Ask Our Experts: States Giving More Rein for Hemp Producers to Deal with Cannabis Businesses


Q: How Is Maryland’s allowing medical cannabis companies to get CBD from hemp farms likely to impact market demand there?


By Allison Bass, Market Research Intern, New Frontier Data

A: In recent months, several states have revised their hemp policies to help strengthen the nascent industry. Illinois, Oregon, and Maryland (in particular) have made important regulatory changes that better support hemp growers while also benefitting licensed cannabis organizations by streamlining the flow of products between the two markets.

New regulatory changes in Maryland regarding the “Receipt of Products Containing Hemp” went into effect in May. The revised regulations allow licensed marijuana processors to acquire hemp from hemp growers licensed by the Maryland Department of Agriculture or the U.S. Department of Agriculture (USDA).

In Oregon, hemp growers can deliver industrial hemp, and hemp processors can deliver hemp concentrates and extracts to licensed marijuana processors so long as those growers and processors are licensed in Oregon.

Illinois introduced a similar policy, which permits cannabis businesses to use industrial hemp from licensed growers and processors in cannabis-infused products. Under that policy, the hemp must be sold in extracted form, which differs from Maryland’s policy, whereby marijuana operators can purchase hemp flower.

Prior to the newly issued state regulations, cannabis operators in Illinois, Oregon, and Maryland had to grow their own high-CBD strains if they wanted to produce CBD-infused products. With high overhead costs and limited space in most marijuana grow facilities, cultivators and processors prefer to use their space for high-potency THC plants, which generate more revenue than hemp plants.

According to Holistic Industries (among the country’s largest private multistate cannabis operators), while they can purchase a pound of hemp from a third party for $150/pound, it would cost around $1,500 to produce the same amount in one of their facilities given their cost structure. The dramatic cost differential creates opportunities for innovation with CBD in ways that would otherwise have been cost-prohibitive.

The new policies benefit hemp producers by providing access to a new, fast-growing outlet through which to sell their product. Hemp growers may take advantage of the once-untouchable legal marijuana market, providing direct access to a large existing base of cannabinoid consumers: There are 92 licensed cannabis dispensaries in Maryland, 60 in Illinois, and Oregon (with more than 660 active retail licenses) has more cannabis dispensaries per capita than any other state. In March, Maryland medical marijuana sales surpassed $30 million, Illinois adult-use sales reached nearly $36 million (and $66 million in combined recreational and medical sales), and Oregon broke its state record with $84 million in overall cannabis sales.

Given the regulatory changes, cannabis operators will expectedly introduce more products with higher amounts of CBD. Such products, (formerly cost-inefficient due to the high production costs) will become much more profitable.

The introduction of CBD-rich products in marijuana dispensaries will allow licensed cannabis retailers to more directly target customers (who currently purchase CBD-only products from non-dispensary channels). Retailers will also have an opportunity to introduce CBD-only consumers to the much more diverse cannabinoid product selection available in dispensaries, rather than what has been available through traditional retail outlets selling only CBD.

Further, as demand for minor cannabinoids (e.g., CBG, THCV, and CBN) increases, hemp growers may supply marijuana product manufacturers with those cannabinoids included in the new policies. That should create additional revenue streams for growers while lowering the cost of innovation with minor cannabinoids for marijuana brands.

Other states have been introducing similar policies. Colorado issued a clarifying memo in May, giving marijuana manufacturers a July 1 start date to use industrial hemp.

Given challenges facing the hemp industry related to limited processing capacity, supply chain asymmetry, and COVID-19 related disruptions, the new revenue potential afforded by the new policies afford welcome opportunities for the country’s fledgling hemp industry.