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What Are Cannabis Ancillary Business Ideas?

May 10, 2022

Since the 2018 Farm Bill removed hemp-derived products from Schedule I status, the research and development (R&D) tax credit has opened up to industrial hemp that contains less than 0.3% THC. Entrepreneurs that aren’t ready to jump with both feet into the hemp industry should consider secondary cannabis businesses that support—but don’t touch—the growing industrial hemp industry. Entrepreneurs could be eligible for the same R&D tax credit as non-hemp-related companies.

From bud to root, every part of the hemp plant is usable and valuable. Hemp seeds contain omega-6 and omega-3 oils in the ideal 3:1 ratio, the inner woody part of the plant can be converted into hemp “concrete”, and the roots can be tilled back in to improve the soil. Hemp enthusiasts consider it “The Next Big Thing” in sustainable farming because it can do everything that corn can do, plus more.

For entrepreneurs that start industrial hemp businesses, the hemp R&D tax credit can be a valuable incentive to help get their new business off the ground.

Cannabis-ancillary Business Ideas for Entrepreneurs

Even though plant-touching businesses can’t take advantage of the tax credit, there are still several companies or services connected to the industry that could qualify. The 4-Part test is required. Companies need to prove that: 

  1. Permitted Purpose- The research needs to be new to the company, and the R&D activities are intended to develop improvements to a  product, process, formula, technique, or software.
  2. Experimentation- The research must attempt to eliminate technical uncertainty through a process of systematic evaluation. 
  3. Technological- Only advances in the hard sciences will be included; for example, computer science, biology, chemistry, physics, or engineering.
  4. Eliminating Uncertainty- At the outset of the development project, the development team must encounter technical uncertainty and evaluate one or more alternative solutions to resolve the uncertainty.

This still leaves plenty of options for entrepreneurs though. Examples of potentially qualifying activities include:

  • Developing a security system specifically for hemp operations
  • Researching and isolating seed varieties for defined purposes
  • Developing child-proof containers or packaging
  • Creating point-of-sale software or code for retail shops
  • Automating hemp harvesting, extraction, or processing 
  • Formulating new recipes for soaps, personal care products, or food items

These qualifying research activities stretch from farming to software development, giving entrepreneurs a wide variety of industries to choose from when they start their hemp-adjacent business.   

Innovations in the Industrial Hemp Industry

Supply chain problems continue to hamper growth in the industrial hemp industry. Farmers might be able to produce a good crop, but may struggle to find a nearby processing facility. Processing facilities might be up and running, but cannot find a consistent and reliable source of good quality hemp. Inconsistent seed quality and processors too far from the raw materials make it difficult to connect the two sides of the supply chain. 

Despite an unsteady supply of raw materials and persistent processing problems, cannabis entrepreneurs are finding ways to use this renewable resource in earth-friendly ways. In the building industry, the hemp stalk—a previously unusable part of the crop—is now being turned into building materials.

Concrete

Traditional concrete is made from sand, rocks, limestone, clay, and water. Steel is often embedded in concrete to increase its tensile strength, either in rod or mesh forms. “Hempcrete” is made from the inner woody core of the hemp plant. The stalk is chopped into pieces, mixed with a lime-based binder, and shaped to specifications. Once it’s dried, the hempcrete is antimicrobial and antifungal, and able to absorb large amounts of moisture without affecting its integrity.

Hempcrete takes what was once considered a bio-waste product and uses it to make eco-friendly homes that are strong and durable. Hempitecture is a leading U.S. manufacturer for this product.

Insulation

Hemp insulation, sometimes also called “hempwool”, is a healthy green alternative to pink insulation. Made from fiberglass, cellulose, and rock wool, conventional insulation can be hazardous, either from inhalation of poisonous volatile organic compounds (VOCs) or particulates. Hemp insulation, on the other hand, is all-natural and made without chemicals. It can absorb water without breaking down and has no VOCs. 

Flooring

By compressing dried raw hemp stalks, adding a soy-based binder, and then applying pressure, hemp flooring is also reusing what was once a bio-waste product. Like hempcrete and hemp insulation, hemp flooring is good for the environment. The hemp plant grows quickly and reduces human reliance on forests. It absorbs twice as much carbon dioxide as trees, and is affectionately referred to as a “carbon sink”.

Invest in the Future With R&D Tax Credits

Hemp companies have only been able to claim the R&D tax credit since the 2019 tax year. The future is bright for investors that are ready to explore how the industrial hemp plant can be used in a hemp-connected industry. The hemp R&D tax credit reduces the risks that investors take as they innovate in this sector. Contact our hemp tax specialists today to see how we can help you claim all of the money you’re owed.

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