Hemp growers face processing bottleneck, uncertain regulatory landscape

CHRISTIANSBURG — As the second year of commercial hemp begins in Virginia, growers face regulatory uncertainty and a rapidly evolving market.

Farmers are still processing the hemp they grew in the 2019 season, which marked the first year that people could legally grow hemp in the United States. Plenty of farmers added hemp to their existing farms, while other entrepreneurs with little experience in agriculture also crowded into the market. 

That glut of hemp resulted in a bottleneck with processors, who turn the raw hemp into cannabidiol (CBD) oil. And with an excess of product, the price of hemp has dropped more than 75% over the last several months.

At the same time, the United States Department of Agriculture is still figuring out how to regulate hemp growers. The public comment period for the USDA’s draft regulations closed in late January. That’s left states like Virginia trying to figure out how to fill the regulatory vacuum in the interim.

Meanwhile, farmers who produced hemp in 2019 are trying to figure out whether it’s worth planting more in 2020.

Elizabeth Spellman and her husband have been farming for three years at Singing Spring, their 33-acre farm in Craig County. Their first two years saw them establishing a variety of vegetable and animal products, which they sold at the Grandin Village Farmers Market in nearby Roanoke, as well as to a few restaurants and customers who bought direct.

The Spellmans were involved with growing hemp for Virginia Tech professors at the Catawba Sustainability Center in 2018. So, when Congress and the General Assembly opened the door for commercial hemp production in 2019, they planted about an acre in hemp to see what happened.

“We do a micro dairy, chickens and goats for meat, sheep for wool, vegetables in high tunnels — a huge diversity of things,” Spellman said. “CBD seemed like a good idea.”

The growing side of things went well. Spellman said they produced about 1,000 pounds of hemp. But they ran into delays when it came to finding a processor to turn the hemp into CBD oil.

“The challenge for growers is more with processors giving empty promises,” Spellman said.

They only recently found a processor willing to split the proceeds from the processed oil, rather than charge a fee up front. Spellman said quoted processing fees ranged from $10,000 in the New River Valley to $48,000 in West Virginia. Because the Spellmans only recently found a processor willing to work with them, they’re still processing their crop. They need to convert it to oil by summer, or see its CBD content — and value — decline rapidly.

In terms of markets, Spellman said most local shops that sell CBD buy from western processors, who tend to be more established. This adds up to her feeling bearish about the market. Singing Spring Farm will probably grow hemp again in 2020, she said, but it’ll be a smaller amount than last year.

“Maybe there’ll be some weird niche thing, marketed as organically produced highland stuff,” Spellman speculated. “But short of some really savvy marketing or really interesting value-chain connections, I think it’ll go the same direction as all industrial agriculture is going.”

Kelli Scott, a former Virginia Cooperative Extension agent who now works as spokeswoman for TruHarvest Farms, an 85-acre hemp farm on Interstate 81 near Christiansburg, agreed that the market is already tilting toward larger producers. TruHarvest is expanding this year, with plans to plant 100 acres in hemp. Notably, the farm is also building its own processing facility.

“This year you can be a small farmer and still produce, and if you can find markets, you can do well,” Scott said. “But in the future, not only will regulation prevent small farmers from doing hemp, but the way contracts are written. That’s going to change the game for people doing it small scale and independently. Here at TruHarvest, we’re taking steps to vertically integrate and put in a new processing facility. We’ll be able to market the final product, like on a shelf, or the final stage of hemp, distillate or isolate. Having the processing not only gives you shelf life but a more desirable product.”

A Floyd County-based group called Solidarity Hemp has formed to advocate for growers and establish a full-spectrum CBD processing facility in southwestern Virginia.

“We want to take a lot of guesswork out of it for farmers,” said David Grimsley, one of Solidarity Hemp’s founders. “Right now there are a lot of unknowns, especially in this region, about how to grow hemp since it’s been outlawed for so long. This also ensures the farmer has a place to process, which has been a big problem this year. So many farmers grew crops assuming there’d be processors to take their crops, but it turns out processors really want large crops instead of small holdings. There aren’t a lot of 100-acre holdings here. It’s more an acre here, two acres — something that could help people diversify their farms.”

Through the end of 2019 and early 2020, Solidarity Hemp also worked to organize public comment on the USDA’s proposed hemp regulations. Its biggest criticism concerns a cap on tetrahydrocannabinol, or THC — one of the psychoactive ingredients in cannabis plants. The draft regulations state that only hemp with a THC content of 0.3% or less may be processed. Hemp with a THC content over that must be destroyed.

Solidarity Hemp and TruHarvest Farms both object to that limit and argue that 1% makes more sense. THC levels can fluctuate based on weather and other factors over which farmers have no control, they said.

“We hope that it doesn’t stick as it’s currently written,” said TruHarvest spokeswoman Scott. 

TruHarvest and Solidarity Hemp also oppose the methodology behind how the THC is measured. The proposed federal regulations require testing within a 15-day window before harvest, and require that all TCH amounts be tested — not just the chemical in its active form. 

“I don’t now how the state would ever police that,” Scott said. “It would create a huge bottleneck, not only for the farmers but for regulators.”

The Virginia Department of Agriculture and Community Services has used the 0.3% THC standard since it first adopted regulations for hemp growers in 2015. Erin Williams, senior policy analyst at VDACS and coordinator of the agency’s efforts to implement hemp laws, said that’s because the 0.3% cap was written into statute in the 2014 and 2018 Farm Bills passed by Congress. The 2014 Farm Bill opened the door for hemp to be grown in partnership with universities for research, and the 2018 Farm Bill opened the door to commercial growers.

Since the 0.3% THC cap is written into federal statute, Virginia regulators aren’t likely to go with a higher cap until they see the USDA’s final rules, which could take months or even years. 

In the meantime, Virginia applied on Jan. 15 to handle regulatory oversight of hemp producers, rather than having the USDA do so. The 2018 Farm Bill allows for this process of state oversight, but in sending its application, Virginia regulators did not want to jeopardize their chances of approval by floating a higher TCH cap. A General Assembly bill to raise allowable THC from 0.3% to 1% was carried over to 2021 for this reason.

So VDACS will move forward with much the same regulatory program it used in 2019. 

“Our hope is that our program won’t look significantly different for growers than it did last year or during 2019 growing season,” Williams said.

In 2019, VDACS enforced the 0.3% THC limit, but did so through a sampling of producers instead of blanket testing. 

Williams said VDACS collected 400 hemp samples from about 75 growers — at least one sample from every variety growing in production fields that were tested. About 18% tested “hot”—or over the 0.3% limit. That crop was destroyed.

The draft USDA regulations call for all hemp growers to be tested for THC content. In Virginia, that will mean sampling at nearly 1,300 registered growers, Williams said — a significant increase from the 75 tested in 2019. It’s unclear how that will be done; Williams said the USDA regulations leave the door open for third-party testers, but she added that VDACS was waiting for more information before deciding how it will move forward.

The General Assembly is continuing to consider bills that build additional regulatory frameworks for the hemp market. Del. Wendy Gooditis, D-Clarke, and Sen. David Marsden, D-Fairfax, are carrying administration bills directing VDACS to develop regulations establishing contaminant tolerances, labeling requirements and batch testing requirements for hemp products sold in stores, as well as directing the secretary of agriculture and forestry to figure out how to fund a long-term industrial hemp program.

“Someone’s got to do something to even out all these products and give the producers and the processors the guidelines so that they stay within the laws, so that they can get crop insurance and so that processors aren’t shut down for overstepping,” Gooditis said. “Everyone hates the word ‘regulation,’ but if we don’t regulate, we can’t support the growing industry.”