In the hemp industry right now, sellers outnumber buyers for biomass with high cannabidiol, or CBD, content. That’s why M.R. Hemp farm and CBD product retailer in Eldorado, Ill., has gone from planting 5,000 plants in 2019 to 2,200 in 2020.
The two couples who run M.R. Hemp are still holding on to much of their 2019 harvest in the form of extracted crude oil, which has a stable, multiple-year shelf life compared to biomass that can spoil from high temperatures.
“Right now, we can get about $300 for a liter of crude oil. That’s just about the price of production for us, not even counting the labor, so we’re not going to take anyone up on that just yet,” says Shawn Rider. He and his wife, Michelle, own M.R. Hemp along with Rusty and Sheri Mosby. “We’re hoping prices will eventually rise. For now, we’re selling our own consumer products.”
When the couples started M.R. Hemp in 2019, part of their business model focused on planting hemp for neighboring farmers. Most of their neighbors who planted hemp in 2019 didn’t do it again in 2020 because they couldn’t find a buyer for their harvests. M.R. Hemp has since pivoted, converting crude oil into distillate and isolate to make products that are sold locally under the M.R. Hemp brand name.
One liter of crude oil can be used to make 1,000 bottles of CBD tincture, and at $50 apiece, the margins are much higher than the wholesale market. Their volume of sales is low for now, in part because stores that want their product first have to clear their inventory of nonlocal products that were hard to sell amid the coronavirus shutdown.
The Riders and Mosbys continue to develop their brand for tinctures, balms and other therapeutics that aid those who deal with chronic pain, epilepsy and other conditions. Two pharmacies in the area carry M.R. Hemp products, as does the website, mrhemp-cbdil.com.
Shawn Rider has three herniated discs in his back, and that’s what originally brought the corn and soybean farmer to investigate hemp. He tried “gas station” CBD products that had low dosages of the nonpsychoactive cannabinoid and didn’t notice any health benefits. But when he turned to higher-quality products sourced from a high-scoring producer in Colorado, he began to feel consistent relief.
These products were full-spectrum distillate, meaning they held other cannabinoids than just CBD, as opposed to isolate, which is more than 99% CBD. The former includes a small amount of psychoactive tetrahydrocannabinol (THC). The entourage effect of the more than a dozen cannabinoids results in more health benefits.
“I started taking oil and going to the chiropractor three years ago. Between those and stretches, I haven’t had to go to the surgeon yet,” Rider says. “That’s what got us started in this business. We saw the benefits firsthand.”
Building a brand
Last year, after learning there wasn’t a market for wholesale biomass that could cover their cost of production, the Riders and Mosbys turned to toll processing. This type of processing lets farmers convert biomass into crude oil immediately, putting the stock on a waitlist for buying offers while also saving their yield from spoilage.
Toll processors split the profits from sales; in this case, M.R. Hemp receives 60% of the profit while the processor, Hemp Foundry, receives 40%. Farmers who don’t buy clones or seeds from the company split profits 50-50.
Hemp Foundry is a company that exists in partnership with Soulful Botanicals in Monee, Ill. The foundry made CBD products for consumers from converting crude oil into isolate and distillate for five years. It also makes M.R. Hemp’s products, attaching M.R. Hemp’s custom label before shipping the products south so the Riders and Mosbys can market the high-margin products themselves. Doing this adds cash-flow to the M.R. Hemp operation as they wait for wholesale prices on crude oil to pick up; it would take years to use up the crude oil they have in local sales.
“We feel to make a profit in hemp, you need to develop a brand,” says Tim Horras, Hemp Foundry director of cultivation. He notes the farmers who worked with Hemp Foundry in the 2019 growing season were disappointed to see buyers for crude oil bid below the price of production after harvest. Prices for crude oil began to sink even before the COVID-19 shutdown took effect.
Most of Hemp Foundry’s farmers have chosen not to take the low-ball offers, instead waiting for the Food and Drug Administration to give major players in the industry confidence that CBD products won’t be pulled off the shelves. Farmers sitting on biomass and having their stock spoil, as well as a smaller harvest across the U.S. compared to 2019, will also help prices, Horras says.
“The saving grace for our farmers is that crude oil is shelf-stable. They can wait it out and get some cash in the meantime by developing their own local brand,” he says, noting most of the wholesale buyers that come to Hemp Foundry look to buy crude oil, though the foundry can also convert crude oil to full-spectrum distillate or CBD-concentrated isolate.
There are a large number of extractors who can’t take in biomass. They skip the initial step by buying crude oil and then converting it into distillate and isolate that can then be used in product development.
“I will flat out tell a farm, if you’re on the fence at all, if you don’t really need the money right this minute, hold on to the crude oil,” Horras says. “That material’s totally stable. You can sit and wait until prices come back up and look to exit at that time. There’s no rush for those guys.” He adds that while crude oil prices have dropped by a multiple of three compared to where they were in January, they could rise two times from where they are now by January 2021 or later.
“These guys that have biomass sitting in 90-plus-degree barns right now, that’s starting to turn. They’re in big trouble. That’s unfortunate for them, but fortunately for those who converted their 2019 harvest to crude oil, that spoilage will take some pressure off of the market,” he concludes.