Historically, marijuana companies avoided the hemp market.
There’s a small but growing trend of marijuana companies expanding into hemp-derived goods that can still get consumers high.
At least four high-profile companies have already made the leap in varying forms, including California-based Cookies, New York-based Curaleaf, Mike Tyson’s celebrity brand Tyson 2.0, and California cannabis brand Jeeter.
Cookies in late June launched a hemp-based THCA product line of flower, vape cartridges, and edibles that can be legally shipped across state lines due to the federal legality of hemp, and products are available for order in 14 states, the company said.
Curaleaf noted in a public Form 7 filing this month that it also brought a new hemp-based intoxicating product line to market in June. Although scant information is available thus far, the company disclosed it “launched a new hemp-derived edible THC product that contains less than 0.3% THC by dry weight and thus falls outside the definition of marijuana in the U.S. Controlled Substances Act. As such, the product will be distributed and sold through traditional retail outlets such as convenience stores, smoke shops, and similar marketplaces. Retailers will be limited to selling the product to consumers age 21 and over.”
Tyson 2.0 debuted “Tyson 2.0 Global,” a product line of delta-8 goods that are hemp-based and appear to be available for shipping in all 50 U.S. states, according to the company website.
“This product is derived from hemp and contains less than 0.3% (delta-9 THC) in accordance with the 2018 Farm Bill,” the Tyson 2.0 Global website reads.
And most recently, California-based DreamFields Brands – the maker of popular Jeeter marijuana pre-rolls – announced a licensing deal with Florida-based LFTD Partners Inc. (OTCQB: LIFD) for hemp-based flower joints, vapes, and gummies that will be sold “nationwide,” according to a press release.
The four companies are bucking a longstanding norm of companies typically choosing a focus on either hemp or marijuana; most businesses don’t dabble in both, given the legal and logistical complexities of the parallel markets.
“At a time when the cannabis industry is really struggling, when federal reform is very difficult, when 280E continues to cripple them, there’s this market that’s there, and hemp companies are selling similarly potent products without the same regulations,” said Shawn Hauser, a partner at Denver-based Vicente LLP. She estimated she knows of around six businesses expanding in similar fashion.
“As the intoxicating hemp market has grown in popularity, there’s an increased presence in many state markets where there’s not a cannabis or marijuana market,” she added, suggesting that the overlap was perhaps inevitable.
Representatives for Curaleaf and Tyson 2.0 declined interview requests by Green Market Report, but Cookies President Parker Berling said his company’s hemp venture has been in the works for several years following the 2018 Farm Bill.
The structure of Cookies’ THCA operation is similar to how it established licensing deals with localized partners in various states or other countries, Berling said, instead of Cookies building out its own hemp cultivation and distribution infrastructure. In this instance, Berling said, Cookies is working with about five hemp companies to supply its Cookies On Demand THCA line.
The benefits, he said, are multifold. For one, the hemp revenues aren’t taxed nearly as heavily as marijuana because hemp is federally legal and thus not subject to the onerous 280E federal tax provision that prevents marijuana companies from claiming standard tax deductions. For another, the move helps with national brand-building, and gives companies access to customers in many states that don’t have legal marijuana markets yet.
As Chief Product Officer Petar Dimitrov of Jeeter put it in his company’s recent announcement, “We are especially thrilled about our Jeeter products being accessible in new markets and shops throughout the U.S. and this expansion.”
In addition, there’s no merit-based application process or lottery to deal with in hemp, which is traditionally how most plant-touching marijuana companies have won business licenses. In hemp, it’s wide open for any and all comers, Hauser pointed out.
“The two most attractive aspects of hemp are around regulation and taxes. Those are two massive ones,” Berling said, noting the 280E exemption for hemp and the relative lack of industry rules that allow for Cookies and others to sell across state lines, contrary to the legal marijuana industry.
Berling said the “a-ha” moment for the Cookies team was a few years ago when they realized that many of the products being sold in their licensed marijuana dispensaries would technically qualify as hemp under federal rules, since a majority of lab test results showed an overwhelming amount of THC was actually THCA.
“We started looking at our (lab test results) and seeing that a lot of the flower we were producing, had it been produced in a hemp facility, … it would be legally hemp,” Berling said. Test results showed less than 0.3% delta-9 THC, but much larger amounts of THCA, which can still produce a high for consumers and is not federally banned.
“That was the mind-altering shift to us. A lot of the products on our shelves today would technically be classified as hemp,” Berling said.
The business pivot was made possible in 2018, when Congress legalized hemp in the federal Farm Bill, but until recently, most companies that tried to make a business based on that have focused on hemp-derived CBD products or other non-intoxicating cannabinoids.
“I’ve seen a number of cannabis companies … move forward with an intoxicating hemp product. There’s an increasing number of others who are interested in sort of exploring it,” Hauser said. “It’s starting to happen more and more.”
But the moves – which appear to be driven by both the minimal profit margins in marijuana and also a desire to expand brand awareness – could take root in the wider cannabis industry, particularly as federal marijuana reform has stalled and companies continue looking for new revenue streams, several industry insiders said.
Those experts cautioned, however, that it’s not a simple new pivot to profitability.
“The hemp-synthesized intoxicants have been on the radar for the industry, especially over the past year to 18 months. They’ve become more and more popular, and are being sold in a variety of different convenience stores, gas stations,” said Pennsylvania-based cannabis attorney Seth Goldberg, who authored a recent white paper on the lack of federal hemp regulations.
But Goldberg said he doesn’t think the six or so businesses Hauser cited yet really constitute a trend, because it looks like many traditional marijuana businesses have been hesitant to jump headlong into hemp.
“Certainly there are pressures on the cannabis industry, and it wouldn’t be a surprise that cannabis companies are looking to diversify their business lines … this may just be the start of something, or it may be outliers,” Goldberg said.
Hauser doesn’t expect to see a rush of marijuana companies doing the same, in part because the hemp landscape in many ways is just as much of a national patchwork as all of the individual state marijuana markets. Many states have banned smokable hemp, others have prohibited delta-8 products – and there are plenty of legal issues to navigate for any company taking on such a project, Hauser said.
According to Berling, that’s why Cookies is only shipping to 14 states instead of nationwide.
If anything, the federal government has been leaning towards cracking down on the hemp space, instead of leaning back and letting private industry do as it will, Goldberg noted. The U.S. Food and Drug Administration and Federal Trade Commission, for instance, recently issued cease-and-desist letters to several companies making hemp-based delta-8 intoxicating goods, warning them that their product packaging was too attractive to children.
Not only that, but the FDA and DEA are both expected to issue formal rules for hemp businesses, but have yet to do so, both Hauser and Goldberg said. There also have been plenty of business interests heavily lobbying Congress to further clarify the federal hemp definition and put more parameters around what’s legal and what isn’t.
“The FDA has moved incredibly slowly,” Goldberg said. “CBD regulations have still not been issued, and they started that process in 2019. So it’s hard to know when and if the laws and regulations, with respect to hemp-synthesized intoxicants, will change. That may be why companies are saying, ‘We’re going to get in now.’”
The entire space is incredibly volatile and ripe for further change, which could quickly upend the ventures by Cookies, Curaleaf, Jeeter, and Tyson 2.0.
“It’s tough telling clients, with delta-8, yes, you can probably make a lot of money in the short-term, but I don’t know how long this is going to last,” Hauser said.
Berling acknowledged openly the potential for Cookies On Demand and the THCA hemp business to be short-lived, but he also pointed out the reverse is possible as well, given how the federal government has been dragging its feet for years on cannabis reform.
“They could change the Farm Bill tomorrow, and this whole business model is obsolete. They could also change it in the other direction, and this model becomes long term, and starts to look like a version of federal legalization,” Berling said. “From a business perspective, you have to be willing to take that risk.” (Full Story)