The Intersection of Hemp and Marijuana

PanXchange Blog

Cannabis Sativa L. is a genus or family of plants, whereunder Federal and State laws have subdivided the greater industry of a single genus of a plant into two distinct divisions.  The discontinuities between the Federal regulation of industrial hemp, and lack thereof for medicinal and recreational marijuana, has bred the two industries to coexist, but have zero crossovers in terms of a shared market.  Although the marijuana and hemp industries have operated independently for the entirety of their existence in the US economy, it is noteworthy to see evidence of fundamental changes. Recent developments in Colorado and Illinois opened the doors to the sale of industrial hemp-derived products in marijuana dispensaries, creating a small but noteworthy bridge between the two industries and adding a potential source of demand.  

Earlier this year, a significant change was announced by the Colorado Marijuana Enforcement Division (MED) that industrial hemp products could be legally moved into the cannabis market and sold through dispensaries.  This change highlights that industrial hemp producers can integrate into the marijuana supply chain by selling refined and pre-formulated products through a registered food and storage facility.  The one caveat to the ruling is that Industrial hemp companies may not sell or transfer products such as flower, trim, fan leaves, or whole plants to a licensed cannabis entity. Although it would come as welcome news to sell these products to marijuana product manufacturers, the stringent traceability standards the cannabis space requires through the utilization of METRC tracking that is not implemented for the hemp market.  

Following suit, Illinois announced a similar bridge between the marijuana industry and industrial hemp.  The rules set forth by the Illinois Department of Agriculture are almost identical as the rules allow for the sale of refined industrial hemp products through dispensaries. However, the critical difference is that Illinois does not exclude intermediary products such as trim or biomass, where a cannabis extractor could procure these products, extract, and directly formulate products themselves.  Despite the rules giving more access for hemp producers to sell their crop to licensed cannabis operations in Illinois, the law does expressly exclude the sale of hemp flower.  

Representatives from both Colorado and Illinois stated that these measures would be an increase in demand for an industry that has witnessed discouraging economic effects of an imbalanced market.  These fundamental changes are a positive change in momentum for the hemp industry, although it is not an end-all solution for industrial hemp products in the greater consumer market.  These additional sales outlets do offer a legitimate place for the sale of CBD products outside of the traditional brick and mortar CBD stores, and ultimately provides a different avenue of sales than competing with the abundance of products sold in grocery and convenience stores.  

For marijuana processors and dispensaries, the new regulations in Colorado and Illinois offer a slightly different advantage.  It is noteworthy that many dispensaries do not desire to carry an array of CBD isolate tinctures. Still, it does give these companies an opportunity to capitalize on cost-effective CBD prices and expand offerings of consumer products that contain both CBD and THC – specifically for the formulation of edibles.  These retail products that contain varying cannabinoids (both psychoactive and non-psychoactive) of the cannabis plant help to achieve the entourage effect – a selling point for increased pain management effectiveness and to newer customers that feel more comfortable with a less potent product.  Ultimately, the current state of the hemp market provides the marijuana industry in Colorado and Illinois a cost-effective way of procuring CBD and other less common cannabinoids, which in turn will give incremental demand for refined hemp products.  Given that, it is noteworthy to watch and see if the additional 31 states that legalized some form of adult-use cannabis follow suit and becomes a trend, or if the developments in Colorado and Illinois is an isolated occurrence.