Hemp Investors Seeing a Green Future Beyond a Hazy Summer
By Noah Tomares, Research Analyst, New Frontier Data
Last year presented unexpected and unprecedented challenges for established and aspiring hemp producers. If a critical excess in biomass driving down cannabinoid prices did not render farmers desperate to turn any profit on their latest cash crop, then the disruptions of the COVID-19 pandemic ravaged the larger economy’s activity, greatly reducing the flow of capital into the established cannabis industry.
The general mood felt like an extreme hangover from the heady optimism which passage of the 2018 Farm Bill had so recently promised.
Nevertheless, the industry has proved its resilience and begun to thrive in 2021. The pandemic ushered in new legal avenues to acquire cannabis, establish new legal markets, introduce new infused products, and attract many new curious consumers. Concurrently, investors eager to capitalize on new legal markets were rushing to invest after a year in dry dock, with a rising tide lifting all boats.
Like other sectors, hemp has been enjoying increased attention in 2021 over the previous year. In a true case of American ingenuity (and legal loopholes), the popularity of delta-8 THC has presented an alternative route to profitability for producers with excess biomass. So far this year, the hemp sector has accrued $161 million in capital raises, accounting for 2.27% of all cannabis deals. There has also been numerous high-profile mergers and acquisitions, averaging $19.3 million (based on publicly available data).
Hempfusion Wellness Inc.’s flurry of acquisitions demonstrates the breakneck speed of new investment in the hemp sector. At the beginning of the year, the company completed its IPO, raising $17 million. By May, Hempfusion was purchasing Apothacanna—a topical CBD manufacturer—for $15 million. Later that month, an acquisition of Sagely Naturals (another CBD topical maker) was announced for $25 million. The acquisition of established CBD manufacturers provided Hempfusion with greatly enhanced distribution capabilities as well as the potential for greater product offerings.
Hempfusion is not alone in its strategy for aggressive expansion. Earlier this year, Plus Products announced an exclusive agreement to enter the U.K.’s hemp-derived CBD market. Last month, Charlotte’s Web, Inc., unveiled an exclusive, multiyear agreement to provide hemp-derived CBD products through more than 140 Lifecare athletic resorts.
The increase in M&A activity is indicative of the vast untapped potential for the hemp market. Further, it represents growing consumer awareness as hemp-derived products are increasingly normalized. The exponential growth of the legal cannabis industry in recent years has also caused significant advancements in the science of cannabis cultivation.
Meantime looming are increased risks posed by climate change and the increasing frequency of wildfires may present new challenges for producers, ultimately limiting the industry’s growth potential. Key legal markets in Western states (e.g., Arizona, California, Colorado, Nevada, and Oregon) will likely endure greater hardships as the immediate damage and long-term effects of extreme events become more acute. While hemp is an ally for a greener future, the outlook of the industry will depend on how well producers can adapt to a landscape including water scarcity, dynamic regulations, and growing consumer demand.
