Altitude Investment Management Invest in Hemp

Hemp’s Big Break: The Next Billion-Dollar Market

Investing in hemp can be underrepresented in conversations about the cannabis industry. However, hemp represents a significant chunk of the $10 billion cannabis market in North America, and it’s a sector that is growing at a breakneck speed.

Hemp products already command an impressive $688 million market share, and that number is expected to grow exponentially. In 2016, hemp-derived cannabidiol (CBD) products alone generated $170 million in revenue, a number expected to eclipse the $1 billion mark by 2020.

But there’s a lot more to hemp than just CBD, and that’s what’s really driving this lucrative sector of the growing cannabis industry. Here’s a look at why hemp is a monumental opportunity for investors and entrepreneurs alike.

Hemp is not just CBD products

Hemp is a highly diversified sector of the cannabis market. It is because of this versatility that hemp companies are able to drive a steady stream of new products and revenue, building on its already rapidly climbing market.

Hemp’s CBD derivatives receive a lot of press attention, though, and for good reason. CBD products have therapeutic and medicinal applications which help treat a variety of conditions without a psychoactive effect on patients. These products also are utilized for their health benefits in states in which medical or adult-use cannabis is not yet legal. Still, it is important to note that according to estimates provided by the Hemp Business Journal, only about 20 percent of the hemp industry is driven by CBD products.

Hemp is an incredibly versatile material that can be used in a vast array of products, including food, personal care, textiles, supplements, industrial components, paper, and construction materials. Personal care products, such as soaps and lotions, command nearly one quarter of the entire market, with food, industrial applications, and consumer textiles coming close behind.

Hemp products are more widely sold, with limits

Hemp products don’t face the same restrictions as other cannabis products. Hemp is defined as a product of the cannabis sativa plant which contains less than 0.3 percent tetrahydrocannabinol (THC), the psychoactive component in cannabis. Because of its low THC content, hemp products represent a bit of a gray area surrounding the federal prohibition on cannabis, and are available for purchase in significantly more American markets than other cannabis products.

The hemp industry has not encountered the same barriers that have hindered the growth of the rest of the cannabis industry. However, while it is federally legal for states to set up their own pilot hemp programs, the Drug Enforcement Agency (DEA) maintains that hemp, like cannabis, is a Schedule I substance under the Controlled Substance Act with no accepted medical use. That means hemp faces similar issues as cannabis when it comes to banking or interstate commerce. Meanwhile, the Hemp Industries Association has challenged the DEA’s classification of hemp in federal court. A decision in that case is likely in the next several months.

However, a recent FDA study supports the idea that hemp-derived CBD products could be useful for treating epilepsy, which would undermine the DEA’s position that hemp has no medical uses. Meanwhile, the Hemp Industries Association has challenged the DEA’s classification of hemp in federal court. A decision in that case is expected in the next several months.

Federally, hemp has gained some support from unlikely sources. Senate Majority Leader Mitch McConnell (R-KY)  introduced a bill to legalize hemp and allocate tax revenue toward cultivation. McConnell has expressed his intention to attach the hemp legalization measure to the farm bill, an important piece of legislation that governs the nation’s food and agriculture policy. The farm bill also includes funding for scientists to study hemp and understand its potential further medical applications, a further nod towards potential declassification of the plant.

Hemp products are environmentally-friendly

As more consumers and companies place importance on ecological preservation and sustainability, hemp products come to the forefront as viable alternatives to wasteful or environmentally-destructive industries.

For example, hemp is an excellent source of fiber which can be used in the creation of paper. In one year, one acre of hemp can produce as much paper as two to four acres of trees. And while trees take decades to grow, an acre of hemp grows from seed to maturity in about three to four months. The paper derived from hemp can be used in products like tissue paper, cardboard, and writing pads.  

Hemp is also a great replacement for cotton. One acre of hemp will produce as much fiber as two to three acres of cotton each year. The fiber hemp produces is at once stronger and softer than cotton, and lasts twice as long.

Hemp’s ecological benefits are not only an excellent marketing point, but an economic necessity if society is to continue meeting the ever-growing international demand for goods. As an easily replaced resource that can be grown on virtually any tract of farmland, hemp offers a much-needed sustainable input for a variety of industries. This need compounds its rate of growth and offers even more opportunities to expand hemp’s market value in the future.

Investing in hemp: the hemp industry is still ripe for disruption

While the hemp industry is growing rapidly in value, only a few companies have figured out a successful formula so far. The top 20 hemp brands each averaged $2.1 million in revenue in 2016, but a couple of those companies truly dominated. CW Botanicals, for example, commanded seven percent of the hemp market, followed closely by CV Sciences with five percent market share. The next three companies, Elixinol, Medical Marijuana, Inc., and Hemp Life Today, each controlled two percent of the market.

That means 82 percent of the market is highly fragmented, controlling less than two percent of the market share each. With the pie growing so quickly (an estimated 55 percent compound annual growth rate), hemp is ripe for disruption. A new company with a great idea or innovative product could easily supplant the remainder of the market and become the next household name in hemp. This potential for disruption creates major opportunities for investors and entrepreneurs alike.

The cannabis industry remains an extremely enticing business opportunity, but any wise strategy should take hemp into account. As the industry as a whole rockets toward $21 billion in consumer spending by 2021, hemp cannot be ignored, especially given the developments towards legalization at the federal level. With momentum like this, hemp is poised to become a major driver of continued growth.