When the farm bill was passed last year, it opened many doors in the U.S. for companies to be able to sell cannabidiol (CBD) products to customers. As long as they were derived from hemp, the products were safe to cross borders. However, there is one important caveat, which is that individual states would have to set up their own hemp programs. In what's almost a reversal of marijuana legalization where it's illegal federally but legal in many states, hemp still has some holdout states that haven't legalized hemp just yet, and that could create some obstacles for the industry.
Idaho, South Dakota, Mississippi, and the District of Columbia, all do not currently permit hemp cultivation. That's a problem because it means that with hemp still being illegal, those transporting hemp across these borders could run into some big problems. Earlier this year, three truck drivers were arrested for marijuana trafficking because they were transporting hemp across Idaho.
In the plea deal that the drivers ended up taking, it outlined the risks that are still involved with transporting hemp: "Despite changes to the Federal Schedule of Controlled Substance brought about by the enactment of the Agriculture Improvement Act of 2018, cannabis plants containing any amount of THC or Delta-9 tetrahydrocannabinol remain illegal in Idaho."
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What does this mean?
Without having a hemp program in place, it means that as of now, the states above do not differentiate between hemp or marijuana. The normal cut off is if a plant has 0.3% tetrahydrocannabinol (THC). If it's below that threshold, it's considered hemp rather than marijuana. And so while drivers may feel safe in knowing they are transporting low-THC products throughout the country, the reality is that when crossing any of the aforementioned states, they could run into problems with any amount of THC.
That's a big problem that adds an additional layer of complexity to cannabis laws. When the hemp bill was passed, many people thought that meant that it was legalized across the country, which technically isn't true. The importance for companies is that they need to be extra diligent when reviewing hemp and the areas that they plan to expand in to. It certainly doesn't help that marijuana and hemp look the same
Lack of legalization has not stopped one company from growing
Charlotte's Web (CWBHF +0.00%) has arguably been the top hemp stock in the country. With more than 8,000 locations carrying its products, Charlotte's Web has been growing its presence significantly. In September, the company announced that it had reached an agreement with The Vitamin Shoppe (VSI +0.00%) which will see its CBD gummies sold in 738 stores, spanning 45 states .
Gummies are a particularly attractive form of cannabis products, and it's another way that Charlotte's Web is able to gain an advantage over the competition. While non-hemp CBD gummies can be sold in other parts of the country, companies that do so won't be able to transport it into states that have legalized pot since federally it remains illegal. Charlotte's Web, however, is able to benefit from economies of shipping its products into 40+ states and that can help bring its costs down by shipping across borders.
And by not having to focus on acquisitions in order to expand, Charlotte's Web has the opportunity to use its cash to help fund growth initiatives that make sense for the company and that aren't just ways to set up operations in a new state and to sell products there.
Takeaway for investors
The good news is that the states that haven't legalized hemp aren't exactly big ones that will have an impact on the industry. And while they could end up passing bills to legalize hemp, the bad news is that in the interim, consumers may be unsure of exactly what the laws are, and what is and isn't legal. For now, however, the issue still remains minimal and it's not likely to stop Charlotte's Web from continuing to grow.
Overall, even despite these challenges, the stock is still a much safer bet than marijuana stocks selling non-hemp CBD products where they can't be transported across any lines at all.
