CBD Surplus, or Mass Shortage?

The CBD Hemp market in the USA has breached an important tipping point, from CBD shortage to surplus.  Prices have fallen from $7,500 / kilo of CBD isolate to under $7,000 / kilo, with some businesses bottoming out pricing at $6,250 due to the need for cash flow to pay their bills. This article examines the current short term market surplus, and the volatile shortage coming in 2019.

To reach the current market surplus, processors have scaled up their Isolate output.  This is a recent change as from September until November – processors were backlogged months due to the sheer demand for Isolate and the glut of hemp biomass in the market. Isolation labs are now in a situation of temporary surplus, causing prices to plunge.  The growth of processors will continue to create surplus, which will be balanced by growth of demand from the Farm Bill and consumers, and then sabotaged by the lack of extraction material.

The market indicator that points to a national shortage of material is the supply and cost of hemp biomass.  Last year at this time, prices for biomass last year were $3.50-$4.25 / % pt CBD. This year, we see farmer’s holding at $4.00 – $5.00, which is high given proximity to harvest, and the increase in acres farmed.  This proves that the processors are gobbling up material at a greater rate than last year, and their demand is driving prices upward.

The mass shortage of CBD is inevitable.  This shortage will be compounded by the increase in consumer demand led by legalization, increase in isolation throughput, and an increase in distribution channels such as big box stores, grocery stores, digital marketplaces, and product distributors.  In addition, we will have a boom stemming from established product manufacturers who will incorporate CBD into their product line, think Johnson and Johnson, or Neutrogena.

Looking at the short term surplus and the drop in pricing for CBD, we have to ask the following… When will the industry recognize that the finite supply of biomass material will run out before the 2019 harvest?  The short term surplus of CBD isolate is temporary.  To compete on bottom of the barrel pricing as an industry is counter productive to pricing stability, overall profitability for processors and farmers, and to the summer supply of CBD.  To be efficient, processors need to collaborate by forming a group that controls total supply of Isolate to the market. In this competitive environment, this seems unlikely!

In order for the industry to get relief from the impending CBD shortage, the year 2019 must be the year for the mass importation of CBD.  Readers, those of you who use CBD in your product lines, secure long term contracts for your CBD at a fair market price. The difference between paying $6,300 / kilo and $7,000 / kilo in a 10 month contract (until next harvest) is that when we are in a terrible shortage, your supplier may be unable to, or choose not to fulfill your order due to the skyrocketing prices of isolate, think $10,000 / kilo.  Now is the time to lock in your contracts, or hedge your bets and contract half of your isolate consumption. We need to avoid a situation where product production shuts down and careful planning will keep you ahead of the curve.

Happy Holidays,
Michael Gordon
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