Editor’s note: This week, Hemp Industry Daily will be highlighting stories and analysis on the delta-8 THC phenomenon. Today, a look at the origins of the delta-8 THC trend. Read more in the special D-8 February issue of MJBiz Magazine.

When Harold Jarboe told his partners at Columbia River Cannabis in 2014 that he was leaving the licensed Washington state marijuana company to grow hemp in Tennessee, they thought he was crazy.

“They thought I’d lost my mind,” Jarboe recalled. And for a while, it seemed as if they were right.

Jarboe launched Tennessee Homegrown in 2016 and toiled to build it into a well-respected manufacturer of hemp-derived CBD products. He invested in premium genetics, operated leanly and, most importantly, tested his products at a third-party lab before sending them to retailers. The company was profitable but struggling to survive.

Then, in early 2020, retailers started asking for delta-8 THC.

Jarboe knew D-8 occurred naturally in cannabis in miniscule amounts. But the plant did not produce enough D-8 for an economically feasible harvest, so the requests caught him by surprise.

“No one in the industry saw this coming 2½ years ago,” Jarboe told MJBizMagazine. “Labs didn’t see it. Processors didn’t see it. Store owners didn’t see it.”

With his interest piqued by the requests, Jarboe researched and found that Israeli cannabis scientist Raphael Mechoulam had written in 2005 about converting CBD isolate and distillate into delta-8 THC. At the time, both hemp derivatives were extremely expensive, making the conversion to D-8 commercially unfeasible.

Loophole-turned-dam break

That changed dramatically with the passage of the 2018 U.S. Farm Bill, which pulled the rug from underneath CBD prices.

When Congress passed the Farm Bill, hemp cultivators and processors were sitting on loads of CBD oil that, until then, was hard to move in a marketplace limited by lack of federal clarity on CBD. The new regulations undammed that supply, with CBD distillate unleashed along with a new wave of entrepreneurs looking to enter the industry.

Jarboe said CBD prices dropped from $25,000 per kilogram to as little as $500 after the Farm Bill’s passage. Suddenly, converting CBD into delta-8 THC was economically feasible.

“One of the reasons this didn’t happen earlier is because anytime you have to do a conversion, it’s an added expense. When CBD prices went through the floor, this raw material became really cheap,” Jarboe explained. “Previously, the barrier to doing this had been cost. And now that cost barrier was gone.”

In its effort to legalize and regulate hemp-derived CBD, the 2018 Farm Bill stated that any cannabinoid derived from hemp—defined as cannabis containing less than 0.3% delta-9 THC—was a legal product.

Yet by specifying delta-9, the bill’s authors unwittingly left other cannabinoids outside the realm of regulation.

Unintended consequences

“Unfortunately, nobody that was dealing with this legislation knew what delta-8 was. We were all familiar with delta-9, and the Farm Bill was written so that hemp was defined as less than 0.3% delta-9 THC,” said Jonathan Miller, an attorney with the U.S. Hemp Roundtable who helped draft the bill. “Folks were innovative and … have been able to take advantage of a loophole because the legislation doesn’t ban delta-8; it only bans delta-9 over a certain amount.”

The news was music to the ears of hemp executives such as Jarboe, who suddenly “had huge stockpiles” of CBD with diminishing value.

Jarboe soon developed his own process for converting CBD into delta-8, did several trial runs to dial in his formulations and hired a third-party lab to test the products.

“We had store owners asking us for the product. It’s that simple. If you’ve got stores calling you saying, ‘Look, if you put this product under your label, we can sell it because people trust your brand.’ Well, that’s how we got into it,” Jarboe explained.

Now, Tennessee Homegrown is thriving, and Jarboe gives much of the credit to his D-8 pivot.

“Maybe it’s no longer the season for hemp as we knew it,” Jarboe wrote in a September 2021 blog post. “The world had changed, and we had to adapt or die.”

Other side of the coin

While D-8’s popularity is boosting the bottom lines of hemp farmers and CBD companies, it’s causing worries among traditional marijuana cultivators, manufacturers and retailers—as well as regulators and lawmakers.

“Any cannabinoid that can cause impairment should be regulated like delta-9 until we know more about it,” said Morgan Fox, a former spokesman for the National Cannabis Industry Association, who took a job with NORML after this interview.

“In the meantime, I think states as well as the federal government really need to start thinking about ways in which to bring novel and minor cannabinoids into the regulated market in a way that protects consumer safety but also respects the huge burdens that licensed cannabis producers have faced and make sure that they’re not being cut out.”

Jim Makoso, CEO of Washington state extraction company Flowe Technology, said safety is his No. 1 concern about delta-8 THC. He would like to see D-8 regulated like D-9, and that includes third-party testing.

“When it comes to consumer safety, at least some regulation should be required around the QC (quality control) standards,” Makoso said. “Pesticide testing, residual solvent testing, potency testing, mycotoxins. That would be a good place to start.”

Omar Sacirbey can be reached at omar.sacirbey@mjbizdaily.com.

Coming tomorrow: Is delta-8 THC a threat to marijuana operators, or an opportunity?

Editor’s note: This week Hemp Industry Daily is highlighting stories and analysis on the delta-8 THC phenomenon. Today, a look at delta-8 THC sales trends in marijuana dispensaries. Read more in the special D-8 February issue of MJBizMagazine.

Plant-touching companies weren’t the only businesses surprised by the sudden and explosive growth of delta-8 THC in 2020. Sales of the novel cannabinoid surprised trade associations and ancillary companies as well.

Seattle-based cannabis analytics firm Headset compiled delta-8 sales numbers for MJBizMagazine, and they show the rapid rise in popularity of products that contain “delta-8” in their names.

Cooper Ashley, senior data analyst at Headset, cautioned that the figures are based on point-of-sale data and are susceptible to errors made by retail workers at checkout.

Still, the numbers paint a picture of the rapid increase in delta-8 popularity as well as the actions taken by regulators in markets where the data was collected: Arizona, California, Colorado, Massachusetts, Michigan, Illinois, Nevada, Oregon and Washington state.

We caught up with Ashley to learn about the D-8 phenomenon’s effect on retail cannabis sales. Answers have been edited for length and clarity.

Cooper Ashley

The explosion of D-8 sales in the third and fourth quarters of 2020 coincided with a dip in the total cannabis market. Do you think the two are related?

You have to remember that growth in the second and third quarters of 2020—after the initial (COVID-19) lockdown and through the summer—was some of the biggest growth we’ve seen in the cannabis market in a very long time, including in more established markets like Washington and Colorado.

Q4 2020 was a return to normal after unexpected growth in spring and summer sales.

That’s also the time when people started to hear about (delta-8 THC) as an option, especially in the world of CBD and gray-market cannabis. That’s when it exploded in name recognition and popularity.

We can see that delta-8 sales exploded in late 2020 and continued to grow through Q2 of 2021.

Have you ever seen a cannabinoid rocket to popularity like this?

The only thing I can think of is CBD itself. It is reminiscent, but I definitely don’t think it’s as widespread or common as CBD was when it was gaining popularity.

Still, that quick rate of growth and adoption was similar to when CBD really took the country by storm a few years back.

The edibles category for delta-8 products is incredibly robust. Is that the case for other lab-made cannabinoids as well?

Tinctures, capsules, edibles and topical categories seem to cater a little bit more to a wellness-type customer.

We see a lot of CBN in the edibles category as well as ingestibles like tinctures and capsules. CBN, especially, is seen as more of a wellness-type cannabinoid. Customers are potentially looking more to treat symptoms/get better sleep (with CBN), and that tends to translate to noninhalable categories.

Edibles may be more approachable for new (cannabis) users or those looking to treat insomnia or treat pain.

What do you think caused the rapid decline in D-8 sales starting in 2021?

We can see that delta-8 sales exploded in late 2020 and continued to grow through Q2 of 2021, but in Q3 (they took) a pretty significant nosedive.

There were a few quarters when (D-8) growth was quick—probably because it was gaining popularity, and also it was quite unregulated.

Since it gained popularity, state governments have been forced to try to deal with it—and some have banned it. Now that it is more regulated, I think that level of growth has been naturally curtailed.

It had a moment of explosive growth, and I think that moment appears to be passing.

How does the price of delta-8 products compare with the other items you track?

It appears that customers who are looking for delta-8 products will have to shell out a bit more cash to get them.

Over the previous 90 days, the average item price of a delta-8 edible product was about 24% higher than a non-delta-8 THC edible.

Coming tomorrow: A look at consumer confusion about delta-8 THC.

The entire cannabis industry is buzzing about delta-8 THC and other cannabinoids found rarely in the plant but gaining favor among growers and consumers.

Indeed, there has been a noticeable shift toward so-called novel cannabinoids among hemp producers surveyed by Hemp Industry Daily.

But CBD still rules the roost.

Cannabidiol, by far, continues to be the cannabinoid most growers strive to produce.

But one of the lesser-known cannabinoids, CBG, is gaining prominence. In 2019, 19% of hemp grown for cannabinoid extraction was for CBG; in 2020, that number grew to 43%. The percentage of hemp grown for CBD dropped from 96% in 2019 to 80% in 2020. 

The shift is likely stems from due in part to growing research and public interest in the novel cannabinoids, even though CBD is still the most profitable cannabinoid in the hemp market.   

Hemp cultivated for CBN remained nearly the same from 2019 to 2020, at 10% and 12%, respectively.

About 3% of growers were cultivating hemp for delta-8 THC, a category that has only gained traction only over the past last year.  

Read more about the race to find stable THC-V genetics here.

Find more exclusive intelligence about the hemp industry in the Hemp & CBD Industry Factbook 2021 Edition, on sale here.