Can you still run a profitable hemp manufacturing business during the China trade war?
Like many entrepreneurs, Greg Wilson wanted to combine his industry experience with his personal mission.
For fifteen years Wilson worked with Chinese firms exporting bamboo and oak to manufacturers and the like.
And now he wants to produce wood which is not only 20% harder than oak, but which replenishes 120 times faster.
So what’s been holding Wilson and his aptly named Fibonacci hemp wood factory back?
Taxes. Unable to find a manufacturer for the type of wood press he would need, Wilson turned to a territory he knows well: China.
But here’s the kicker: to get the wood press into the U.S., Wilson has to shovel out a 25% import tax.
Wilson submitted to these terms, but since there were no available wood press manufacturers in the U.S., he couldn’t get a tax exemption
How Will the Trade War Impact My Hemp Manufacturing Business?
In spite of being suffocated by tariffs, Wilson and his investors remain optimistic about the future of Fibonacci.
Every day, his mailbox is jammed with emails from potential clients.
So if Wilson can still make a profit, why can’t you?
The increased tax on Chinese imports hit some of the most vital products to the U.S. hemp manufacturing industry.
Hemp seeds and many of the component for packaging and vaping products are included in the new tax.
How can you make money when Chinese suppliers of the hemp industry are under attack?
But there are still plenty of Hemp-Based CBD entrepreneurs moving forward with ease.
U.S. Based hemp manufacturing company Spring Creek Labs is an entirely vertically integrated hemp manufacturing operation. That means you don’t need to worry about import taxes hurting your bottom line.
But taxes aren’t the only reason you should be wary of Chinese hemp manufacturing businesses and suppliers…
Hemp Manufacturing and The False Claims Act
One of the first go-to schemes is to ship goods to another country for hemp manufacturing services first, in an attempt to blur the products’ origins.
But this can get you in big trouble. This is called transshipping which carries brutalizing fines.
Anyone with knowledge of this kind of fraud and doesn’t go to the authorities is considered liable.
In order to change the country of origin without illegally transshipping your product must be completely transformed once it leaves China and before it arrives in the U.S.
If you think “transformed” is vague when it comes to products, it is. Simply adding one component or a label in a second country won’t make your product qualify.
And the line between transformed and transshipping can be hard to see. It’s why you should leave this kind of thing alone unless you have the capital to hire a team of lawyers to handle the possible legal fallout. Imagine seeing an email that you’ve just been hit with a six-figure fine for false claims you didn’t even make.
Iowa Is Counting on Hemp Manufacturing
Even though we usually think of the relationship between China and the U.S. as a one-way streak, our farmers still produce tons of staple crops, like corn and soy.
U.S. farmers have relied on exports to China to support their bottom line. But the new hiked taxes are leaving behind huge surpluses for two of Iowa’s biggest cash crops.
So where are they turning? You guessed it, hemp and hemp manufacturing.
However, since the Controlled Substance Act of 1970, hemp has been illegal to grow in the US. Enter the 2018 Farm Bill that made growing hemp legal for Iowa and all other states.
Farmers are struggling with the logistics of growing a crop they have no experience with.
It also means they’re putting all their eggs in one basket. They’re betting big on a crop they know nothing about with competitors, like Spring Creek Labs, with over a decade of experience.
How does Spring Creek Labs hemp manufacturing have experience while Iowa braces for the unknown?
Colorado has been at the forefront of legalization since voters approved the sale of medicinal marijuana all the way back in 2000.
Colorado got nearly a two decade head start on states like Iowa.
Is Hemp-Based CBD Headed for the Ice Cream Aisle?
The 2018 Farm Bill was a huge step forward for our stubborn government. But the bill didn’t roll out the red carpet for foods and supplements made with Hemp-Based CBD.
The FDA considers CBD derived from Hemp Manufacturing to be too young of an industry to have enough evidence to support its medical efficacy, and lack of side effects.
Before the 2018 Farm Bill, the FDA only sent warning letters to Hemp-Based CBD food retailers.
That’s why hemp-based CBD products have gone viral since the Farm Bill. In spite of the fact that most remain oblivious to the difference between Hemp-based CBD and marijuana-based CBD.
Since Hemp-Based CBD doesn’t get you high, hemp-based products were like polite hiker passing through your yard. Technically the hiker is trespassing, but he’s not hurting you, so who cares?
The FDA is acting the same way towards marijuana-based CBD products and hemp-based CBD products. One product is legal to produce, farm and sell. The other marijuana-based CBD product is undesided on at a State and Federal level with no clear resolution in sight for the near future.
And it’s not surprising. A recent FDA warning announced that a common over the counter men’s supplement contained the same active ingredient as Viagra. This can cause drug interactions and major health problems, even death for customers whose judgment is clouded by a discreet over the counter solution.
But even the World Health Organization (WHO) claims CBD is no threat to public health or at risk for abuse.
If that’s the case, why does the FDA still have an issue? Are hemp-based CBD supplements at the mercy of a monopoly? Are hemp manufacturing companies about to get squashed by the first FDA approved marijuana-based CBD product?
Last year, Epidiolex became the first FDA approved non-synthetic marijuana-based CBD medication.
GW Pharmaceuticals holds the patent on the drug. According to current FDA rules, drugs can’t be legally added to foods.
So we end up in a roundabout argument. marijuana-based CBD is considered safe to consume, but since it’s also classified as a drug the government is hesitant about giving hemp manufacturing companies and their retailers the green light.
So how did this come to be? How did one company grab the patent for a drug using marijuana-based CBD?
Geoffrey Guy and Brian Whittle were just your average physicians when they started GW.
The sole intention of GW Pharmaceuticals was and still is to develop cannabinoid-based medications.
They knew cannabinoids were particularly active in the central nervous system, so they made it the focus of their research and development.
In 2010 they made waves throughout the Europeon pharmaceutical industry with Sativex – the first cannabinoid treatment for multiple sclerosis (MS).
Sativex, a cannabinoid-based treatment for MS went through a post-approval study looking into long term health effects of the drug. So, what happened?
Good News for Hemp Manufacturing
The good news is there were no negative emotional side effects in both the placebo and experimental group for Sativex.
The success with Sativex gave GW the motivation for their next big project, a marijuana-based CBD drug extracted from natural sources. While Sativex is not yet (as of 2019) approved in the United States, America is still making strides in the hemp manufacturing and CBD industry.
For example, California, having already legalized cannabis for medical use, is now leading the way in making an exception for CBD infused foods.
Two big bills on the table in the California legislature. Both affect the hemp manufacturing and cannabis industries.
One of the laws will allow licensed retailers to sell food containing Hemp-Based CBD. The other allows cannabis companies to do business with traditional banks.
Many CBD manufacturering companies and retailers in the hemp industry have had to work with banks and payment processors who were willing shoulder the risks of this industry.
If the new bill passes, banks and credit unions will be able to apply for a license to handle money from Hemp manufacturering companies and other cannabis businesses.
Steve Hawkins, director of the Marijuana Policy Project explains why he’s excited about the new cannabis banking bill:
“Congress will have to act,” Hawkins predicts, “because there’s all the interstate ramifications of banking that just really cry out for federal lawmakers to do something in this space,”
Even with a license, banks won’t be able to hand out loans to any of these companies. The bill is focused on getting the hemp manufacturing and cannabis industries money into banks in order to automate processes like payroll.
Secure and Fair Enforcement Banking Act
The Secure and Fair Enforcement Banking Act (SAFE) passed a House committee in March.
This is good news for the hemp manufacturing industry and banking across the entire U.S. Just like California is considering allowing banks to deal with cannabis industry money, the federal government is questioning whether to follow suit.
The irony of not allowing cannabis and CBD manufacturing companies to use banks is this leaves a ton of cash out for anyone to grab.
Because of this, Cannabis companies are extremely vulnerable to theft and other crimes. Cannabis companies are eager to use legitimate means of accounting, but federal law keeps them from integrating into a legal economy.
It’s no surprise financial institutions are on the side of cannabis companies. With an estimated $22.2 billion in revenue for the cannabis industry in 2022, everyone wants a piece of the pie.
Should Smoking Hemp Be Illegal?
In North Carolina, the police want smoking hemp, even with negligible THC levels, illegal.
Their argument is that hemp smells and looks too similar to marijuana. They claim it makes enforcing cannabis laws more complicated.
For example, North Carolina cops were able to arrest a felon illegally carrying a firearm when they searched his car after smelling marijuana.
Local police worry that if hemp is kept legal, it could prevent them from searching a vehicle of a driver they presume to be under the influence.
Even if caught red-handed, the driver can claim they’re smoking low THC hemp instead of marijuana.
But hemp advocates got a win when lawmakers decided to give police another year to figure out a way to test THC levels in hemp.
Until then smoking hemp will still be legal.
Texas Struggles to Find Hemp Manufacturing Investors
With all the recent legislation in favor of hemp manufacturing companies, you’d think an economy the size of Texas would be clamoring for a spot in the market.
But just the opposite is happening. Jerry Walters, a Houston-based entrepreneur, has an entire hemp business fleshed out.
Like GW pharmaceuticals, Walters wants to create new products from cannabinoids. He’s sourced his own supply chain, figured out what pharmacies would be willing to sell his product, and even how he’ll process the raw plant matter.
But there’s a major component of his plan missing: money, and he needs a lot of it.
The new federal bill dealing with hemp-derived CBD as a food additive will definitely help if passed. But there are bigger problems preventing a Texas hemp manufacturing gold rush.
Since Texan farmers are fresh to the game of growing hemp on an industrial scale, there is little to no data to base an investment off of.
For example, Walters can’t tell investors how much a pound of hemp would cost to buy because there is no set price yet.
Farmers can’t just copy other states growing hemp because of variables, like the cost of farmland.
Why Your Hemp Manufacturing Partner Matters
Inexperienced hemp manufacturing companies and farmers will also likely produce smaller yields than their counterparts in states with mature hemp industries.
That’s why when partnering with a Hemp Manufacturing company, you should work with a company that didn’t just arrive on the cluttered stage.
Spring Creek Labs has over 10 years of hemp manufacturing experience. Houston entrepreneur Jerry Walters can’t get his business off the ground because he’s trying to build a house without a foundation.
With Spring Creek Labs you can come out of the gates swinging with thousands of dollars with of equipment ready to produce and ship out your private label, hemp-based CBD gummies.
We take care of the hemp manufacturing logistics so you can focus on what you do best, serving your customers and making money.