How Hemp Producers Can Unlock Potential In Carbon Credit Markets (Op-Ed)

*“For hemp producers, entering the carbon credit market may provide a
strategy for long-term sustainability and market resilience.”*

*By Amy M. Rubenstein, Dentons*

As the cannabis and hemp industries evolve (including most recently through
an amendment to the 2018 Farm bill that redefines “hemp”), producers should
seek innovative ways to diversify income and align their businesses with
sustainability goals.

One promising developments is integrating carbon credit generation into
hemp cultivation practices. With its impressive carbon sequestration
capabilities, hemp presents an untapped opportunity to access carbon credit
markets, including tax incentives through IRS Section 45Q and credits in
both voluntary and compliance markets.

*Why Hemp Producers Should Care About Carbon Credits*

Producers growing hemp for cannabinoids like Delta-8 THC, CBD and other
intoxicating or therapeutic compounds face regulatory challenges and
volatile market prices. The amended hemp definition in the federal spending
bill compounds these issues and may push producers to find alternatives to
monetize their hemp crops.

If producers can show a qualifying end-use, they may be able to open up a
new and increasingly valuable revenue stream while improving their
environmental footprint.

Hemp’s rapid growth rate and high biomass density make it particularly
effective at capturing carbon dioxide, which is the foundation for
generating carbon offsets.

*Hemp’s Carbon Sequestration Power*

To the Lincoln University Hemp Institute, “hemp is an ideal annual crop for
carbon negative supply chains for food, feed, fiber and fuel.”

According to the British Hemp Company, every metric ton of hemp cultivated
can absorb approximately 1.63 metric tons of CO₂ from the atmosphere.

Dr. Darshil Shah of the University of Cambridge has stated that industrial
hemp can capture more carbon per hectare than forests or commercial crops
like cotton or wheat.

And unlike tree-planting offset schemes, hemp grows in four to six months,
meaning it can be cycled multiple times per year for carbon drawdown. Its
deep root system not only locks carbon into the soil but also improves soil
structure and fertility over time, making future harvests more
productive—and more carbon efficient.

For hemp producers, especially those already investing in regenerative
farming practices to improve cannabinoid yields and terpene profiles, these
environmental benefits can be converted into quantifiable financial returns
in the form of carbon credits.

*Carbon Credit Markets: Voluntary vs. Compliance*

There are two main avenues for selling carbon credits:

1. Voluntary Markets: These allow hemp growers to generate and sell
carbon credits directly to companies, individuals or organizations looking
to offset emissions as part of sustainability goals. Hemp-based credits are
increasingly gaining attention here. Registries like Verra and Gold
Standard are developing new agricultural methodologies to accommodate crops
like hemp.
2. Compliance Markets: These are government-regulated systems like
California’s Cap-and-Trade program or the European Union Emissions Trading
System. While more complex to access, these markets offer higher and more
stable credit prices. Hemp credits are not yet mainstream in compliance
markets, but advocacy is growing for broader agricultural inclusion.

One voluntary carbon credit example for hemp comes from Hempitecture, a
U.S.-based company that builds sustainable construction materials from
hemp, with a methodology being reviewed Verra.

Each metric ton of carbon sequestered becomes a credit that a company can
then purchase to reduce its overall carbon footprint. These credits have a
marketplace, with a lower price commanded for the voluntary markets than
the compliance markets.

*IRS Section 45Q: A Primer for Hemp Cultivators*

IRS Section 45Q provides tax credits for each metric ton of CO₂ captured
and either permanently stored or used in an approved application. While IRS
initially created this tax credit for large-scale industrial operations,
recent interpretations and guidance suggest a growing openness to
biological carbon sequestration—including agriculture-based solutions like
hemp.

However, for hemp to qualify under 45Q, a few key requirements must be met:

1. The CO₂ captured must be measured and verified using approved
protocols.
2. The storage must be permanent or used in a qualifying end-use (e.g.,
biochar, building materials).
3. Entities must establish Monitoring, Reporting and Verification (MRV)
systems to document sequestration.

Because requirement #2 presents a challenge currently for intoxicating or
therapeutic hemp-derived compounds (i.e., whether the carbon is captured
permanently in that use case), most intoxicating hemp growers may find
voluntary carbon markets (described above) to be a more immediate fit if
45Q’s requirements cannot be met. However, as intoxicating hemp producers
may pivot when the new hemp definition becomes effective, using 45Q may
become more attractive.

It should be noted that IRS requirements under 45Q, which require
compliance and monitoring standards (both during and after construction and
placed in service), must be followed closely but still can allow
flexibility on the use of the tax credit. Still, staying informed on IRS
interpretations of 45Q is smart business—especially as policy continues to
evolve as the 45Q credit has evolved and expanded under different
administrations.

*Creating Hemp-Based Carbon Credits: Navigating Compliance and Opportunity*

Growers with sizable hemp acreage who want to turn hemp’s carbon
sequestration into tradable credits must:

1. Measure carbon capture using accepted methodologies (such as
COMET-Farm or Cool Farm Tool);
2. Work with a carbon project developer or aggregator.
3. Register with a verified carbon registry.
4. Undergo third-party validation and periodic verification.
5. Maintain long-term documentation and reporting.

According to CarbonCredits.com, projects involving hemp are now being
registered and monetized, with some platforms even exploring
blockchain-based credit systems that tokenize offsets, allowing them to be
traded more easily and transparently.

While intoxicating hemp often has been separated from industrial-use hemp
in regulations, it still qualifies for carbon credit opportunities as long
as the cultivation methods meet the criteria for verifiable carbon
sequestration. In the next year, this separation also may fade for hemp
producers.

From a marketing perspective for any hemp product, emphasizing
environmental stewardship through carbon capture can also be appealing to
eco-conscious investors and consumers.

*Challenges to Consider*

Before diving in, there are important caveats:

- Verification costs can be substantial. Grouping together with other
growers through a project developer can help.
- Lack of clear hemp-specific methodologies. While some exist for soil
carbon or biomass sequestration, few are tailor-made for intoxicating hemp
crops.
- Regulatory ambiguity. Federal policy still creates friction between
cannabis-related operations and traditional agricultural benefits like USDA
support or federal tax credits.

Despite these issues, the carbon credit space continues to mature rapidly,
and hemp growers are well-positioned to take early advantage.

*The Future: Hemp as a Dual-Use Crop for Profit and Planet*

For hemp producers, entering the carbon credit market may provide a
strategy for long-term sustainability and market resilience.

As more carbon registries develop agriculture-friendly protocols, and as
public awareness of climate-smart agriculture grows, early adopters in the
hemp space will reap financial and reputational benefits. Consumers seeking
eco-friendly products may seek out products that have attributes like
carbon capture.

By aligning cultivation with carbon sequestration strategies and pursuing
certification in voluntary or eventually compliance markets, hemp growers
can play a pivotal role in fighting climate change—all while growing a
better bottom line.

*Amy M. Rubenstein is a partner in the Health Care practice at Dentons US
LLP.*

*Photo courtesy of Max Jackson.*

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(Op-Ed) appeared first on Marijuana Moment.