Since the federal government legalized the commercial production of industrial hemp with the passage of the 2018 Farm Bill earlier this year, more states have been stepping up to court the now respectable cousin of the cannabis family.
Kentucky was ready and waiting, said Sean Southard, spokesperson at the Kentucky Department of Agriculture (KDA). In recent months, states like Florida, Iowa and Georgia have hurried to pass new laws to legalize and regulate hemp production, and additional bills are working their way swiftly through legislatures in states like Texas, Nebraska and Louisiana.
Kentucky’s regulatory plan was finalized in advance and hand-delivered by Agriculture Commissioner Ryan Quarles to the USDA the same day the Farm Bill was signed, Southard said.
“Other states are now scrambling to figure out how to develop a plan,” Southard said. “We’ve been ahead of the game for years.”
Hemp’s recent reintroduction in the United States has garnered attention from more than just farming communities across the country.
“It’s unlike anything anybody has ever seen when it comes to an agricultural crop,” said Tom Keene, agronomy specialist at the University of Kentucky’s College of Agriculture, Food and Environment, regarding the inquiries that UK’s hemp researchers have fielded on the subject.
Hemp has sparked interest from virtually all sectors of society, he added, including banking, law, health care and investment.
“Everybody is jumping in the race, but nobody has a road map, nobody has any GPS coordinates—and for sure, nobody is stopping to ask for directions.” — Tom Keene
“Everybody is jumping in the race, but nobody has a road map, nobody has any GPS coordinates—and for sure, nobody is stopping to ask for directions.”
Establishing a broad foundation
As farmers in some states take their first major leaps into hemp cultivation, Kentucky has been working to build out a broad foundation for hemp within the state through its five-year research pilot program. The KDA has approved roughly 1,000 hemp growers for licensure this year, and more than 56,000 acres for hemp cultivation. According to data released by the KDA, hemp processors reported $57.75 million in gross product sales in 2018, up from $16.7 million in 2017. Processors paid Kentucky farmers $17.75 million for harvested hemp materials in 2018, up from $7.5 million in the previous year. Hemp processors also spent $23.4 million in capital improvements and employed a total of 459 people in the industry in 2018.
“The increased interest in hemp is great for the industry nationwide. Kentucky will continue to be a national leader, maybe not in the number of acres grown, but in having the critical mass of acres, growers and processors working together in one location,” Southard said.
Annie Rouse
That critical mass will be essential as new markets evolve and more players look to gain a foothold in the industry, said Annie Rouse, a Lexington-based hemp industry advocate and entrepreneur. Rouse is the co-founder of Anavii Market, an online retail marketplace for vetted and verified hemp products.
“The interest has at least tripled in size,” Rouse said. While hemp’s market value was initially centered on uses for the plant’s seeds and fiber, the spotlight has since shifted to hemp-derived cannabidiol, or CBD, a naturally occurring compound in cannabis plants.
CBD has gained popularity for its potential in relieving a wide range of ailments, including chronic pain management and epilepsy, without getting users high.
And while the industry has yet to see a major CBD product release by a national manufacturer, many appear to be exploring the territory, Rouse said.
The effort to develop not only hemp cultivation but also processing and production capabilities within the state will allow Kentucky to reap a greater portion of the crop’s economic benefit, Rouse said.
“With Kentucky being one of the first in the market, we’ve been able to foster a lot of added-value production,” Rouse said. “Because of our regulatory environment, we’ve been able to attract many processors to the state.”
Speed bumps ahead
Hemp’s transition to legal status on the federal level has been a welcome change for Kentucky hemp businesses, but it hasn’t smoothed the way completely. State and local regulations have not been quick to catch up with the federal changes, creating confusion and some lingering uncertainty for the industry.
“Business is still good, but we’ve actually seen some opportunities die down for us,” said Adriane Polyniak, co-owner of the Kentucky Cannabis Company and Bluegrass Hemp Oil (BHO). “Most people would have expected it to really open up and for hemp companies to be able to operate like normal businesses, but that still hasn’t happened yet.”
Banking, in particular, has been a significant hurdle for Polyniak and other hemp business owners. Polyniak recently had to switch her company’s accounts to a new bank when her former bank moved to dissociate itself from the hemp business, she said.
“We are still having issues with merchant providers,” Polyniak said. “They don’t feel comfortable dealing with CBD and hemp companies.”
Smaller hemp businesses are at a particular disadvantage, Rouse said, because national banks can overlook the risks related to the crop when dealing with larger conglomerates that have broad and diversified financial portfolios.
“Banking is the No. 1 obstacle,” Rouse said. “ I understand why the banks do it, but it could kill an industry, and a few companies could end up monopolizing a market that wouldn’t be that way otherwise.”
And although federal law has drawn a distinction between hemp and marijuana, there are still no simple, widely accepted practices for law enforcement to immediately differentiate the two as raw material, processed material or finished products, Rouse said.
Truckloads of hemp grown legally in Kentucky and other states have been confiscated by law enforcement officials in Oklahoma and Idaho, and truck drivers have been arrested and charged with drug trafficking under statutes in other states, despite hemp’s legal status on the federal level. As a result, Polyniak said, transportation companies have begun refusing interstate hemp shipments.
“We were previously supplementing some of our production with hemp from Oregon and had no issues shipping it across state lines,” Polyniak said. “Now the federal farm bill passes, and we can’t get trucking companies to ship across state lines.”
But overall, Polyniak sees such problems as growing pains that will eventually get worked out for the industry.
“I think the biggest risk to Kentucky, with all of these other states jumping in, is if we don’t do things to continue to improve our laws and to open up to the possibilities of better cultivars and better varieties for our farmers.” — Adriane Polyniak
“I don’t think there is any stopping Kentucky farmers. The climate is fantastic. Our farmers are experienced,” Polyniak said. “I think the biggest risk to Kentucky, with all of these other states jumping in, is if we don’t do things to continue to improve our laws and to open up to the possibilities of better cultivars and better varieties for our farmers.”
As part of that, Polyniak feels the state should take another look at its rules regarding content limitations for THC, the high inducing cannabinoid that is more prevalent in marijuana. Kentucky and the federal government currently restrict THC content in hemp to no more than .3 percent, a longhand standard for classification purposes, but not an actual threshold for psychoactive potency. A hemp plant’s THC content can vary somewhat based on factors such as growing conditions and harvest time, and plants that slightly exceed the .3 THC mark when tested must be destroyed—a crushing setback for start-up hemp farmers, Polyniak said.
“States like West Virginia have increased the allowable amount of THC, because intoxication doesn’t start at .4 percent,” Polyniak said. Rouse also sees benefit in possibly raising the THC limits for hemp plants, especially since the amount of THC ultimately can be controlled to fall below the .3 standard in consumer end products. She expects more conversations like these to come, but for now, she’s pleased that hemp is federally legal.
From the ground up
Southard said the next step on the state level will be a thorough administrative review for Kentucky’s hemp program to determine what rules and regulations can and should be eliminated, now that hemp is no longer on the federal government’s list of controlled substances. The KDA is also continuing to work with the FDA and the EPA as they begin to consider their responses to issues involving cannabidiol and pesticide registration, respectively.
Kentucky Department of Agriculture
Kentucky Commissioner of Agriculture Ryan Quarles, right, delivers Kentucky's state hemp plan to U.S. Agriculture Secretary Sonny Perdue.
Commissioner Quarles’s aim is for Kentucky to be the epicenter of hemp production in the United States, Southard said.
“I would put our vision, and Kentucky’s record, up against any other state,” Southward said. “We’ve got many universities researching applications of the crop. We’ve got the best farmers in the nation producing it. And we have businesses, 120 or so, that are taking that harvested hemp material and turning it into products that Americans want to buy.”
Both Rouse and Polyniak see education as a key factor for the industry’s future development Polyniak would like to see the state allow opportunities now for student education on hemp farming, in particular.
“We need to encourage young farmers to carry on, and what better industry to entice them than the hemp industry?” Polyniak said. “We want to bring in students and teach them during the planting and the harvesting process, and we’ve never been able to give them that opportunity.”
To maintain a leadership role in hemp’s future, Keene said, Kentucky will need to continue on its current path: investing in the needed research, maintaining a solid regulatory program and supporting the farmers who are willing to invest their time, money and acreage.
“We have to be diligent about staying the course,” Keene said. “There will come a time when it will become a commodity crop, just like corn or soybeans. We are not there right now … Those that were early adopters will have a leg up when supply and demand take over.”
While hemp may not become a full replacement for tobacco in Kentucky’s agricultural sector, Keene said it will help.
“I do think it has the potential to fill part of that gap; I don’t know that it can fill the entire gap,” Keene said. “Anytime we have an added income stream for farmers, that is certainly a bonus.”