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SP+GTM algorithm rates Colorado the farmers' top pick.

From our base base, passage of the 2018 Farm Bill has surged consumer demand for cannabidiol (CBD) and caused the United States hemp industry this year to cultivate more than 480,334 acres for processing hemp.

As more state hemp programs come online, lawmakers seek ways to help foster growth in their respective, fledgling markets. One way to accomplish it is by looking at states which, like Colorado, have successfully implemented industrial hemp programs. Though much of the state's land is unsuitable for hemp production (primarily due to issues of water access or soil composition), Colorado is the leading producer in the U.S. In 2018, the state saw roughly 21,577 acres planted, with 828 cultivation licenses issued.

Producers have benefited from Colorado's favorable regulations.

"The state Department of Agriculture takes the position that this is just another crop, and they haven't tried to overregulate it," explained Eric Steenstra, president of Vote Hemp. "They only want to ensure that farmers are growing crops that are compliant. I think that mindset has been very helpful." Unlike most states' offering limited application periods, Colorado issues cultivation licenses year-round, while placing fewer restrictions on cultivators. Hemp seeds can be sourced from anywhere, and there is no acreage limit on production. Hemp processors also need not obtain a separate processing license. Furthering the regulatory advantages, Steenstra adds, is top-down support proffered by state lawmakers. When Colorado Gov. Jared Polis served as a U.S. Congressman, he introduced and helped advance a hemp research amendment to the 2014 Farm Bill. As governor, Polis has stated his goal to make hemp the linchpin of the state's rural economic initiative.

While Colorado's geography can provide challenges, Steenstra says its climate is nevertheless conducive to hemp cultivation. In humid states like Florida, cultivators have higher risks of mold and other forms of bacteria due to humidity. Colorado's dry air, conversely, presents less of a risk to outdoor grows. Because Colorado legalized adult-use cannabis in 2014, the state has an experienced labor force, making it easier to hire workers skilled in cultivation and extraction. Additionally, certain counties and municipalities offer incentives for hemp investment. For example, Pueblo County provides cash grants for encouraging operations.

In 2018, Colorado passed two significant laws to encourage future growth. The first was Amendment X, a ballot amendment that removed the definition of hemp from the state's constitution. Doing so allowed Colorado legislators to tweak the state's hemp laws, and possibly increase the maximum THC threshold to at least 1% rather than the common 0.3% standard.

The second law enacted was House Bill 18-1295, allowing for hemp and hemp derivatives (such as CBD) to be added into food, food additives, and cosmetic products without being considered adulterated products. Doing so allows hemp companies to sell CBD-based products without running afoul of state regulators — though the U.S. Food and Drug Administration (FDA) retains regulatory primacy.

While Colorado is poised to remain a national leader in hemp production, other state hemp programs are quickly catching up, as much of the U.S. industry's growth has come in rural states where sagging soybean prices and diminishing returns on crops like tobacco have put farmers in dire financial straits. In 2019, Tennessee issued well over 3,500 hemp licenses, and Oregon (currently the second-largest U.S. hemp producer) issued close to 3,000. Should their legislators start to adopt favorable hemp regulations like those in Colorado, the Centennial State could lose its top spot for production. Despite such interest, several issues persist to stymie the growth of the hemp industry. The first is whether the FDA will regulate CBD as a nutritional supplement, or as a pharmaceutical ingredient. Should the FDA require the latter, demand would likely drop considerably.

Another issue is how the U.S. Department of Agriculture (USDA) will regulate the hemp industry. The agency is currently devising federal hemp regulations to go into effect for the 2020 growing season. Were the USDA to issues restrictions beyond those in the 2018 Farm Bill, they could adversely impact the industry.

For example, some states only test the top 2 inches of hemp flower, which contains higher concentrations of THC than in the rest of the plant. Should the USDA adopt similar testing standards (as opposed to testing homogenous samples that provide greater accuracy), it could translate to increased costs in the millions.

Finally, there is the issue of oversupply. As states rush to enact hemp legislation, a lack of caution could lead to the industry's outpacing demand. The Hemp Business Journal estimates that by 2022 more than 1 million acres of land will be used for hemp cultivation. The ceiling for hemp demand remains yet to be determined.

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