Ask Our Experts: Bankruptcies Among Hemp Businesses
Q: What is prompting so many high-profile hemp companies to file for bankruptcy?
By William Sumner, Hemp Content Manager, New Frontier Data
A: Suffice it to say, 2020 has been a tremendously challenging year all around. Certainly, the hemp industry has seen its share of difficulties. After passage of the 2018 Farm Bill, last year was largely marked by an attitude of unbridled optimism (and even overexuberance) as farmers turned on to hemp as an alternative to crops like soy or corn. However, extreme highs have subsequently been countered by some countervailing lows, with many hemp and CBD companies which investors bet millions on (like GenCanna), having since folded into bankruptcy.
Why did that happen?
As outlined in New Frontier Data’s U.S. Hemp Market Report: Cannabinoids Edition, co-sponsored by Groff North America and Farmacy Health, the answer boils down to simple economics.
Over the past five years, total hemp acreage in the United States has more than doubled, to 138,000 acres currently. Meantime, prices for raw CBD biomass have dropped by some 83%. Many of the companies that poured millions of dollars into expensive extraction facilities and large-scale production facilities pinned their hopes on CBD prices’ remaining high.
Unfortunately, they failed to fully account for either the increased market participation or the inevitable oversupply from so many new, eager entrants. Consequently, when companies like GenCanna were unable to meet their financial targets, their aggressive expansion initiatives ended up hamstringing them more than in helping their bottom line.
While such high-profile bankruptcies led to discouraging headlines, they do not mean that the industry at large is in dire straits, nor do they mean that hemp has hit a ceiling: Rather, they reflect fundamental market dynamics in action.