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Hemp And CBD Now Qualify For One Of The Most Lucrative — And Wasteful — Government Subsidies (#GotBitcoin?)

Sometimes truth really is stranger than fiction.

Who would have thought five or 10 years ago that the House and Senate agricultural committees would use a farm bill to amend the Controlled Substances Act and remove hemp — part of the cannabis family and a distant cousin to marijuana — from its class 5 category and reclassify it as a lesser class 1 controlled substance, with the full support of a strongly conservative Senate majority leader? Hemp And CBD Now Qualify For One Of The Most Lucrative — And Wasteful — Government Subsidies

Big Pork For Big Ag

And who would have guessed that congressional agricultural committees would then immediately mandate that hemp — and therefore cannabidiol, or CBD —become eligible for coverage and subsidies under the federal crop insurance program?

By signing the 2018 farm bill, President Trump has given all hemp farmers immediate access to one of the government’s most lucrative, and arguably wasteful, subsidy initiatives: the federal crop insurance program.

Congress continues to support crop insurance through the efforts of farm-state legislators seeking votes and campaign contributions. But the subsidy program distorts incentives, encourages farmers to adopt riskier production practices, is a welfare program mainly for large agribusinesses, and has complex and often damaging consequences for both the environment and trade relations.

Among the plethora of federal programs that subsidize farm businesses, crop insurance already deserves top or at least second place on any list of programs for program termination or major reform. The last thing we should be doing is expanding it, regardless of how any of us might feel about hemp.

Read: CBD and hemp are now legal in the U.S., so what does that mean for pot companies?

The federal crop insurance program currently shovels 40% of all federal farm subsidy payments to farm businesses and the private crop insurance companies through which the government delivers the program. Over the new farm bill’s five-year life, the Congressional Budget Office estimates that annual subsidies totaling between $7.5 and $8.5 billion will flow to crop producers and the insurance industry.

The program is also highly targeted; close to 70% of these subsidies go to producers of corn, soybeans and wheat. Add cotton, peanuts and rice, and those six crops receive over 90%. For the most part, healthy foods (think fruits and vegetables) are an afterthought.

So who gets the crop insurance money? About 70% of all crop insurance subsidies go to the largest 10% of farm businesses. Those businesses receive more subsidies because they farm more acres. They also get more money from the program on a per-acre basis, about three times more per acre than small and medium-size farms.

And, of course, there are no caps on how much a farm business can receive in crop insurance subsidies. Some large farm businesses, whose owners possess tens of millions of dollars in assets, get over a million dollars a year from the program. On the other hand, the smallest and most vulnerable of farm businesses receive almost nothing from a program sold to the public as a “save the family farm” initiative.

Hemp, too, will be another example of big pork for big farms. If the hemp crop business were to explode and farms were to plant millions of acres of the new crop, taxpayer costs would be substantial, although in truth that may be a big “if.” Either way, the crop insurance subsidies will provide incentives for farmers to move land into hemp production, and the lower prices will benefit downstream businesses who use hemp. That includes both rope makers and dope makers.

Good to know that regardless of their personal preferences and beliefs, U.S. taxpayers will now be directly supporting companies that would benefit from hemp production like Wana Brands that make products using marijuana as well as CBD, or New Age Beverages Corp. that makes CBD-infused drinks.

CBD and hemp are now legal in the U.S., so what does that mean for pot companies?

Legalization of hemp leaves CBD decisions up to the states, could boost hemp farming in U.S.

Industrial hemp is now legal in the U.S., which could loosen laws around the popular marijuana extract CBD.

President Donald Trump signed the 2018 farm bill on Thursday afternoon, which legalized hemp — a variety of cannabis that does not produce the psychoactive component of marijuana — paving the way to legitimacy for an agricultural sector that has been operating on the fringe of the law. Industrial hemp has made investors and executives swoon because of the potential multibillion-dollar market for cannabidiol, or CBD, a non-psychoactive compound that has started to turn up in beverages, health products and pet snacks, among other products.

The farm bill is a sprawling piece of legislation that sets U.S. government agricultural and food policy for the country and is renewed roughly every five years. This version of the bill places industrial hemp — which is defined as a cannabis plant with under 0.3% of tetrahydrocannabinol, or THC — under the supervision of the Agriculture Department and removes CBD from the purview of the Controlled Substances Act, which covers marijuana.

The overall effect is not assured because, like cannabis — which is illegal under U.S. federal law but some states have allowed medical or recreational use — states will continue to be able to enact laws related to CBD and industrial hemp, allowing for a potential patchwork of legislation across the country. Other questions remain in terms of how exactly the Agriculture Department will regulate the plant.

As CBD goes mainstream and beverage giants, food companies and others have begun to take serious interest in the roughly $2 billion market in the U.S. Tilray Inc. announced a partnership with Anheuser-Busch InBev SA this week to research marijuana-based beverages, and Constellation Brands Inc. has invested heavily in pot producer Canopy Growth Corp. Other large companies, like Molson Coors Brewing Co., have invested in research, and Coca-Cola Co.  and others have at least considered making a play for the space.

Smaller companies focused on CBD beverages, such as New Age Beverages Corp., have been targeted by investors, but some firms have used CBD-related announcements to pump stock prices as well as fuel excitement in a compound that scientists do not fully understand. Other companies operating in the sector will benefit too: Charlotte’s Web Holdings Inc. has focused on a range of CBD products, capturing about 17% market share in 2017 with sales in 3,000 retail locations, according to PI Financial research.

Read: All the potential red flags for investors in IGC, the pot stock that jumped 1,000% in three months

U.K.-based GW Pharmaceuticals PLC  also stands to gain from the farm bill, as one of its flagship drugs called Epidiolex, a seizure drug, counts CBD as an important component. Epidiolex is the first drug derived from cannabis that the Food and Drug Administration has approved.

Despite uncertainties, cannabis executives and those tied only to the growing hemp industry are heralding the Farm Bill as a major victory for business owners and consumers.

Qualis Cannabis Corp. Chief Product Officer Julien Morris says that the bill grants the same legitimacy to hemp farmers as others in agriculture.

“It allows them to use banks, get insurance and investment capital will be less spooked,” he said over the phone.

Wisconsin-based Chief Executive of Hemp Science Luke Zigovits said, “We can finally relax. Because now we can source seed, now we can sell our product across state lines. Prohibition is over. It broadens horizons, allowing universities to do research, for example.” Beyond moving the industry into legitimacy, Zigovits said there are opportunities for tobacco farmers in Wisconsin and elsewhere to start growing industrial hemp crops as well.

In Canada, where cannabis for recreational use is legal under federal law, some of the largest licensed pot producers have been eyeing or actively trying to capture the CBD market via hemp-related expansion.

Tilray Chief Executive Brendan Kennedy said over the phone earlier this week that his company has made a supply agreement with LiveWell Canada Inc. to purchase industrial hemp-derived CBD that it will use for “wellness” and medical products distributed across the U.S. and Canada.

“That gives us the opportunity to meet increased demand in Canada and other countries around the world, and presents us with an opportunity to capitalize on a $22 billion market for hemp-derived products.”

Executives from Canopy Growth, and rival Aurora Cannabis Inc. ACB,  both discussed their hemp operations on the September-quarter earnings calls that included disappointing results related to early recreational pot sales. Aurora declined to comment and Canopy did not make executives available by deadline.

“We have intellectual property that we’ve developed around how to manage hemp and that we thought that was prudent, because I think hemp is going to happen in the U.S. and when it does, I know that’s not the time to start,” said Canopy Chief Executive Bruce Linton in the conference call. “You should have already been started up and ramped up, and get ready to revenue up. We think we are.”

Aurora Chief Corporate Officer Cam Battley said in the company’s earnings call that it has made acquisitions in Lithuania and Uruguay, as well as taken a stake in an Alberta-based producer, giving it a strong position in the market.

“With this large presence in the CBD space, we’re embarking on a CBD-focused strategy that covers the entire value chain from supply through genetics, research and clinical trials to product development and distribution and distributing product to international markets across five continents,” Battley said in the call.

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