The huge supply of hemp on the global market has triggered price wars between producers and prices have started dropping. Estimates indicate that CBD prices have reduced by close to half within the past 12 months.
Market watchers attribute the surge in industrial hemp supplies to the zeal with which U.S. farmers took to growing this crop after it was legalized by the Agriculture Improvement Act of 2018 (aka the Farm Bill).
Since the harvest season hasn’t yet hit midway within the U.S., there is speculation that CBD prices are likely to drop even further in the coming months when all that harvested hemp enters the finished product market.
To put this trend into perspective, consider the fact that CBD isolate was going for as much as $9,470 a kilo in October last year. In August 2019, this price dropped to about $4,133 a kilo. That is a drop of more than 50 percent in a space of just one year.
Statistics indicate that more than 400,000 acres of land were licensed for industrial hemp cultivation in the U.S. alone this year. While not all that land will actually be cultivated, and even what is cultivated may not all produce the expected harvest, this land area alone towers over the barely 80,000 acres that were put under cultivation of hemp last year.
So many farmers, processors and other players are still entering the hemp arena, and this boom in production is likely to put a downward pressure on the price of different hemp products. For example, farmers may be compelled to sell hemp biomass at a massively discounted price, and processors will no longer command the premium prices that they enjoyed before CBD products become commoditized.
Many farms are still commanding premium rates for their hemp dry matter, and this has created concerns that when prices drop, it will happen in a sudden and potentially spectacular manner unless everyone involved starts toning down their expectations from this recently legalized crop.
Some calculations put the expected hemp dry matter in the U.S. this year at 180 million pounds, which can yield 4.7 million kilos of CBD isolate. If these figures are accurate, then the supply of CBD in the U.S. could be eight times the existing demand for those products.
What this means is that U.S. producers will have to look elsewhere for market, and a drop in the price of CBD products on the European market is testament to the inroads that American companies have made on that continent.
Experts believe that CBD companies like Lexaria Bioscience Corp. (CSE: LXX) (OTCQX: LXRP) and Marijuana Company of America Inc. (OTCQB: MCOA) must now be looking beyond the U.S. market in order to remain profitable long-term.
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