Thursday, January 27, 2022

Bumpy rollout for N.C. cannabis industry

Developing a thriving N.C. cannabis industry follows a crooked path.


On a warm November day in 2017, the Asheboro mayor and several City Council members stood in front of a plate-glass storefront, applauding a new business in town. In the middle was owner Bob Crumley, a lawyer and commercial real estate man.

His new store, Everything Hemp, would sell U.S. Food and Drug Administration-certified snacks, dietary supplements, pet supplies and even clothing infused with cannabidiol oil, developed in partnership with Nufabrx, a Conover-based company experimenting with ways to resurrect the Tar Heel textile industry.

Also known as CBD, the oil was a newly legal hemp derivative reputed to nourish, calm and potentially even cure diseases, though Crumley couldn’t say that with any lawyers hanging around.

Reflecting his investor group’s confidence, they created Founders Hemp, an Asheboro plant with five clean rooms and equipment for extracting CBD from locally grown hemp. They hired a chemistwith a pharmaceutical Ph.D., got approval for hundreds of thousands of dollars in state and local job grants, and soon had 135 workers on the payroll.

Three years and upward of $7 million later, Founders Hemp was defunct.

“We were out of business by December 2020,” Crumley says. “There was no way we could compete with guys doing this in their garages and chicken houses.”

By then, Founders Hemp was among more than 1,100 Tar Heel businesses licensed to extract cannabidiol oil and otherwise processhemp. The number has grown to 1,275 today.

“There was one guy extracting CBD in the embalming room of a funeral home,” Crumley says. Another case came to light after a consumer got sick. It involved a woman bottling the oil in her kitchen where chickens pecked and a dog roamed.

N.C. Department of Agriculture inspectors obtained a consent order shutting down the kitchen, and an accidental fire put the embalming-room lab out of business before they could act.

Today, the Tar Heel hemp industry is in disarray. Scores of growers and processors have lost tens of millions of dollars because of overproduction and continued public confusion over the product’s kinship with illegal marijuana.

Amid the tumult, reefer madness is still rampant in North Carolina. Cannabis, the scientific catch-all for psychoactive marijuana and its close, mostly legal non-psychoactive cousin hemp, is sparking widespread debate in political, medical and commercial circles. To some, the issue even has economic-development implications, with the state’s reluctance to open the door for cannabis countering efforts to portray North Carolina as a progressive magnet for business.

Twenty states have legalized small amounts of marijuana for personal use, including neighboring Virginia, which permits individuals to hold 1 ounce and grow four plants per household. The nonprofit Washington, D.C.-based Tax Foundation estimates North Carolina leaves $180 million a year in excise tax revenue from marijuana sales on the table.

A bill introduced by N.C. Rep. John Autry would legalize small amounts for personal use, under strict licensing and other controls. The Charlotte Democrat says it was dead on arrival in the General Assembly.

“If we’ve learned anything in the last 80 years, it’s that prohibition doesn’t work,” he says. He notes that 2 million North Carolinians live “within a 30-minute drive of candyland.”

N.C. Sen. Jeff Jackson, a fellow Mecklenburg County lawmaker, adds that what’s about to become a cash crop for Virginia farmers “can still get you prison time in North Carolina.”

CHANGES AHEAD?
Now, the N.C. General Assembly is on the verge of lighting a fire under the cannabis industry through a bill permitting use of medical marijuana. No decision was made at press time, but a bill is likely to pass because its sponsor, N.C. Sen. Bill Rabon, is the Republican chairman of the Senate Rules Committee. Another key supporter is Senate Majority Leader Kathy Harrington, who broke down during debate on the bill, citing how the product may assist her husband, who was diagnosed with multiple myeloma.

After Rabon filed the bill in April, three industry-affiliated groups hired at least seven lobbyists in Raleigh to promote medical marijuana, the Insider newsletter reported.

Questions remain if there’s a medical benefit, however. “We have a lot of anecdotal information about what medical marijuana can do, but we really don’t know,” says N.C. Rep. Kelly Alexander Jr., sponsor of a medical-research bill.

Despite testimonials, surprisingly little science exists on medical marijuana, says Chip Baggett, president of the 10,000-member N.C. Medical Society in Raleigh. Does it relieve pain, for example, or does its psychoactive chemical, delta-9-tetrahydrocannabinol, or THC, merely improve the sufferer’s frame of mind? “Our official position for a number of years,” Baggett says, “has been that we need additional research.”

No other issue may reflect the state’s conflicted approach to marijuana and hemp as brazenly as policing. A task force to probe racial inequities in law enforcement, created in 2020 by Gov. Roy Cooper, urges decriminalization of small amounts of marijuana and expunging court records of thousands convicted of such offenses.

For now, recreational marijuana remains illegal. Attorney General Josh Stein and the task force urge local prosecutors to let minor possession arrests slide. “No, that’s not turning a blind eye, but we are encouraging them to deprioritize marijuana arrests and prosecutions,” he says.

However, legal sources note that the pungent smell of marijuana is often an entree for law enforcers to search and even seize vehicles for harder-to-detect drugs such as heroin and contraband such as stolen jewelry or caches of drug money.

The N.C.Hemp Industry

The legalization debate has a clear racial element. An American Civil Liberties Union study concluded that Black or Latinx North Carolinians are 3.3 times more likely to be arrested for marijuana possession than a white offender, though usage is about the same.

“Those arrests have lifelong, life-changing consequences,” says Chantal Stevens, state ACLU president, frequently preventing employment or otherwise contributing to the cycle of poverty. “It’s time to decriminalize marijuana.”

That view is shared by about two-thirds of North Carolinians, who favor legalizing recreational marijuana use, according to polling by Elon University political science professor Jason Husser.

But it’s still a hot potato for politicians. Senate President Pro Tem Phil Berger and House Speaker Tim Moore did not respond to requests to discuss marijuana and hemp legislation. Crumley, a one-time candidate for attorney general and a lifelong Republican, says he understands.

“Who are the 33% who don’t like it?” he asks. “They’re hardcore, older Republican voters who vote in primaries.” They can knock a candidate out of contention. “If they could make it through the primary, they would probably win in the general election.”

More ingrained reasons, say Husser and other scholars, date to Prohibition and the state’s relationship with alcohol.

From Colonial times onward, whiskey, beer and other alcoholic drinks were staples. In the late 1800s, the Temperance Movement caught fire, and in 1920, the 18th Amendment made alcohol illegal.

That triggered more than a decade of speakeasies, illegal drinking, smuggling, gangsters vying for control of the illegal market, bootlegging and lawlessness. North Carolina has long been considered the nation’s moonshine capital. And until the repeal of prohibition in 1933, there were comparisons to today’s struggles with cannabis, Husser says. “We’ve seen different levels of regulation attempted, crime, organized crime and changes in public support. But the point where we diverge is in frequency and distribution of use. A lot more people are drinking alcohol regularly now then are smoking marijuana today.”

A recent Gallup poll found about one adult in 10 regularly uses marijuana compared with about six in 10 who use alcohol at least once a year.

Morality plays a role, too. “Bible Belt Republican states have been slow to legalize marijuana because of the older Republican voters,” Crumley says. He helped draft the state’s law that cleared the way for legal hemp six years ago. “But if you look at Southern states that have, most have had ballot initiatives,” referendums that take the heat off office-seekers.

Other factors are at work. Some view marijuana as a “gateway” drug leading to hard-drug use, which is refuted by recent studies. But other research shows its use may contribute to more highway accidents.

Few dispute that marijuana has had a devastating impact on North Carolina’s minority communities. In Wilmington, The Bottom is a neighborhood of peeling frame houses and weedy streets often lined with scraggly crape myrtle trees. Here, any of the trio of young Black men walking along Castle Street on a recent June afternoon is, according to ACLU research, much more likely to be jailed for marijuana than his white counterpart in one of the area’s prosperous beach communities.

The ACLU’s Stevens and others say civil rights advocates are no longer willing to tolerate such inequities. “This,” she says, “feels like racism in Black and brown communities.”

Studies suggest the legal cannabis market in the U.S. may top $22 billion. That could generate both robust tax returns for states and profits for marketers of CBD products.

“Yet communities of color, the ones harmed by the overcriminalization of marijuana, are not going to be able to participate in the legal cannabis industry,” Stevens says. Civil rights advocates want profits plowed back into education and job training.

WILD WEST
To understand the potential for profit — and problems — return to cannabis’ roots in North Carolina. The state’s farmers produced enough hemp to even export small amounts until marijuana was outlawed in 1940.

The state’s Industrial Hemp Pilot Program brought production back in 2017. About 1,000 acres were planted during the first year, but word quickly spread that fortunes awaited. The next year, farmers were licensed to plant 6,000 acres, and by 2020, more than 14,000 acres. Similar growth occurred in greenhouse production and processors, after Founders Hemp became the state’s first in 2017.

“The hemp industry is still kind of the Wild West,” says David Suchoff, alternative crops extension agent and professor at N.C. State University. “People were talking about how much money could be made growing hemp for extraction. Folks were promised contracts, and everybody and his brother jumped into it. Then the bubble burst.”

Crumley blames the state’s Industrial Hemp Commission for licensing too many producers and processors. “They said, ‘Come on, anybody who wants to grow it,’ and they flooded the market. Two years ago, a pound of hemp was about $50. Now I can buy it all day for $4 or $5 a pound.”

Suchoff says he “personally [knows] of more farmers still trying to get rid of the crop they grew in 2019 than I know of farmers actually growing it this year.”

Proponents say North Carolina’s cannabis landscape doesn’t have to be like this. South Boston is a Virginia tobacco town, 17 miles north of the state line that could easily pass for Rocky Mount or Tarboro, with a late-1800s historic district of brick-front stores and nearly 50-50 racial demographics. Sterling Edmunds grew up among lush green tobacco fields and tin-sided sales warehouses.

He describes the company he co-founded, Golden Piedmont Labs, as Virginia’s first hemp processor when it opened in October 2020.

“This is the old Tobacco Belt,” Edmunds says. “You can throw a rock from here across the North Carolina border. We’ve got 85 farmers on contract, and this is an opportunity for them to grow another crop they can feed their families with.” About half are in North Carolina.

Unlike many now-troubled North Carolina processors, Golden Piedmont eased into the industry as the Old Dominion’s legislature ironed out the kinks in the state’s new laws. It has about 15 employees but recently went to double shifts. About half of its oil and other products, which range from tinctures and salves to shoes, are exported.

“It’s legal now to possess marijuana here but not [to] sell it,” he says. Virginia’s law went into effect July 1. “That puts us between a rock and a hard place. Right now, it’s illegal for an industrial company like ours to sell marijuana, but the only difference between industrial hemp and marijuana in the field is that the amount of hallucinogen — THC — can’t be over 0.3%.”

If Golden Piedmont is one glimpse of North Carolina’s cannabis future, a four-hour drive across North Carolina offers another. In Asheville, Blake Butler is executive director of the Southeast Hemp Association, a trade group with more than 700 members in 11 states.

Hemp, he says, has enormous potential. It’s long, strong, stringy fibers, for example, have been used to make rope since biblical times, but new uses are being found constantly. The fibers are already being used in “hempcrete,” similar to concrete, flooring and similar items, and the potential is unlimited.

He foresees its oil becoming as common on drugstore shelves as fish oil is now, valued for its Omega 3 content. He excoriates the FDA for indecisiveness, long failing to clearly classify CBD as a dietary supplement, drug or otherwise.

Reefer madness has, he says, sullied hemp’s promise. “We had a lot of processors come online at the same time two or three years ago, and we’ve got a lot of people with hemp still hanging in the barn.”

Suchoff, the N.C. State extension agent, has modest expectations for hemp and cannabis.

“The FDA has been dragging its feet on how to handle cannabinoids for years,” he says. “So they’re not regulated like most other products, and they’ve left it up to states to do their own regulations. That’s why you have such a patchwork.” Cannabinoids are various plants from the marijuana family.

“Hemp certainly has a place in North Carolina agriculture,” he says, “but it will never be what tobacco was.”

In the view of Suchoff and others, the future of hemp is already here.

In the shadow of Mount Pisgah, 30 miles southwest of Asheville, Brad and Sarah Martin began their Green River Botanicals nursery some 15 years ago to raise native plants. When the state passed the hemp bill in 2017, they were among the first licensed.

Today, about two acres of their 20-acre nursery is devoted to producing organic hemp for CBD oil, salves and other products under their own Green River label. They’re vertically integrated, which is the secret, Suchoff says, to success in today’s hemp market.

Unlike the massive, tobacco-like spreads agriculture officials first envisioned for eastern North Carolina, most western hemp operations like this are small, combining greenhouse and outdoor production. About a third of Green River nursery’s total sales of $300,000 are from hemp products, typical of small, often family-owned western North Carolina operations.

For now, they wait for North Carolina and the FDA to bring order to the current reefer madness.

“The laws keep changing,” Brad Martin says. “Is smokable, legal-limit hemp going to be legal in North Carolina? Medical marijuana?” So Green River stays on the safe side.

“We’re marketing ourselves as the natural, organic alternative to pharmaceuticals,” he says. “We’re about helping people, not getting high.” ■

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