We know what you’re thinking: Maybe there’s money to be made in this hemp industry you keep hearing about. After all, it’s a $4.7 billion global behemoth now that’s expected to generate a compounded annual growth rate of almost 16 percent in just the next seven short years. How could anybody not want to jump into hemp and start making easy money now?
Well, before you launch your new hemp-based cannabusiness, thinking you’ll harvest precious green cash as easily as precious green hemp, consider a few things that make this industry decidedly different compared to most others.
- Compliance: It’s … complicated. In today’s nascent cannabis industry, the laws surrounding the growing, manufacturing, retail and marketing of hemp products are complex, ever-changing, evolving – and they vary state by state, city by city. Sure, the 2018 Farm Bill seemingly legalized a lot about hemp – but, in truth, there remain many legal constraints and gray areas that restrict what you can– and cannot –do with hemp in its many forms. And with hemp, just as with marijuana, what’s legal for adult-use markets isn’t always legal for medicinal ones. And the form of consumption or use for your hemp product will be affected by different legal dynamics, too. There are even distinct rules about how you will be able to market or advertise your product. And if you’re transporting your legal hemp product through non-legal states, you’d better know those states’ laws regarding hemp, as well. That knowledge will come in handy when millions of dollars of your Colorado hemp is confiscated by state troopers in Idaho. No matter what kind of business you have in relation to industrial hemp –, you name it – you have to possess a thorough understanding of compliance that will affect your product or services – and you need it before you launch. Because if you don’t, your drive to market can be extensively delayed. Or worse, your company can even be shut down for long periods of time over even an inadvertent oversight of any part of the laws affecting what you do or what you make.
- Banking services: If you have the greatest CBD product in the world on your website, it will matter little if you can’t accept customers’ credit-card payments. And you might have the best business plan on paper when it comes to a small-business loan application, too, but that won’t matter a bit because the bank will bail on you after finding out you’re growing hemp or even just packaging a hemp product. These kinds of banking-services obstacles are common and will continue as long as hemp’s genetic cousin, marijuana, remains a Schedule 1 DEA substance. That federal provision – a byproduct of 1970s views on cannabis, crime and race – is the reason it’s just too risky for banks to serve hemp interests as long there’s a very real possibility they could be lose money and face hefty fines if the Feds decide (arbitrarily or otherwise) to move against a hemp business. Yes, there have been some positive developments on providing banking services to legitimate and legal hemp and marijuana operators. But even last year’s bipartisan SAFE Banking Act didn’t make it across the finish line to approval, and most industry observers doubt we’ll see any similar legislative efforts advance in this already-chaotic election year.
- The talent base on the farm: If you’re launching a hemp farm (and these days, who isn’t?), you are going to want the most knowledgeable people in the industry to lead your cultivation efforts. And chances are, some of those growers are carrying prior drug convictions, some of which might even be felonies. Why? Consider the industry, which until just a very short time ago was an illegal one. Today, as cannabis overall, and hemp specifically, gain legal protections, these ag experts – many of whom learned their in-demand skills growing illicit marijuana in the not-too-distant past – are now on the hemp side of today’s legal cannabis industry. Their War on Drugs criminal convictions mean little to the success or failure of most hemp companies, of course, but it’s important to understand their role in your company and how it could have an effect on its legal obligations and even its pursuit of operating capital.
- The talent base at the top: And something else to know about the people you’ll be doing business with in this space: Many are not sophisticated business professionals. That’s not to impugn their talents or motives. Rather, today’s largely unregulated hemp industry has a fairly liberal open-door policy, and that’s allowed in a lot of well-meaning but not necessarily financially astute individuals. In a green rush to make money, you see company deals formed with nothing more than a handshake over drinks. Some companies, themselves, are even formed this way among partners who often are college buddies rather than part of a strategically formed management team. There’s nothing fully wrong about all this, but you’re going to be doing business with these folks, so you need to protect yourself and your interests from potentially being caught in their business naivety. Because those handshake deals can, and do, fall apart.
- Brokers and testing: If you’re not actually growing hemp, it’s possible your new business will instead be buying and selling hemp biomass to produce some kind of CBD product. But a word of caution: You’re going to be dealing with brokers, and it’s not always easy to know where they’re coming from, how much product they’re handling and if it’s the actual product that’s advertised. And the brokers, themselves, are probably working in conjunction with other brokers. Like Russian nesting dolls, each broker reveals another one in line, so you may never know with whom you are conducting business. That’s part of the reason testing is so crucial, especially the closer your business is to the actual plant. Because you can’t always reasonably rely on brokers’ word on the chemical makeup of what they’re selling, especially if you don’t fully recognize the broker involved with the transaction.
- The benefits of – and need for – early legal review: As for your own hemp business interest, the easiest and most cost-effective way of protecting it is by conducting a comprehensive legal review early in the creation of your company. It will allow you to identify your legal risks, but also your regulatory challenges, your options on banking, and much more. In many other industries, it might be a common thought that you can put aside a legal review like this in the early stages of your start-up company, when you’re laser-focused on all costs directly supporting revenue. Yet the chaotic state of today’s hemp space is one that practically demands you have attorneys analyze your early operation, because there are just too many moving parts in today’s hemp space. And these parts – the laws, the regulations, the banking challenges and more – can carry heavy fiscal costs for your company if you don’t meet the legal and regulatory demands of the industry. The only thing potentially more costly is bringing in the attorneys after the problems have been exposed.