Posted on

is it illegal to have weed seeds in ohio

Ohio Gov. Mike DeWine signs bill legalizing CBD, hemp: What happens next?

That’s how Dave Arend described the new law effectively ending CBD prohibition in Ohio, which had led to some restless nights for the owner of Your CBD Store in Anderson Township.

Arend opened the store July 1, fully aware that the sale of cannabidiol in Ohio was still illegal outside state-licensed medical marijuana dispensaries. The hemp-derived CBD products that Arend sells contain only trace amounts of THC, the substance in cannabis plants that gets you high.

Just six months earlier, state and local officials had cracked down on retailers selling CBD products, forcing them to remove, or “embargo,’’ the products from store shelves.

But that changed Tuesday.

Gov. Mike DeWine signed Ohio’s hemp legalization bill, Senate Bill 57, into law on Tuesday at the Ohio State Fair.

The law takes effect immediately, freeing all embargoes on CBD inventory and moving hemp-derived cannabidiol off Ohio’s controlled substances list. It also means Ohio State University and other colleges can grow the state’s first hemp this summer.

Arend expects a rush of new customers as a result of the new state law.

“I think this removes the stigma that what we sell is medical marijuana,’’ Arend said. “It’s not, and we definitely anticipate a lot more customers who want the benefit of CBD without the high of medical marijuana.’’

What the law does

The law immediately allows hemp-derived CBD to flow into the state, but it will be a while before hemp can be commercially grown or processed in the Buckeye State.

The U.S. Department of Agriculture plans to issue federal rules for hemp cultivation and processing in the coming weeks. In addition to CBD from hemp flowers, the plant is also harvested for its fiber and seed.

Ohio agriculture officials have six months to draft Ohio’s rules and regulations, which will then be submitted to the feds for approval. The goal: Have everything in place so farmers can get seeds in the ground next spring.

The department plans to ask for $12 million next month to set up the program, which includes buying equipment to test plants and hemp products. Until state testing and labeling rules are approved, agency officials will check products for unauthorized health claims and conditions that don’t meet food safety guidelines.

Ohio Department of Agriculture Director Dorothy Pelanda said the agency does not plan to limit the number of licenses issued to cultivate or process hemp.

Pelanda said agriculture staff members have spent the last year studying hemp programs in other states and they will be able to enact rules and regulations within the six-month time frame allotted by law.

Pelanda said the agency plans to craft regulations to ensure farmers plant seeds that are certified to be low in THC – hemp is defined as cannabis containing less than 0.3% THC.

“We want to make sure that Ohio has the very best hemp program in the nation,” Pelanda told The Enquirer.

Ohio is the 46th state to allow hemp farming.

A big part of Ohio’s program will be research, which will begin right away. Ohio State University plans to buy about 2,000 hemp plants in the next week. Gary Pierzynski, associate dean for research and graduate programs at OSU’s College of Food, Agricultural and Environmental Sciences, said it’s too late to plant with the goal of harvesting.

But Pierzynski hopes this first crop at four locations will position them for good research on growing methods, plant diseases, pests and more next year.

Industry analysts predict the U.S. hemp market will grow from about $4.6 billion to more than $26 billion by 2023. The Ohio Farm Bureau Federation has said hemp has the potential to be Ohio’s No. 3 crop behind corn and soybeans.

Let the lobbying begin

The bill leaves the details of Ohio’s hemp program – like who can grow it and how much licenses will cost – to the Ohio Department of Agriculture. Those rules will be shaped by experts, lobbyists and public comment periods.

Hours after Senate Bill 57 passed, a new hemp industry lobbying group was announced: the Ohio Hemp Industry Alliance. Backing the group: Ian James and Jimmy Gould, who led the unsuccessful 2015 effort to legalize recreational marijuana in Ohio. Since Issue 3 failed, James and Gould have invested in hemp, in addition to obtaining licenses for medical marijuana businesses here.

Statehouse lobbyist Neil Clark, who has been tapped to lead the organization, said the association will serve businesses who are involved at several levels of the industry and who have “big ideas.” It will also promote pro-hemp politicians through a political action committee.

“Our goal is to make sure those restrictions aren’t prohibitive,” Clark said. “There’s a lot of farmland in Ohio and there has to be opportunities for everyone.”

The group joins others that pushed the bill along including the U.S. Hemp Roundtable, which largely represents CBD businesses, and the Ohio Hemp Association, comprised of Ohio businesses and entrepreneurs that want to grow hemp or manufacture hemp products.

Local retailers pleased

Queen City Hemp has been gearing up to put its CBD Seltzer water back on the shelves at local retailers, including Hemptations and Clifton Natural Foods.

A large part of the Cincinnati-based manufacturer’s inventory of CBD-infused seltzer water was confiscated from those retailers and destroyed by the local health department during their crackdown in February, according to president and co-founder Robert Ryan.

But despite the lost inventory and cost to re-supply vendors, Ryan said he’s excited about the future of the business.

“It did hurt us financially,’’ Ryan said. “But we feel that having a law in Ohio is more important. And if it took getting embargoed for that to happen, then that’s what it took.’’

A number of national chain stores are already selling CBD products across the country.

Kroger, the nation’s largest grocery retailer, announced in June it would sell hemp-derived CBD creams, balms and other topical products in nearly 1,000 stores in 17 states – but not its home state of Ohio.

That will change with the new law, but a Kroger spokeswoman said it was too early to provide details.

The Cannabis Market and Its Impact on Hemp

Few segments within the green industry have shown the potential for growth that cannabis has recently demonstrated. Nine years after the states of Colorado and Washington legalized recreational marijuana in 2012, cannabis-derived retail markets have reached $14 billion in annual sales in the U.S. (Somani 2019; Mikulic 2020). In comparison, the 2021 domestic retail market for fresh vegetables is estimated at $41 billion (Mintel Group 2021). Most of the ongoing cannabis market development takes place in states with established programs for medical and recreational marijuana. Auxiliary hemp programs have also assisted in the process of developing new opportunities for producers, such as those outlined in the provisions included in the 2014 and 2018 Farm Bills (Agricultural Act of 2014; Agricultural Improvement Act of 2018). These provisions, however, have become less relevant as the recreational marijuana segment gains momentum and complexity.

In Ohio, the regulatory environment defines rules for stakeholders dedicated to the production, processing, wholesaling, and retailing activities of medical marijuana and hemp. Recreational use (sometimes referred as adult-use) of marijuana remains prohibited in the state as of July 2021. At the federal level, possession and use of marijuana are illegal because tetrahydrocannabinol (THC) and its main derivatives (Delta-8 THC, Delta-9 THC, and dronabinol) are considered Schedule I controlled substances (U.S. Department of Justice 2021).

This article reviews key aspects of the regulatory environment, presents market development figures, and discusses how the growth of recreational segments in other states may affect business opportunities for hemp producers.

The Regulatory Environment

Current state rules and regulations have created three seemingly unrelated market segments for cannabis-derived products. This segmentation results from the virtual distinction between hemp and marijuana. Although both agricultural products are extracted from Cannabis sativa or Cannabis indica plants, the 2018 Farm Bill and consequent state regulations define hemp as the resulting crop with a total THC concentration below 0.3%. Marijuana, on the other hand, is defined as a resulting crop with a total THC level above 0.3%. The marijuana segment can then be broken into two distinct sub-segments, primarily associated with the intended end use of products. The first sub-segment relates to the use of marijuana as a medical ingredient and dates from 1996 when the state of California legalized marijuana for the treatment of medical conditions. The second sub-segment refers to marijuana’s use for recreational purposes. In the recreational sub-segment, state rules are more relaxed and adult consumers have access to a wide array of marijuana products. It must be stressed, however, that marijuana product transactions and consumption remain illegal on the federal level. Producers, processors, and consumers do violate federal law and are exposed to the risk of federal prosecutions. Yet, marijuana markets within states have managed to grow collectively to a double-digit, billion-dollar market as a result of provisions included in the Tenth Amendment and due to the low priority status given by federal prosecutors.

In the state of Ohio, the Hemp Program is administered by the Ohio Department of Agriculture (ODA), which issues cultivation and processing licenses, supports stakeholders with up-to-date regulatory requirements, and governs licensees’ activities. The program inspects growing and processing facilities to ensure that hemp-based products (agricultural or not) comply with federal and state regulations. Hemp products are defined as human or animal-consumable products that contain one or more cannabinoids in the formulation, as long as the total THC concentration is below 0.3%. In 2020, the ODA Hemp Program issued 195 cultivation licenses and maintained 47 active processing licenses (Ohio Department of Agriculture, New Hemp Cultivator Training 2021). Out of the active processing licenses, 38 firms are authorized to wholesale, 22 are licensed to retail, four conduct metabolite extraction, and 11 are licensees authorized to produce and process floral products (Ohio Department of Agriculture, Licensed Hemp Processors 2021). The number of cultivation licenses and licensed acres is lower in the 2021 season.

The state of Ohio also runs a medical marijuana program. It should not come as a surprise that oversight of a medical program is complex and onerous for participants and public agencies. The Ohio Medical Marijuana Control Program (MMCP) is co-administered by three state agencies:

  • The Ohio Department of Commerce oversees growers, processors, and testing laboratories.
  • The State of Ohio Board of Pharmacy is responsible for overseeing retail dispensaries and the registration of patients and caregivers.
  • The State Medical Board of Ohio certifies physicians to prescribe medical marijuana (Ohio Department of Commerce n.d.).

The Ohio Administrative Code presents a strict set of rules for growers interested in obtaining a cultivation license under the Medical Marijuana Program (Ohio Administrative Code 2017), when compared to the rules and requirements for obtaining a cultivation license under the ODA Hemp Program (Ohio Administrative Code 2020). In addition, the MMCP issues a limited number of provisional licenses. The maximum number of 34 cultivation licenses have been issued to growers with valid certificates of operation (Ohio Medical Marijuana Control Program 2021). The Ohio Department of Commerce leadership will review the need to issue additional cultivation licenses in May 2022. A similar protocol applies to issuing processing licenses. There are a total of 33 licensees with certificates of operation in Ohio and 14 provisional license holders (Ohio Medical Marijuana Control Program 2021). The current maximum number of processing licenses that the Ohio Department of Commerce may issue is 40. The department will review the need to increase that number in September 2022.

Recent Developments in Cannabis Markets

In addition to staying compliant with existing regulations, Ohio growers may be interested in learning about the evolution of market segments in recent years. Starting with the hemp segment, growers have faced a considerable reduction in profit margins in the last five years. Production used to be, and in some cases still is, valued in terms of Cannabidiol (CBD) concentration in the crop. Spot market prices ranging from $1.50 to $3 per percentage point of CBD, per pound of flower, were not unusual across the Midwest three years ago. Informal conversations with growers indicate that current spot prices between 75 to 90 cents per percentage point of CBD are not unusual. On the other hand, feminized seeds have been relatively stable for three years. Depending on the cultivar, the unit cost of a feminized seed ranges from 80 cents to $3. Clone transplants (one-month-old, rooted, stem cuttings from mother stock plants) are priced between $4 to $7. Transplants produced from tissue cultivation are sold at higher prices, between $6 to $12 per plant because of minimal exposure to pests and pathogens. A comprehensive crop budget prepared by the University of Connecticut offers educated insights to growers interested in producing open field hemp (Jelliffe, Lopez, and Ghimire 2020).

Plausible reasons for tighter margins in hemp are possibly due to the latest developments in state-bounded recreational marijuana. But before identifying critical factors that are hindering business opportunities for hemp growers, it’s important to realize that hemp is mainly produced for the extraction industry (production of oils and extracts that are utilized in the manufacture of food and cosmetic products). One should also recognize that hemp crops tend to concentrate as much as 8% CBD because growers must comply with regulations requiring total THC levels below 0.3%. The concentration of CBD and THC in publicly available varieties of hemp are correlated because they are secondary metabolites that are associated with defense mechanisms against insect pests (Federal Register 2021). For this reason, if growers must maintain total THC at low levels to comply with regulations, the concentration of CBD will also remain low.

Demand for recreational marijuana has increased over recent years. As of July 2021, 18 states plus Washington D.C. have authorized the production, handling, and manufacture of consumable cannabis products that contain total THC above 0.3%. The most appealing recreational product line to consumers is smokable flower. It is estimated that state-bounded markets for floral products are $7.5 billion, representing 54% of annual sales of cannabis-based products, including food items and cosmetics (Somani 2019). Consumers are primarily interested in flower buds that are rich in naturally occurring flavors and aromas, in addition to unlimited concentrations of desirable metabolites.

But demand is a multi-dimensional concept. As consumers expose themselves to diversified products in relaxed regulatory environments, preferences for the attributes and presentation of products broadens. Informal conversations with recreational consumers suggest that a gourmet sub segment niche, inspired by digital influencers and celebrities, is evolving. Consumers are recognizing and starting to categorize flavors and aromas in a similar fashion that sommeliers do with wine. Small details in product presentations matter, and loyal consumers are demonstrating a willingness to pay more and purchase complementary products based on presentation. Digital influencers can at times dictate immediate consumption trends, increasing the sales of certain products while reducing the sales of others.

These recently observed and developing consumer behaviors have triggered important responses from leading processors and growers in states with recreational status. Quality grades for flower buds, for instance, have emerged to facilitate product differentiation and improve communications between buyers and sellers. Grade A flowers are buds free of damage or disease, full of natural aroma, rich in trichomes (also called frost by specialized buyers), and have a diameter between ½ to 1 inch. Grade B flowers have the same characteristics, except their diameter measures ½ an inch or less. Grade C buds have undesirable characteristics or mature seeds encrusted in the flowers. Although the price to growers varies considerably depending on the cultivar and consumption trends, the price for grade A flower buds is estimated between $1,000 and $1,800 per pound. Grade B buds are priced between $300 and $1,000 per pound. The estimated maximum price for grade C flower buds is $300 per pound.

Growers have also responded to developing consumer behavior by conducting research and experimentations on horticultural practices that induce bioaccumulation of desirable metabolites such as terpenoids. Leading growers know that terpenoids are associated with flavors and aromas, so the selection of cultivars and use of advanced horticultural practices has generated recent interest. Differentiated batches of flower buds are those that contain terpenoid levels of 2% or more. Leading growers present their products using lab reports to highlight the presence and concentration of key terpenoids. Based on these trends, it appears that recreational growers are adapting their products and presentation to meet the evolving and more refined expectations of cannabis sommeliers.

A third set of responses from growers relates to product presentation and post-harvest operations. Most cannabis growers trim flower buds and remove sugar leaves to improve presentation. The trimming process is either manual or mechanized, and frequently produces large quantities of secondary products. The most important secondary product is loose trichomes, known as “kief,” that tend to concentrate high levels of cannabinoids. After the trimming process, loose trichomes are collected and packaged in small cosmetic containers. One-gram kief containers sell for approximately $40 in states with recreational status. The second by-product of cured flower buds is processed sugar leaves and apical fan leaves. As these leaves tend to concentrate high to moderate levels of cannabinoids, they are frequently directed to the production of food ingredients, extracts, or concentrates. A multitude of food and cosmetic products are produced using these processed leaves from female cannabis plants.

Figures 2a and 2b: Detail of trichomes on cannabis flower bud. Photo by Curtis Taylor.

The Growth of Recreational Markets Elsewhere and Threats to Hemp Businesses in Ohio

While growers’ responses to consumer behavior and developing preferences in the recreational segments are primarily intended to add value to floral products, they are also creating by-products for secondary markets that were traditionally supplied by hemp growers in states like Ohio. Marijuana crops accumulate unrestricted amounts of CBD, in addition to other desirable metabolites such as terpenoids. Sugar leaves with 12% CBD are produced in frequent batches and will continue to gain scale as more states vote in favor of legalizing adult-use cannabis. As a result, incumbent or newly established processors are more likely to build operations in states where there is an abundance of quality material. Following the same line of thought, food manufacturers and cosmetic companies may also gravitate to states where marijuana-based ingredients are accessible. Companies recognize that it is easier to adapt their production line and product formulation to meet state regulations than it is to establish operations in locations where quality supplies are scarce. In addition, processors may consider producing a broad scope of extracts and concentrates if they have access to versatile inputs with a richer number of components in higher concentrations. Examples of value-added concentrates are shatter, crumble, and live rosin, which cannot be produced from hemp.

Figure 3: Detail of a concentrate and a live rosin product. Photo by Curtis Taylor.

As the overall cannabis market continues to progress in the U.S., hemp-based products are likely to lose share. Hemp growers may face decreasing interest from potential buyers who are likely to procure versatile inputs for process in states with established recreational marijuana programs. While the development of markets has sparked the growth of value-added products such as grade A smokable flower in legal states, the by-products of the recreational marijuana growers’ crop are offering more desirable characteristics than hemp products. As a result, the marketplace for hemp growers may become increasingly difficult as medical and recreational marijuana are projected to reach retail sales of $23 billion by 2025 (Somani 2019) , which will flood the market with quality by-products for the extraction industry.

Processors and manufacturers are in a comfortable situation. The increase of supply, which is being caused by the developing demand for floral products, is forcing by-product prices down, while also increasing the quality of the by-products. The question that remains unanswered, however, is whether processors and manufacturers will need increased quantities of by-products to meet the demand of the food and cosmetic markets. The answer will depend on how anxious consumers are for CDB-based edibles and beauty items.

Interested cannabis growers with operations in states where the recreational segment is prohibited by law should remain cautious. Joining the hemp market does not seem appropriate at the present time unless contracts with enforcing clauses are clearly defined and agreed upon with buyers before planting. Obtaining authorization to supply medical marijuana would be a possibility. However, the maximum number of medical marijuana licenses are assigned in Ohio. Growers should wait until May next year to see if additional licenses will be available.