What Makes Hemp Economically Attractive? A Case of Kentucky Hemp Farmers

Industrial hemp is a versatile plant that can be grown for fiber, grain, and extraction. Over the past decade, hemp has generated significant interest because of its environmentally friendly and sustainable production practices. Kentucky has been one of the pioneer states to reintroduce hemp production in the United States. This paper aims to explore the factors affecting hemp production in Kentucky using a farm-level panel dataset accounting for county-specific economic, environmental, and agronomic factors. The main objective of this study is to provide preliminary insights into the relationship between variables rather than establishing causal relationships due to data constraints. A reduced form econometric model on farm-level hemp acres was developed using unique Kentucky data on hemp production from 2017 to 2019. The regression analysis results show that Kentucky hemp acreage positively responds to an increase in cannabidiol (CBD) biomass price. When CBD prices increase by 10%, hemp acreage would increase by approximately 1%. Based on the “with” and “without” county-level weather information model results, the study demonstrates that weather is an important determinant of Kentucky’s total hemp acreage. Our analysis concludes that the hemp acreage response is due to changes in farm-specific, plant-specific, county-specific factors, and market information availability, meaning that a platform for CBD biomass price reporting and a friendly regulatory environment are critical for producers seeking to plan their hemp production. In addition, inconsistencies in state regulations and reporting standards may create additional challenges for hemp production. Thus, additional support through university extension programs and other statewide support services may help hemp producers to expand their production.