CannTrends

Hemp Industry Insights & Analysis

October 2020 Harvest otherwise known as Croptober.

 

"Croptober" is drawing closer. This week we have an opportunity to look into historical hemp harvest across the US in 2018 & 2019.

This week's analysis starts by revisiting some insights from our recent market analysis.

In September we explored pricing trends of Hemp Biomass & Distillate as well as with Bulk Hemp Flower & Pre-packaged Hemp Flower.

CBD Bulk Biomass prices dropped 23.9% in a four-month period, from $23 per pound in May 2020, to $17.50 per pound in August 2020.

Hemp Biomass Pricing Metrics

Inversely, the prices of hemp-derived extracts such as Crude, Distillate & Isolate increased 23% from May to August 2020 before trending downward entering September. We expect concentrate prices to continue to decrease through December 2020, potentially bottoming out in January and February of next year.

CBD Isolate & Crude Pricing Metrics

In September, bulk Hemp Flower is going for an average of $165 per pound. This represents a 27 % price drop from May.  In the same timeframe, prepackaged CBD Hemp flower dropped by 44% and is currently selling for an average of $214 per pound wholesale.

Pre Packaged Vs Bulk Hemp Flower Pricing

While there are always multiple market forces in play that manipulate pricing, the primary reason for the recent pricing decline is the upcoming harvest season, referred to as Croptober.

In this week’s analysis, we break down what is happens during Croptober and explore potential solutions your business and the industry could pursue to stabilize prices.

What is Happening During Croptober or… the October Harvest?

Most in the industry know the answer to this question. Farmers harvest their crops at the same time due to the nature of growing hemp or cannabis seasonally, outdoors.  Unless farmers grow indoors or utilize light depravations greenhouses, they are at the mercy of mother nature and plant genetics.

Hemp/Cannabis plants flower due to the changing light cycle that begins as fall approaches and nights get longer. This same effect is elicited in indoor grows by simulating a 12 hours on, 12 off light cycle, triggering flowering.

Below, we utilize government reports and the CannTrade licensed database to understand the sheer number of farmers that will be harvesting this coming season.

According to the annual U.S. Hemp Crop Report of 2019, the US saw 511,442 acres of licensed Hemp in 2019, up from 78,176 acres in 2018, that’s a 554% increase in just a year.  It is no surprise why the CBD/Hemp bulk markets saw prices dive during last year’s harvest season.

CannTrade's Database, which gathers and correlates state licensing information from every regulatory body in the US, shows a total of 3857 licensed hemp farms in 2019, meaning the average acreage per farm dedicated to hemp was just over 130 acres (though the farm sizes vary drastically, with some farms much bigger, and many significantly smaller).

As of 2020, there are 10,958 hemp cultivators in the US. An increase of 7,101; more than 270%.  With an increase of that size, it is safe to say the number of hemp acres farmed in the US will dramatically surpass the volume seen is 2019. If numbers hold, we expect the acreage farmed to be north of 1.3 million.

Will the hemp market dip again this year?

Early hemp entrepreneurs have dealt with a fractured, immature marketplace, difficulties locking down supply, and a hard time reaching the right customers. Brokers have capitalized on a lack of transparency, often leading to wasted time and resources. Because of the new market's instability, businesses have dealt with both surplus and scarcity of bulk raw material hemp products.

That said, people across the country (and world) are waking up to the potentials of Hemp and CBD as an economic driver, and we have witnessed business development across the spectrum. Farmers, Hemp-processors, distributors, brands, and other businesses have sprouted up all over, looking for an opportunity and angle to participate in this movement.

This optimism exists despite the CBD consumer market remaining limited as the U.S. The Food and Drug Administration continues to prohibit the extract in food, dietary supplements, and cosmetics.

A few weeks ago we covered the fact that 8 states have completely banned the sale of smokable hemp flower.  (Click For Hemp Flower Report)

These types of regulations act to slow down retail market outlets, further add to the surplus at the base of the supply chain.  If these types of regulations are lifted, demand for hemp-derived cannabinoid raw materials should see a significant boost.

Final Insights:

Currently, the Hemp Industry is not quite mature enough to immediately solve its problems, as most of these problems seem to revolve around instability and a lack of infrastructure.

However, as the hemp industry matures, the impact of Croptober tanking prices should start to become a thing of the past. In order to accomplish this, the Hemp industry should look in part to the more established agricultural industries.

Support structures, such as crop insurance, are now beginning to be applied to hemp crops. Advances in genetics, from more consistent high-cannabinoid yielding seed to tissue propagation help ensure crops are more successful and of higher quality. Some farmers have looked to engage in standard forward contracts that protect both the buyer and producer from extreme price fluctuation.

And farmers are now more prepared for storage situations--with more vertically integrated businesses and toll processors that can convert excess hemp product to crude or distillate for longer term storage without degradation. This is particularly crucial--as the 2020 harvest brings a surplus of product into the market, producers must have the capability to store what they can't (or don't want to) sell.

The industry is also facing the challenge of the COVID-19 crisis, which hit both farmers and startup hemp businesses hard, bringing labor shortages and supply chain disruptions.  Compounding this, an extreme wildfire season is hitting California, Colorado & Oregon, impacting businesses all along the supply chain from farm to retail, albeit in vastly different degrees.

So what can be done?

Since Hemp is federally legal, there may be government-sponsored financial support and relief available for traditional hemp businesses.

These businesses may be eligible for:

Federal, state, and local grant programs are also available to hemp farmers. Non-emergency Farm Service Agency loans that may be available to Hemp businesses include (but are not limited to):

  • Direct operating loans.
  • Microloans.
  • Direct farm ownership loans.
  • USDA Organic Certification Cost Share Programs.
  • Farm storage facility loans.
  • Specialty loans for minority and women farmers, beginning farms, Native American tribes, and others.

A USDA press release from last week announced the aid package classifying Hemp as a flat-rate crop.

According to the USDA, Hemp growers can apply for CFAP based on the 2020 crop acreage— for a crop just under harvest right now, and it appears farmers would receive a flat payment of $15 per acre. Hemp farmers can apply for assistance under CFAP2 through December 11, 2020.

One of the business practices that help businesses protect themselves from the effects of Croptober is vertical integration.

Vertically integrated businesses alleviate risk from plant to sale while ensuring increased consistency, quality, and product availability.  Vertical integration can insulate businesses from the market price fluctuation by establishing brand loyalty.  As the cost of the raw materials declines, the price of the finished product at retail remains the same.  Established brands selling finished goods are able to increase profit margins during this time of the year.

Related Articles:

Article #1.  Hemp acreage jumps 500% in 2019, a sign of legalization’s impact.
In this article, Hemp Industry daily analyses the expansion of registered  hemp farm acreage in relation to federal legalization. They deliver a brief industry comparison with some exciting insights.

Article #2.  August 2020 Hemp Spot Price Index Report:
This article delivers an accurate benchmark price commentary sided with interesting facts and insights gathered over the past five years.

Article #3.  Hemp Prices For CBD Tank, But New Opportunities Are On The Horizon:
This article examines tanking Hemp Prices and the silver linings stemming from these struggles.