Hemp Production Network Effects: Are Producers Tipped Toward Suboptimal Varietal Selection by Their Neighbors?

The 2018 farm bill removed industrial hemp from the Schedule 1 Controlled Substance List. In response, states scrambled to enact hemp legislation. Some hemp flower producers report their hemp fields were cross-pollinated by a neighbor growing a different hemp cultivar. For hemp flower crops, cross-pollination reduces cannabinoid concentration levels within the flower; these concentration levels dictate flower price. We show that in a repeated game, once a sufficiently large percentage of growers decide to plant hemp fiber/seed crops, cross-pollination forces flower growers to convert to fiber/seed to avoid the negative network externality. Over time, a stable, suboptimal Nash equilibrium of reduced flower production results. The most important factor driving this tip to reduced flower production is pollen transmission rates between fields. This factor can be effectively reduced through either an auction-style quota system directed at seed and fiber cultivars or intertemporal zoning laws that dictate when a particular cultivar can be planted. As applications for hemp growing licenses swell, cross-pollination between farmers becomes increasingly likely. If left unchecked by policy, farm-level income and rural economic development will be suppressed.