Pricing Dynamics in the US Hemp Market: A Vertical Price Transmission Analysis of the Hemp Value Chain

The US hemp market is a new and nascent industry that has been devoid of research for about half a century. This study examined the effects of exogenous shock on price at each phase of the value chain—Farm (hemp biomass), and its impact on prices at other phases of the value chain—Intermediary Processor (crude cannabidiol hemp) and Final Processor (refined cannabidiol hemp oil). The research uses an Autoregressive Distributed Lag (ARDL) Error Correction model to assess the impact of an external shock on individual phases within the value chain. This model aimed to analyze how disruptions in each phase of the value chain affected other interconnected phases. In the event of a negative shock, the research showed that hemp biomass and crude cannabidiol oil prices adjusted significantly and symmetrically with each other, while the refined cannabidiol hemp oil adjusted asymmetrically and insignificantly. This implies that the refined cannabidiol hemp oil market price is the most stable in the incidence of disturbances in the hemp market. Based on these findings, some innovative ideas were proposed to boost hemp commodity demand and promote sustainability of the US hemp commodity market.