2021

Crop Insurance

Industrial hemp growers will be able to obtain insurance coverage under the Whole-Farm Revenue Protection (WFRP) program for crop year 2020. USDA’s Risk Management Agency (RMA) announced coverage for hemp grown for fiber, flower or seeds, which will be available to producers who are in areas covered by USDA-approved hemp plans. A hemp producer must have a contract for the purchase of the insured industrial hemp and THC above the compliance level will not covered. Additionally, hemp will not qualify for replant payments.

 USDA Announces Expansion Other Improvements to Hemp Crop Insurance | RMA 

280E No Longer Applies

Previously, hemp related businesses were often subject to section 280E, and therefore could not take any business deductions or credits. The only cost recovery was via cost of goods sold. This is no longer the case, now hemp producers can tap into the favorable farm tax rules.

No Need to Track Inventory

For farms with less than $25 million in gross receipts over the past three years, there’s no need to track inventory. What does that mean? It means there’s no add-back to taxable income for ending inventory. If a farm has not sold off all of its year’s harvest prior to year end, it still can deduct all of the costs into it took to produce it. Previously, when hemp was a controlled substance, the act of growing hemp (and still for cannabis) was deemed manufacturing, not farming, which requires an add-back of ending inventory at year end.

Expanded Use of Cash Method of Accounting

Again, farms with less than $25 million in gross receipts over the past three years can use the cash method of accounting. What does this mean? With the cash method available, and no requirement to track inventory, It means that a farms will have a great ability to manage their taxable income by purchasing supplies, fertilizers, equipment etc. in preparation for the next year’s harvest and take those deductions in the current year.

Bonus Depreciation and Sec. 179 Expending

Until January 1, 2024 eligible equipment is available for immediate 100% bonus depreciation. This now applies to certain used property too, previously, property needed to be brand new for use to be eligible. Sec. 179 provides for the full immediate deduction similar to 100% bonus depreciation, and has generous dollar limits up to $1 million can be immediately deducted in 2018 (with several limitations and thresholds). Sec. 179 is available for single-purpose horticultural structures.

Again, farms with less than $25 million in gross receipts over the past three years can use the cash method of accounting. What does this mean? With the cash method available, and no requirement to track inventory, It means that a farms will have a great ability to manage their taxable income by purchasing supplies, fertilizers, equipment etc. in preparation for the next year’s harvest and take those deductions in the current year.

2014 Farm Bill Rules

Colorado became a national leader in industrial hemp cultivation and production when it launched one of the first successful pilot hemp programs in the United States five years ago. However, Colorado will have to alter some of its hemp regulations to align more closely with the USDA regulation, and that could mean tighter rules for this state's farmers.Fortunately, The Colorado Department of Agriculture Industrial Hemp Program will continue to operate as is, under the 2014 Farm Bill, until the USDA approved state plan is adopted November 1, 2020. 

Markets

According to the Brightfield Group, at a current industry net worth of $5 billion in the United States, projections show that the hemp industry is expected to reach a net worth of $23.7 billion by the year 2023. Developments expected include the following:

Targeted educational efforts - We can expect a rise in manufacturer-driven educational efforts to hit health care providers. In Nielsen’s Q4 Health Care Practitioner Tracking Study, 70% of the practitioners surveyed said they discuss hemp with their patients—but only about one-third of the practitioners were knowledgeable about the laws surrounding industrial hemp. With proper education, the influence of the medical community “may do more [over the next decade] to drive trial and brand/format loyalty than traditional branding and marketing efforts,”Maturo says. Guidance from a health care practitioner is more convincing than recommendations from family, friends, or branding.

Consumers will be looking for ingestibles - Nielsen projections show that with FDA approval, ingestible formats could grow their existing user base as much as 250-375% in a year’s time, as these are the formats that consumers are most familiar with. These formats will also have the benefits of recent innovations, like water-soluble and nano-technologies allowing for more efficient absorption. “We believe that over the next decade,” Maturo says, “categories that consumers use habitually or as part of their daily routine will contribute significantly to growth and ultimately garner high sales due to replenishment frequency. Cannabinoid infused beverages are especially a good fit for this—think coffee, functional waters, energy drinks, teas and sport drinks.”

Pet products will explode- Nielsen’s data shows that 37% of dog owners who give their dogs vitamins and supplements today say that they’re likely to give their dog a high potency hemp infused vitamin in the next 12 months. That said, Nielsen’s data also shows that more than 20% of people who have given their dog high potency hemp used a product not specifically formulated for a dog. It is therefore imperative for pet hemp product manufacturers to provide a recognizable level of differentiation between their products and those intended for human consumption.

A battle will emerge in retail -Traditional brick-and-mortar CPG retail channels will steal share from online hemp retailers, local specialty hemp retailers, and vape and tobacco shops. “Compared with current hemp users,” Maturo says, “our survey data shows that new hemp consumers who say they’re likely to consume cannabinoid products in the next 12 months but have yet to consume are more than twice as likely to state that they’ll shop for hemp products at a grocery chain or mass merchandiser. These same consumers are more than 3.5 times more likely to state that they’ll purchase hemp products from a chain drug store.”

In Colorado - The Colorado Department of Agriculture (CDA) is partnering with leading state, local, and tribal agencies, as well as industry experts in cultivation, testing, research, processing, finance and economics to establish a statewide initiative known as the Colorado Hemp Advancement and Management Plan (CHAMP). A key objective of the CHAMP initiative will be to define a well structured and defined supply chain for hemp in order to establish a strong market for the state’s farming communities. Gov. Jared Polis said Aug.16 during the Hemp-CBD Supplement Congress in Denver hosted by the American Herbal Products Association (AHPA). “It is working on defining a structured supply chain and establishing a strong market for Colorado’s agricultural communities, establishing industry guidelines to empower hemp entrepreneurs." Markets will be stronger in 2020.

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Banking

While the 2018 Farm Bill reclassified hemp as a legal agricultural commodity, significant questions remained, and ABA encouraged regulators to provide additional clarity on banks’ ability to serve hemp producers and hemp-related businesses. 

On December 3rd 2019, federal banking agencies and the Financial Crimes Enforcement Network, in consultation with the Conference of State Bank Supervisors, today issued guidance long sought by the American Bankers Association on banks’ Bank Secrecy Act obligations related to hemp producers. The guidance makes clear that banks are not required to file Suspicious Activity Reports on hemp producers operating under an approved federal, state or tribal license or plan. The guidance also notes that bank customers are responsible for complying with regulatory requirements, not the banks. This is really good news!