Contract practices and contract design in the U.S. hemp industry

Abstract

Lack of specific literature on contracting in the new United States' hemp industry is an increasing concern for agricultural economists and market participants. The purpose of this study is to investigate the current state of contracting between farmers and processors of industrial hemp (Cannabis sativa L.) and to characterize them with respect to the fundamentals of contracting: Decision Rights, Uncertainty and Value allocations. Primary data was gathered through a nationally distributed survey on hemp processors from February through April 2020. It supports -by unexpected results- that processors originate most of their input materials through the spot market rather than through contracting. It is also shown that processors seek to influence post-harvest perceived attributes through input control at the production stage and that contracts are most frequently of one year of duration. This research paper centers on cannabinoids' processors and definitively illuminates the contract design and practices happening at this time on the market. Further studies are needed for understanding the implications in the long run of some findings, such as widely used cooperative arrangements between the contracting parties.