A CBD production company based in Kentucky filed a $44M complaint against a hemp seed-selling company in Oregon for their massive hemp crop failure this year.

With the high demand for CBD nationwide, the crop was supposed to contribute to the supply of CBD, which is increasingly popular due to the many health benefits it allegedly possesses. Users claim that it can treat various health conditions like insomnia and anxiety.

The $44M Lawsuit

The company from Lexington, Kentucky called Elemental Processing declares that HP Farms from Troutdale, Oregon sold them over six million hemp seeds, most of which were “male” although they were promised “feminized” seeds.

The complaint states that feminized seeds sell for as much as a dollar, while male seeds cost only less than a penny. It’s because the female hemp plant is responsible for producing CBD-rich flowers.

It’s also specified in the complaint that male plants placed near female hemp plants can prevent the process of flowering.

Elemental Processing distributed the hemp seeds they bought from HP Farms to different farmers without them being aware of its gender. Only after the farmers grew the crops did they notice that the seeds weren’t feminized, but are instead male, according to the suit.

They also said that the farmers had to plow under the crops, which is estimated to be at least $44M in expected profit.

HP Farms refuse to give any comment about the matter. A lawyer from Portland, Warner Allen, is listed as a registered agent for the said company but is also ducking calls that seek any comment on their side.

The suit and submitted documents by the Elemental Processing showed that they paid around $352,000 for the seeds in advance. They further agreed to pay over $3.5M or 15% of the profit from the supposed to be harvested flowers of the crops.

Hemp in Oregon

Oregon is dubbed as one of the major growers of hemp in the country due to its quick growth in hemp production. State farmers cultivated around 7,000 acres for hemp in 2018 and upped it to around 50,000 acres for this year. It shows that Oregon leads the nationwide hemp production efforts as stated by the state’s Department of Agriculture.

Hemp is widely accepted as a legal crop in Oregon following the Agricultural Hemp Act. Registered hemp farmers in the state total to 1,642, with their seeds being certified by the Oregon State University to protect farmers and help the industry flourish.

Oregon State University has also launched the biggest hemp laboratory this summer called the Global Hemp Innovation Center, which comprises 40 scientists who work across 19 different academic disciplines. They study hemp and its full potentials, such as in medicine and nutrition.

They are eligible to receive federal grants under the 2018 Farm Bill through the United States Department of Agriculture (USDA).

The cannabis industry is on a consistent and upward rise, with Wall Street forecasting a five- to an eighteen-fold worldwide increase in sales by the next decade’s end. However, it’s not only the dried flower that drives the trend but rather the cannabidiol sales worldwide, including the US.

Many brands have taken a spot in the booming CBD industry, but new players are joining in on the craze by marketing as a CBD stock to the public.

The newest entrant in the CBD market

$12B large-cap company International Flavors & Fragrances, listed as IFF in NY stock exchange, is the latest brand to join the ever-expanding CBD industry. It is famous for manufacturing flavor compounds that are used in food and beverages, and as well as fragrance scents, beauty products, and household items. This time, they eye a spot in the market as CBD stock.

The International Flavors & Fragrances (IFF) has recently partnered up with CBD company Neptune Wellness to co-produce CBD products derived from hemp in the US. The collaboration is set to be beneficial for both companies, considering IFF’s expertise in product formulation and Neptune Wellness being a leading extraction-service provider.

However, IFF isn’t the only surprising entrant into the CBD industry. Some well-known retailer companies are cashing in on the popularity of such products. For instance, brands like American Eagle Outfitters, Abercrombie & Fitch, retailer Designer Brands, and big grocery chains like Kroger, are attempting to claim a spot as a player in the CBD market.

Some of the big players in the field

The CBD industry is expected to grow into a $24B market in around four years, and some brands have successfully cemented their place.

Leading pure-play cannabidiol stock company, Charlotte’s Web, holds the highest CBD percentage share in the US. They increased their hemp acreage of up to 187%, from 2018’s 300 acres to this year’s 862 acres. Their products are sold in over 8,000 shops across the country.

Furthermore, they hold a 1,350-store partnership with Kroger, which makes Charlotte’s Web hit it big in the industry.

Another key player is Canopy Growth, which provides a huge chunk of the world’s marijuana stock by market cap. Their market base is in Canada, but are taking huge strides in entering the US hemp industry. In January, they received their New York hemp-processing license, which helps open up their products to more than six states before 2020 ends.

IFF partner Neptune Wellness Solutions is also a trusted company that extracts substances from cannabis and hemp biomass. Some of these are resins, concentrates, or specific cannabinoids that can be developed into derivative products at a high margin.

The said company successfully acquired SugarLeaf, enabling them to process 1.5M kilograms per year.

What spurs the US CBD trend?

Cannabidiol or CBD extracted from hemp is quickly earning the spotlight due to its non-psychotropic property. Although hemp is derived from the same source plant as marijuana, it does not cause the high that users experience since it does not contain high amounts of the tetrahydrocannabinol (THC), which is responsible for the said psychoactive effect.

Hemp is also considerably easier to grow and cheaper to produce, which is why it is the preferred variety for CBD extraction.

It could also be chalked up to the signing of the 2018 Farm Bill, which legalized hemp and its derived products on a federal level.

Based on a forecast study by the Brightfield Group, hemp CBD is expected to rise into a $23.7B market by 2023 in the US. It’s the primary reason why several companies, expected or not, are trying to punch their way into the CBD market these days.

Cannabidiol or CBD is promoted as the miracle cure to insomnia and stress and is a favorite pain reliever that does not require a prescription. However, the main issue with CBD oil today is that consumers are unaware of the implications regarding the use of the said substance.

Lester Garbicz, 72 years of age and CBD user, was shocked to find out that he had failed the mandatory drug test conducted at his workplace.

Garbicz insists he is not a drug user and was only doing CBD which he thought was legal for use. He also did not expect to test positive for THC test.

Trouble with CBD

The CBD oil Garbicz has been taking is for his glaucoma and arthritis, but he had no idea that the product contained tetrahydrocannabinol or THC, the active component in marijuana that causes hallucinogenic effects and is also the cannabinoid responsible for positive drug test results.

Garbicz worked at Specialty Tires as an engineer. Like other companies, Garbicz’ workplace does not tolerate drug use. As soon as drug test results turned out positive, they fired him immediately.

Lawyer Emeritus Peter Myers at George Washington University Law School said that the contradictory laws faced by employers put them in a challenging situation.

Myers is a teacher for advanced seminars on drug law. He reiterated that marijuana might be legal in several states, but the reigning federal law affects it. He also said that an individual might be following state laws but still violate federal laws, which leads to their termination.

Consumers assume that CBD is legal and safe because of its proliferation in the market, Myers added. He believes that additional information on labels would be ideal so that buyers are aware of the potential risks.

Meyers further stated that there is much confusion when it comes to identifying which federal agency is tasked to clear the air. He thinks they are just “passing the buck,” which consequently adds to more problems.

Regulations or Lack Thereof

Essentially, the CBD industry is unregulated. It means that there is a wide variation of ingredients for every product. Also, CBD products labeled as THC-free might still have some contained in it.

A lab test conducted by Ellipse Analytics shows that more than 200 products were improperly labeled. Fifty of the total products tested claimed to be THC-free but were not.

The THC in such products does not cause an addictive high, but it could lead to a positive drug test, for which Garbicz got sacked.

Pending lawsuits from Pennsylvania and California revealed that other users in the said states also failed the drug test due to consuming CBD oil they labeled as THC-free.

Myers believed that the FDA is not taking the steps to clarify its regulations regarding CBD. He also said that the industry and the states aren’t making a move to adopt self-regulation guidelines, which might leave many questions unanswered.

He estimates years for federal and state laws to finally agree and for regulations to be set in stone regarding the amount of THC for CBD and marijuana.

Myers deems that many agencies, especially the FDA, should make decisions as quickly as possible so that labeling and marketing guidelines are clear, which could also prompt manufacturers to provide voluntary guidelines of their own.