Causes of the infrastructure crisis in the hemp fiber market

In the realities of Ukraine, hemp breeders are faced not so much with a shortage of raw materials, but with the archaic nature of the current regulatory framework, some provisions of which require “destruction of cannabis stems by daily burning” (interpretation of bylaws of law enforcement officials). It is in connection with the imperfection of the current regulatory and legal framework, which does not allow a foreign or national investor to invest significant financial resources in the construction of facilities for the primary processing of the fibrous part of the plant, the specialists of the information and analytical platform Hemp Consulting, by order of the profile association of Ukrainian hemp growers, prepared the necessary materials for changes to existing by-laws.

On the pages of the specialized electronic edition of Ukrainian cannabis growers during 2020, the issue of the problems of processing the fibrous part of the plant that cannabis breeders of our country face was raised several times. Why the problems of processing the fibrous part of the plant have not been solved for a long time on the territory of Ukraine, we asked the specialists of the information and analytical platform Hemp Consulting to explain. In order not to go into the details of the Ukrainian hemp fiber market (a part of the prepared study was shown as part of the 5th course of training for students of the Hemp University), Hemp Consulting specialists demonstrate on the example of the development of this sector of modern US cannabis growing. We provide our dear readers and listeners with the information provided by the specialists of the information and analytical platform without any cuts or changes.

US hemp fiber market growth potential

Despite the great potential, the growth of the hemp fiber processing industry in the United States is limited by the lack of the necessary processing infrastructure. Despite the fact that the plant is also a bast crop and at the beginning of the last century in North America there were significant capacities for the primary and deep processing of hemp fiber, during the 80-year ban on cultivation, as well as the use of the most highly profitable agricultural crop , all facilities capable of processing the fibrous part of the hemp plant were either transferred to the use of other raw materials, or ceased their activities. Thus, the entire production chain (from the field to the final product) growing / processing / selling the fibrous part of the hemp plant must be re-created in the USA. 

The lack of production capacity for processing the bast component of the hemp plant is initially chicken and egg (which is primary). On the one hand, it makes no sense to build processing facilities when the crops are small, on the other hand, it also makes no sense to grow industrial areas of industrial hemp without facilities for processing the fibrous part of the plant. This controversy has in fact been ironed out in the past few years by a dramatic increase in the area planted to exploit the plant's therapeutic properties. At the moment, significant areas of hemp are cultivated in the United States, which implies a sufficient amount of fiber raw materials obtained. 

Now the bottleneck in the production chain is the lack of production capacity for processing the fibrous part of the plant. One of the main problems that American cannabis growers are currently facing is the lack of operating capacities for primary processing (decortication is a mechanical method of separating bast from a fire without preliminary lobe). It should be borne in mind that despite the need to create production facilities for processing the fibrous part of the plant, there are a huge number of risks associated with the creation of such kind of production chains:

- the instability of prices for hemp fiber does not give agricultural producers and processors the opportunity to invest significant resources in the creation of appropriate production facilities;

- unstable and not the same type of hemp raw materials offered on the market does not make it possible to create capacities for deep processing;

- financing the creation of production chains is a large investment (facilities of this kind are estimated at $ 3 million to $ 25 million);

- huge logistics costs in cases where hemp straw / trust needs to be transported over a distance of more than 60-100 km.

In addition, the pioneering hemp fiber refiners will have a lower income opportunity than the same companies that began to conquer the market using the therapeutic properties of the plant. It will be necessary to make changes to the current regulatory framework, educate consumers, establish supply chains for raw materials, as well as product sales, etc. However, despite the above problems, over the past two years in the United States there has been an investment interest in companies that form the market for processing and selling the fibrous part of the plant, for example:

•  “Panda Biotech” - plans to “launch” the largest North America facilities in Texas in 2021, capable of processing more than 130,000 tons of hemp fiber per year;

•  “Collective Growth Corporation” - announced its intention to invest $ 150 million in the creation of facilities for processing hemp fiber during 2021 alone;

•  “launch” of other investment projects aimed at creating production chains for the processing of hemp fiber in Georgia, Montana, South Dakota, Kansas, Indiana, as well as a number of other administrative territorial units of the United States.

Due to the significant capital investment required, the volume of processing and the geographic constraints on raw material sources, the first mover advantage is essential in the market for fiber growers. Those. “Launched” primary processing facilities will attract the attention of investors in deep processing, ultimately concentrating various methods of processing hemp fiber near the formed regional nodes. It is the pioneers in this market that will benefit from scaling and thus they will be provided with competitive advantages in attracting investment and opening new sales markets for the products they produce.

As a result, due to significant barriers to entry and its importance to the entire fiber supply chain, primary processing remains a major bottleneck slowing growth in this modern US cannabis sector. That is why, according to a number of analysts on the American hemp market, more investments will be made in the primary and deep processing of hemp fiber in 2021 than ever in the United States.

In the realities of Ukraine, cannabis breeders are faced not so much with a shortage of raw materials, but with the archaic nature of the current regulatory framework, some provisions of which require “the destruction of hemp stalks by the method of daily burning” (interpretation of bylaws of law enforcement officers). It is in connection with the imperfection of the current regulatory and legal framework, which does not allow a foreign or national investor to invest significant financial resources in the construction of facilities for the primary processing of the fibrous part of the plant, that the specialists of the information and analytical platform Hemp Consulting prepared the necessary materials for the introduction of changes to existing by-laws. During a specialized round table held within the framework of the "Hemp University", the essence of the above changes to the current regulatory framework was explained, as well as an analysis of the national and international market for products made on the basis of the exclusive properties of hemp fiber was carried out.