A New Decade In A New Hemp Industry
Welcome to the new decade. The calendar year has changed but the hemp industry feels the same as it did in late 2019. Farmers are roughly 3 months post-harvest. But the market is still oversupplied with raw materials. Many processors that have a license are still struggling to get fully operational. The cost it took to build their facility took most of their capital. So instead of buying biomass, they’re asking the farmers to pay them to process the biomass to oil. The oil market is still profitable,despite the monthly decreasing market prices.
But the farmer doesn’t have the capital either. They, too, spent most of their money to cultivate and harvest. They were expecting $35-50/lb for their biomass as soon as the raw material was ready. Most didn’t realize that having a relationship with a buyer before you grew was critical.
Despite the market glut and cash strapped processors and farmers, the industry presses on. There is still hope that if you can get through Year 1 in this burgeoning industry, you can survive for the long-term. Confidence may not be high, but there is a general sense of optimism with everyone you speak to that, “hey, things are going turn around.” Something’s gotta give, right?
The optimism comes from those that compare the current market to the prior year in hemp (despite that fact that production spiked 4X this year). Other just simply look at basic supply and demand concepts: There is a lot of material right now because everyone just harvested. But over time, that supply shrinks and the demand for hemp at the very least stays the same, but realistically increases. Retailers are going to need to continue feeding the consumer product market. They’ll have to buy it from somewhere and that should be enough to keep the whole chain moving. And now, the farmer expects to have a little bit of leverage with the assumption that the market value per pound will increase close enough to those expected price points when they first planted. Their expectation is not one out of greed (well, maybe for some), but because that’s what they budgeted for to make it to Year 2.
So here the farmer stands at the fork in the road. One path, holding their biomass until spring and hoping the CBD level doesn’t degrade so much that the product loses too much value. The other path, taking the last of their investment/pulling money from family and friends and turning the biomass into oil to sell in that market. Or, they strike a split deal with a processor who will keep 40% of their biomass and in turn make the oil for them without putting money up front.
That doesn’t sound like the easiest decision to make. Hold a product out of pure hope the market swings back in your favor? Give up nearly half of what you worked for to make a new product, and work every avenue you can to find buyers before that market feels the same decrease?
Each decision comes with a risk. But wasn’t the decision to enter a market during its wild wild west years already considered a decision that carried risk?
Welcome to the new decade. Welcome to the hemp industry.