Spot Market Updates:



It is officially the start of the harvest period, and the new crop is starting to make its way to the market. The price of biomass through the course of September has traded in the range of $1.95 to $3.50 per percentage point of CBD content per pound (/point). The amount of transactions occurring in the market is slow as the early harvested product is entering the market, albeit a small percentage of the full crop, and many extractors are searching for tolling and revenue split deals rather than large spot purchases.

The 2019 crop year has also brought an additional specialized product to market as high yielding CBG hemp is garnering a large premium due to a lack of farmers producing a commercially viable crop and the massive returns once processed into CBG isolate. High CBG hemp has generally traded in the range of $225 to $400 per pound.

The Colorado winterized crude oil market has continued to trade in the range of $1,000 to $1,800/kg, with non-winterized or decarboxylated crude has traded at approximately $800/kg. The Colorado CBD isolate market has continued to realize decreasing prices as the PanXchange midpoint is $3,100/kg in September, representing a 15% drop. Full spectrum distillate has seen decreased prices as well, transacting in the range of $2,300 to $4,750/kg. THC remediated broad spectrum distillate continues to exchange at a premium, transacting between $4,400 to $6,000/kg.

Cultivation Updates:

Harvest has begun throughout the country and will be ramping up over the next few weeks. Unfortunately, there is still a lack of data to truly predict the amount of commercially viable hemp that will be available for processing in 2020. On September 12th, the USDA Farm Statistics Agency (FSA) released an updated version of the Crop Acreage Report. According to the FSA, farmers have planted 142,691 acres as of September 1st. This figure is still lower than many expected compared to predictions on massive increases of acres planted this year. Since acres planted in a nascent market cannot be used to predict production due to unpredictable yields, a single government published data point is not sufficient enough to gauge the severity of an oversupplied market.

Many farmers are reporting that crops have exceeded expectations regarding yields as it is apparent that quality genetics, proper care, and hard work is paying off. The bullishness on yield predictions does not apply to every acre as other producers have realized less favorable results. Weeds and male plants have overrun many fields which raises questions of the potential CBD yields of the plants. Beyond the risk of crops exceeding the legal limits of THC concentration, mold continues to be a prevalent force in addition to what many producers are calling “Brown leaf spot” or characterizing as what looks to be Septoria – a fungus that can affect tomatoes and other vegetable crops. One commonality is that it is particularly prevalent in areas associated with unideal drainage, in areas of the Southeast due to a particularly wet summer, and more common among certain seed providers products than others.

Outside of the cultivation of the physical crop, drying solutions continue to be a topic at the forefront of many producers’ minds. Many drying facilities throughout the country are quickly filling capacity for the upcoming harvest. A lack of excess capacity combined with a limited network of these facilities is quickly creating a bottleneck that is sure to impact both the quality and total quantity of biomass available for extraction this year. Due to this bottleneck, and potentially less than ideal crop yields, a portion of the crop will not be harvested and brought to market. There are companies within the PanXchange network that still have capacity, and for those interested, please reach out to the staff at hemp@panxchange.com for more information.

In conclusion, we can look at seeds as a microcosm for the entire supply chain. Throughout this crop year, it will become apparent who is the most reliable in the business, what strains excel in certain geographies and growing conditions, and what will be the best harvesting, drying, and storage solutions. The market moving forward is in for a volatile period as speculation is driving prices, primarily due to a lack of concrete supply and demand data.

The future is murky as to where prices will travel over the next sixty days, and the clear picture will not come to fruition until the turn of the new year. The market is currently winding up like a rubber band due to uncertainty, exasperated by alarmists claiming an extreme glut while the amount of marketable hemp is uncertain, and fueled by a dearth of working capital on the buy-side. The fact is that there is not an abundance of biomass that is being traded either on a forward contract and spot purchases at this time. When the rubber band releases it’s energy, the market will take off like a roller-coaster.

Legislation Updates:



The market is currently in somewhat of a holding pattern as we turn the page from the 2018/19 to the 2019/20 crop year. Taking a step back, this is an opportunity to dive into some larger industry movements and what this means for the market as a whole moving forward. It is commendable that the federal government (both USDA and FDA) has put time and effort into getting national rules right from the start. However, the delay has created a void where individual states have been pushed to pass local legislature to overcome issues in the market. While there have been movements particularly with the USDA announcing that it has sent a draft to Capitol Hill for review. In this legislation update, we want to focus on industry movements – both proposed and recently passed legislation – and highlight potential impacts on the market going forward. The farm bill made it legal to grow hemp from a national perspective; however, it did not provide any guidance on how to regulate the basics let alone large pressing issues such as banking, smokable hemp, and interstate commerce.



Banking



The Secure and Fair Enforcement (SAFE) Banking Act has been brought to the federal government to address issues stemming from conflicting state and federal laws. If passed by the U.S. Senate, The SAFE Banking Act will forbid regulators from terminating, capping deposits, and other uses of financial instruments due to the company doing business in the hemp or marijuana industry. According to Maxine Waters, chairwomen of the House Committee on Financial Services, the act “addresses an urgent public safety concern for legitimate businesses that currently have no recourse but to operate with just cash.”



While many view the bill as a monumental step for the cannabis industry, the bill is equally important for those in the hemp industry as the legislation prohibits regulators from penalizing institutions for processing, billing, and collecting payments for those who conduct a legitimate cannabis or hemp business. Companies that have opted to sell consumer facing goods online have been consistently troubled with payment processors turning away their companies and/or charging elevated rates for processing. Further, those who have been able to use payment processors have seen seen their services interrupted after a short while, as seen in the examples of Elavon and EMB.



The bill has gained support from both sides of the aisle, and as of Wednesday night, passed in the House of Representatives by a final count of 321 to 103. The major concern that remains is over the chances that it passes in the Senate. If it does pass, the legislation will place an onus on monitoring legitimate business and compliance with relevant state and federal laws. Due to a lack of clear-cut federal hemp regulations since the passing of the 2018 Farm Bill, this could prove to be a difficult task.



Smokable Hemp



Another source of controversy and confusion has been closely associated with smokable hemp. Earlier this month, a federal judge reversed Indiana’s ban on smokable hemp, citing that the 2018 Farm Bill authorized all forms of hemp and individual states cannot make one form illegal. While a positive ruling has been made in the Midwest, this continues to be a point of pain for producers who have dedicated resources to producing smokable hemp in other areas of the United States. States such as Louisiana, Texas, and North Carolina (while not enacted but talks are ramping up about a ban starting in 2020) have passed legislation outlawing either the consumption or production of the product.



One major driving force behind the bans have been due to law enforcement's concerns distinguishing hemp from marijuana; however, the major reform needs to be set in place to improve testing procedures. Consistency in testing is perhaps one of the most important topics that impact the anti-smokable hemp movement behind the scenes. Many states test for the concentration of delta-9 THC while others have opted to test for total THC like in Oregon. Due to the lack of federal rules and standardizations to reference, states have individually created regulations regarding how to determine THC concentrations. Further, there is no standard on how to pull samples for testing, which in of itself, creates a wide variability in test results. Not only could this put someone on the wrong side of the law, however, it continues to create chaos throughout the supply chain. Hemp producers and extractors have been consistently surprised at cannabinoid concentrations when bringing the product to market, adding to inefficiencies regarding transactions.



Interstate Commerce:



Roadblocks continue to be created in states such as Idaho and South Dakota regarding the production, sale, and transport of hemp within its borders; however, a bill that has recently been enacted in Maine poses an interesting proposition. LD 630, while enacted to protect farmers in Maine, says that that if a consumer facing product is sold in the state, the hemp must also be sourced in the state per to the Maine Agency Guidelines for Enforcement of LD 630. This is not quite as restrictive as a ban on interstate commerce seen in cannabis, and the bill says nothing about the export of hemp and refined products.



Major questions surround the verification of the hemp's origin. One solution could be a similar tracking system, as seen in marijuana (ex. RFID tags); however, this could dramatically add to the cost of doing business. Creating somewhat closed looped ecosystems opens the individual states to enhanced risk. In theory, a major spike in prices could occur if demand for products outstrips supply in cases of extreme crop loss or product degradation. These increased prices would be directly passed on to the consumer which would hamper demand, going against the benefits of a national free market. If every state were to enact similar legislation, states that have positioned themselves to be net exporters would be severely at risk. Similar situations to the Oregon cannabis market would arise where oversupply and a ceiling on demand resulted in weak prices.



Understandably, the Maine Government wants to protect local businesses, but a lack of national guidelines has continued to create circumstances where individual states are creating more restrictive rules. The USDA has announced that they have passed documentation to the federal government for review; however, throughout 2019 these are a few instances of new legislation being enacted. The big question we are all waiting for is to what extent these national rules will cover the above issues. These are not the only issues at play, and it will take time to iron out everything as the government is in somewhat uncharted territory as there has been no agricultural good that has so quickly turned from a highly illegal good to something so prominent in the greater market. Further, the government and law enforcement are in a complex situation due to cannabis sativa being both federally legal and illegal at the same time – only differentiated on an arbitrary concentration of a chemical compound (THC).



The USDA rules are a start, but there is a long road ahead as the FDA has still not made any movements on the legality of adding CBD to food products among other major policy issues. The general sentiment in the market is that the national rules will be pro-hemp business, but it is undeniable that the hemp industry is at an interesting juncture as everything is not set in stone. What’s best for the industry is to see stakeholders conducting good business practices and self-regulation. We believe that it is the most productive and efficient path toward commercially viable regulations and standards. PanXchange encourages all players to be vocal and active in efforts to ensure new regulations not only meet safety requirements but are commercially viable for the industry to realize the immense opportunity that lies ahead.



PanXchange produces indices for emerging commodities bringing price transparency, and key market intelligence. We acquire pricing information from negotiated trades on the platform, conducting surveys with vetted and anonymous market participants, and making expert assessments based on a variety of factors. As the market evolves, PanXchange will evolve with it. Monthly assessments will be published on the last Thursday of every month. As a new service to the industry, we encourage you to forward the newsletter to any parties that may be interested.

Please reach out to the PanXchange hemp team by email at hemp@panxchange.com or by phone at (720) 215-9228 for any questions or comments.