Five years after Nebraska legalized hemp farming, the industry remains stalled

When state lawmakers passed the Nebraska Hemp Farming Act in 2019, writing into state law the intent to “return Nebraska to the forefront of the hemp industry” and predicting the legislation would bring multi-hundred million dollar investments to the state, Dustin Krajewski took notice.

Raised on a fourth-generation family row crop and cattle farm in Ogallala before moving to the Denver area in adulthood, Krajewski had friends in the hemp industry in neighboring Colorado, where producers dedicated nearly 22,000 acres to growing the crop in 2018.

He watched with intrigue as his home state entered the fold, as lawmakers greenlighted the farming of the federally legal cousin to marijuana while ignoring pleas from a small group of conservative holdouts in the Legislature who warned that the crop would not be “the salvation of our farms.”

“I thought, ‘Gosh, this is something I could help be on the leading edge of the hemp industry for our farm,'” Krajewski recalled last month.

With the go-ahead from his family — the day-to-day operators of the family’s farm — Krajewski put in the legwork to learn the industry, he said, attending hemp conferences and networking with cultivators in Colorado, “trying to really figure out how we could put this business together and be successful.”

“Which, that’s — I don’t know what that means anymore, as far as successful,” he said. “But originally, it meant that we had a business that actually made money.”

The family set aside a few dozen acres on their 4,500-acre farm outside of Ogallala in 2020, when Krajewski became the 17th state-licensed hemp cultivator in Nebraska history following the practice’s legalization in 2019.

They grew 12 acres of CBD — the variety of the plant used for consumable and medicinal purposes — and another six acres each for fiber and grain hemp, grown for industrial and feedstock markets that don’t yet exist in Nebraska.

The family entered the growing season hoping to sell their harvested CBD biomass for $12 per pound. By the end of a labor-intensive harvest that first year, the price had dropped closer to $1 a pound, said Krajewski, whose family owns and operates NE-CO Farms and Agribusiness.

“After harvest, we hadn’t received a dime and it didn’t go anywhere,” he recalled. “So … we thought, ‘We’ve got a ton of money into this business. We either decide that we want to fold it and just be done with hemp or evolve.'”

They decided to stick around, scaling back the acres of farmland they have dedicated to hemp but keeping a toe in the fledgling market that state lawmakers and economists said would be worth $10 billion by 2025.

Most other onetime hemp farmers in Nebraska have not.

Five years after then-Gov. Pete Ricketts signed the Nebraska Hemp Farming Act into law, there are 24 licensed hemp farmers in the state — a fraction of the 135 licenses the Nebraska Department of Agriculture has issued since 2019, according to department records. The department selected 10 licensees out of a pool of 176 applicants that first year to participate in a pilot program.

A year later, when the Krajewskis were among 84 licensed cultivators in the state who combined to plant 134,000 square feet of hemp indoors and another 339 acres outdoors, the brand new industry that lawmakers and advocates had ushered into Nebraska with much promise was already peaking.

The number of licensed hemp farmers in Nebraska — and the volume of hemp they have planted and harvested — has dropped each year since then. In 2023, 20 of the state’s 30 licensed hemp farmers grew 14,609 square feet worth of hemp indoors and planted 278 acres of it outside. The other 10 licensees didn’t grow at all.

Those who advocated for the legalization of hemp farming in Nebraska in 2019 told of an industry that was tailor made for the Cornhusker State, where, they said, the soil was primed for hemp and out-of-state investors were eager to spend $200 million to build processing facilities that could be used not just to make consumable products, they said, but also drywall, paper and livestock feed.

But the promised hemp gold rush never arrived in Nebraska, a reality that farmers, industry experts and economists blame on headwinds that include slow-walked and arbitrary regulations at the state and federal levels, a disinterested Nebraska Department of Agriculture, a skeptical attorney general and a market that never materialized.

“Nebraska is perfectly suited to grow hemp,” said Allan Jenkins, a retired economics professor at the University of Nebraska-Kearney who advocated for the legalization of hemp farming in 2019 and was among the state’s first 10 licensed cultivators of the crop.

“But it really comes down to: ‘Who’s going to finance the processing?’ If the processing was available, I do think there would be a growing number of producers then who would start to produce for those processors. But that’s ‘chicken or the egg.’ How do you get the processors to come in?”

Without processors — the companies and chemists who turn harvested hemp plants into sellable goods — farmers have no reason to grow the crop. And without a mass of hemp plants waiting to be turned into drywall or chicken feed or CBD oil, processors have no reason to set up shop in Nebraska.

Farmers like the Krajewskis understood this basic market principle when they stepped into the hemp industry in 2020. They had contracts in place with Colorado processing companies that folded in the early days of the pandemic, the family’s hemp already planted. The production of hemp that summer outpaced demand.

Cultivators were left holding the bag.

“I think a lot of farmers thought this was real and were convinced to go into this, that you’re gonna make a bunch of money, and that there was an outlet for it,” Krajewski said. “I think everyone quickly figured out that there was not an outlet yet. The infrastructure just wasn’t in place yet for it.”

Years later, little has changed.

Farm-to-store

The Nebraska Hemp Farming Act of 2019 set out to do a number of things, but first and foremost, the bill was meant to bring state statute in line with federal law governing hemp production, which was legalized at the federal through the passage of the 2018 Farm Bill.

The federal legislation — and, later, state law — allowed for the growth of cannabis so long as it contained 0.3% or less THC content on a dry weight basis.

That threshold, which governs the concentration of the cannabinoid found in cannabis that is responsible for its psychoactive effects, is what separates hemp from marijuana, which remains illegal in Nebraska for both medical and recreational use.

“Let me be clear (to) those who are testifying; this is not marijuana,” Omaha Sen. Justin Wayne of Omaha, the bill’s sponsor, told the Legislature’s Agricultural Committee at a public hearing in February 2019. “This is not something that will get you high. … This is hemp, a safe product that will provide an alternative crop for our farmers.”

Advocates who followed Wayne offered a similar telling, focusing on hemp’s potential as a rotational crop that could help supplement Nebraska farmers who relied on corn and soybeans — two crops that “year after year fail to generate enough revenue to support our farmers through the next year,” said Andrew Bish, who founded a hemp farming machinery company in Hamilton County in 2017 and supported the bill at the public hearing.

Testimony often focused on the industrial and practical uses of hemp, which proponents said could be used to make fabrics, rope, paper, clothes, construction materials and tools, as well as consumable or topical products meant to help with aches and pains.

The bill sailed out of the Agricultural Committee on an 8-0 vote, advancing to be debated by the full Legislature, where it encountered skeptics.

Sen. John Lowe of Kearney led opposition to the bill, warning that the limit placed on THC content had not stopped processors in other states from making smokable, high-inducing products out of federally legal hemp — an industry he suggested would overshadow the crop’s more mundane uses.

“There is no — we were told there is no THC, or very low level,” Lowe said. “It is smokable. People are getting high on hemp. It says so in the Hemp Industry Daily.”

Sen. Steve Erdman of Bayard, meanwhile, lodged economic concerns. He questioned which would come first: hemp farmers or hemp processors?

“I think we have the cart before the horse,” he said. “I think we need to figure out who is going to process this, where are they going to process it, and how are they going to process it, who are they going to sell it to, and what do we do with it once we have grown it. So just to pass (the bill) and say, ‘OK, this problem is now solved, hemp is going to be part of the salvation of our farms,’ is not a true statement.”

The two lawmakers foreshadowed two of the strongest headwinds hemp farming in Nebraska would face over the next five years.

The processors never showed up in the state. The Nebraska Department of Agriculture has licensed fewer than 40 hemp processors since the Hemp Farming Act passed. There are seven licensed processors now. It’s unclear if any of them process hemp grown for fiber or grain.

“I couldn’t tell you the amount of people who I’ve spoken with who have said, ‘We are putting in a fiber processing plant here or putting in a fiber processing plant there,'” Krajewski said. “And that’s been the discussion since 2020. It just keeps flowing. They’ll say, ‘We got $10 million in investment from so-and-so and this plant’s going here.’ I’ve never seen a single one of these pan out.”

What has come to Nebraska — and particularly to Omaha and Lincoln — are dozens of dispensary-type shops that sell intoxicating edibles, vapes and flower that operate within a legal loophole of the state and federal laws governing hemp.

While the federal Farm Bill and Wayne’s 2019 bill limited the amount of Delta-9 THC that could be present in hemp plants and products, the legislation placed no limits on the hundreds of other cannabinoids present in hemp, including Delta-8 or Delta-10 THC, leaving nothing to prohibit retailers from selling it.

“I think a lot of people in legislatures and all over America did not understand that 0.3% THC in a consumer product could be intoxicating,” said Jim Higdon, a former cannabis policy reporter who co-founded Kentucky-based Cornbread Hemp in 2018. “And therefore, there could be some buyer’s remorse regarding what is permissible under that 0.3% limit that’s been passed by state and federal law.”

Nebraska’s conservative attorney general last year began targeting THC retailers across the state with consumer protection lawsuits, leading some to shut their doors.

A bill introduced on Mike Hilgers’ behalf seeking to ban THC altogether stalled in the Legislature this year. Other proposals to tax consumable hemp products at rates as high as 100% also failed to become law.

Both measures would have marked a blow to a hemp industry that hasn’t yet found its foothold — impacting not only the retailers who have built their businesses on selling hemp-derived consumables imported from out-of-state, but the few remaining Nebraska hemp farmers who have eschewed the THC market.

“The high risk, high reward that went with the production of that high-end THC really set the industry back,” said John Hansen, the president of the Nebraska Farmers Union.

‘Overly cautious’ approach

There is frustration among Nebraska’s hemp farmers and processors over what the Delta-8 industry has done to their own, undercutting the argument that hemp and marijuana are not indistinguishable by selling products that are.

But there is frustration, too, with state and federal lawmakers and regulators who helped create and have not remedied the market conditions that have allowed THC shops to prosper while the rest of the industry stalls.

Bish, one of the hemp industry’s leading advocates in Nebraska, said he and others long presumed the Food and Drug Administration would regulate the cannabinoid marketplace in the wake of the 2018 Farm Bill.

Instead, he said, the agency hasn’t — deterring mainstream companies from incorporating hemp in their products and pushing the industry toward the “full-on marijuana shops on way too many corners of city streets in the state of Nebraska.”

The federal government, too, has been slow to approve hemp seed to be used as livestock feed for egg-laying hens, a use that Bish and others pointed to as a potential spark plug for the hemp industry’s growth in Nebraska. An organization of livestock feed-control officials in August voted to allow commercial farmers to use the hemp seed for up to 20% of hens’ diets.

In Nebraska, lawmakers haven’t updated the Hemp Farming Act since they passed it in 2019. A bill that would have eased state regulations on hemp farmers by expanding tight harvest deadlines and upping the THC concentration that could trigger penalties for a cultivator failed to become law in 2022.

And Bish, Jenkins and Hansen all pointed to hesitancy from the Department of Agriculture, which they broadly accused of resisting the crop’s arrival in the state and failing to uplift it once lawmakers approved its cultivation.

“We were not trying to look at this as a new economic opportunity or to help diversify the economic base of agriculture in the state,” said Hansen, who said the Department of Agriculture’s posture reflected conservative opposition to the industry.

“We were taking a very — the most charitable way to describe it is cautious (approach). It was, in our view, past cautious. It was overly cautious.”

Steve Wellman, who led the department from 2017 to 2023, disputed that characterization, blaming the industry’s struggle on economics.

“It’s not up to the state to create a market for a product that’s being produced,” he said. “To me, it’s more about demand. It’s basic economics. There has to be a demand for your product, and there’s not a demand for these products yet.”

Fifteen miles north of Kearney and another three down a gravel road, a family of fourth- and fifth-generation row crop farmers thought things would be different by now.

The Cruise family, after years of research and planning, built a 16,000-square-foot facility east of Pleasanton in 2020 to serve as the home of Sweetwater Hemp Co., among the first dozen licensed hemp processors in Nebraska and one of seven license holders left.

They imported equipment from Canada that would allow them to use ice water to extract cannabinoids from hemp — the process that turns hundreds of pounds of the plant into concentrated CBD, used to make a line of therapeutic products like CBD oil, body butter and gummies. Some of the hemp Sweetwater processes comes from NE-CO Farms in Ogallala.

The Cruises watched a bid to legalize medical cannabis fall short in the statehouse in 2021. An attempt to update the Hemp Farming Act to bring Nebraska in line with the latest federal hemp regulations stalled in 2022. And then came the efforts this year to outlaw the plant’s cannabinoids in the Legislature and in an amendment this year to the latest federal Farm Bill.

“Nobody could envision how long it’s taken to get — I mean, we haven’t got anywhere,” said Brett Mayo, the son-in-law of the Cruise family who serves as the chief extraction and marketing officer for Sweetwater Hemp.

“Nothing has changed,” he said. “The fact that there’s been such minimal change in this state, it’s not frustrating. It’s just — we’re not moving forward with everything else that is happening around us.”