U.S. CBD Industry Following Farm Bill Legislation
December 11, 2018, was a historic day in the United States. It was the day when CBD Hemp became legal to grow nationwide, thanks to the Farm Bill. This caused a frenzy of investors, farmers, processors, and retail brands to dive into hemp farming headfirst with big risk at stake and big reward in mind.
CBD Cultivation and the Farm Bill
The 2019 growing season promised high profits and, in turn, drew in heavy competition. That spring, most farmers throughout the country had at some point considered growing hemp, and some at a very large scale. This demand to plant CBD hemp was fuelled by the action of farmers, investors, and processors crunching the numbers and looking at the economics of the hemp crop when the biomass was priced as high as $40 per lb.
Once the season was over and all the hemp was harvested, the industry learned how much inventory the supply chain can actually handle. It seemed as though overnight, the biomass sales came to a screeching halt. Any purchases that were made in January and beyond were made at a price point that was 80% less than in October when the crop was being harvested.
CBD Market in 2020
Fast forward to 2020: farmers, investors, and processors that invested in CBD hemp during a very competitive year, now backed out of growing it again in 2020 to avoid further losses. Most folks that produced the biomass at $20 last year ended up selling it for $10 per lb. Those losses that people felt caused them to instantly cancel any further participation in the CBD hemp industry. This is another huge swing in the opposite direction in regard to supply when demanded. It will be interesting to see what happens in 2020 when COVID-19 and a saturated hemp biomass market disincentivize growers from planting, while in the meantime consumer demand continues to grow.
From our perspective, it pays off for farmers and CBD businesses to make sure that, before they plant, they set at an appropriate scale that has a well-calculated risk threshold and that the product/crop portfolio is diversified. The most successful farms that we worked with last year sold CBD “smokeable” flowers at a premium and made a profit on their operation, despite the fact they could not sell a single pound of biomass. If possible, farmers should also pair themselves with buyers prior to planting. This is in order to grow and harvest the product to the desired product specification of the buyer. Most hemp that is sitting in barns unsold right now was grown with sub-par seed genetics and has sub-par quality standards based on the growing and harvesting techniques.
Contributed by George Workman, Kayagene
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