After building for decades, interest in industrial hemp has reached fever pitch.
A provision in the 2014 Farm Bill created an opening for university research and early-movers in select regions, but it was last year’s removal of a 1937 prohibition on hemp cultivation that cleared the way for producers and investors to express widespread interest in its potential.
What they have revealed is a crop with significant promise that has inspired pockets of much-needed optimism among some US ag producers, while also highlighting the complex regulatory and cultural backdrop likely to frame both opportunities and challenges facing hemp investors.
“This hemp thing keeps coming up, over and over and over and over again,” Adam Woiblet, president of Washington State-headquartered Agribusiness Trading Group, tells Agri Investor.
Because some states are friendlier to the crop than others, location has been a key factor, says Woiblet – who works as a broker largely in Washington, Oregon and Montana. While some institutional farmland investors have not ruled out planting hemp, the inevitable association with cannabis has kept most from moving forward.
In one instance, he says, an institutional investor reviewing a potential sale/leaseback on a property the owner planned to plant hemp on said they were only interested in the property if it was dedicated to row crops.
Attempting to quantify hemp’s potential, Farmer Mac’s Jackson Takach wrote recently that currently achievable gross profits from industrial hemp range between $170 and more than $700 per acre.
That estimate is accurate, according to Chad Rosen, founder of Carrollton, Kentucky-headquartered hemp protein and oils producer Victory Hemp Foods. Rosen tells Agri Investor that after seed, fertilizer and labor costs, US hemp farmers are left with around $300-$400 per acre post-harvest.
Rosen, who relocated from California to Kentucky in 2014 to launch Victory, says financial stress on corn, soy, dairy and tobacco farmers has added to pressure on the USDA to quickly put in place the crop insurance that is key for US farmers planting the crop.
The ethos animating many in the grass-roots hemp industry, he adds, places a strong emphasis on social justice and the crop’s potential to help small family farmers.
“The challenge is going to be doing what might be right from a societal and environmental perspective, versus what industrial agriculture has reported agriculture to be like,” Rosen says.
At Peoples Company’s Land Expo in January, a producer who had converted a portion of his property, highlighted damage to existing farm equipment from industrial hemp’s strong fibers as among important factors for producers to consider. Rosen says he has also heard about equipment challenges, suggesting that farmers move slowly and use equipment closer to the beginning of its working life than the end.
The need for specialized equipment is just one area Rosen highlights where investors have the potential to help foster the strengthening of industrial hemp’s supply chain.
“It’s everything from the seed to the harvest and everything in between that requires some improvement. Right now is the hard days,” he says. “It’s that problem/solution American ingenuity that is going to lead us to developing a great ecosystem around this plant.”
Private investors have a key role to play in building that ecosystem, though finding their way to defensible positions within the market’s lucrative subsectors will require braving a high degree of uncertainty in the near-term.
Try as they might, industrial hemp’s advocates will never completely wall-off the crop from more fraught discussions surrounding regulation of cannabis. Given that hemp legalization has been framed by lawmakers as part of broader efforts to assist struggling rural communities, any investor pursuing hemp would be wise to also consider how to meet those aims.
Regardless, cultural shifts such as those that have cleared the way for hemp’s return to US agriculture create the kind of dislocations private equity is best equipped to address. In addition to the equipment and seed genetics corners of the hemp market Rosen highlights, there will be many opportunities for investment into tailored pesticides, processing facilities and other components of a supply chain that looks set to continue developing.
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