Investing in Hemp

This is Better Than Drug Money!

By
Wednesday, June 11th, 2014

Now that marijuana is legal in the state of Colorado, the plant is finding its way into more than just cigarettes.

You can now find it in brownies, muffins, cakes, and — believe it or not — cattle feed, too. That's right, cattle feed.

No, no one's getting a bunch of ruminant stoned. Instead, hemp, which is used in everything from paper and clothes to building materials and food, is also now being used as a supplemental feed. And I suspect we're going to see it used more and more now that 15 states have legalized hemp cultivation for the first time in over 50 years.

In fact, with demand kicking into high gear, we're actually starting to see a shortage of hemp seed. And to make matters worse, some of the seeds being imported are being held up by U.S. Customs and Border Protection. You know, to protect you from yourself *insert note of sarcasm here*.

The funny thing is, the only folks harmed by the utilization of industrial hemp are those who regularly suck off the government teat. And those are the same folks who despise competition in a real free market.

Since the Dawn of Time

Hemp has been used since the dawn of time. And with good reason.

Its stalk fibers are stronger and longer lasting than cotton, making it ideal as a thread in textiles. The fibers can also be blended with flax, cotton, or silk to soften it for use in clothing and linens. The innermost fibers of hemp stalks are a little woodier and are often used as mulch, animal bedding, and litter.

Because of its negligible THC concentrations, hemp is also used in foodstuffs from milk to seeds to oil. Some 95% of hemp seed sold in the E.U. is used in animal and bird feed.

Hemp oil extracted from crushing and grinding its seeds is also used in creams and moisturizers, oil-based paints, biodegradable plastics, and biofuel.

The Return of Hemp

Prior to the banning of hemp cultivation in the U.S. in the late 1950s, America’s hemp production reached an annual peak of 150 million pounds in 1943, with some 146,200 acres devoted to its cultivation.

But while the ban obliterated hemp cultivation except for a few special cases requiring federal permits, Americans were allowed to import hemp products, oil, and seeds. In 2011, the U.S. imported some $11.5 million worth of hemp products, oil, and seeds, much of which was further processed into cooking oils, animal feeds, even granola bars.

A new farm bill enacted earlier this year would open up the field once again. “This is big!” exclaimed Eric Steenstra, president of advocacy group Vote Hemp. “We've been pushing for this a long time.”

Advocates estimate hemp could develop into a $100 million a year industry, which could grow into a $10 billion a year market if the loosening of hemp cultivation laws is a stepping-stone to the legalization of marijuana nationwide.

Steenstra anticipates precisely that. “This is part of an overall look at cannabis policy, no doubt,” he affirms.

Still, the heavy hand of the federal government will not move easily.

As the Associated Press reported last week, federal authorities ordered nearly 300 pounds of hemp seeds from Italy detained by U.S. customs officials in Louisville. In order to get the seeds released, Kentucky State agriculture authorities had to take their case to court, suing the Justice Department, the Drug Enforcement Administration, U.S. Customs and Border Protection, and even Attorney General Eric Holder.

Also worth noting is that while fifteen states have availed themselves of the new farm bill by removing hemp production barriers, in only two states — Colorado and Kentucky — have farmers taken to cultivating it.

The hemp industry is in for a period of slow growth as it awaits other federal agencies to loosen their restrictions on seed imports.

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That being said, I'm...

Bullish on the Return of Hemp

As an industrial crop, it's quite impressive.

  • One acre of hemp can produce four times more paper than one acre of trees.
  • Hemp fiber is ten times stronger than cotton, can be used to make clothing, and doesn't require nearly as much in the way of pesticides as cotton.
  • Hemp can serve as a substitute for wood in building materials. Not only is it stronger than wood, but it's cheaper to produce.
  • Hemp produces more biomass than any other plant that can be grown in the U.S.
  • Hemp can be grown anywhere in the United States, requires only moderate water, and is frost tolerant.

When we think about the legalization of marijuana, we often think about the massive profit potential. And rightly so. With the legalization of marijuana will come an enormous opportunity for savvy investors and entrepreneurs.

Yet when you step back and look at the big picture, you'll find that when it comes to cannabis, the real money's going to be in industrial hemp.

Unfortunately, with special interests controlling the federal government, it's going to take some time before hemp comes back strong enough to be a safe investment. That being said, the folks in Kentucky and Colorado who are actively moving forward with the cultivation of hemp are embarking on a journey that could ultimately prove to be insanely lucrative. And I wish them well.

But for me, I'll continue to sit on the sidelines, waiting patiently for an opportunity to pounce. You should, too. Mark my words, once folks realize just how profitable hemp can be, it won't be long before you'll start finding it in your clothes, your building materials, and your food.

As much as the federal government will attempt to stall progress on hemp farming, they can't sweep it under the rug any longer. And I, for one, look forward to capitalizing on this reality.

To a new way of life and a new generation of wealth...

Jeff Siegel Signature

Jeff Siegel

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Jeff is the managing editor of Energy and Capital and contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets.  He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor's page.


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