Hemp price plummets – CBD demand lower than expected

Maybe it’s not apparent when you just bought a hemp foot cream for 70 bucks but hemp prices are plummeting rapidly at the moment. Industry expert Julie Lerner states that the market is seeing a “stark oversupply”.

In July 2019, the price for one pound of hemp biomass reached its peak at over $40. This was exactly right for the harvest, said Lerner, who is CEO of the physical OTC market PanXchange. Today hemp is traded for under $10 per pound since the supply quadrupled from 2018 to 2019.

The market is stagnating

This may be in part due to the stagnating US consumer market. The FDA still prohibits adding CBD (cannabidiol) to food or dietary supplements. Nonetheless, many sellers neglect the ban. In the US sellers are allowed though to sell topicals with CBD, if the CBD contains less than 0.3 % THC. “THC” is an abbreviation of “Tetrahydrocannabinol”. That is the substance that causes the high when consuming hemp.

Bloomberg cites an interview with Lerner, saying:

“You can look at it as you want, the physical demand in the CBD market is much, much smaller (than the supply). I am a bit surprised that the retail prices have not come down already. There is so much competition.”

Julie Lerner used to work as a commodities trader at Cargill, a US food and fodder company, before she founded PanXchange in 2011. PanXchange began as a trading platform and benchmark price service for commodities in East Africa. Later, the company expanded over the market for fracking sand for oil and gas into the USA. In January 2019 started the first series of benchmarks for the hemp industry. That was one month after the US farm bill legalized the plant. In August, PanXchange provided a trading platform for hemp.

In her industry analysis from December Lerner explained that today’s hemp market “is full of desperate sellers and opportunistic buyers”. She analyzed three metrics for potential CBD demand. Every metric made it clear to her that the farmers do grow much more hemp than the industry needs.

Extrapolation brings clarity

One of the estimates looked at the company Charlotte’s Web Holdings Inc., which is the largest publicly traded CBD business. The company needed less than 500 acres for growing hemp to reach its estimated revenue of $95 Million. Taking into account that Charlotte’s Web has a share of 2.4 percent of the US total market of $4 billion, it becomes clear that the industry needs just 20,000 acres of cropland for hemp.

Instead of 20,000 acres, Lerner estimated, hemp was harvested on 115,000 acres, and that is just the start.

Lerner stated: “We hear that people want to enlarge the cropland despite this year’s losses. There are Texas, Florida, Wyoming and a few stragglers who are just beginning the crop year.”

Nonetheless, Lerner predicts that the industry’s demand will supersede the market’s supply. To reach that point though, prices must go down even further.

“That is like the chicken and egg problem.”, Lerner said. “There is no demand until the prices go down and people do not start growing for the industrial fiber market until there is a huge demand. We have to overcome that obstacle first.”

Cannabis prices

In the meantime, prices for cannabis have gone down in the United States. The trend is the opposite of the one of its northern neighbor, Canada.

An analysis by the cannabis wholesale market LeafLink shows that the prices in all states across all categories (except edibles) have gone down. That is the case in all US states in which hemp is legal, except Washington and Oregon.

It is worth mentioning that the prices for smokable cannabis flowers went down 8 % in the entire USA, while they decreased by 21 % in California and 24 % in Oregon.

Despite the price jump of 2019 Washington stayed the state where you can buy CBD the most cheaply, while Alaska has the highest prices for CBD due to the “exceptionally high cost of logistics and transport”.