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Rural Blog: Hemp boom has arrived, but economists advise farmers, investors to act with caution


The hemp boom has arrived with legalization under the new Farm Bill, especially with the new market for cannabidiol (CBD) preparations, but annual growth is likely to remain stable, and production may be concentrated “in relatively few states where hemp can be grown at the lowest cost of production and transported shorter distances for processing,” write University of Kentucky agricultural economists Will Snell and Tyler Mark, with Ph.D. student Jonathan Shepherd. “This suggests that states that can entice processors, manufacturers and infrastructure to locate in their state based on a strong research base of knowledge, an interested and willing/educated grower pool with lowest cost of production for desired quality characteristics requested, along with support from local and state governments, will likely enhance their chances for success.”

University of Kentucky chart shows annual growth rates on a line. (Click for larger image)

Kentucky is an example of that, with this week’s announcement that the nation’s first plant to turn hemp stalks into a wood alternative that can be stronger than oak, but nearby it also has an example of how the hemp boom can become a bust if boomers go too fast. Fibonacci LLC announced that it will build a $5.8 million plant in Calloway County to make its branded HempWood product and employ 25 people, and begin production this summer in a leased facility, the Murray Ledger & Times reports. But 50 miles away, “The court battle over a failed Carlisle County hemp plant wages on,” Paducah’s WPSD-TV reports. “One case involves a dispute over the sale of hemp seeds produced by last year’s crop. The other case is an effort by investors from Carlisle County to get their money back from the failed project.”

The Kentucky economists write,”Hemp can be used as an input for thousands of consumer products,” but “The emergence of the CBD market has been sort of a game-changer. CBD currently offers a much higher economic return for hemp producers, but also possess more volatile financial, policy, and regulatory risk than markets for hemp fiber and grain.” Also, quick early profits from CBD “will likely lure additional supply across the U.S. and globally, which will diminish future profit potential.” They also caution, “With any emerging industry, investors of all types will attempt to capitalize on potential market opportunities promising large economic returns. History reveals that some will succeed, while many others will fail. Thus, growers should thoroughly investigate potential buyers . . . .” There’s much more in their report, and you can read it here. The economists plan to publish a more detailed report for farmers soon.

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The Rural Blog is a digest of events, trends, issues, ideas and journalism from and about rural America, from the IRJCI, based at the University of Kentucky. The Institute for Rural Journalism and Community Issues is an extension program for rural journalists and news outlets. It takes no positions on issues and advocates only for strong news coverage, responsible commentary and things that make them possible, such as open-government laws. For more information see www.RuralJournalism.org.


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