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On October 29, 2020, Burns & Levinson hosted its Fourth Annual State of the Cannabis Industry Conference, with nearly 200 attendees present – this year in a virtual setting. The conference featured a panel of various hemp & CBD industry participants discussing the current climate of the market, legal developments and pitfalls, and projections on making improvements in 2021.
The panel was moderated by Burns & Levinson’s own Katrina Skinner, named a “Cannabis Trailblazer” by the National Law Journal.
So what is the state of the Hemp and CBD Industry?
The discussion was kicked-off by an overview from Julie Lerner on the pricing of the hemp and CBD industry over the past year. Julie is the founder and CEO of PanXchange, a web-based negotiation and trading platform for physical commodities. She revealed that prices dropped significantly from July 2019 to May 2020, with the pricing of hemp biomass falling roughly 84%. Julie noted that the market is facing oversupply down the supply chain and provided notable insight from her experience in commodities compared to hemp. According to Julie, the industry will likely continue to see CBD develop in pockets servicing its respective regions, but with many bankruptcies and M&A ventures occurring in the space, its too early to tell where the hemp and CBD market will end up in the fourth quarter of 2020 and leading into 2021.
Shawn Hauser, chair of Vicente Sederberg LLP’s Hemp and Cannabinoids practice, shed light on how lack of regulatory clarity has played a significant role in the unsteady climate that hemp & CBD operators and participants are facing. “[While] most expected that two years after the legalization of hemp, we would have regulation . . . and [today, the appropriate regulators] haven’t acted,” said Shawn. With a lack of FDA regulation as a “root issue” to struggles of hemp and CBD operators, States are forced to step in and provide patch-work guidance. Shawn further explained that even with the DEA’s Interim Final Rule, hemp farmers are left incurring high costs and risk of violations, from negligible to potentially criminal. As co-counsel on a lawsuit against the DEA brought by hemp industry members, Shawn stressed that the Interim Final Rule makes an unlawful attempt to regulate and potentially criminalize derivatives of hemp that were expressly carved out of the Controlled Substances Act of 1970.
Hemp and CBD businesses were also represented on the panel by David Neundorfer, co-founder and CEO of Open book Extracts (OBX) – a CGMP-certified manufacturer of premium plant-based cannabinoid products— and Bruce Bernstein, CEO of UBIX Processing – a private label CBD processing facility, with a focus on R&D, prototypes and packaging. Bruce echoed the declines in pricing by noting that he had seen sales off by 50% due to the current market climate. But according to Bruce, being agile and willing to evolve from a vertically integrated hemp operator to an extract-focused operation, to pivoting as a business that helps customers take their product ideas and make them profitable through R&D and program management, has allowed his business to thrive.
David highlighted two primary reasons that he has seen as the derivative as to why the hemp and CBD industry is in its current state: (1) lack of top-down regulatory clarity and (2) immature supply chain at the processing level, causing a lack of faith in product quality and blame on numerous brands. However, David emphasized that with respect to the second issue, the market is beginning, and can continue, to fix itself organically with good quality control by operators and focus on consistency in manufacturing and processing.
Another glimmer of light beginning to shine over the overwhelming unsettled nature faced by hemp and CBD businesses is the rise in industry participation by tribal communities. Darrin Coffin, the fifth panelist, has serviced as Chief Finance Officer and Financial Operations Executive for the Indian Township Tribal Government for the past six years. As a member of the Passamaquoddy Tribe at Indian Township, a Native American tribe in the State of Maine, Darren recognizes the meaning of socially and economically disadvantaged and knows the importance of promoting social equity and the culture of a community. Darren shared the unique opportunities available to operators and investors in partnering with tribes to process hemp, including but not limited to: tax benefits both at the federal and state levels accelerated depreciation reductions, no property taxes, and capitalization or repurposing of underutilized areas and historical lands.
While all panelists face different facets of the hemp and CBD industry during their day to day operations, all brought unique perspectives and insights on how the industry could use improvement to take a turn for the better in the next year.