Underwriters Shouldn't Be Reading Lab Reports
Underwriters Shouldn't Be Reading Lab Reports The Manual COA Problem Is Becoming One of the Biggest Compliance Gaps in Regulated Payment...
While traditional cannabis businesses face increasing financial headwinds, the hemp and CBD sectors are experiencing notable growth and investment interest. This market divergence has become one of the most fascinating developments in the broader cannabis industry.
During a recent Qredible Live Broadcast, Peter Su, Director of Specialty Banking for Hanover Bank, and Mike Goral, Partner in charge of the cannabis and hemp practice at Armanino, discussed the current hemp CBD investment trends and why capital is flowing differently across these related but distinct markets in 2025.
The 2018 Farm Bill created a parallel track for hemp and hemp-derived products that continues to influence market dynamics today. As Peter Su colorfully described it during the broadcast, "Suddenly there is a whole new world that came up out of seemingly out of nowhere. Despite the fact that Farmville came in 2018, suddenly we have this brand new world where apparently you can sell Hampton beverages, smokables, edibles, etc., and you can ship them all over the country."
This regulatory distinction provides hemp and CBD businesses with several significant advantages over their traditional cannabis counterparts:
One of the most substantial advantages for hemp and CBD businesses is their exemption from Section 280E of the tax code, which prevents cannabis companies from deducting ordinary business expenses. Mike Goral highlighted how this difference is influencing business strategy: "Many of the cannabis companies, seeing the success of these hemp companies, are starting to invest into those hemp companies and starting to shift their production away from cannabis to hemp with less regulation and no 280E tax ramifications to worry about."
Hemp and CBD products can access mainstream distribution channels that remain closed to THC-containing cannabis products. Peter Su pointed to the success of cannabis beverages as an example: "For the longest time, [cannabis beverages were] talked about as the next big thing, but it never did happen because SKUs became a negligible SKU in a typical dispensary. But then suddenly can beverages did become the next big thing—but how did that happen? They were taken out of dispensaries, put into regular distribution channels, bars, trucks, etc., and suddenly they're flying off the shelves. They're in Total Wines now."
The broadcast revealed interesting insights into how financial institutions view hemp and CBD businesses compared to traditional cannabis operations.
Peter Su noted that banking institutions have widely divergent policies regarding hemp and CBD: "If you ask 10 different institutions, you're probably going to get 10 different answers. You're going to have some folks that say, 'Well, we will bank state-licensed cannabis, but we actually won't touch hemp-derived.' You'll get folks that say, 'No, hemp-derived is a normal business. We treat it like a normal business.'"
The lack of clear regulatory oversight for hemp businesses can actually make some banks more cautious. As Su explained, "If you are an institution that has made the decision to get into legal cannabis, in theory, you're saying we have a set of guidance, and we have conceptually a state regulatory overlord that gives us some cover. I feel comfortable banking this New York state-licensed dispensary because they answer to a higher power. That doesn't really exist in hemp, CBD, hemp-derived, etc."
Despite regulatory uncertainties, investors are showing notable interest in hemp-derived products, particularly beverages.
The broadcast highlighted significant investment activity in the hemp beverage space. As Brian Fitzpatrick, Qredible CEO, noted: "There's a lot of money going into hemp beverages. I was just talking to some investors last week that just invested in a THC beverage line because, look at that growth."
The contrast between the investment environments in the two sectors is stark. While traditional cannabis companies struggle to attract equity capital, hemp businesses continue to find investor interest. This disparity is driving strategic shifts as established cannabis operators look to diversify their product offerings.
Despite the current advantages, hemp and CBD businesses face their own set of challenges that potential investors should consider.
The discussion highlighted the ambiguity surrounding intoxicating hemp products. As Brian Fitzpatrick described: "What's plaguing that side of the business is what I call the alphabet soup of THCA, THCO, and all these different crazy things which are clearly loopholes in the 2018 Federal Farm Bill."
Peter Su raised the possibility of more targeted federal regulation: "I really do not believe in my prediction that they're going to just ban all THC altogether. I think the most probable outcome is a more targeted approach to regulating intoxicating hemp and getting back to what the farm bill was really meant to be before everybody found the loopholes."
Interestingly, many established CBD companies share concerns about the current regulatory environment. As Brian Fitzpatrick mentioned: "A lot of the CBD and hemp companies that I talked to, they would prefer all that alphabet soup stuff to go away. I think they're just being opportunistic on that side and taking advantage of it while they can."
The broadcast suggested several factors that will influence future hemp CBD investment trends:
Peter Su suggested that the industry might be heading toward significant consolidation: "Glass House has something like four grow rooms, of which only one is in active use. In other words, if federal legalization was to happen today, just quick math, they could probably knock out half of the cultivations in the country."
Mike Goral noted that larger companies are being strategic in their acquisition approaches: "No one's interested in picking up a great opportunity in California. It could be selling on pennies on the dollar, and it doesn't matter because no one wants to be in California. But in a state like Ohio that's new to the market, where there's less competition, someone that has an established brand is going to want to cherry-pick."
For businesses looking to capitalize on current hemp CBD investment trends, the experts offered several recommendations:
Mike Goral emphasized that successful companies will be "those that are run efficiently and well, and the owners are not going out buying Ferraris. They're going to be the ones that are going to succeed by just trudging through it."
Just as with traditional cannabis, proper accounting and financial management remain essential. Goral stressed the importance of "making sure that their accounting work papers and documentation are all clear," as many businesses lack visibility into their true profitability.
As we move further into 2025, the contrasting fortunes of traditional cannabis versus hemp and CBD sectors highlight how regulatory differences can fundamentally shape investment landscapes. While traditional cannabis faces capital constraints and high compliance costs, hemp and CBD businesses benefit from lower regulatory burdens and broader market access.
For investors and operators alike, understanding these hemp CBD investment trends and the forces driving them will be crucial to making informed decisions in this dynamic and still-evolving industry.
