Tulips, Toilet Paper and Tinctures – What is driving todays Hemp market?

Holland.  February 3, 1637. The tulip bulb hit a price equal to 10X the average annual wage. Three days later, the decline to $0 took 2 months. I can imagine the brokers calling on farmers “if you are growing anything but Tulips, you are crazy!” Many farmers lost everything trying to grow tulips into a market that disappeared.

Fast forward to today, March 28, 2020.  Even here, in remote Lake Tahoe, there has been no toilet paper on any shelves for over two weeks due to the fear around the Corona Virus.  People’s need for toilet paper, as far as I can tell, has not changed. On average, people still use the restroom 4-10 times a day. The United States still produces as much as 98% of the nation’s toilet paper, only importing about 2% from Canada and Mexico, Yet people are hoarding the product in selfish ambition, leaving shelves empty for others.

Hemp Farmers in 2019 were promised $35.00+ per pound of Hemp if it had 8% CBD content, and their brokers told them the seed they were buying should be 16% + CBD. Or worse, they were sold on a specific cultivar grown for smokable flower that would bring $350.00 per pound.  ”You will make millions” they were told. Unfortunately, many farmers across the USA are still sitting on their crop (biomass), there are no buyers at even $10.00 per pound, and many farmers were unprepared and destroyed their crop due to going “hot”, improper harvest/drying technique, or just improper storage which has allowed for mold or total degradation.  How could this be? Why are farmers taking all the risk?

Like the Tulip Bubble, Dot Com Bubble, 2008 Financial Crisis, or even the Great TP shortage of 2020, it all boils down to greed.  Brokers, processors, and retail product sellers have a complete disconnect with the market. The consumer is stuck paying too much for a product that is currently unregulated, and unchecked.  Many try “CBD”, and find “it did not work for me”, and most likely will not re-buy as their results are not on par with the expectation. When the consumer searches CBD oil for example, they are presented with tinctures, gummies, gel caps, soaps, coffee, sprays, dog treats, lotions, potions, patches and who knows what else.  There is little doubt that most or all of these have some value as modern medicine continues to discover, the problem and current reality is this “boon” has come on the backs of consumers and farmers.

A 250mg CBD tincture in a 30ml bottle sells for an average of $49.95.  The consumer reads the bottle, has no idea what the difference between a 2500mg ($249.95) and 250mg ($39.95) bottle is and opts for the $39.95 bottle, and stays clear from the other $249.00 bottle to see if it works.  They take their 1mg (dropper) that delivers 8.33mg of CBD to their system and say “it did not work for me.” Unfortunately, even if they opted for the higher dose, they are not likely to incorporate a new $249.00/month supplement to their budget.  This is bad for the industry, bad for the consumer, and bad for Farmers. Farmers are taking all the risk.  First, they have to buy seed at $1.00 per seed.  If they plant 200 acres of hemp, that is $640,000 before the seeds even hit the soil! Of course, everyone says they have feminized seed, but how does the farmer really know they are buying a product with integrity? Many, if not most seed, is not feminized as advertised. If not properly tested by the breeder and the farmer, males will end up growing in the field as well.  Just a few males can pollinate several hundred acres, and once they start forming seed, the energy of the plant goes from CBD production to seed production, basically destroying the CBD crop.

This year, the Department of Agriculture announced that the measure of THC in Hemp is going to be “Total Potential THC”, not just the ∆9 measure many states had incorporated in their pilot programs.  This means Farmers will not only have to understand the proper planting of good genetics(seed), but they will have to know exactly when to harvest. In addition, they’ll need a strong handle on plant spacing, soil amendments needed, water, pests, burrowing animals, deer, weather, irrigation, how to identify and immediately remove the males, proper harvest, dry the product, store the product and then pray the market shows up.  What could possibly go wrong?

Even if everything goes right with those factors, the level of risk is still high.  Here’s a real scenario to digest. About harvest time the broker that sold the farmer the seed comes along to see how they did.  The farmer is all smiles, thinking the success of the crop is solid. Having produced 300,000 lbs. of hemp, it testing at 10% CBD, anticipating a whopping $21,000,000 at $70.00 per pound, right!?  The farmer is shocked as the broker delivers more information now than in the original sale. The broker tells the unassuming farmer the hemp is wet. It needs to be dried. Drying costs about $6.00/pound right now.  If immediate and drastic action isn’t taken, the crop may mold and be destroyed. That’s a blow of a surprise bill of $1,800,000. But it must be done. Now the farmer is in this thing $2,400,000 plus 4 months of water, labor, power, employees, diesel, blood sweat & tears, tractor maintenance etc.!   Then the broker comes knocking again to check on drying progress, and while it has dried up nicely; he is now afraid the biomass market is oversupplied. Every farmer is trying to sell their product and the prices have come down significantly. Currently, it is worth about $25.00 per pound, and the while “future” deals are made with a nod and a handshake, nothing has come to fruition.  The baffled farmer does some quick math, a sale at $7,500,000 won’t be all bad. The broker retorts with more surprising insight; the Biomass has been dried, so now there is only 100,000 lbs, the moisture was about 2/3 of the weight. This leaves the farmer with nothing left to think but “WTF!” as now the reality is he loses money on growing this stuff. Farmer was told millions. (Note: broker picked up .10 on seed and 1.00 on drying $1,200,000) Sorry Mr. Farmer, the market is soft. The broker offers the prospect of help from a “friend,” taking the crop in a whole new direction.  That “friend” can extract the biomass into oil, and the oil market is where it’s at. It can be processed and sold for a profit for you as the oil is going for $2,000 per liter.  The farmer now wonders about the cost of that prospect and learns it’s about $15.00 per pound, another $1,500,000. “Get the hell off my property,” says the farmer, “I’m not putting another dime into this project. 30 years of profits from farming are in this deal and I’ll be damned if you are going to put me in bankruptcy.”

Once again, the broker has an idea.  He has arranged for the extractor to do a “toll split.”  Toll splitting is foreseeing that biomass will produce 2,500 Liters of oil.  The extractor says well, the biomass is at 6%, not 10% because the “nug” (Nugget or flower) was tested, not the overall content in the milled flower, leaves and stem. The extractor is willing to process this at a 60/40 split, that’s 60% for you, Mr. farmer and 40% for them, the extractor. Well, that’s 1,500 liters whatever the hell a liter is, and that is $3,000,000 which is at least a break even for the farmer.  The farmer obliges. Off it goes, the oil is produced, and the farmer gets another call from the Broker.  “It seems the market is flooded with product right now and many farmers opted for the tolling split”.  “The prices have softened. Going rate is now $1500 per liter, and the large buyers are not showing up.  It may be a few months to get this sold”.

Meanwhile, the extractors are selling their 40% portion for below market prices because 40% was more than sufficient at half the price of the current market, further driving prices down.  The farmer is stuck holding the bag. The very same farmers that grew a successful product. Many other farmers crops went hot, had hail damage in Oregon, Mold for not properly storing, etc. etc.  The brokers and extractors made out like, well bandits!

Now the oil is being sold to the consumer at these elevated prices, no quality checks and balances, and greed has filled a regulation void.  “Big Pharma” has steered clear of all things CBD due to the FDA regulations. CBD products are everywhere, Gas Stations, liquor stores, Farmers Markets, CBD stores, all with extraordinary markups.  This is detrimental for the industry, for the consumer, and for the risk bearing farmer! As an industry, we must stop the madness!

The farmers I meet with are not greedy, they are not out to make tens of millions of dollars, they are looking for contracts for their product before they grow.  Ultimately this will happen, so why not now?

Let’s review.  At $39.95 for a 250mg tincture, the consumer is paying $.16 per milligram as a simple measure.  Obviously, there is a bottle, and an accompanying oil such as MCT, filling and labeling that is figured in to the $39.95 cost.  Its time to pay the proper prices for farmers to grow the crop, pay reasonable extraction fees, lower the retail price of product so an adequate dose can be purchased for under $50.00.

Putting Farmers first means co-operative style systems for seeds, knowledge, equipment, and processing.  Controlling costs will allow for the consumer to enjoy quality product at a fair price. The same tincture, in say a 3,000mg of CBD could sell to the consumer at $49.95.  Most users at this dose would likely have a desired result and come back for more. 

We are ready to partner with farmers, and truly put farmers First!

-Bill Ferrall

Co-founder Seed Money, LLC

bill@5starbotanicals.com

2020 Spring crop just after feminized pollen has been introduced.

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