U.S. hemp farmers eager to get to work in 2019 will have to wait: The federal government is currently shut down.

While the passage of 2018 Farm Bill and its hemp legalization provision was met with excitement, a now-routine political snafu has halted federal government operations and effectively blockaded the gateway to legal hemp cultivation.

Until the federal government reopens for business—until the U.S. Congress approves an appropriations bill—the U.S. Department of Agriculture (USDA) is unable to approve state hemp program regulations and the FBI is unable to conduct required background checks. This presents a problem for prospective hemp farmers.

“It could keep someone from getting their business underway,” Jack Wilbur, spokesman for the Utah Dept. of Agriculture and Food, told KUTV on Dec. 31. 

Under provisions enacted by the 2014 Farm Bill, 40 states now regulate hemp cultivation. Moving forward now, the USDA reserves the authority to approve or reject those states’ (or commonwealths’) programs under the auspices of the 2018 Farm Bill. Kentucky Agriculture Commissioner Ryan Quarles submitted his commonwealth’s application to the USDA on Dec. 20, the day President Trump signed the agricultural legislation into law. 

On Dec. 22, Congressional leaders reached an impasse, and the government shut down.

At issue, on a political level, is whether Trump will sign a spending bill that excludes funding for a U.S.-Mexico border wall, something that he’s been going on about for years now. Democrats have opposed the very idea. Republicans are more of a mixed bag, but one major undercurrent of Washington sentiment is summed up by what U.S. Sen. Mitch McConnell’s spokesperson told the Washington Post this week: “It’s simple: The Senate is not going to send something to the president that he won’t sign.” 

All of which is to say that it might be a while before this current shutdown is resolved. In characteristic verbiage, Trump told reporters on Jan. 2 that he’s intent on stalling government operations until he secures funding for the wall. When asked how long he’s willing to go: “As long as it takes,” he said. “I mean, look, I’m prepared. I think the people of this country think I am right. Again, I could have had a lot easier presidency by doing nothing, but I’m here. I want to do it right.”

Magdalena Juillard/Adobe Stock

Quarles and his regulatory counterparts in other states doubtlessly want to see some movement, for the sake of this nascent industry. “Kentucky’s regulatory framework perfectly aligns with the requirements spelled out in the farm bill,” Quarles said when he submitted Kentucky’s paperwork. “Hemp growers, processors, and manufacturers deserve swift action so they can proceed with confidence.”

Stuart Titus, CEO of Medical Marijuana Inc., which manufactures hemp-derived CBD products, has been sourcing most of his company’s product from European farms and processors. Like many other medical cannabis executives (and like many agricultural commissioners, for that matter), Titus sees the potential in legal hemp market in the U.S. as quite promising. 

“At this time, obviously, now we’re looking to add on some U.S.-based production, and this is quite exciting for us,” he told Cannabis Business Times. “We see as much as 60 million acres of U.S. farmland [that] could be grown with hemp. For many farmers, it’s a great rotational crop. … Hemp is very robust, very hearty.”

But before the industry really takes off, there’s governmental oversight to contend with—and it’s not just the USDA that hemp farmers will confront in this newly legal regime.

As many states already insist in their hemp pilot programs, all hemp farmers—in fact, all “personnel involved in the cultivation of the crop,” according to Pennsylvania’s Department of Agriculture, for instance—must submit to an FBI background check.

This new provision was included in the federal legalization of hemp to accommodate broader congressional debate over criminal justice elements of the legislation. The argument over whether convicted felons would be allowed to participate in the hemp industry at all dissolved into last-minute compromises in December, which will now permit convicted felons to enter the hemp industry 10 years after their conviction (as opposed to never).

The FBI background check is where that will be settled.

For now, though, nobody is participating in the country’s newest legal industry. In the early days of January, industry stakeholders are hoping that this shutdown is but a congressional blip on the history of U.S. hemp.

“I don’t think too many farmers are going to be planting much before the April-May time period, so it’s not catastrophic,” Titus said, “but certainly we’d like to get this year’s crop under way, and a very good, robust reception for the farmers who do choose to plant hemp.”

Elsewhere, in the broader medical marijuana industry, these periodic federal government shutdowns keep businesses worried for other reasons.

Medical marijuana businesses have been protected through amendments to short-term spending bills since 2014, including the most recent Joyce Amendment (which carried over earlier iterations of the Rohrabacher-Blumenauer amendment) last summer. 

While the federal government remains without an appropriations bill on Trump’s desk, it also remains without the Joyce Amendment language. The legislative rider has prohibited the U.S. Department of Justice from spending money on medical cannabis prosecutions. At the moment, and anytime the federal government passes into shut-down mode, those protections for medical cannabis businesses and patients are gone.

Fears of a crackdown are misplaced, however.

"Almost everything dealing with regulations and management of the medical cannabis and adult use industries is really in the hands of the states, so a federal shutdown would be an inconvenience for many, but I don’t expect it would impact operations or access," Chris Lindsey, Senior Legislative Counsel for the Marijuana Policy Project, told Civilized late last year. "If anything, it might result in less federal interest in those that are participating. Because, if anything, a government shutdown would lead to less resources to go after individuals or businesses."  

TILT Holdings, which owns cannabis business across the supply chain, has agreed to acquire Jupiter Research, a vaporization technology company built on “exploring the vast potential for inhalation.” The $210-million deal includes $70 million in cash and represents a major move in the cannabis technology sector.

Joel Milton, senior vice president of software and services at Cambridge, Mass.-based TILT, told Cannabis Business Times that the goal behind the Jan. 3 deal was to fill a gap in the company’s quickly growing portfolio. 

In May 2018, four companies came together to form TILT: Baker Technologies, Briteside Holdings, Sea Hunter and Sante Veritas Holdings, all blending into a vertically integrated network of cannabis businesses across 24 states. What was missing, until now, was the technology to connect with the increasing demand for innovative vape products. (“We recognize that the vaporizer category is one of the fastest growing segments,” Milton, who co-founded Baker, said.) 

To accomplish that connection, TILT executives took a close look at how market forces are changing the way the cannabis industry works within and across U.S. state lines and national borders.

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“TILT was really formed with the understanding that this industry is still very nascent, and it's growing very, very quickly,” Milton said. “Right now, what we see is many of the larger companies are what they call MSOs, multi-state operators, where they build retail stores and they have vertical operations in multiple locations. Obviously, that's necessary because of state boundaries and [the] need to set up shop in every single state you want to be in. It’s not like Canada, where you can build a million-square-foot greenhouse and service the whole country.”

While many recent acquisition headlines have involved pure market share—the buying of real estate, dispensary storefronts and greenhouse space—the TILT Holdings strategy has been based more on expanding its suite of technological innovation and access.

“What we found—and one main pieces behind TILT—is that rather than just build more and more retail stores, we think the best way to really capture a meaningful market share is to also focus on servicing the industry as a whole, taking a bit more of a b2b approach,” Milton said. “And so, whereas there are 3,000 or 4,000 dispensaries right now, owning 15 or 20 isn't going to give you meaningful market share. But servicing 1,000 of them will.”

Jupiter Research

This is where Baker Technologies comes in, for instance, by way of drawing an illustration of the TILT portfolio. Baker works with more than 1,000 dispensaries in 24 states to manage customer relationships through online ordering and customer retention data-tracking. That data can be used by other outfits in the TILT portfolio to further hone consumer engagement.

“Leveraging that,” Milton said, “the Blackbird acquisition that we made [in December 2018] provides the distribution arc—enabling these stores to not only understand what products are being sold in their store, but actually helping them stock their shelves and helping the brands and the wholesalers get their product to the retailers and, ultimately, to the end consumer.” 

And consumers increasingly want vape products.

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Jupiter Research was founded in Phoenix, Ariz., in 2015, and the company has quickly capitalized on ceramic CCELL technology in its vape products (for which it partners with more than 700 brands and retailers around the world). The company brought in $105 million in 2018 orders, and, as TILT Holdings executives proclaim, it’s already booked $28 million in orders for the first quarter of 2019.

The company’s president, Mark Scatterday, brought experience from the e-cigarette market to Jupiter—but he decided he’d build on what he’d learned and develop more finely tuned products for more viscous oils, like cannabis extracts. He and his team turned to ceramics for product development, eventually bringing Jupiter vape pens to market in September 2016. 

“It was a really natural fit to bring them into our ecosystem and our network of stores, where now those same Blackbird trucks that are already doing distribution can carry Jupiter pens,” Milton said. “The 1,000 dispensaries in Baker’s network can now have access to quality hardware if they want to launch their own brand of products. So, really, it’s just another step in our ecosystem.”

At least 80 Michigan communities have banned or are moving to ban recreational marijuana retail stores and related businesses.

It’s a swift response from local governments in the month and a half since voters chose to legalize marijuana in Michigan. The Michigan Regulation and Taxation of Marihuana Act took effect Dec. 6.

Some of those communities have chosen to impose year-long bans on businesses as they wait to see what rules and regulations will write for the new industry. Officials with the Bureau of Marijuana Regulation have until December 2019 to write the rules and start accepting license applications.

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