Not long ago the news media was awash with awash with glowing economic reports about the burgeoning hemp and CBD industry following the enactment of the 2018 Farm Bill. Everyone was going to get rich. And quick.
Fast forward to 2021 and things have changed dramatically. At least here in Oregon, selling biomass—especially biomass preceding the 2020 harvest—is a tough game. Many hemp producers that I know in Oregon planted less acreage this year than in 2020, and far less than in 2019. The cost and risks of growing for biomass have generally exceeded the rate of return (ROR). Add in an uncertain regulatory environment, a processing bottleneck, and the fact that consumer demand for hemp/CBD simply has not matched the glowing (and in hindsight, outrageous) predictions that led many investors and businesses to go “all in” on hemp makes this is tough industry.
Even the hemp flower market (e.g. smokable) is not delivering promised returns for investors. Just growing the hemp can be an expensive and risky proposition (drought, fire, male plants, testing). Add in the costs of harvesting, drying, bucking, trimming, and storing—which may exceed $60 per pound—and the ROR just isn’t what everyone thought it would be.
We are handling several multi-million dollar hemp lawsuits in various jurisdictions. A common theme is that everyone thought they would be making a fortune, and have not. Attorneys (like me) who work with hemp farmers, processors, as well as manufacturers and retailers, have seen a lot of financial devastation in the past couple of years. I can count on more than two hands the number of cases involving million dollar (or more) investments where the parties are really fighting over scraps. All too common are stories of hemp wasting in the fields, hemp unable to be processed, hemp unable to be sold, and half-built processing facilities.
With the collapse and loss of investments, lawsuits related to hemp have increased substantially. Our hemp/CBD attorneys represent a variety of stakeholders in several pending hemp lawsuits and I can tell you that it is tough going for anyone thinking a lawsuit is the way to recover their investment. Unless you have some kind of security–and have filed a UCC financing statement to perfect a lien–or you have taken other steps to protect your investment, you might just be throwing good money after bad in pursuing hemp litigation.
All is not doom and gloom, to be sure. There are hemp/CBD farmers and companies doing it right and even turning a profit. So what’s the secret? Well, if I knew that for certain I’d be a hemp farmer! But the characteristics I see that lead to success are really not that different from what one finds in well-run businesses in other industries. They know their costs. They know their business partners, and even if that relationship is a good one, they paper it up anyway to reduce risks and limit exposure. They don’t overextend financially and have a contingency plan for when something goes wrong. They hire a good lawyer to review contracts, corporate documents, loan agreements, and so forth at the beginning of the operation rather than saving a few bucks and spending much more on trial lawyers.
So what’s next? The industry is in a winnowing phase as I see it. Those who made it through these tough years and are realistic about the future potential RORs will stay in business and make some money. Many of those who find themselves upside-down won’t be able to right the ship and will be looking for any reasonable exit. As with any churn, there is opportunity.
The post What’s Next for Hemp? A Business Litigation Perspective appeared first on Harris Bricken.
