Sunday
October 21 2018
8:02 PM
Page width:
Why a saturated marijuana market is leading some Oregon growers to pivot to hemp
By Bart Schaneman - Marijuana Business Daily
  Tuesday September 4, 2018 - 6:08 AM
 
It's no secret that Oregon is growing far more marijuana than the market can absorb, so some cultivators are turning to MJ's cousin: hemp.

As Oregon cannabis prices continue to sink to new lows amid a product glut, outdoor growers are applying what they know about marijuana and cultivating hemp for both smokable CBD flower and biomass that can be extracted into CBD oil.

The hemp pivot allows growers to diversify their revenue stream and capitalize on a crop that could soon become legal at the federal level – thanks to the 2018 Farm Bill pending before Congress.

It also allows them to capitalize on the booming popularity of CBD products.

Here are four reasons a shift toward hemp makes sense for some businesses – and why it should be done cautiously:

1. Adding hemp allows companies to diversify their operations while still growing marijuana.

Under a Tier 2 license in Oregon, most MJ farmers are limited to – at most – a 40,000-square-foot (just under 1-acre) grow.

But hemp doesn't face the same restrictions, so many growers have planted 3 or more acres of the plant.

"If you have a farm this year that's designed to grow cannabis and you can't sell any of the cannabis you grew last year, or very little of it, hemp is a decent pivot," said Mason Walker, CEO of East Fork Cultivars in Takilma, Oregon. East Fork Cultivars started in 2015 as a medical marijuana farm and became an adult-use MJ producer in 2016. It grows its maximum allowable limit of cannabis for one Tier 2 permit.

This year, however, East Fork Cultivars is also growing 3.4 acres of hemp.

"Even if you're going to make a quarter or a tenth of what you were going to make if you sold all of your cannabis, if you can't sell any of your cannabis it doesn't matter," Walker said. "You already have the infrastructure, you already have the expertise.

"In a lot of ways, it's a no-brainer to switch over to hemp if you want to keep growing cannabis."

On the current market, hemp-grown flower is selling for about $50-$60 a pound – or about $5-$6 per percent of CBD – and a good benchmark for hemp is roughly 10% CBD, said Amy Parscal, co-founder of Ebb & Flow Farm in Ashland, Oregon.

On average, a grower should expect about a pound of flower per hemp plant.

A hemp farmer can conservatively plant 2,000 plants per acre. In other words, one can enjoy a yield of about $100,000-$120,000 per acre.

Parscal has been operating about 10,000-20,000 square feet of marijuana cultivation canopy.

Her company built several greenhouses for MJ cultivation "before the market crashed" last year, she said. The greenhouses were then converted to grow feminized hemp seedlings for farmers coming online.

Now Ebb & Flow has added a 3-acre hemp field to its operation in order to continue to expand beyond the marijuana side.

"We are pretty limited with the way the regulated marijuana market in Oregon is," Parscal said. "It's just a lot of grind and not a lot of results."

2. Hemp production costs are lower.

With 3 acres, Parscal is able to grow about 8,000 hemp plants. She estimates her production costs at about $10,000 per acre. At 2,000 pounds per acre, that's about $5 a pound in costs.

Compare that with the production costs for marijuana, which average $305 a pound for outdoor grown cannabis, according to the Marijuana Business Factbook 2018.

The regulatory costs for hemp also are far lower.

Walker at East Fork Cultivars pointed out, as an example, that his marijuana operation is required to have 35 cameras, along with a 90-day backup of recorded video as well as steel doors on all buildings.

For hemp, Walker said, he needed only a permit that cost $1,300. Walker could then start growing.

3. Hemp is a national market.

Tim Shaughnessy, principal at CO2 Dynamics, an extraction operation in Woodburn, Oregon, began by growing and processing medical marijuana before Oregon legalized recreational cannabis.

His company started adding hemp to its operation in 2016 with 20 acres, and it now grows about 100 acres.

Shaughnessy started processing CBD oil in 2016 for the market that reached beyond Oregon's 4 million residents.

"The hemp market – the CBD market – is worldwide," he said. "This was one way to be able to expand our processing abilities and be able to ship oils across the country and internationally."

As an extractor, Shaughnessy's input costs for hemp-derived products are far lower.

He said he can buy a pound of hemp for $20 versus a pound of marijuana flower for $100.

While he gets 50% less from hemp-derived oil versus marijuana-derived oil, Shaughnessy has 300-liter CO2 extraction machines for hemp and only 20-liter machines for marijuana. He can produce 3 kilograms an hour of hemp-derived oil versus 15 grams an hour for marijuana-derived oil.

"We feel like this could be a good long-term business," Shaughnessy said.

4. Start low … and go slow.

Although the pivot to hemp can be a lucrative option for Oregon marijuana growers, Cory Sharp, CEO of HempLogic, a consultancy in Moses Lake, Washington, advised caution.

Sharp said he's seen a lot of marijuana growers bring practices with them that don't fit well with hemp.

For example, they try to grow their plants too large by spacing them out, which leads to an abundance of weeds.

There's also a tendency to take on too much land.

One complaint Sharp has heard from growers: "What have I done? How am I going to get harvested?"

Hemp has a fibrous stalk that can destroy machinery used for harvesting other agricultural crops such as hay.

Sharp has seen growers go from marijuana operations that are 40,000 square feet to 40-acre hemp farms.

"It overwhelms them," he said. "People say, "I'm going to do 200 acres.' I tell them, "You need to start with 2.'"

Bart Schaneman can be reached at barts@mjbizdaily.com

Link to Story Source