By the end of September 2018, the 2014 Farm Bill will expire. It means that Congress will have to pass a new Farm Bill or extend the current one. People are optimistic that this new bill will pass and will legalize hemp, once and for all. But if this happens, however, we can all expect a figurative explosion regarding market growth. But are we ready for such a thing, or not?
Back in 2016, there were 16,337 acres of hemp licensed for production. In 2017, however, that number increased to 39,194. It is a 140% average growth in hemp cultivation, with the total number of producers doubling over the same period. And while the 2018 figures are not yet exact, we can predict them to be somewhere over 100,000 acres. The almost exponential increase in the industry has created a series of challenges during this transition period, as both farmers and processors begin forming new and stable relationships between themselves.
Processing and Storage
Post-harvest, the market will be flooded with new product. But with an increase in production, processing and logistics will become a problem. As the raw material will sell over the duration of the entire year, it will need to be correctly processed and stored to ensure its quality.
Those who are only now starting out in the industry will need to find the right infrastructure for both drying and storage. One solution that comes to mind is to look for similar agricultural solutions, such as facilities and warehouses used for the processing of tobacco. Since the two processes are somewhat similar, these places can provide an ideal environment.
The Buyer-Seller Ratio
As the hemp industry is scaling up at an unprecedented rate, we can expect hemp producers to outnumber processors by a considerable margin. And while this will only be a transition phase, the current side effects will not be negligible.
More producers will mean more biomass, which will be good news for buyers, but not very good news for sellers. Because of the overabundance of product post-harvest, we can expect prices to drop by as much as 50%. This price drop will be facilitated, in large part, by small farmers that need to remain solvent, as well as larger producers who need to reduce their overall cost of goods sold (COGS).
In anticipation, many farmers are selling futures contracts on their crops. In a still unstable and volatile market, it can be a lucrative development for both sides.
If the new Farm Bill does pass, we can expect the demand for raw CBD isolate to climb. The biggest challenge, in this regard, is a current lack of processing infrastructure. There are three stages of creating CBD isolate. These are crude extraction, distillation, and isolation.
In Kentucky, for instance, a facility can turn about 10 tons of biomass per day. It translates to about 2,000 liters. It is an unusually small scale of production, especially after legalization. The biggest problem, however, will not be during the extraction process. Distillation will be more of an issue, but thanks to the already-established essential oil infrastructure, there will be some relief in this part of the process, as well.
The biggest issue will be during the isolation phase. Today, large isolation labs in Colorado produce, on average, between 500 to 1,000 kilos of isolate per month. If we compare this to the extraction process mentioned above, a Kentucky facility will produce enough crude CBD oil that will be enough to facilitate 750 kilos of isolate per day. This vast discrepancy between extraction and isolation will pose the most problems, going forward. To summarize; it’s better to secure a contract for isolation as soon as possible and preferably before this year’s harvest is over.