Processing Challenges Could Cause Billions in Losses as Hemp Rots on Farms

Farmers in the United States have adopted the cultivation of hemp due to its increased prospects and abandoned mainstream crops such as soybeans which are ensnared in trade conflicts with other countries such as China. Therefore, in search of profitable alternatives, farmers have engaged in the widespread commercial planting of hemp.

Cannabidiol (CBD), a hemp compound which is a nonpsychoactive ingredient of marijuana, is at the center of the wellness industry in which beauty products and dietary supplement makers are using cannabidiol in the manufacturing process.

The Food and Drug Administration has not cleared the production of CBD infused foods and drinks, even though Congress legalized the growing of hemp.  A California based manufacture of cannabidiol extraction machines, Delta Separations, estimates that $7.5 billion in hemp may spoil on farms.

Roger Cockroft, CEO of Delta Separations, attributed the estimated loss to lack of enough infrastructure to support processing the crop. He further added that the reluctance of banks to provide marijuana-linked businesses with loans is another prospect curbing the expansion process.

In 2018, Congress cleared the way for expanded planting of hemp after industrial hemp and CBD were legalized. According to the gathered data by the Department of Agriculture, farmers planted 142,691 acres of hemp this year. However, according to the Vote Hemp advocacy group, some farmers may be withholding the exact acreage planted from the government; therefore, the group estimates that the total acres planted to be 230,000.

An economist at Whitney Economics, Beau Whitney said the government is playing catch up with the hemp market as it is developing and expanding at a rapid rate.

A farmer in Delavan, Illinois, David Diekhoff has 1500 acres of hemp together with corn and soybeans.  Diekhoff plans to look for a customer before harvesting the flowers from his plants.

Whitney Economics carried out a survey in July which found that 65% of hemp growers did not manage to find buyers for their crops. This forced them to enter into a contract with companies that are on the brink of financial difficulties.

The director of hemp markets at PanXchange says in the last few months, the price of some CBD products has dropped on the platform. For instance, the cost of winterized hemp oil is one-fifth of its January cost. The downward pressure on price may result in no payment for the farmers since the small processing companies will be having financial problems.

For the CBD extracted to be valid for use, farmers need to follow a specific order when harvesting hemp. The crop has to be dried after harvesting and before the extraction of CBD. The Whitney Economist says that since the farmers have no experience in harvesting the plant, they may leave it in the fields to dry, where it will be rained on and get mold — resulting in little or no CBD in the market which will eventually cause an increase in price.

In Yuma County, Arizona, Integrated CBD, which can process 1240 acres of hemp, has lined up buyers of CBD from the cosmetic and food industries.

In a phone interview, the CEO of Scottsdale, Patrick Horsman, said that the hemp business model requires growing, drying and extraction to work in cohesion. Therefore, as a farmer, you should be concerned if you do not have the processing and drying capabilities.

In another phone interview with the Executive Director of the Industrial Hemp Association in North Carolina, Blake Butler, said that many farmers shifted to hemp growth anticipating huge CBD profits. He further added that when farmers start to grow hemp for other uses, the industry will even out.

It would be good to hear what remedies hemp companies like The Green Organic Dutchman Holdings Ltd. (TSX: TGOD) (OTCQX: TGODF) and Therma Bright Inc. (TSX.V: THRM) (OTC: THRBF) have for the current shortage of hemp processing facilities in the U.S.

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