Natural Foods Retailer Nutiva Challenges DEA, Embraces Hemp

In August 1999, the U.S. Customs Service -- acting on a Drug Enforcement Administration order -- seized a Canadian hemp-food exporter’s truck with 20 tons of hemp seeds entering Detroit from Ontario. The nongerminating seeds, en route to U.S. natural food businesses, have always been legal to import, though illegal to grow without a DEA permit since the Controlled Substances Act of 1970. In addition to the truck seizure, the agency, which declines to comment on its then unprecedented move, ordered the exporter’s American customers to fork over previous orders of seed and other hemp-food products.

The demand put Sebastopol (Calif.) hemp-food retailer Nutiva in a tough spot. Founder John Roulac had launched the business earlier that month, investing $30,000 in two tons of seed and other hemp-food products with the goal of turning the legal, nonpyschoactive plant often confused with its illegal twin brother, marijuana, into a mainstream food product.

Confident the seizure was bogus, Roulac, a buoyant serial entrepreneur and bestselling author of such manuals as “Backyard Composting,” refused to capitulate. Instead of handing his hemp to the DEA, he helped launch a public relations campaign with all 200 members of the trade group Hemp Industries Assn. to turn popular opinion against the DEA’s move.

BAN IT, PERMIT IT, REPEAT

Over the next month, they tapped friends and customers to call the customs officers’ desk line and persuaded Pulitzer-winning newspaper columnist Jack Anderson to pen a syndicated piece lambasting the DEA. The move didn’t cost Roulac a dime. By the fall of 1999, newspapers in the U.S. and Canada quoted an unnamed DEA officer saying the agency would permit hemp exports into the States. In March 2000, the U.S. Justice Dept. issued a statement essentially saying the DEA couldn’t stop hemp-food imports.

Despite the statement, frustration reigned among hemp sellers and buyers for the next two years as the DEA’s stance on importing hemp switched six times, from banning it to permitting it and back again. Then, a few weeks after 9/11, the DEA published a rule that banned hemp-food imports and sales. Nutiva and 10 HIA members sued the DEA and won two consecutive cases -- the final one in early 2004. “I think the court recognized the law was clear, and there was no risk to public health or safety involved here,” says Joe Sandler, the trade group’s lawyer.

Roulac’s company gained traction shortly thereafter, reaching $2.7 million in revenue in 2005. At the time, it was one of roughly six companies in the U.S. selling hemp seed, protein powders, shakes, and energy bars to food stores and individuals. (Roulac, seeking to diversify, was also exploring other natural products, such as coconut oil and chia, a protein-rich Latin American seed.) Nutiva got another boost in 2008 when RSF Social Finance, a foundation in San Francisco that supports social entrepreneurs, began to extend credit lines worth $1.2 million, which Roulac used to increase inventory and, last year, move into a new warehouse six times larger than its previous space. Ted Levinson, a senior lending manager at RSF, says Roulac’s track record in increasing mainstream consumer awareness about natural food products impressed him. “John has a habit of being on the very early end of these things … and ultimately capturing the attention of millions of people,” Levinson says.

FOUNDING FATHERS GREW IT

The American hemp-food market is growing quickly, according to natural food market analyst SPINS, which pegged it at around $40 million in 2010 (not including sales at Whole Foods), up 10 percent from 2009, and reports that Nutiva leads its 26 U.S. competitors in hemp oil and seed sales. Errol Schweizer, Whole Foods’ global senior grocery coordinator, says hemp is “one of the fastest-growing [natural food] trends.” Nutiva had $12 million in revenue in 2010, Roulac says, and he projects $24 million this year for the 25-employee company. “You don’t have to be mainstream to do well,” says Harry Balzer, chief food analyst at market research firm NPD Group, adding that shoppers will have to view hemp as more than a novelty for the ingredient to gain significance in the $1 trillion U.S. food and drink market.

American presidents George Washington and Thomas Jefferson grew hemp, and Virginia required all landowners to do the same. During World War II, the federal government spent more than $1 million to subsidize hemp farming in Illinois, Indiana, Iowa, Kentucky, Minnesota, and Wisconsin to produce fibers for rope and uniforms. In 1943, some 146,000 acres were harvested, according to hemp historian John Dvorak. No farmers in the U.S. grow hemp commercially today -- the last was in Wisconsin in 1957. “I don’t know if the stigma will ever go away with hemp; if people will ever understand it’s not a THC product,” says Anna Soref, editor-in-chief of trade publication Natural Foods Merchandiser.

That’s one reason Roulac is glad he diversified into coconut and chia. Coconut oil now drives 60 percent of Nutiva’s sales, and Roulac recently bought more than 200 tons of chia seed. Still, hemp is Roulac’s first love, and despite lower profit margins and a tough supply chain, he has no plans to forsake it.

Neither, it seems, do policymakers. In mid-February, California’s Mark Leno, a Democratic state senator, introduced a bill that would once again allow commercial hemp farming -- a bill he plans to have on the governor’s desk by the end of August. “I have not yet spoken to the governor, but I am hopeful that he would understand the benefits California would experience allowing our farmers to grow industrial hemp,” Leno says. “It’s a safe, viable crop.” Roulac looks forward to when he can source hemp domestically and take advantage of lower production and transportation costs. Of course, that likely means more competition for Nutiva. “Bring it on,” he says with characteristic enthusiasm.

To contact the reporter on this story: Greg T. Spielberg at gregtspielberg@gmail.com

To contact the editor responsible for this story: Nick Leiber at nleiber@bloomberg.net

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