though there’s no practical way for the state to enforce it.
“The whole retail market is something we’ll need to learn about,” Alessandri said. “There’s a lot of retail sales going on right now where I’m positive sellers are not aware of the law and license requirements.
Michael Komorn, a Detroit-based attorney with the Michigan chapter of the Hemp Industries Association, says enforcing these types of laws remains impractical. Additionally, the product is no longer a Schedule 1 drug and can be transported across state lines.
Komorn describes a time when there are virtually no regulations over the hemp industry and with selling and distributing CBD products.
“It’s really a remarkable circumstance that’s existing,” Komorn said. “If you back up three to four years and a Cannabis Sativa L. plant is growing in a wild field at potentially 600 locations, this is chaos for law enforcement. But it’s (now) legal federally. A lot of people went into the pilot project anticipating harvesting and selling hemp in an environment which really has no rules.”
He anticipates CBD products designed for ingestion will be the most regulated and closely scrutinized if they advertise specific health benefits.
“We’re living in this unregulated market right now where interest in this product is huge,” Komorn said. “Right now, people are jumping in the market and figuring out where they fit.”
While significant questions remain about how the hemp industry unfolds, advocates praise individuals and companies who are jumping in to help answer them.
“This group of farmers in Michigan this year are pioneers in the industry,” Crabill said. “With everything happening, everyone is moving as fast as they can.”
News coverage in the small business section of MiBiz is made possible by advertising support from the Small Business Association of Michigan. SBAM is the statewide and state-based association that focuses solely on serving the needs of Michigan’s small business community. This advertisement has no effect on editorial consideration in MiBiz.