Ask Our Experts: How Will Hemp Prices Fare?

 

Q: Given the declining price of cannabis, how will the price of hemp fare as new markets open?

By New Frontier Data

A: Among the most common mistakes people make about hemp is to assume that the market will behave similarly to the legal cannabis industry. While hemp and marijuana as members of the cannabis family are physiologically similar, the industries to produce and market them operate under different rules and disparate market forces.

Notably, since cannabis is considered a Schedule I narcotic by the federal government, states with legal cannabis markets are prevented from trading via interstate commerce.

As those markets are isolated from each other, marijuana prices remain localized. A gram of high-quality legal cannabis in Oregon, for example, will not cost the same as a gram in Nevada. In the hemp industry, prices are directly competitive.

While various states may have different laws regarding hemp cultivation, the 2018 Farm Bill made hemp is federally legal. The newfound legal status allows companies to ship their products across state lines and operate in different markets, which in turn enables hemp prices to remain uniform. As new markets come online, supply chains mature, and the overall domestic hemp industry increases, the price of hemp and hemp-derived products (e.g., CBD) will go down.

For example, from 2015 to 2018 the price of CBD isolate dropped from approximately $25,000 per kilogram to $6,500 per kilogram. Companies looking to launch hemp businesses will need to ensure that their respective business models can operate accordingly. Eventually, the market will reach equilibrium and prices will stop declining, but when and how that balance will be struck remains to be determined.