Industrial hemp will take a bite out of Oregon's outdoor cannabis in 2019

Hemp is set to eat into Oregon’s 2019 outdoor cannabis production, potentially slowing the state’s accumulation of excess cannabis inventory that now exceeds 1 million pounds of unsold product. From 2016 to 2018, the number of licensed hemp producers in Oregon jumped from 13 to 584. Statewide acreage devoted to hemp production likewise more than doubled to 7,808 acres last year from 3,469 in 2017. We’re poised to see that number climb higher now that the 2018 Farm Bill has granted hemp federal legality that still eludes cannabis.

Nationwide hemp production tripled last year

It’s not just Oregon jumping on the hemp bandwagon, either. Hemp production is booming across the country. Nationwide acreage devoted to hemp production tripled from 25,713 acres to 78,176 in 2018. Tennessee just reported an 1,100% increase in licensed hemp farmers. And the Iowa Senate overwhelmingly approved new industrial hemp rules 49-1 this week.

Hemp, which can be shipped across state lines, is a more attractive alternative to beleaguered outdoor cannabis farmers battling to turn a profit in a crowded market. Every October, Oregon’s cannabis market is flooded by outdoor production. Coming mostly from outdoor producers in Southern Oregon, last year’s “croptober” was over 2.5 million pounds of wet weight, more than every other month combined. That much outdoor flower hitting the market at one time drives down prices each fall, and lately, prices year round.

Oregon’s outdoor flower wholesale price is the nation’s lowest

As 4/20 approaches with impending consumer discounts, average Oregon wholesale prices have declined to $498 per pound on average, according to Cannabis Benchmarks, a $60 decline from March. Oregon continues to have the lowest flower prices in the country.

Outdoor flower has become a commodity crop because of sheer abundance, and the bulk of it is going to processing rather than being sold alongside indoor flower on retail shelves. The latter enjoys higher demand from quality conscious consumers and commands a higher retail price accordingly. Those sub $5 grams you see around town are usually of the sun grown variety. Indoor flower producers also benefit from cyclical production cycles vs. one large harvest per year, which makes drying, trimming, curing, and sales more predictable.

Even with a lower cost of production relative to indoor producers, there is simply too much outdoor flower residing in Oregon’s borders for the state to consume, much less sell for a price that justifies the cost and risk it requires to produce. Before last year’s bumper crop, Oregon’s outdoor flower had already dropped below $400 per pound, which at the time was the lowest ever seen. Now outdoor producers routinely sell excess inventory as low as $100 per pound to processors, depressing the average wholesale price even further.

Oregon’s legal framework offers few benefits for outdoor growers

Meanwhile, outdoor cannabis producers are still subject to the same regulatory framework as indoor producers: OLCC licensing, security, tracking, and a maximum of just under an acre per licensed growsite (although the canopy limit might be a blessing in disguise with the current glut). The Oregon Department of Agriculture’s framework for regulating hemp is far less onerous than the OLCC’s for cannabis, and, again, hemp isn’t confined to an Oregon-centric micro market nor does it have the same banking and financing limitations that plague cannabis until it is declassified as a controlled substance.

Adding fuel to the fire, the Oregon Senate last week voted not enact cannabis license caps in favor of letting the free market play itself out. Senate Bill 218, supported by state cannabis businesses in tune with the saturated marketplace, was met with skepticism from lawmakers. Republican Senate Minority Leader Herman Baertschiger Jr. decried the bill as “socialism.” Legislative relief isn’t coming.

Hemp poses cross-pollination risks

If that wasn’t bleak enough for outdoor cannabis, risk of cross-pollination is the icing on the cake. Large outdoor hemp fields will have male plants. Grown from seed at that scale, it’s simply impossible to guarantee a 100% female germination. Indoor producers, and to a lesser extent, greenhouse producers (that may also qualify as “indoor” from Oregon’s standpoint if they use artificial lights to supplement sunlight) can take steps to make their canopies immune from pollen drift that can reach up to 30 miles. Outdoor growers have to roll the dice. And if you thought outdoor flower was cheap now, wait until you see outdoor flower riddled with seeds and lower potency.

Hemp-derived CBD sales are only going up

Cannabis may have had a head start, but hemp achieved near universal agricultural crop status first. And the growing market for hemp-derived CBD products has been fueling the rise in nationwide hemp production. New Frontier predicts a 3-fold increase by 2022, exceeding $1.3 billion as national retailers began stocking their shelves the way Plaid Pantry does here in Oregon. As we’ve talked about before, nationwide cannabis sales are more pipe dream than reality at the moment. And in a crashing market, Oregon’s outdoor growers don’t have any incentive to wait it out.