The Hemp sector awaits the much anticipated but delayed Farm Bill of 2023. The Farm Bill needs to be renewed every five years, and Congress has already telegraphed that it will not arrive on time. Hemp producers are hoping that the dividing line between hemp and cannabis may be moved from .3% THC to 1%, which would help farmers and processors with the so-called “hot hemp” problem that requires significant remediation expense. Also on the industry’s hope list are potential provisions that may clarify the legality of two of the industry’s most profitable products, Delta 8 and Delta 9 THCO. The DEA recently announced that Delta-8 and delta-9 THCO do not occur naturally in cannabis, can only be synthetically derived, and “therefore do not fall under the legal definition of hemp.” Meanwhile, these products are being sold freely in convenience stores and even through the mail.

Sector credit measures have declined from a year ago. The median free cash flow adjusted current ratio was weak a year ago at .33x but is now worse at .12x. Similarly, total liabilities to market cap have jumped from .69x last year to 1.47x this year. The median Z-score has worsened to -5.21 from -4.62 the previous year. All of these numbers are indicative of worsening financial distress.