Overproduction crisis led to the collapse of most cannabis projects in the US in 2020

Since 2018, the cost of the leaves and inflorescences of hemp, which has significant therapeutic properties, has decreased by almost 20 times. Specifically, a crop that sells between $ 40-45 a pound in 2018 costs just $ 2.50 in 2020. The remaining surplus harvest of leaves and inflorescences in 2019, estimated at approximately $ 183 million after harvesting the “green mass” in 2020, almost immediately turned into illiquid, which agricultural producers are already forced not to sell, but to bear the costs of its destruction. 

Despite the fact that a few years ago, cannabis growing in the United States was considered an ideal investment area for agricultural producers, the problem of overproduction has already led to the collapse of the hopes of most participants in this market. Several years before the regulation of the legal possibility of industrial cultivation of the plant in late 2018 in the United States, proponents of the development of American cannabis breeding argued that this particular crop would be a salvation for the environment, the economy, and would also be a particularly valuable plant for American farmers. Despite the advertised colorful prospects, the realities of life have already significantly disappointed in 2020.

According to a study conducted by Whitney Economics, most of the problems in modern US cannabis production are caused by an oversupply of raw materials, as well as by imperfect regulatory frameworks. A document prepared by the company's specialists entitled "Déjà Vu: An Economic Analysis of the US Cannabis Growing Industry" shows that the prices of raw materials grown in the country have recently dropped significantly. For example, since 2018, the cost of the leaves and inflorescences of cannabis, which has significant therapeutic properties, has decreased by almost 20 times. Specifically, a crop that sells between $ 40-45 a pound in 2018 costs just $ 2.50 in 2020. The remaining surplus harvest of leaves and inflorescences in 2019, estimated at approximately $ 183 million after harvesting the “green mass” in 2020, almost immediately turned into illiquid, which agricultural producers are already forced not to sell, but to bear the costs of its destruction. And despite the fact that hemp raw materials can be effectively used for the production of paper, textiles / knitwear, insulation and biocomposite materials, as well as biofuel, there is currently not enough processing capacity in the country for processing this raw material, so it is not effectively used, but new markets for the sale of unnecessary leaves and inflorescences of the harvest of 2018-19 did not appear.

Agricultural growers who, in the wake of the excitement, were engaged in cannabis growing in the United States faced a number of problems - lack of quality seed material, high costs of using qualified labor, the need to control pests, extremely weak infrastructure, lack of a guaranteed distribution system, etc. A number of farmers were faced with the fact that their crops were not profitable due to the fact that they could not conclude sales agreements with companies that specialized in the production of drug-free cannabinoids. This is also why, despite the fact that the plant was initially seen as a mega-profitable agricultural crop for the American farming community, the problem of oversupply in the market led to the collapse of most of its participants in 2020, although this trend was already observed in several US states in 2018 and 2019. biennium

A significant part of the US hemp market participants carried out expensive equipment upgrades, built new infrastructure facilities (greenhouses, visits), installed security systems, and also incurred other costs necessary to enter the medical hemp market. Most of these investments did not pay off in the first few years of plant cultivation.

According to the authors of the study, the elimination of all regulatory uncertainties associated with the cultivation / processing / sale of products made from various plant constituents can help in the emerging trend of curtailing the hemp industry in the United States. The lack of a single document, developed at the federal level, regulating all aspects of activities related to the work with the most highly profitable agricultural crop will hamper the development of modern cannabis production in the United States for quite a long time.

In particular, according to Bo Whitney, founder and chief economist of Whitney Economics, “The hemp industry will continue to face challenges until regulators determine if the plant is an illegal drug or if it was already regulated accordingly in 2018. Confusion across jurisdictions is causing a regulatory quagmire, slowing growth and stifling investment, which is critical to creating the right infrastructure to support a fast-growing industry. ”

Whitney Economics predicts that the US cannabis market is already worth $ 2 billion in 2020 and will reach $ 5 billion in the medium term. The only question is which of the US agricultural producers will have the strength and resources to grow the most highly profitable agricultural crop for at least the next decade.

Commentary of experts of the Association "Ukrainian technical hemp"

By just dealing with grain, a hemp plant is able to compete in profitability with the most profitable agricultural crops (corn, soybeans, wheat, etc.). Using only marketable grain allows you to earn from $ 700 to $ 800 per hectare. If you use a hemp stalk, the profitability of cultivation increases to $ 2000 - $ 2500 per hectare. In the event that government officials regulate the use of leaves and inflorescences of technical hemp for therapeutic purposes at least of varieties already included in the relevant state register, the profitability of growing technical hemp increases by an order of magnitude.

That is why the specialized association of Ukrainian cannabis growers is making changes to the relevant by-laws regulating the possibilities for the unhindered use of hemp straw / trusts, and documents are being developed that allow already in 2021 to “launch” the legal possibility of consuming the leaves and inflorescences of technical hemp of therapeutic orientation, regulating the possibility of legal the use of the medicinal properties of the plant for industrial purposes.