Hemp-derived THC producers wary of how US Farm Bill could change market

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Image of indoor hemp grown in Texas

(Photo by Kevin Brown for MJBizDaily/Emerald)

(This story is part of the cover package in the March-April issue of MJBizMagazine.)

Hemp drinks are big business in the United States and poised to grow even bigger.

Mary Bernuth wants in, and she’s not alone.

Thanks to the 2018 U.S. Farm Bill, hemp-based products are at least quasi-legal across the United States – and, unlike marijuana, they’re shippable across state lines.

Companies big and small are betting on hemp-derived drinks becoming the next big thing for health-conscious, smoke-wary consumers.

Bernuth’s Pharos Brands was one of 30 hemp-derived THC beverage companies at the Wine & Spirits Wholesalers of America’s January expo at the Las Vegas Convention Center.

According to the Hemp Beverage Alliance, hemp drink companies took up as much as 10% of the floor.

“We’re killing it here,” Bernuth told MJBizMagazine from the bustling convention hall.

Things went so well that she’s banking on contributing to a movement as well as running a successful business.

“We want to mainstream this,” she said. “We feel hemp beverages are an essential piece of destigmatizing THC.”

But when the first can of Pharos seltzer is sold in stores this spring with 2.5 milligrams of hemp-sourced THC, it won’t be sold in Montana, where Bernuth lives and where Pharos is produced.

That’s because Montana law requires any end product with more than 0.3% THC to be sold at a state-licensed marijuana dispensary.

Such rules don’t exist on the other side of the Dakotas in Minnesota, where a 2022 state law specifically allows products with low doses of hemp-derived THC to be sold through mainstream retail outlets such as supermarkets and convenience stores.

In a familiar theme, states around the country offer similar patchworks of conflicting rules.

At least, that’s the case for now.

The federal law that has allowed a hemp-derived product market worth billions to emerge almost overnight could soon change – and dramatically.

Intoxicating hemp market

From drinks to gummies or smokable flower, the country’s appetite for psychoactive products sourced from hemp is enormous.

And what economist Beau Whitney estimates “conservatively” as a $28.4 billion market barely existed before the 2018 Farm Bill accidentally legalized it.

That Farm Bill, which legalized the production of hemp across the United States, was intended to be a boon for long-suffering producers of low-THC cannabis intended to be spun into fabric, pressed into oil for fuel or processed into health foods.

Hemp is also a source of CBD, or cannabidiol, which can be converted into psychoactive delta-8 THC, hence the boom in delta-8-infused products.

The latest evolution is hemp-derived delta-9 THC.

Operators with enough hemp also could extract sufficient delta-9 THC to produce and ship gummies and other infused products that are functionally identical to state-regulated marijuana across the U.S.

It’s conventional wisdom that federal lawmakers did not intend to create this new market when they legalized hemp production nationwide with the 2018 Farm Bill.

Since then, businesses including Pharos have existed in a state of uncertainty that some argue is – if you can believe it – even more confusing than the regulated marijuana industry.

The U.S. Food and Drug Administration has publicly declared that hemp-derived THC has “serious health risks,” and the Drug Enforcement Administration has hinted it doesn’t consider certain hemp extracts legal.

However, federal regulators have so far taken limited enforcement action.

Only companies selling products marketed with unproven medical claims or marketed with packaging similar to mainstream snack or beverage brands have drawn negative attention – and then usually nothing more serious than a cease-and-desist letter.

But it’s also understood this uneasy status quo is temporary.

Depending on when Congress passes the next Farm Bill – and exactly what’s in it – the ground could shift under Bernuth’s business and the hemp-derived cannabinoid sector yet again.

The problem is, nobody knows when that might be – nor what will come next.

“Overall, the federal government is quite unpredictable,” said Michelle Bodian, the New York-based co-chair of the Vicente law firm’s Hemp and Cannabinoids Department as well as the Hemp Beverage Alliance’s general counsel.

“The longer things drag out, the more opportunity there is for issues to come to the forefront,” she added.

“It’s obviously hard to predict where those issues are going to land – in hemp’s favor or against.”

Farm Bill provisions

One of the biggest and most complex measures that Congress produces, the Farm Bill is an $867 billion behemoth that covers corn subsidies, food stamps, conservation projects and, now, CBD, delta-8 THC and delta-9 THC extracted from hemp.

In theory, Congress must renew the Farm Bill every five years, when the spending allowances run out.

The 2018 Farm Bill’s provisions started running out at the end of September 2023, when Congress gave itself the first in a series of extensions.

Promises that a draft Farm Bill would soon emerge followed the first extension, but as of early February, there was still no draft bill and no timeline for when proposals would appear.

Put another way: It remains an open question whether the 118th Congress will pass a Farm Bill in 2024 at all.

If and when a new Farm Bill passes, it’s also unclear whether lawmakers will choose to wrestle with the hemp-derived cannabinoid market they accidentally unleased.

Farm Bill timeline

Neither the U.S. Senate agriculture committee, chaired by Michigan Democrat Debbie Stabenow and Arkansas Republican John Boozman, nor their colleagues in the House Committee on Agriculture, chaired by Pennsylvania Republican Rep. Glenn “GT” Thompson, responded to MJBizMagazine’s requests for comment.

In January, Thompson expressed hope that he’d be able to draft a bill and pass it through his committee in March, an optimistic timeline that hemp lobbyists considered unrealistic at press time.

Some influential lawmakers, such as Oklahoma Republican Rep. Frank Lucas, believed to be the only “active farmer” in Congress, say that Congress will absolutely pass a Farm Bill in 2024 – and that it won’t be a major departure from the 2018 version.

That is what the American Trade Association of Cannabis and Hemp is banking on, said Chris Lindsey, the group’s director of state advocacy and public policy.

“This is more about clarifying what Congress did than it is about going in and changing the laws and creating some new regulatory framework,” Lindsey told MJBizMagazine.

But with Congress still fumbling basic tasks such as a long-term federal budget, other observers are planning for 2024 to turn into 2025 with no new Farm Bill in sight.

“I wouldn’t say I’m confident (for a 2024 passage). I’m hopeful,” said Jonathan Miller, co-founder and general counsel for the U.S. Hemp Roundtable, which lobbies federal lawmakers and counts among its members prominent cannabis companies including Cronos Group and Curaleaf Holdings.

Miller believes the best window to pass a Farm Bill is the lame-duck session between the November 2024 general election and January 2025, when the next Congress – and, potentially, next president – is inaugurated.

That tiny window could, of course, slam shut depending on the election’s outcome.

Regardless of when, there’s “no consensus” for what federal lawmakers want to do, Miller said.

Hemp in the Farm Bill

Most industry observers believe that Congress will seriously consider redefining what qualifies as “hemp.”

A legal definition rather than a botanical one, hemp currently refers to cannabis sativa plants with 0.3% THC or less by dry weight.

There appears to be support for raising the THC limit to 1% – a proposition that appeared in stand-alone legislation proposed in 2022 by U.S. Rep. Chellie Pingree of Maine.

But what about regulating CBD, which the FDA has been on notice to do for years?

And what about clarifying the federal legality of hemp-derived THC and the alphabet soup of THC derivatives that have appeared?

It seems as if the status of hemp-derived cannabinoids is anyone’s guess, though it is likely that federal lawmakers will be reluctant to interfere with state regulations.

That would be just fine for companies in places such as Kentucky and Texas, where the lack of regulated medical marijuana programs creates intense demand for a viable alternative.

The hemp market is booming under loose rules that nonetheless call for basic guardrails such as age restrictions and product-safety guarantees.

Lack of action won’t be welcome news to companies such as those trying to operate in Arkansas, where a strict ban on hemp-derived competitors to a fledging medical marijuana industry is being challenged in federal court.

As for Bernuth, she knows at least two things to be true: Hemp-derived THC is too big for the federal government to kill off entirely, and the market needs regulations such as age verification and product-safety standards.

If that means Pharos needs a unique product label to comply with laws in every state where Bernuth wants to distribute the product, she is willing to do that.

And if the rules change even more, she’s willing to adapt.

“Every business has to be flexible, so we’re definitely being as flexible as possible,” Bernuth said.

For now, the opportunity presented by hemp-derived cannabinoid drinks is too sweet to pass up.

Chris Roberts can be reached at chris.roberts@mjbizdaily.com.