1999: The Great “U.S. Hemp Embargo” That Wasn’t

One day, before we bought a load of shelled hempseed from Kenex Inc., I noticed in the Pro-forma Invoice they intended to use (always review the export documents your shipper will submit, especially on first orders, to look for potential problems like this) the words “Contains <10 ppm THC.” While that was a requirement on paperwork within Canada, in the zero-tolerance U.S. it’s an admission under penalty of perjury of importing a Schedule 1 controlled substance in vast quantities. I told the owner of Kenex to remove that sentence from my invoice and why, and in the Purchase Order included that as a contractual requirement in order for him to get paid. Months later, an eagle-eyed U.S. Customs official did exactly what I warned him of and detained a load of hempseed Kenex sent to a birdseed company in North Dakota, then Customs demanded the previous 17 loads also be recalled.  

Guess who didn’t get their load recalled? Us, because our paperwork was compliant. But despite Kenex not being a member of HIA, and even having a history of talking trash about the long-haired stoners running it, its U.S. agent conned HIA into making a stink about the seizure. He was living hand-to-mouth, and his start-up couldn’t afford to not have product to sell. Thus the “1999 U.S. Hemp Embargo That Wasn’t” was born.

It was proof-of-concept that the Victim Narrative fed into people’s existing beliefs (“mean ole gubmint picking on hemp again”) and could be leveraged for donations and power by floating a plausible but totally BS story. Having proved the concept here, it was used again a few years later when DEA tried to legalize outright 98% of all hemp products, no max THC, and HIA sued, thereby killing the hemp food market for years and almost taking Canadian hemp with it.

The Kenex owner was a beet farmer new to exporting, while I had been exporting foods around the world for 15 years by then. Birdseed producers are notoriously conservative and were none too happy getting a phone call telling them to send the seed back. That’s how we lost the 3,000 ton/year birdseed market for hemp to this day right when I was long on hempseed, having contracted for 1,000 tons. The cumulative value of that loss is around $90 million today. In an epic fit of karma, Kenex’s NAFTA suit was dismissed when HIA won its suit in the Ninth Circuit Court of Appeals in 2004.

I always thought supply was the least of the issue, Canadians and those who bought from them seemed to think it was all about supply. I called it their Canada Über Alles policy. I didn’t much care who grew it, I just wanted it to make foods with. If China supplied it, fine as long as it was certified organic and good quality. If Canada wanted to supply it, that was fine as well. The over-supply in 1999 in Canada was in response to my work, everybody wanted to grow seed for food. The Canadians were later able to play that up, that I would buy from anywhere on the world market and they were better because they were all about Canada, eh.

To me, supply was incidental to the primary objective: branding hempseed as an American food on par with soybean, flaxseed, and corn. If that were done properly, it would drive production globally including in Canada, but more importantly also in the U.S., breaking the back of Prohibition.

I believed that strategy was preferable to country-specific goals, as being country-agnostic, non-hemp countries would naturally feel the pull to legalize to keep their farmers competitive. It would also reward early-adopting hemp countries, which included Canada; highest-cost production in the world in 1998, but at least it was growing hemp. That it took another twenty years to legalize hemp in the U.S. was not accidental, those funding lobbying in America had investments in Canadian hemp to protect. Colorado’s 2012 Tenth Amendment approach was the watershed event, Amendment 20.

Jealous competitors complained about my pricing when it was first introduced, despite being a brand new product thus I had to pay a higher price for it. So I decided to get the cost of goods (COGS) as low as possible, and it worked: in a few years my certified organic shelled hempseed was sold below the Canadians’ cost of production for non-organic. I had to organize a 27-member global supply chain to do it, but it got done.

We defied the laws of economics: the lowest price for shelled hempseed was early in the category, 1999-2001. HempNut brand organic was 40% less expensive than their non-organic. Our COGS were ~$1.40 per pound, to this day the lowest-cost shelled hempseed in history without screwing farmers by forcing them to take 10¢ not the 70¢ they were promised. The Canadians were selling non-organic for $3.50, our organic was as low as $1.67.

Getting the price low was key to my plan to disrupt 15% of U.S. food soya, I was aiming to eventually sell it for $1 per pound, making COGS around 80¢. As you can see in the table at right, since it takes 2.5 pounds of whole to get one pound of shelled, the trick is to get your input seed cost down as low as possible. Canada had the most-expensive seed, China the least; that forced me to use Chinese seed which put Canadian processors at a serious price disadvantage.

Done today I would contract for tops instead of just seed then collect the CBD, with the CBD income driving down my net cost for seed. With a new category of product like shelled hempseed it is expected that over time, after years of competition and increasing sales and growing economies of scale, that the price would drop, notwithstanding collusion. But a few years ago you paid twice what South Korea did for the exact same product from Canada.

There was no “U.S. Hemp Embargo,” Kenex was just incompetent at exporting. A few months after the debacle we exhibited at a trade show with 22 products, see the next page, every single hemp product in them was imported.

Richard Rose

Leave Your Reply