cbd flower for cbd oil produced per acre of hemp

Hemp's Hard Lesson

Inside a portion of a large industrial warehouse in Gas City, Indiana, farmer-owned Heartland Harvest Processing is at the forefront of the effort to move beyond the initial boom — and near bust — of the hemp-growing CBD (cannabidiol) oil market.

The company is the creation of Kline Family Farms — Jim Kline and his son, Adam, an attorney by trade — in an attempt to diversify their row-crop business. The 2018 Farm Bill essentially legalized the growing of hemp, the cousin to marijuana that doesn’t create a “high.” The CBD oil derived from hemp has been touted for its multiple health benefits, and national interest in the product and acres devoted to hemp has exploded (see “Demand Now and in the Future,” below).

In early 2019, a liter of CBD oil (slightly more than a quart) was worth about $7,000, and a grower who could produce 25 liters on 1 acre could gross $175,000. Numbers like that drew a lot of attention — so much so that the supply ballooned, and the price nosedived.

By the end of 2019, a liter of CBD oil was worth as little as $300 per liter, a cataclysmic 95% drop in price. The $175,000 gross per acre plunged to $7,500. The market had become flooded with too much product, and growers and processors stockpiled the oil waiting for better prices.

One problem with that plan is that a little CBD oil goes a long way. Less than 1 acre’s worth of production, 16.5 liters, is enough CBD oil to produce 8,300 oil retail bottles if each contains 1,200 milligrams of CBD.

Not only did the Klines suffer when the market tanked, they learned (and are still learning) a hard lesson about how difficult it is to grow hemp for oil and expect to handle the crop mechanically. Their acres devoted to hemp the past three years tell the story — 60 acres in 2019, 43 acres in 2020 and 2.5 acres this year.

“We tried to mass-produce hemp like a row-crop farmer,” says Jim Kline, “believing we could mechanically find a way to efficiently harvest it and handle a large volume. Guess what? It did not work.”

He now better understands why tobacco farmers in the South still hang that crop by hand in ventilated barns. “If you want a good quality product you have to hang dry it — and that takes a lot of space,” Jim Kline says. With all that in mind, 2 1/2 acres now seems like plenty.

That’s the Catch-22 when it comes to hemp, says western North Carolina’s Brian Lyda, who has years of experience growing medical marijuana and now hemp. If you want to grow more than a few acres, there is a desire to find a mechanical way to harvest, store and dry the crop, because otherwise, the labor needed to do it all by hand “will kill you,” he says.

However, “hemp is a tough plant to handle mechanically,” says Lyda, whose family members have been growing apples and produce in this mountainous region near Hendersonville for seven generations. Mechanical harvesting greatly adds to the amount of biomass — stalks and stems — that will have to be processed to derive the oil. This adds greatly to the time and cost to move from plant to oil.

Mechanical harvesting is also hard on the plant’s open flowers, where the trichomes, which produce most of the oil, are located. The trichomes are the fine crystalline hairs on mature flowers and leaves. Densely packed and ripe, trichomes are laden with oil and have a “frosty” appearance.

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Lyda helped establish the hemp-growing business, Healthy Harvesting LLC, with its line of CBD products under the HempOfy label. Under his direction, their hemp is largely handled by hand. In 2020, they grew 6 acres, enough to occupy nine workers for weeks on end weeding, pruning, fertilizing and harvesting.

Harvest on their 6 acres begins in late August and lasts for nearly three months. Workers cut off the plants’ branches by hand, leaving a solitary stalk in the ground. They then hand-strip the individual leaves and flowers, which are placed on racks inside one of six climate-controlled trailers at 60 degrees F with dehumidifiers running.

After three days drying, the plant material is ready for processing, which Healthy Harvesting does itself. Even so, as summer 2021 approached, they were still working through plant material from 2020. Bottlenecks often occur at processing. Lyda’s operation can only produce about 4 gallons of oil per day, derived from about 300 pounds of biomass.

Like Lyda, Adam Kline understood that in order to make the venture worthwhile, Indiana’s Heartland Harvest would have to process the hemp themselves to capture existing margins.

“Pricing is the way it is for two main reasons,” Adam Kline says. “First, a little oil goes a long way; and second, regulations as to what hemp can be used in have been slow to develop.” The U.S. Food and Drug Administration (FDA) still hasn’t issued regulations regarding various uses and the sale of CBD oil products.

The lack of regulatory rules and oversight has prevented, for instance, more widespread introduction of CBD oil in foods and beverages. Heartland Harvest is working on formulations of water-soluble CBD that might be added to myriad beverages such as coffee, water or beer.

“There is almost no competition in the drink space,” Adam Kline says. “Water-soluble CBD is rapid-release, and the targeted effect happens quicker.” According to a 2019 Gallup poll, one in seven Americans uses CBD as an over-the-counter treatment for pain, anxiety or sleep problems. There are positive anecdotes about CBD by the thousands but few, if any, definitive scientific studies yet to back up the claims.

Originally, the Klines’ plan was to grow hemp, process the oil and provide so-called “white-label” oil in bulk to other companies and retailers, which would then sell under their own label. While they still may do that, they are also preparing to produce CBD oil products — for foods, beverages and pet products — under their own label.

“The oils have gotten a bit commoditized,” Adam Kline says. “This isn’t necessarily a volume game for us. We want to cut out some of the middlemen to get to a more attractive price point.”

Either way, there is more CBD oil than buyers right now, Adam Kline and Lyda agree. “It is definitely a buyers’ market,” Adam Kline says.

North Carolina’s Lyda sees their business as continuing to produce oil tinctures along with smokable hemp flowers from hemp plants raised indoors. “CBD oil is selling (prices ranged from $700 to $1,200 per liter at the time this was written) if you have a good product,” he says. “Just not as fast as the industry would like.”

Not surprisingly, growers such as Lyda and Kline — in a young, semiunregulated market — want value-added products.

“It’s as if a tomato grower produces the tomato, processes it himself into ketchup then markets the ketchup to a store to get shelf space,” Lyda says. “That’s the way you have to do it with hemp right now.”

Demand Now and in the Future

In 2018, there were 3,500 licenses issued nationally to grow hemp on about 80,000 acres. Even though the crop wasn’t made fully legal until the following year, numerous states had had pilot programs. The next year, with legalization, there were 19,000 licensed growers planting hemp on 320,00 acres across the country.

“The market was hot,” says Eric Steenstra, a longtime veteran of the industry and the president of Vote Hemp, a national political advocacy group. “The vast majority of farmers were growing for biomass at $3.50 to $4 per pound.”

Instead of following up on USDA’s full legalization with regulations on the crop’s labeling, marketing and handling, the Food and Drug Administration (FDA) threw up red flags or simply delayed offering guidance on cannabidiol (CBD) products. Their waffling deterred big-box stores and grocery chains from stocking those products.

The combination of thousands of new growers in the market with fewer-than-expected outlets for products created a “perfect storm” to cool the market, Steenstra explains. Prices for biomass dropped to 50 to 75 cents per pound. Adding to the dismay was that many growers decided to grow hemp on speculation, with no buyer contracted.

There are 14,000 licensed growers in 2021, but Steenstra says there are still processors and growers sitting on oil — and biomass from last year and even from 2019.

CBD oil, however, is not the only product to come from hemp. After all, growing hemp for fiber was once common in the U.S., particularly for use in ropes during WWII. In addition, the hemp seed itself has use as a grain like most any other. There are already growers in the U.S. producing hemp seed for $1.15 per pound with an average yield of 700 to 800 pounds per acre, Steenstra says.

BMW, as well as other companies, already use hemp fiber in dashboards and other composites in vehicles.

Hemp's Growing Pains

Per-Acre Profits Attract Growth, Some New Potential Regulatory Headaches

YUMA, Colo. (DTN) — At 35, Bethleen McCall is a lot younger than your typical commodity farmer, but she’s a veteran when it comes to farming hemp in Colorado.

McCall is president of the Colorado Hemp Industries Association and she credits the state’s early action allowing regulated hemp production as far back as 2014 for allowing her to start farming where her family once farmed.

Last week, McCall was rushing to try to beat a late-week temperature crash and snow, but that didn’t work out so well. She and her employees got about 20% of their crop harvested before the hard freeze. They have now sent away samples to see if the glands in the plant that contain cannabinoids burst during the freeze. Depending on those results, the farm may have just a few days to harvest before the rest of the CBD oil dissipates. Regardless, it’s likely the freeze will bring down the pounds of production and CBD content.

Still, the plants held up better than expected in the cold and snow, she said. “We were expecting them to turn to mush; so far they have not.”

McCall is a fifth-generation resident of Yuma County who saw her as grandparents and parents slowly lost the ability to farm in the 1980s. She took early jobs working at USDA’s Natural Resources Conservation Service then worked for 15 years at the Yuma County Conservation District, focusing on irrigation issues. That included trying to help farmers find valuable crops that used less irrigation. McCall recalls one of the crops they studied was kenaf, a fiber crop.

McCall credits hemp for allowing her to get back into farming. And generally, McCall noted one of the differences between hemp growers and other crop farmers on the front range of Colorado is age. Most hemp farmers in her area are 40 years old or younger. “A lot of people in my generation are the ones starting this and getting into it,” she said.

After the 2014 farm bill opened up hemp production to states willing to test the prospects, McCall and her partner, Mike Sullivan, each were looking at developing a greenhouse operation when they teamed up and built the farm together.

“The CBD market took off, and I was able to leave my job and farm full-time now,” McCall said. “You don’t have the opportunity to be on the ground floor of a new business too often.”

Yuma County in eastern Colorado has 17 hemp farms and production has exploded statewide to more than 80,000 acres this year. The 2018 farm bill removed hemp as a controlled substance to allow production nationally.

The new “deregulatory” environment has created more problems for established growers such as McCall, likely because more people have learned about hemp this year than ever before. That’s actually led to more scrutiny over the business, McCall said.

“This year has been a lot harder than in years past,” McCall said. “You have to tell that to people all the time, I am legal. I have more permits and licenses than anyone else.”

Payment companies such as Paypal closed accounts for hemp producers earlier this year and froze their accounts for six months. Other merchant services followed. Now, hemp growers such as McCall are being offered merchant services at more than triple the costs they were paying before.

“I understand being under a higher level of scrutiny but at some point you can grow hemp like you grow corn and this has got to change,” she said.

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HOW IT PENCILS OUT

Still, hemp right now is worth the regulatory headaches, even with higher production lowering the value of the crop this year. Hemp grown for cannabidiol (CBD) in Colorado has lost more than one-quarter of its value since last year but still averages more than $50,000 per acre. The math breaks down like this: An acre, on average, will produce roughly 1,740 pounds of plants, but the dried flower weight breaks about 3/4 a pound, or about 1,305 pounds. CBD is on average about 10% of the biomass. CBD is now valued at about $3.90 per point (it averaged $5 per point last year). At a 10% average, that equals $39 a pound. Total pounds of 1,305 X $39 = $50,895 per acre.

The per-acre value climbs with higher-quality hemp that can produce more CBD oil. McCall noted some better plant varieties can produce 15% CBD oil, and the best varieties are often grown indoors to avoid pollination and can hit about 18%.

WAITING ON USDA

While the farm bill opened up the potential for hemp production nationally, it still requires USDA rules that the Trump administration right now has not completed. The interim final rule for USDA’s hemp production program has been at the White House Office of Management and Budget since June 27, the longest of any current USDA regulatory action under review at the White House. The department had intended to have its rules out sometime in August. https://www.reginfo.gov/…

Farmers in some states have to wait until USDA is done with its rules before they can test the market. Iowa is among a dozen states that enacted legislation to allow hemp but did not get crops planted in 2019. Iowa officials are waiting until USDA approves its plan for regulating hemp before allowing production, but USDA will not approve state plans until its regulations are finalized. An official with the Iowa Department of Agriculture & Land Stewardship noted THC-testing protocol remains in limbo right now, and Iowa is waiting to see if USDA specifies how testing must be done.

Other states just started to dabble with hemp production this year. Bill Achord, who heads the Nebraska Hemp Association, noted the state only approved 10 growing licenses for 2019 even though 176 farmers applied. New regulations are expected in Nebraska to open up the state to more production in 2020, Achord said.

Four states remain outliers without any hemp-production legislation: Idaho, Mississippi, New Hampshire and South Dakota.

EMERGING INDUSTRY WITH STRONG GROWTH POTENTIAL

Nationally, hemp acreage was projected at 511,442 acres with 16,877 grower licenses across 34 states by the “U.S. Hemp Report,” put together by an organization Vote Hemp. But Vote Hemp also states less than half the licensed acreage, around 230,000 acres, is actually planted. Then roughly half of that will be lost or determined as noncompliant, so about 115,000 to 138,000 acres will be harvested. Vote Hemp surveys state departments of agriculture annually on hemp acreage. https://www.votehemp.com/…

As an emerging industry, hemp is a little bit of the Wild West, including seed sales. A Kentucky company, Elemental Processing, just last month sued an Oregon company, HP Farms, for $44 million for selling 6.4 million seeds that were supposed to be female with a high germination rate. Elemental Processing distributed the seed to farmers, but reported that as much as 70% of the seeds were male. The Kentucky crop was destroyed to avoid pollinating other area hemp crops.

Strong growth is expected to continue in the CBD market for the next five years, at least, according to the Colorado firm BDS Analytics. It forecasts CBD sales, which were $1.9 billion in 2018, will grow to $20 billion by 2024. The group noted, though, that growth of the CBD market will depend heavily on how FDA decides to regulate CBD in areas such as food and beverages.

With so much focus on hemp right now, McCall said she remains worried about how the FDA will look at CBD products in years to come.

“I don’t want my products to be in a dispensary. I want my products to be on a Whole Foods shelf.”

The big regulatory fear remains just how USDA oversees the chemicals that separate hemp from its close cousin, marijuana. Under the farm bill, hemp is allowed to have, on a dry weight basis, 0.3% of Delta-9 tetrahydricannabinal (THC), the chemical that produces intoxication in marijuana. In comparison, marijuana grown and sold legally in Colorado may have a THC content somewhere around 18% to 20%. It’s a challenge to keep a hemp crop from going above that 0.3% level at harvest.

Sunny Summers, cannabis policy coordinator at the Oregon Department of Agriculture, said the problem can come down to testing the right form of THC. The farm bill limits Delta-9 THC, but there are other forms of THC in cannabis plants that can be converted to Delta-9 when the plant is heated. Some types of lab equipment used for testing can change the number during testing itself, Summers said. Oregon uses a cold-testing method that can highlight Delta-9 without generating higher levels of other forms of THC.

“There is a lot going on there about the type of THC we’re talking about and when do you sample the plants,” Summers said.

Oregon, like Colorado, jumped into the business early and has more than 1,900 farmers growing about 63,000 acres this year.

While the program rules are not complete, USDA is planning to offer a hemp policy in 2020 as part of Whole-Farm Revenue Protection policies. The plan will come with at least two caveats: hemp with THC above the compliance level will not be covered as a loss and hemp will not qualify for replanting payments.

States have different sampling dates. Oregon tests 28 days prior to harvest. Kentucky tests two weeks prior to harvest, while Colorado samples in a 10-day window around harvest. Some states require testing every field, every year while others do random sampling.

“Those are all contributing factors why transporting from one state to another is difficult,” Summers said. “Plus, if you are drying the plant that will reduce moisture content, so what tested legal in the field will have a completely different value if you test it after it’s dried.”

Interstate transportation remains a huge concern, McCall noted. Truckers hauling hemp can find themselves spending several nights in jail while state and local officials try to sort out the legality of hemp. States without legal hemp, such as Idaho and South Dakota have had cases this year of truckers arrested for hauling hemp through their states. Yet, McCall said, “Under the farm bill, if you are approved through your state program, you have been cleared. Too many people don’t understand that yet.”

Pollen drift also is a challenge. Producers try to control and limit seeds in the field and destroy male plants, but McCall notes that hemp pollen on the Front Range can drift for several miles. So if one farmer isn’t controlling their male plants, it can cause problems for other producers in the area. Growers are trying to coordinate to ensure they grow only feminized seed or clones from female plants to avoid pollination. “We know it’s going to happen, it’s just a matter of time,” McCall said.