This is a guest post by Kate Casas.

The legislation surrounding the manufacture and sale of hemp products was once a complicated issue. Now, at least, there’s some clarity around it.

The passage of the Agriculture Improvement Act of 2018 removed hemp from the list of federally controlled substances, a prospect that has farmers nationwide eager to tap into a new source of revenue. Federal and state governments now share the power to regulate hemp, and there will be growing pains in determining the level of oversight each branch possesses.

With hemp’s first legal growing season scheduled for 2020 in Missouri, this development is sure to pique the interest of agtech leaders. However, those same leaders would be wise to exercise caution and familiarize themselves with existing infrastructure and logistical barriers.

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Bureaucratic Challenges Exist, Law Enforcement Confused

The first challenge will be the Missouri Department of Agriculture issuing licenses in time for the 2020 growing season. The department is working toward this goal, but it must first explain its administrative rules, release permit applications, review those applications, and then issue permits.

Meanwhile, law enforcement officials are grappling with the regulation of CBD sales. Despite widespread availability, the question of who can legally sell CBD products remains murky. In one instance, officials raided three stores owned by a man in Franklin County, Missouri; the man was accused of felony delivery of a controlled substance for the alleged sale of CBD and glass pipes. While the charge was later dismissed, the legal costs and the loss of sales were their own punishment. Dozens of other sellers in the state (including Walmart) are understandably concerned.

Regulatory authorities and industry infrastructure have a lot of catching up to do, but that shouldn’t dissuade entrepreneurs and investors from a careful consideration of the possibilities.

Prepare for the Road Ahead

The following four steps can help those in agtech adapt to the hemp industry in time for the first growing season.

1. Seek federal crop insurance. With approval from the USDA for industrial hemp farming, some growers will qualify for coverage through the Whole-Farm Revenue Protection program in 2020. This crop insurance can protect the revenue of farmers growing hemp for seeds, fiber, or flower, insuring up to $8.5 million. In a young industry rife with uncertainty, crop insurance could prove valuable.
2. Look for vertical integration. The emergence of an entirely new industry means that the opportunities are ripe for vertical integration. Companies that choose vertical integration must enter the space with more capital and cope with more complexity than their competitors. They will, however, enjoy more control over their products and the supply chain, unlocking the ability to tap into upstream and downstream profits.
3. Expect market consolidation. The opportunities available in a new industry allow almost anyone to participate, but it won’t stay that way for long. While areas like CBD sales still have a mom-and-pop feel, that won’t last long. The real winners will emerge in the near future after significant market consolidation. To make sure your business is a survivor, surround it with the right consultants who can implement strategies to help you prevail when shifts occur.
4. Market to the right customers. Some people are treating CBD as a panacea that can cure everything from depression and anxiety to arthritis pain. Although the substance has exciting potential, it’s almost certain that many CBD claims will be disproven as the product gains popularity and undergoes more extensive research. Focus on your core markets, and don’t get greedy. Sellers that make false or exaggerated claims could draw the ire of the Federal Trade Commission, which often cracks down on marketers making false promises.

Entrepreneurs and corporate ventures alike are currently flooding the hemp marketplace, and the ones with sound strategies and solid financing will be left standing when the dust settles. Follow the above steps to maximize your own organization’s odds of success, and hang on for what could be a bumpy ride.

Kate Casas is a partner and co-founder of Nexus Group, a full-service government affairs firm in Jefferson City, Missouri. Casas was previously a partner at Gate Way Group, a senior managing director at Dentons, and a state policy director at the Children’s Education Council of Missouri.