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More than just CBD: The Market for Industrial Hemp in Michigan

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Due to legal and regulatory changes in the industry, including the 2018 Farm Bill and recent changes in the implementation of Michigan’s 2014 Industrial Hemp Research Act, the information contained in this Article may no longer be accurate. Please contact an attorney before relying on any information contained in this Article. For more information on cultivating hemp, or the Hemp Pilot Program in Michigan, check out our recent article.

The market for high-CBD hemp is booming, with certain farmers netting tens of thousands of dollars per acre for high-CBD hemp. In the U.S., much of the country’s hemp is being grown for the CBD or related markets, though cultivating high-CBD hemp outdoors can be a high risk / high reward venture. While the hemp plant is remarkable in its ability to adapt to different climates, good genetics for high-CBD hemp for outdoor growing in Michigan are hard to find, and genetics from other states such as Colorado will likely not do well in Michigan’s climate.

Good genetics are not the only obstacle to growing high-CBD hemp in Michigan. High-CBD hemp is also significantly harder to grow than industrial hemp. Many farmers struggle to make the change to growing high-CBD hemp unless they have experience growing tobacco or cannabis. It is not uncommon for these farmers to have most if not all of their initial crop fail, or to underestimate the labor needed to tend and harvest the crop, leaving much of their profits on the field. While high-CBD hemp may not be the best choice for all farmers, especially those who lack experience growing similar crops such as cannabis and tobacco, there are other types of hemp that would make for an easier transition for farmers that are used to the traditional row-cropping farming practices common in the upper-Midwest.

While we do anticipate there still being a thriving market for CBD products, the rush of new players will make it increasingly difficult for new companies to carve out a niche in the CBD supplement market. As both new CBD companies and existing blue-chip companies rush to enter the CBD market, we expect the market for CBD-hemp to start to saturate over the next few years, ultimately driving down prices. For these reasons, farmers may want to start exploring other markets for hemp products that are currently being overlooked in the midst of the current “CBD mania.”

Given this context, we want to discuss an opportunity that may better suited for some Michigan farmers and processors looking to establish a long-term niche in the Michigan hemp market. While not as lucrative in the short-term as CBD, this market may provide better long-term prospects for both farmers and aspiring Michigan hemp entrepreneurs. This is the market for industrial hemp and industrial hemp products.

Industrial v. High-CBD Hemp

It is important to first understand that there are several different sub-types of hemp, which require different genetics and different sets of skills to grow. High-CBD hemp farming is similar to cannabis farming in that it requires a great deal of specialized skill to grow due to the fact that the cultivation and harvesting process does not lend itself well to mechanized agriculture. The hemp flower currently needs to be picked by hand, which is particularly labor intensive.

In addition, while there are plenty of CBD hemp strains tailored to climates such as Colorado and California, there is a lack of such strains tailored to Michigan’s climate. As farmers from other states will attest, hemp strains that do well in Colorado do not necessarily do well in other states. The strain of hemp being grown needs to be adapted to local climate conditions in order to achieve good results.

This difficult and highly specialized farm is in contrast to industrial hemp production. Industrial hemp production is much more similar to the typical row-crop farming popular in the Midwest. Due to the fact that industrial hemp has been cultivated for several decades in nearby Canada, much of the genetics and production methods already exist for industrial hemp to be grown in Michigan. Industrial hemp is also relatively easier to grow than high-CBD hemp, which may make it better suited for Michigan farmers that lack experience in Cannabis or tobacco farming.

The Promise of Industrial Hemp in Michigan

The United States has lagged behind other national markets in terms of industrial hemp production and processing. The current leaders in industrial hemp are France and China, the latter of which holds roughly half of all patents related to industrial hemp production. However, Michigan’s combination of large amounts of arable land and its strong industrial and manufacturing base makes it the perfect place for industrial hemp to flourish in the U.S.

The most obvious niche within the industrial hemp marketplace that Michigan companies could fill is the use of hemp products in auto parts. European automakers already use hemp derived products in their cars and hemp auto parts have already made their way to the U.S. market. Flexform Technologies in Indiana currently utilizes hemp in the production of certain auto parts. Michigan car and auto part manufacturers have been slow to adopt hemp-based products, mainly due to Michigan’s previous industrial hemp statute that limited hemp production to universities and other research institutions.

In addition to auto parts, there are over ten thousand other products that could be made from hemp and sold into the national and international market. These products range from clothes and textiles, food and animal fee, paper products, plastic replacements, and more. With the market for sustainable products growing globally, now is the time for Michigan companies and business persons to start positioning themselves within this fast growing market.

The Catch-22

Once the Michigan Department of Agriculture and Rural Development starts granting hemp licenses, the main impediment to Michigan quickly developing its own industrial hemp industry is the lack of available industrial hemp (or “biomass”) for purchase by an industrial processor.  Similarly for farmers, the lack of large-scale buyers in the U.S. makes it tough for a farmer to cultivate hemp knowing there is an existing purchase agreement in place. This creates a “catch-22” situation—farmers won’t grow industrial hemp without having a market, and the market will be difficult to start up without having large-scale production at the ready.

There are at least two ways to break this potential deadlock. The first would be if a company such as Ford, General Motors, or a large auto-supplier announced that it would need a certain number of tons of industrial hemp by a set time. If this were to be the case, Ford, G.M., or a large auto parts manufacturer, could contract with local farmers to purchase their industrial hemp, thereby breaking free of the catch-22. Another way to break this deadlock would be for smaller farmers to form a Hemp Co-op, which would allow farmers to reach out to suppliers that they otherwise would not be able to identify or transact with on their own. This will also encourage local companies to jump into the market as they will be able to secure sufficient biomass to move their businesses forward.

Conclusion

The Michigan hemp market is ripe for development, and there is potential for Michigan hemp farmers and entrepreneurs in terms of cultivating and processing hemp for CBD and other cannabinoids as well as cultivating and processing hemp for the industrial market. Michigan, with its strong manufacturing base and large amounts of land under agricultural production, is well suited to lead the nation with respect to industrial hemp production and manufacturing. What is clear though is that if Michigan does not step up to the plate, other state’s will, and Michigan will be left playing catch-up well into the future.

Scott F. Roberts is a Michigan Cannabis and Hemp Attorney and the managing partner of Scott F. Roberts Law, a boutique Cannabis and Hemp law firm in Detroit. Mr. Roberts is also an attorney with McAllister Garfield, a national marijuana and hemp law firm with its own devoted Hemp and CBD practice group.

 

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