While 2020 is certainly shaping up to be a year to forget, we are only a couple of years removed from some monumental changes and progression in our society. Just two years ago, in 2018, the U.S. federal government passed the new Farm Bill, which finally legalized the growing and manufacturing of the hemp plant. Up until this point, possession and manufacturing of cannabis was illegal in every state and had been since the ’70s. This was due largely in part to the fact that there was no distinction made between the marijuana or hemp plant.
Both marijuana and hemp produce cannabinoids, but marijuana contains tetrahydrocannabinol, the chemical that causes the “high” most often associated with cannabis. However, hemp contains CBD, which doesn’t contain the mind-altering substance found in marijuana. There are many guidelines and restrictions that come with the legal cultivation of hemp, but the main factor that determines its compliance is that the fully-processed hemp product must contain .03% or less tetrahydrocannabinol before being harvested and sold.
The passing of the 2018 Farm Bill brought potential hemp farmers from every possible background into the industry, looking to capitalize on the bustling market. While many fancy themselves as green thumbs and cannabis gurus after successfully growing a couple of plants on their property, it’s a bit more complicated than that when you are looking to create a commercial operation. In fact, growing a cannabis plant that produces quality CBD for a large market is an entirely different mission that requires substantial capital and tedious care.
So You Want to Be a Hemp Farmer?
Growing and harvesting the hemp plant is a new aspiration for up-and-coming farmers across the nation. Hemp plants can be grown outside, where you reasonably can produce at least one harvest per year. Hemp can also be grown inside, whereby the use of cloning can produce yields that can continue throughout the year in a controlled environment.
CBD is more than just a buzzword, with the market set to become a 2 billion dollar industry by 2022. Hemp has quickly become a popular agricultural commodity from which many are looking to get their piece of the pie. A natural fit to begin filling this market has been current farming companies or large farming corporations. With their agricultural experience, land, equipment, and workforce in place, adding hemp to their product lineup is more an addition to their operations than a “startup.”
Growers of soybeans, corn, and wheat were some of the first to add hemp into their crops, using their farmland to attempt to produce a high-quality product. However, farmers have reported that unlike corn or wheat (plants that like saturated soil), hemp flourishes in sunny, dry heat with water added only after the moisture in the soil has been depleted. It is vulnerable to soil disease, rodents, and unwanted pollination from surrounding male plants. All of the oversight and particulars that come with cultivating high-quality hemp makes it a time-consuming and laborious proposition.
Costs of Cultivation
For many, the knowledge of farming hemp is so new, it can take years to perfect the soil, placement, fertilization, and plant combinations to produce a highly successful crop. The season for outdoor planting typically begins between the end of May and the first of June. Once the plants have matured, they are tested by the Department of Agriculture to certify that they contain .03% or less of tetrahydrocannabinol.
After completed certification, the hemp is hand cut at ground level, dried indoors for two weeks, and processed to extract the CBD oil. One plant can produce up to a pound of CBD oil. A successful harvest would be categorized by having plants that can produce roughly 10% CBD. One pound of quality CBD oil can expect to bring between $25-$35 on the open market. An acre of healthy hemp that produced roughly 2500 plants could net more than $62,000. While many may consider this an excellent return, the overhead for this process can be quite expensive.
The cultivation of hemp comes with many costs. A farm must be well-established, with high-quality equipment to form the soil, raise the grow beds, control the temperature, tend to fertilizer needs, and provide proper moisture to the soil. And that doesn’t even begin to cover licensing, land permits, seed, water, fertilizer, equipment, and employees. Costs to run a large-scale hemp operation can be as high as $45-$50,000 an acre. When you look at what an acre of land produces in CBD oil value ($62,000), and compare it to average overhead costs ($45,000-$50,000), the return on that investment isn’t nearly as high as many people would assume.
Keep in mind, these figures are based on producing wholesale CBD oil, so when you take into account the additional processing that goes into creating CBD products, it becomes much clearer as to the real costs behind producing top-quality CBD oil products.
Hemp production certainly isn’t limited to outdoor growing on massive plots of farmland.
Greenhouse and indoor grow operations are also viable options for producing hemp. In fact, in many cases, creating a controlled environment is actually more conducive to producing a higher quality plant (and higher quality CBD). But these grow options are equally, if not even more expensive than farm cultivation. While growing indoors allows for complete control of the environment, including temperature, humidity, lighting, fertilization, and plant care, it comes at a cost.
Overhead costs for warehouse space, lighting, temperature and humidity control units, indoor irrigation, and high-utility bills and alarm systems make it a huge startup investment for even the most ambitious business owner. The ability to develop the perfect plant that can produce the highest quality CBD will bring in considerable revenue; if you already have or can obtain the capital to begin.
While comparing different grow operations, it is clear to see that no matter which route you take, undertaking this endeavor requires enormous capital, expertise, and commitment. Cutting corners will only negatively affect the quality of the CBD oil and lessen profit.