This story is part of The Assembly’s investigation into North Carolina hemp. Learn more here.
If Congress’ ban takes effect on November 12, federal law will treat intoxicating hemp like it does marijuana, which means hemp will have to play by the same rules.
Perhaps the biggest change will be that hemp companies won’t be able to claim credits or deduct expenses from federal taxes. As a result, they’ll face significantly higher rates than other businesses. And if things go south, they can’t file for bankruptcy, either. Because of the risk, they’ll pay much higher interest rates to borrow money.
Last year, 72% of North Carolina’s hemp businesses were profitable, according to a report from Whitney Economics. But only about a quarter of marijuana companies across the country operate in the black.
This might not be an issue for long. Earlier this year, the U.S. Drug Enforcement Administration rescheduled medical marijuana—essentially, declaring it less of a threat—and it will likely do the same for recreational weed in the near future. Once that happens, the tax and bankruptcy restrictions will no longer apply.
Other difficulties will remain, however. Marijuana dispensaries generally can’t accept credit cards, which means they can’t sell products online. That distinction helped keep hemp alive in states that legalized marijuana, Raleigh cannabis lawyer Morgan Davis said.
“It’s going to require everybody to build infrastructure within their own state. Like with regulated cannabis, you’ve got to own it from seed to sale.”
Morgan Davis, Raleigh cannabis lawyer
“A lot of people don’t feel comfortable walking into a dispensary,” she said. “I don’t. I know a lot of women don’t feel comfortable walking into a dispensary. A lot of older people don’t feel comfortable walking into a dispensary.”
Marijuana companies have also struggled to find banks that will work with them. Federally regulated banks face severe penalties, including asset forfeiture, for processing funds from illicit transactions. Most banks already won’t work with hemp companies.
First Citizens, which was founded in North Carolina, is an outlier. It launched a program for hemp companies in 2018. The looming federal ban is “creating a lot of the headache and concern for some of our clients,” senior vice president Ryan Palmquest told The Assembly.
“We need to see this hemp law actually implemented to truly understand the ramifications of what that legislation means,” he said. Palmquest added that he believed “the future is extremely bright for cannabis.”
There’s one more major hurdle. North Carolina hemp companies currently source products from all 50 states. Under the new system, they’ll likely be allowed to source cannabis from only one: North Carolina. Once cannabis leaves the state’s boundaries, federal laws apply.
“It’s going to require everybody to build infrastructure within their own state,” Davis said. “Like with regulated cannabis, you’ve got to own it from seed to sale.”
There aren’t currently enough hemp farms or processing facilities in the state to accommodate demand. As of January, there were fewer than 500 licensed hemp farms in North Carolina, with only 850 acres of hemp growing statewide, according to a Whitney Economics report. That’s down from 1,502 farms and 16,593 acres, respectively, in 2020, before too much supply caused hemp prices to bottom out.
Davis expects that problem will be solved. “If there’s enough demand, it’ll happen,” she said.
Additional reporting by Tori Newby.
