Segment Differentiations Beginning to Redefine the Hemp Industry
Though they are often lumped together under the same industry umbrella of hemp, the three subcategories which make up the sector – including cannabinoids, grain, and fiber – have less in common than it may seem.
Each segment has entirely different production needs when it comes to cultivating, sorting, and processing material, and their end markets are often entirely unrelated – be it cannabinoids, health foods, industrial materials, textiles, etc. Even the plants themselves differ noticeably: Most CBD cultivars are bushy and shorter than 4 feet, while fiber cultivars are tall and thin, with some reaching 20 feet tall. Indeed, the differences are almost great enough to constitute a separate plant species.
Before hemp was legalized again in the U.S., the differences were small enough that the whole industry could fit snugly beneath the same proverbial tent, but now that the segments are establishing themselves and continuing to expand, the disparate perspectives are becoming more apparent. The hemp industry, having fought for decades simply to bring itself into existence, now arrives at a crossroads, and yesterday’s ally may very well turn out to be today’s rival.
It has become clear that consumer demand for CBD is quite large, and not soon to go away, but it has also become clear that the requisite amount of acreage to supply that demand is but a fraction of what has been grown during the past three years. According to New Frontier Data’s estimates, the entirety of consumer retail demand for CBD in 2020 could have been supplied by just 25,000 acres of CBD hemp – a stark departure from the roughly 150,000 acres estimated to have been harvested. CBD acreage is certain to fall drastically in the following years (even as consumer demand increases steadily), while grain and fiber acreage is on pace to more than quadruple by 2025.
Left: A field of hemp plants being cultivated for CBD. Right: A field of hemp plants being cultivated for fiber
The significance is that the respective CBD and non-CBD sides of the hemp industry no longer share a common goal. Now that legalization has been achieved, the main objective for each subindustry is growth: What it will take to achieve that, however, is no longer a concerted effort from a coalition of stakeholders spanning the entirety of the industry, but instead individualized strategies from firms connected by common product lines to increase sales and lobby regulators for more favorable conditions.
Firms attempting to take a true whole-plant approach may find that the economies of scale envisioned by many in the industry between CBD, grain, and fiber may not be as strong as anticipated. Vertical integration can be very beneficial to an organization if the different parts of the supply chain complement each other and make it easier for the organization to do business. If they do not complement each other, however – if, for example, the skills and attributes that make a company good at cannabinoid processing do not translate to being good at decortication – then vertical integration can fail spectacularly.
In short, firms that attempt to do everything may find themselves unable to compete in any one specific product category. Therefore, New Frontier Data expects soon to see a deepening bifurcation between the hemp-derived cannabinoid industry and the hemp fiber-and-grain sectors. That would not preclude consolidation in the future, but rather make it likelier to occur along product lines, and not across them. At any rate, like triplets leaving home for the first time, hemp’s subindustries are growing up and apart from each other. From here on, the question of “Where is the hemp industry going?” should first be qualified by, “Which one?”