I’m involved in a pretty large hemp cultivation project for CBD (hundreds of acres) and have been evaluating the market as part of that. I think it’s critically important for all of us to understand where pricing of various products is headed (biomass, crude, distillate etc). I’ve been trying to match up the expected supply of CBD for 2019 with expected end-user demand and cannot reconcile the math. Here are the assumptions I’m using, hoping you guys can help.
2019 Acres Planted: 200,000 (Cowen research, hemp benchmarking studies)
Expected Yield: 50%
Acres Harvested: 50% * 200,000 = 100,000
Plants per Acre: 1,500
Biomass Lbs/plant: 1
Biomass $ per % CBD: $3.00
Total Biomass: 150 Million Lbs
Biomass Value: 100,000 * 1,500 * 1 * 8 * 3 = $3.6 Billion
Convert Biomass to Kg Crude Oil: Divide by 28 (this is what processors have told us)
Total Crude Oil: 5.4 million kg
Convert Crude Oil to Kg Distillate: Multiply by 60%
Total Distillate: 3.2 million kg
Total Distillate value @ $5,000/kg: $16 Billion
I’ve seen estimates for the total end-user (not wholesale) CBD market being $6-8 Billion in 2019 and as high as $22 Billion in a few years. So how can the WHOLESALE values be $3.6B for just biomass and $16B for distillate??
The discrepancy is even bigger when trying to convert the distillate to retail/end user values:
3.2 million kg of distillate = 3.2 trillion mg of CBD (1kg = 1,000,000 mg)
A good value tincture bottle might have 1,000mg of CBD in it for $50.
3.2 trillion mg / 1,000 = 3.2 billion tincture bottles. At $50/bottle that is a market of $160 Billion.
So what am I missing? I can imagine the CBD market is a lot bigger than people expect but the supply numbers are still >10x off. Is there massive loss in the process of converting planted acres to distillate that I am not accounting for? Or are we going to see massive (10x) price reduction in the values of supplied product?