Sourcing liquidity continues to be a challenge for most industry players:

Liquidity and financing are challenges in any industry. Global appetites change, yield seekers move on to the next shiny object and stricter regulations can stifle return metrics; making once profitable sectors unappealing or difficult to continue the commitment of capital. For newer markets such as industrial hemp and cannabis in general; access to liquidity is mostly limited to VC money, private placements, dilutive equity offerings and pricy alternative capital providers. Major Canadian financiers continue to lead the way and other financial players have analysts dedicated to the space and are expanding coverage in the sector.

In the industrial hemp space in the Americas; access to capital continues to plague the development of a robust market with traditional financing vehicles available to market players. Fragmented state laws and limited guidance from the federal government have held back US based financiers. Potential exposure to cannabis flows is of particular concern to US based financiers; given the current US regulatory framework towards cannabis. Therefore, financiers have to be cautious in working with industrial hemp producers or other players that don’t also “touch” cannabis. However, in Canada, financiers have taken advantage of full legalization and are participating in all sides of the industry; adding much needed liquidity and stability. The market is maturing and exposure growing. Earlier this year, Lego announced their intent to “go green” and replace their ubiquitous plastic bricks with biodegradable industrial hemp by 2030.

As seen in the articles below; industrial hemp continues to grow in media exposure and is cited in major financial news outlets now more than ever. Long time WSJ readers may recall a time when oil and gold prices were buried in the C4 section behind all other markets; the back of the bus. Today, gold and oil stand proudly with other major indices on the front page. Will hemp ever enjoy this level of maturity and exposure? It’s difficult to say, but the outlook is promising. Insurance vehicles are being developed, with coverage coming available in 2020. It will take decades of data to fully develop insurance products at similar coverage levels to other commodities; but this will be a great step forward for financiers and the market in general. Risk management is critical for any industry and as fundamental tools come to the market, such as insurance and fixed price contracts; liquidity and appetite will follow. Capital inflows on the CSE, TSXV and even the NYSE seems to indicate the market is slowly but surely developing. As with any market, there will be crises; regulatory adjustments and shifts in consumer sentiment. Thus far as an industry, hemp is rising to the challenges. Below are three recent articles that touch upon industrial hemp’s continued maturation and development.

The first article touches upon the challenges financiers face in providing farmers liquidity to their industrial hemp operations.
Fortunately, the USDA has begun providing guidance which should provide more comfort to lenders as they continue to expand into the space.

This second article touches upon the ripple effect that increased hemp production in the US has led to a tight Christmas tree market this winter

Shifting to the third story; fixed pricing agreements between private parties are the only current method available to growers, processors and end users to manage their outright price risk. This is certainly a step in the right direction as the first hurdle is to develop industry players and then those industry players need to develop a market to manage their flows; cover their risks and ultimately grow their collective businesses. Over time, more players and thus more pricing transparency and pricing discovery will enter the industry. A handful of major corporations are already beginning to exploit hemp’s benefits to their bottom line and consumers willingly embrace the sustainability, durability and eco-connectivity that industrial hemp offers. Until the industry reaches the level of other commodities, these fixed price agreements are a critical risk management instrument.

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