Glut of ‘green gold’ puts US hemp and cannabis prices on a downer
Overproduction leading to gross oversupply seems to be the main reason behind the drop
New York — It may not be apparent when you’re spending $70 on CBD foot cream, but hemp prices are plunging amid a “grossly oversupplied” market, according to the head of the industry’s first price provider.
Hemp biomass prices reached a high of more than $40/kg in July, just before the 2019 harvest came in, according to PanXchange CEO Julie Lerner. Today, it is trading under $20/kg after a quadrupling of supply from 2018 to 2019.
Meanwhile, the CBD consumer market remains limited as the US Food and Drug Administration continues to prohibit the extract in food or dietary supplements, though many sellers ignore that mandate. CBD is legal in other uses, such as topicals, as long as it contains less than 0.3% THC, the cannabis compound that gets you high.
“Every way you slice it, the physical demand for the CBD market is much, much smaller” than the supply, Lerner said in an interview. “I’m a little surprised that retail prices have not started to come down yet. There’s so much competition.”
Lerner, a former Cargill trader, founded PanXchange in 2011. It started as a trading platform and benchmark pricing service for commodities in East Africa, then expanded into the US via the specialty sand market for oil and gas. PanXchange launched the hemp industry’s first suite of benchmark prices in January 2019, one month after the US farm bill legalised the plant, and added a trading platform in August.
Today, the hemp market is “rife with desperate sellers and opportunist buyers”, Lerner said in her December analysis of the industry. She looked at three different measures of potential CBD demand and found in each case that farmers are growing far more hemp than the industry needs.
For example, Lerner estimated that Charlotte’s Web Holdings, the largest publicly traded CBD company, needed less than 200ha of hemp to service an estimated $95m of sales in 2019. Assuming Charlotte’s Web accounts for about 2.4% of the $4bn US CBD market, that means about 8,000ha of hemp are needed in total.
Instead, Lerner estimated that about 45,000ha were harvested in 2019. And it’s only going to get worse.
“We are hearing that despite the losses people have had this year, they’re still going to increase plantings, and you have Texas, Florida, Wyoming and a bunch of latecomers that are just starting this crop year,” she said.
Lerner predicted that industrial demand for hemp will eventually dwarf the CBD market, but that won’t happen until prices drop even more.
“It’s a little bit chicken and egg,” she said. “There won’t be demand for it until prices drop, and people won’t be planting for the industrial fibre market until there’s huge demand for it, so we’ve got to get over that hump first.”
Meanwhile, US prices for cannabis also fell in most states and categories in 2019 — the opposite of the trend seen north of the border.
An analysis by wholesale cannabis marketplace LeafLink found that statewide pricing across categories fell in every legal state except Washington and Oregon. Prices also dropped in all categories except for edibles and ingestibles.
Notably, prices for smokable flower dropped 8% nationwide, with California prices falling 21% and Oregon tumbling 24%. “This is likely due to the proliferation of non-flower-related products as these two markets reach maturity,” LeafLink said in its report.
Despite the price increases in 2019, Washington remained the cheapest state to buy cannabis due to “product over-saturation”, LeafLink said. The most expensive state is Alaska, with its “exceptionally high logistics and shipping costs”.
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