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Hemp Food Companies Struggling to Capture Market Share

When Rye Matthews started growing hemp grain on his Vermont farm in 2015, he sold his harvest to food manufacturers for products ranging from hemp milk and cheese to protein powder and cooking oil.

Matthews hoped that the passage of the 2014 Farm Bill, which allowed hemp cultivation as part of state-run pilot programs with strict regulations, would start to open the market for the once-verboten crop, driving demand for hemp grains and creating a robust domestic market.

The novice farmer was also optimistic that food manufacturers, once forced to import hemp grain and seed used in protein powders, snacks, milks and other products from farmers outside the United States — giving it a bigger carbon footprint — would be eager to source the ingredient from local farms.

“A lot of the row crop farmers who are growing corn and soybeans are well suited to growing hemp grain crops,” Matthews explains. “It should have been a good opportunity for farmers who wanted to diversify their crops and enter into the industrial hemp market.”

The 2018 Farm Bill further loosened the regulations, legalizing the production of hemp as an agricultural commodity and removing it from the list of controlled substances as long as levels of tetrahydrocannabinol or THC, the ingredient in cannabis that causes a high, were lower than 0.3 percent of dry weight.

The reclassification of industrial hemp, which includes both hemp grains and varieties used for cannabidiol or CBD, allowed farmers to grow the sustainable crop for the first time in decades and production is expected to explode. Hemp Business Journal estimates that the market for hemp foods, which was $137 million in 2017, is forecasted to top $212 million in 2022.

Anna Chanthavongseng, executive director for the National Hemp Association believes that the new laws could give manufacturers more options to source hemp from US farms but significant barriers exist to turning hemp into the next locally-grown superfood.

Developing a Hunger for Hemp Food Products

Attracting farmers has been one of the biggest issues. Although the end of federal prohibition on growing the crop led to a huge increase in the number of acres planted in hemp, most farmers have opted to pursue the more lucrative CBD market, which generates up to $150 per pound compared with as little as 50 cents per pound for food-grade hemp.

Market forces are also contributing to the decision to plant CBD varieties instead of food. Sales of CBD products are expected to top $646 million in 2022, which is more than triple the market for hemp-derived foods.

“We’ve had trouble attracting farmers,” admits Chad Rosen, founder and CEO of Victory Hemp Foods. “Farmers want to grow CBD because it’s far more lucrative; it’s hard to convince them to grow grain.”

There might be other reasons farmers are nervous about cultivating hemp. A South Carolina farmer made headlines when he was arrested for illegal hemp cultivation and his entire crop, valued at more than $1 million, was bulldozed due to what he claimed was a paperwork mix-up. In Washington State, thieves stole $70,000 in hemp plants from a farm thinking it was marijuana.

“There hasn’t been enough education and experience on the consumer side to understand that hemp is also a food and these products exist and taste great.” - Rye Matthews

Without Hemp Grains, There Are No Hemp-Derived Foods

Regardless of the reasons the crop is unpopular, the lack of available grains from US growers is cause for concern.

“We’ve positioned ourselves as having products made with US-grown hemp and we did that to attract the market and it’s worked,” Rosen says. “Our demand is going to outstrip our supply [of available hemp grains] pretty quickly.”

At Kentucky-based Victory Hemp Foods, sales of products like cold-pressed hemp oil and hemp protein powders doubled between the first and third quarters of 2019. Rapid growth led Rosen to purchase a food processing facility in Middlebury, Vermont, to bring production closer to processors in the Northeast. Although he contracted with farmers in Vermont, New York and Maine, he closed the facility after 18 months due to a lack of local hemp grain.

Matthews was among the farmers growing grains for Victory Hemp Foods. The economics led him to transition his fields to CBD varieties. As a managing partner for Northeast Hemp Commodities, he grows 300 acres of industrial hemp and processes it for CBD oil but he hasn’t ruled out a return to grains.

“There hasn’t been enough education and experience on the consumer side to understand that hemp is also a food and these products exist and taste great,” he says. “We need a large marketing push.”

Sending Stigma Up in Smoke

Hemp is a superfood that is chock full of nutrients such as vitamin C, calcium, iron, zinc and magnesium but major misconceptions about the powerhouse plant could also prevent the ingredient from reaching all-star status, according to Chanthavongseng.

“There are people who believe that there are traces of THC in hemp hearts and hemp seeds that might get them high or make them fail a drug test; it’s still scary to them,” she says. “We also have people in what I call the ‘CBD closet’ who are afraid to admit they use CBD-infused foods…We need a lot of education to steer away from that stigma and to reel in the public with the idea that it’s not a scary ingredient, it’s a beneficial, nutritious ingredient.”

Although manufacturers like Victory Hemp Foods, Nutiva and EVO Hemp are expanding their product lines and breaking into new markets, hemp-based foods continue to be niche products. Sales of hemp milk, for example, are projected to reach $454 million over the next five years but sales of almond milk exceeded $1.3 billion in 2019 and brands like Silk and Blue Diamond and Almond Breeze are already household names.

Getting Big Brands on Board

The longer it takes for hemp to catch on as a food ingredient, the harder it’ll be to convince farmers to cultivate the crop, which means food manufacturers will struggle to source local grains and continue importing them from international sources.

Rather than depending on so-called hemp food companies to capture market share, Matthews believes that getting big brands on board could take hemp from a niche ingredient to a mainstream superfood. The new laws are instrumental in making that happen.

“Now that it’s not forbidden, I think manufacturers are starting to realize its potential and, once formulators get hemp into their kitchens and start working with it and recognizing the benefits from flavor and nutritional perspective, it will start to break into the market,” Rosen says. “The changing laws could really unleash the potential of hemp and see the food industry using it across a variety of applications.”

Written By: Jodi Helmer

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