Here’s a copy of an article I wrote for LinkedIn:
Crash
People in the industry are calling the current nose-dive in hemp prices a “crash” but that’s not only a misnomer but a failure to see what’s actually happening in the market place while also ignoring historical values of well established similar agricultural commodities. What happening is not a crash.
Let me be clear.
What’s happening is that hemp is settling into its place as an industrial-scale agricultural commodity, not unlike corn, soy, and wheat. Large volumes and small margins.
You Hate Hemp
I get a lot of flak from people when I talk to them about how low prices can actually go. “Why do you hate the farmer?” They ask.
“Why are you trying to ruin the industry.” They querie.
More than anything I want people to succeed in this industry, and want the industry to succeed as well, but to do so we must be brutally honest with ourselves.
People simply do not want to believe what I’m telling them, but I’ve been extremely accurate about cannabis prices and trends for the last 20 years, and hemp market behavior for the last 3 years. Let’s take a hard and honest look at where this industry is likely to settle when it comes to prices.
The Cost of Cultivation
The cost of cultivation is dropping, like other segments of the hemp industry, dramatically. Seeds were selling last year for well over a dollar each. This year we’re already seeing Cherry Wine seeds sell for under $5 a pound.
Farmers in 2018 and 2019 were spending upwards of $2500 per acre just on seeds. Now that same $2500 will seed 14,000,000 acres. Are you starting to see the scope of this thing? One acre will cost about 35 cents in seed. (Yes, I’m aware of the other input costs). We’re just talking about the cost of the hemp seed.
I like to use 17 pounds per liter as a guide when making crude because its a fairly conservative number for efficient crude production with good quality CBD biomass.
The $85-Dollar Liter
Let’s say that the cost of hemp is 50 cents a pound to produce, and it sells for $1 per pound. (Good California-grown Alfalfa sells for 12 cents a pound, as a reference.) That means the biomass cost for the processor could be as low as $15-$25 dollars per liter.
At an inflated price of $8 per gallon of ethanol, a lab with a 90% efficiency can produce that liter using around $20 in lost ethanol. Add another $35 for labor and other costs and we’re at about $55.
“But I can’t make a liter for $55 dollars!”
Then you will be out of business. The winners will be large efficient operations who will extract at refinery scale for pennies a liter. The exception will be niche brands. Now back to prices.
Let’s assume that a processor can produce a single CBD liter for $55 dollars in costs. Now we’re looking at a $60-85 liter of ethanol extracted CBD crude. Cost.
We’re selling CBG isolate for between $3500 and $6000 dollars a kilo right now. At first, our Portland lab sold CBG for $25,000 a kilo last year and then dropped to $10 - $12,000 a kilo after Harvest of 2019. CBG will follow CBD down the rabbit hole, as will the other newly developing and higher-priced cannabinoids hit the market.
The Dark Side
2021 will be even lower prices. This is the reality of the future of our industry. Don’t be resistant. Those who resist will die.
I can’t believe I’m sounding more like Darth Vader than a cannabinoid processor!
I hate being the bearer of bad news because I love this industry and really enjoy working in an industry that improves the health and wellbeing of people while simultaneously creating financial opportunities for businesses like farmers.
But make no mistake, this industry will crush some people and destroy their lives. Even I have taken some near-death financial and emotional blows that almost closed my doors forever. If you came to hemp in search of the promised million dollars per acre, or the multi-million-dollar commission check, you will likely find yourself heartbroken and maybe even financially ruined, or worse.
The Surviving is Success
As inefficient and non-GMP, non-SQF operations close their doors, the survivors will absorb larger market shares and higher profits, as previously seen in many other industries.
If you are here to help people and work harder and smarter than your competitors in order to succeed, and you are realistic and educated about markets and business, then you might just do very well in the hemp industry.
Maybe.
