Hemp as an Agricultural Commodity
January 5, 2005
Jean M. Rawson
Specialist in Agricultural Policy
Resources, Science, and Industry Division
Hemp as an Agricultural Commodity
The terms “hemp” and “industrial hemp” refer to varieties of Cannabis sativa
characterized by low levels of the primary psychoactive chemical
(tetrahydrocannabinol, or THC) in their leaves and flowers. Farmers in more than
30 countries worldwide grow industrial hempcommercially for fiber, seed, and oil
for use in a variety of industrial and consumer products, including food.
Because of the psychoactive properties of some varieties of Cannabis(which
can grow virtually anywhere in the United States), the federal government began to
control production in the late 1930s, under the Marihuana Tax Act (50 Stat. 551).
The intent of this act was to allow production for industrial use (which the
government actively encouraged during World War II), while discouraging
production for use as a psychotropic drug. Since 1970, the production of all varieties
of Cannabis, regardless of THC content and intended use, has been tightly regulated
under the Controlled Substances Act (21 U.S.C. §§802 et seq.). As a result, all hemp
or hemp-containing products sold in the United States must now be imported or
manufactured from imported hemp.
In the early 1990s there began a sustained resurgence of interest in the United
States in allowing commercial cultivation ofindustrial hemp. Farmers in regions of
the country that are highly dependent upon a single crop, such as tobacco or wheat,
have shown interest in itspotential as a high-value alternative crop, although the
economic studies conducted so far paint a mixed profitabilitypicture. Over the past
decade, more than 25 states have passed laws calling for economic or production
studies, although no federal legislation has been introduced to date.
The Drug Enforcement Administration (DEA) reflects the current federal policy
on industrial hemp. The DEA has been unwilling to grant licenses for growing small
plots of hemp for research purposes (as authorized by some state laws), and it made
an effort, beginning in 1999, to ban imports of hemp food products that could contain
trace amounts of THC. DEA officials express the concern that commercial
cultivation would increase the likelihood of covert production of high-THC
marijuana, significantly complicate DEA’s surveillance and enforcement activities,
and send the wrong message to the American public concerning the government’s
position on drugs.
In September 2004, the Administration let pass the final deadline to appeal a
February 2004 federal court decision prohibiting the DEA from enforcing a ban on
hemp imports. This news brightened the market outlook for the seven-year-old
Canadian hemp industry, to which, in turn, U.S. hemp proponents have looked for
signs to suggest whether a domestic industry would prosper or fail.
This report will be updated if events warrant.
Background and Current Status……………………………..2
Foreign Hemp Production and U.S. Consumption …………….3
Legal Dispute over Hemp Foods…………………………4
Review and Analysis of Economic Studies ……………………..5
In this report, “hemp” refers to industrial hemp, “marijuana” (or “marihuana” as it is
spelled in the older statutes) refers to the psychotropic drug (whether used for medicinal or
recreational purposes), and “Cannabis” refers to the plant species that has industrial,
medicinal, and recreational varieties. This report does not cover issues pertaining to medical
marijuana. For information on that subject, see CRS Report RS20998, Marijuana for
Medical Purposes: A Glimpse ofthe Supreme Court’s Decision in United States v. Oakland
Buyers’ Cooperative and Related Legal Issues.
The European Union and Canada use 0.3% THC as the dividing line between industrial
and potentially drug-producing C. sativa: cultivars having less than 0.3%THC legally can
be cultivated under license, cultivars having morethan that amount are considered to have
too high a drug potential. A THC concentration of 1% is considered sufficient to have a
psychotropic effect. Source: Hemp: A New Crop with New Uses for North Americaby
Small, Ernest and David Marcus. In: J. Janick and A. Whipkey (eds.), Trends in New Crops
and New Uses. Amer. Soc. of Hort. Sci. Press, Alexandria, VA. 2002. Available online at
The term “hempnut” is used frequently to refer to shelled hemp seed used for food. The
Industrial Hemp Information Network (Hemptech
) offers an online list of available hemp
fiber, seed, and oil products, and their suppliers ([http://www.hemptech.com]).
Hemp as an Agricultural Commodity
For centuries, the plant species Cannabis sativahas been a source of fiber and
oilseed used worldwide to produce a variety of industrial and consumer products.
Currently, more than 30 nations grow industrial hemp as an established agricultural
About 14 of those sell part of their production on the world market.
The terms “hemp” and “industrial hemp” refer specifically to varieties of
Cannabis sativacharacterized by low levels of tetrahydrocannabinol (THC,
marijuana’s primary psychoactive chemical) in their leaves and flowers.
the plant can produce both fiber and seed, although varieties better suited for one use
or the other, as well as dual purpose varieties, have been developed. Cultivation
practices also differ depending upon the variety planted.
Hemp fiber is amenable to use in a wide range of products including carpeting,
home furnishings, construction materials, auto parts, textiles, and paper. Hemp seed,
an oilseed, likewise has many uses, including industrial oils, cosmetics,
pharmaceuticals, and food.
The crop was widely grown in the United States from the colonial period into
the mid-1800s; both fine and coarse fabrics, twine, and paper from hemp were in
common use. However, by the 1890s, labor-saving machinery for harvesting cotton
made the latter more competitive as a source of fabric for clothing, and the demand
Richard J. Bonnie and Charles H. Whitebread, The Marihuana Conviction: A History of
Marihuana Prohibition in the United States(Charlottesville: University Press of Virginia,
1974), p. 51.
for coarse natural fibers was met increasingly by imports. Between 1914 and 1933,
in an effort to stem the use of Cannabisflowers and leaves for their psychotropic
effects, 33 states passed lawsrestricting legal production to medicinal and industrial
Background and Current Status
In 1937, Congress passed the first federal law to discourage Cannabis
production for marijuana while still permitting industrial uses of the crop (the
Marihuana Tax Act; 50 Stat. 551). Under this statute, the government actively
encouraged farmers to grow hemp for fiber and oil during World War II. After the
war, competition from synthetic fibers, the Marihuana Tax Act, and increasing public
anti-drug sentiment resulted in fewer and fewer acres of hemp being planted, and
none at all after 1958.
The past decade has witnessed a resurgence of interest in the United States in
producing industrial hemp. Farmers in regions of the country that are highly
dependent upon a single crop, such as tobacco or wheat, have shown interest in
hemp’s potential as a high-value alternative crop, although the economic studies
conducted so far paint a mixed profitability picture.
No legislation to legalize hemp has been introduced to date at the federal level.
Some states, however, have considered a variety of initiatives with increasing
frequency, especially since 1995. Between 1995 and 2002, 53 bills were introduced
in state legislatures, and 25 of those passed, according to the 2002/2003 report of
Vote Hemp, one of the industry’s trade groups. Currently, at least 14 states have
hemp-related laws in effect, Vote Hemp reports. Most of these call for scientific,
economic, or environmental studies, and someauthorize the planting of experimental
plots. Nonetheless, the actual planting of Cannabis, even for state-authorized
experimental purposes, is regulated by the federal Drug Enforcement Administration
(DEA) under the authority of the Controlled Substances Act of 1970 (Title II of P.L.
91-513 (21 U.S.C.§§802 et seq.)).
Congress adopted in the Controlled Substances Act (CSA) the same definition
of Cannabis sativathat appeared in the 1937 Marihuana Tax Act. The CSA
The term marijuana means all parts of the plant Cannabis sativa L., whether
growing or not; the seeds thereof; the resin extracted from any part of such plant;
and every compound, manufacture, salt, derivative, mixture, or preparation of
such plant, its seeds or resin. Such term does not include the mature stalks of
such plant, fiber produced from such stalks, oil or cake made from the seeds of
such plant, any other compound … or preparation of such mature stalks (except
the resin extracted therefrom), fiber, oil,or cake, or the sterilized seed of such
plant which is incapable of germination.
Communication from Dana Jamison, Congressional Liaison Office, U.S. Drug
Enforcement Administration. November 24, 2004.
“The State of Hemp in America Today: State Legislative Action Builds,” Vote Hemp
Report 2002-2003, Bedford, MA, p. 8.
Small and Marcus, page 321.
Health Canada is the agency that regulates Canadian hemp production. The regulations
are viewable online at [http://www.hc-sc.gc.ca/hecs-sesc/ocs/hemp/hemp_producers.htm].
Additional information is available on the Canadian Food Inspection Agency website:
Agriculture Canada. “Canada’s Industrial Hemp Industry,” dated December 2003,
available online at [http://www.agr.gc.ca/misb/spcrops/sc-cs_e.php?page+hemp-chanvre].
The statute thus retains control over all varieties of the Cannabisplant by virtue
of including them under the term “marijuana” and making no distinctions between
low- and high-THC varieties. The language exempts from control the parts of mature
plants — stalks, fiber, oil, cake, etc. — intended for industrial uses.
Strictly speaking, the CSA does not make Cannabisillegal; rather, it places the
strictest controls on its production, making it illegal to grow the crop without a DEA
permit. DEA officials confirm issuing a permit for an experimental plot in Hawaii
in the 1990s (now expired), and they confirm that DEA still has not ruled on an
application submitted in 1999 by a North Dakota researcher.
officials assert that the security measuresthe DEA requires are substantial and costly,
and deter both public and private interests from initiating research projects requiring
All hemp products sold in the United States are imported or
manufactured from imported hemp materials.
Foreign Hemp Production and U.S. Consumption.In all, more than 30
countries in Europe, Asia, and North America grow hemp, although most banned
production for certain periods of time in the past. The United States is the only
developed nation in which industrial hemp is not an established crop. Great Britain
lifted its ban in 1993 and Germany followed suit in 1996. In order to help reestablish
a hemp industry, the European Union instituted a subsidy program in the 1990s for
hemp fiber production.
In 1998, Canada authorized production for commercial purposes, following a
three-year experimental period and a 50-year prohibition. As a condition of receiving
a license to grow industrial hemp, Canadian farmers are required to register the GPS
coordinates of their fields, use certified low-THC hemp seed, allow government
testing of their crop for THC levels, and meet or beat a 10ppm standard for maximum
allowable THC residue inhemp grain products.
Agriculture Canada (the Canadian
department of agriculture) estimates that more than100 farmers nationwide are
growing hemp, with the majority in central and western Canada.
The retail value of all hemp-based products imported and sold in the United
States is difficult to estimate accurately because the USDA trade database includes
These are: hemp oil, true hemp yarn, true hemp fabric, true hemp raw or processed but not
spun, and true hemp raw other.
USDA, Foreign Agricultural Service, U.S. Trade Internet System: Imports. Available at
Canadian Hemp Trade Alliance. US Hemp Industry Victory Good News for Canadians.
Press release. February 6, 2004. Available at [http://www.hemptrade.ca].
Both the proposed rule (which was published concurrently with the interpretive rule) and
the final rule gave retailers of hemp foods a date after which the DEA could seize all such
products remaining on shelves. On both rules, hemp trade associations requested and
received court-ordered stays blocking enforcement of that provision. For more information
on the legal history of hemp, contact the CRS American Law Division.
only five categories of products.
Imports that do not fall into one of those
categories may show up in any one of several others. For example, hemp seed
imports are not catalogued separately, but may be included under “other edible seeds”
or one of several other seed-related categories. Hemp fiber used in furniture,
building materials, carpets, cordage, orpaper potentially could be listed under one
of eleven different categories. Available data show that in 2003, the value of U.S.
hemp imports under the five existing categories was $7 million. This figure excludes
all hemp seed and hemp nut (shelled seed) imports, as well as imports of both edible
and non-edible hemp-containing products.
The countries exporting hemp products tothe United States vary considerably
from year to year. Over the last five years, the most consistent exporters of raw and
processed hemp fiber to the United States have been China, the Philippines, Poland,
Romania, Canada, and India. The leading exporters of hemp oil have been the
Netherlands, Switzerland, the United Kingdom, the Republic of South Africa, and
Italy. However, according to industry reports, Canadian growers are expanding
production of varieties for health food and bodycare uses. Consequently, Canada
could be poised to become a major source of U.S. hemp seed and oil imports.
prospect brightened further in September 2004 when a long-standing legal dispute
over U.S. imports of hemp foods finally ended.
Legal Dispute over Hemp Foods.In late 1999, the DEA acted
administratively to demand that the U.S. Customs Service enforce a zero-tolerance
standard for the THC content of all forms of imported hemp, and hemp foods in
The DEA followed up, in October 2001, withpublication of an interpretive rule
in the Federal Register(66 FR 51530) explaining the basis of its zero-tolerance
standard. It held that when Congress wrote the statutory definition of marijuana in
1937, it “exempted certain portions of the Cannabisplant from the definition of
marijuana based on the assumption (now refuted) that such portions of the plant
contain none of the psychoactive componentnow known as THC.”
interpretation made hemp with any THC content subject to enforcement as a
Background information on the TestPledge Program is available at [http://www.
TestPledge.com]. The intent of the program is to assure that consumption of hemp foods
will not interfere with workplace drug testing programs or produce undesirable mental or
physical health effects.
Hemp Industries Association v. DrugEnforcement Administration, 357 F.2d (9
The Canadian Hemp Trade Alliance’s most recent sector information report reads: “As
the US does not permit hemp farming, there is a large captive market for Canadian
production south of the border. In 2004 the market outlook for hemp seed products and
derivatives is stronger than ever, thanks torecent court victories.” Available online at
October 12, 2004 communication with a representative of Vote Hemp.
Hemp industry trade groups, retailers, and a major Canadian exporter filed suit
against the DEA, arguing that congressional intent was to exempt plant parts
containing naturally occurring THC at non-psychoactive levels, the same way it
exempts poppy seeds containing trace amounts of naturally occurring opiates (21
U.S.C.§802 (19)(20)). Industry groups maintain that (1) naturally occurring THC in
the leaves and flowers of Cannabisvarieties grown for fiber and food is already at
below-psychoactive levels (compared with drug varieties); (2) the parts used for
food purposes (seeds and oil) contain evenless; and (3) after processing, the THC
content is at or close to zero. U.S. and Canadian hemp seedand food manufacturers
have in place a voluntary program for certifying low, industry-determined standards
in hemp-containing foods.
On February 6, 2004, the U.S. Court of Appeals for the 9
enjoined the enforcement of the final rule (68 FR 14113, published March 21, 2003).
The Court stated that “the DEA’s definition of ‘THC’ contravenes the
unambiguously expressed intent of Congress in the CSA and cannot be upheld.”
The possibility that the government might appeal the ruling remained alive for
several months, but in lateSeptember 2004 the Administration let the final deadline
pass without filing.
U.S. and Canadian companies involved in supplying North American markets
foresee a surge in market potential.
Proponents of federal legislation to allow U.S.
farmers to grow hemp as a commodity assert that the resolution of this long-standing
legal uncertainty should help that effort.
Review and Analysis of Economic Studies
Hemp proponents base their economic arguments for legalizing the crop on its
potential value as a component in a wide array of industrial and consumer products,
and thus its potential as a profitable alternative crop for farmers. They contend that
a commercial hemp industry would generate its own profitable niche markets, even
where conventional or alternative commodities already exist, and that basing
estimates of future profitability on the current usage of imported hemp ignores the
crop’s larger potential.
For more information on this EO and on the laws that relate to the production, shipment,
importation or regulation of hemp in the United States, call the CRS American Law
USDA/Agricultural Research Service BudgetOffice and USDA Explanatory Notes for
U.S. Department of Agriculture. Economic Research Service. Industrial Hemp in the
United States: Status and Market Potential. ERS Report AGES001E. January 2000.
Some supporters of industrial hemp legalization alsoargue that it could have
renewed value as a strategic crop for defense preparedness purposes, in line with its
role in World War II. In 1994, President Clinton issued an Executive Order, EO
12919, entitled “National Defense Industrial Resources Preparedness,” which was
intended to strengthen the U.S. industrial and technology base for meeting national
defense requirements. The order included hemp under the category of “food
resources,” which it defined to mean, in part, “all starches, sugars, vegetable and
animal or marine fats and oils, cotton, tobacco, wool, mohair, hemp, flax, fiber and
other materials, but not any such material after it loses its identity as an agricultural
commodity or product.”
It could be argued that the government has already
recognized that industrial hemp is capableof contributing to national defense needs
and to the readiness of U.S. defenses during times of peace as well as national
Opponents of industrial hemp point out that U.S. agricultural history illustrates
the great difficulty of bringing promising alternative crops into profitable commercial
use. USDA has supported research on alternative crops and industrial uses of
common commodities since the late 1930’s. Currently, under the Critical
Agricultural Materials Act of 1984 (P.L. 98-284), the supplemental and alternative
crops provisions of the 1985 and 1990 omnibusfarm acts and other authorities, the
federal government supports about $15 million annually in research and development
on alternative crops at USDA and state laboratories.
Some alternative crops that
have become established in certain parts of the United States — kenaf (for fiber) in
Texas, jojoba (for oil) in Arizona and California, and amaranth (for nutritious grain)
in the Great Plains states, for example — have benefits similar to those ascribed to
hemp, but are not complicated by having a drug variety within the same species.
One of the first economic analyses of industrial hemp’s potential as a profitable
crop for U.S. farmers was a report prepared by USDA’s Economic Research Service
in 2000. ERS based its domestic production assumptions on import data covering
hemp fiber, yarn, and fabric, but excluding seed and oil. The report concluded that:
U.S. markets for hemp fiber … and seed … are, and will likely remain, small, thin
markets. Uncertainty about long-run demand for hemp products and the potential
for oversupply discounts the prospects for hemp as an economically viable
alternative crop for American farmers.
The more recent study by Small and Marcus(2002) reflects the fact that interest
in the crop in the United States has deepened since ERS calculated its negative
forecast. It concludes:
Small and Marcus, p. 321.
Agriculture Canada. “Canada’s Industrial Hemp Industry,” available online at [http://
It often takes 10 to 15 years for the industry associated with a new agricultural
crop to mature. While it is true that foreign imports have been the basis for hemp
products in North America for at least a decade, North American production is
only 4 years of age in Canada …. Viewed from this perspective, the hemp
industry in North America is still very much in its infancy … and is likely to
continue experiencing the risks inherentin a small niche market for some time.
[However,] hemp … has such a diversity of possible uses, is being promoted by
extremely enthusiastic market developers, and attracts so much attention that it
is likely to carve out a much larger share of the North American marketplace than
its detractors are willing to concede.
A December 2003 report from Agriculture Canada draws an even more positive
conclusion, based on its reading of consumer interest:
Hemp’s remarkable advantages are hard to beat: it thrives without herbicides, it
reinvigorates the soil, it requires less water than cotton, it matures in three to four
months, and it can yield four times as much paper per acre as trees. Hemp can
be used to create building materials that are twice as strong as wood and
concrete, textile fiber that is stronger than cotton, better oil and paint than
petroleum, clean-burning diesel fuel, and biodegradable plastics. In addition, it
can produce more digestible protein per acre than any other food source. These
advantages are in tune with the environmental and health preferences of today’s
North American public. The growing curiosity of consumers, the interest shown
by farmers and processors, and Canada’s excellent growing conditions for
industrial hemp allow optimistic views for its future.
The Canadian Hemp Trade Alliance (CHTA) provides some statistical
information on the current status of sector development. CHTA estimates that
Canadian farmers planted between 6,700 to8,000 acres of hemp in 2004, the fourth
year of increasing acreage after a drasticoversupply situation in 1999 caused acreage
to plummet in 2001 to the lowest levels since the crop was legalized in 1998. The
harvesting, shelling, and processing technologies for conventional oilseed crops in
Canada are suitable for handling hemp grown for seed. There are no pesticides or
herbicides registered in Canada for use on hemp. The crop grows quickly and
densely and is suitable to being grown chemical-free.
Farmers who obtain organic certification for their hemp seed receive premium
prices. CHTA reported a market price of 50 to 60 cents (C$) per pound for
conventional hemp seed, and an 85-cent/pound market price for certified organic
seed in winter 2003-2004. CHTA estimates that annual retail sales of Canadian
hemp seed products is in the US$20 million to $40 million range.
In contrast, the Canadian hemp fiber industry is not as developed. Because the
crop was not grown for 50 years, no governmentor private research funds were spent
until recently on breeding fiber varieties ortackling the problems associated with
One example of recently begun hemp fiber research is a collaborative effort of the
National Research Council of Canada and Hemptown Clothing, Inc., to develop a new
enzyme technology to produce a softer and whiter hemp fabric, among other things.
Information from the Research Council is available online at [http://www.nrc-cnrc.gc.ca/
Fortenbery, T. Randall and Michael Bennett. “Opportunities for Commercial Hemp
Production.” Review of Agricultural Economics, Volume 26, Number 1, Spring 2004.
Pages 97-117. The time period covered in this study ends with the year 2000.
For more information on legislative and executive branch actions concerning illegal drugs,
see CRS Issue Brief IB10133, War on Drugs: Legislation in the 108th
Congress and Related
Developments. For information on issues pertaining to medica marijuana, see CRS Report
RS20998, Marijuana for Medical Purposes: A Glimpse of the Supreme Court’s Decision
in United States v. Oakland Cannabis Buyers’ Cooperative and Related Legal Issues.
Hemp as an Agricultural Commodity