Have a sales plan. Consider hemp markets beyond the flower. And get ready for a bumpy ride.
Those were among the many business takeaways from the 2019 Hemp Industry Daily Forum on Tuesday at the Las Vegas Convention Center during MJBizCon Week.
The forum drew more than 500 entrepreneurs from all sectors of the hemp supply chain to learn strategies for success in the fast-moving hemp industry.
Nearly a year after hemp was legalized by the 2018 Farm Bill, the new crop is undergoing seismic market shifts that have established hurdles for even nimble, established operators.
1. Work it
The fiber market for hemp is showing real potential, but producers and processors must brace for intense legwork to make deals happen.
Claire Crunk, founder and president of Tennessee-based Southeast Hemp Fiber, said that textile purchasers are interested in domestic hemp components.
But they need education and personal outreach before buying.
“You have to hit the pavement and talk to everyone along the supply chain,” she said.
Major manufacturers are going to need samples before considering hemp components, and they need to know that the hemp can be produced at scale, she said.
2. Price for CBD pain relief must drop for full adoption
Consumers accustomed to paying $8 for a bottle of ibuprofen won’t be easily convinced to spend $40 on CBD-based pain-relief products, said Rich Maturo Sr., vice president of the cannabis practice for Nielsen.
Pricing CBD-based pain-relief products closer to $12 will entice a larger number of consumers to try them, Maturo said.
As wholesale prices of CBD decrease because of new hemp producers entering the market, veteran hemp producers will need to sell more units to make up the difference, and this is more likely to happen with a lower-priced end product.
3. CBD is an ingredient, not an industry
U.S. hemp producers are the envy of the world for their CBD production.
But they could learn a lot from more mature hemp markets in other countries, where fiber and grain products have established markets and stable genetics, according to attorney Bob Hoban of the Denver-based Hoban Law Group.
“Don’t put all your eggs in one basket,” he said, advising growers to resist chasing CBD-rich varieties that could test hot or be difficult to export.
Hoban compared the hemp plant to mashed potatoes and cannabinoids to gravy.
“Build your business around mashed potatoes, not gravy,” he said.
“Cannabinoids are gravy. You don’t feed your family gravy. You feed your family mashed potatoes.”
4. Compliance, execution key to attracting investors
Hemp and CBD companies that want to secure investors to grow their businesses need to focus on developing solid and robust business plans that are focused, tailored and include some key factors to prove their credibility.
According to Adam Fayne, a cannabis attorney in the Chicago office of the Saul Ewing Arnstein & Lehr law firm, compliance is “a badge of honor” in the hemp industry, and serious investors won’t even consider businesses that make unsubstantiated claims about their products and don’t have their compliance game in order.
“Investors want to make money, but they want to bet on the right horse,” Fayne said.
“What we’re seeing now is that because of all the headlines (about lawsuits and FDA warning letters), investors are nervous about picking the right horse. You don’t want to play fast and loose in this industry.”
Investors also want to know how businesses are using their funds to demonstrate that they can execute on their plans and that they have risk in their enterprise, he said.
“No investors would ever touch a business unless they have skin in the game,” Fayne added.
5. Make employees a priority
Like other agricultural industries that depend heavily on labor to harvest their crops, hemp farmers are finding fewer willing workers, an expense that could make or break their growing season.
A panel of hemp veterans weighed in on what farmers should do to be ready for a potential labor shortage in 2020, acknowledging that hemp is an extremely labor-intensive crop and that finding reliable workers is an expensive endeavor.
But it’s worth it to invest in quality employees, according to Shi Farms Managing Director Steven Turetsky, who said his company helps potential employees get work permits.
“We have to do right by them because they do most of the work,” he noted.
Charlie McKenzie, a crop consultant with Columbus, Ohio-based Bioculture Group, said tobacco farmers have an advantage because they often already have agricultural farmworkers from other countries through the H-2A program that provides temporary workers.
Farmers who want to enter the H-2A program might have to deal with bureaucracy and additional expenses to provide housing for the temporary workers.
So, McKenzie suggests the farmers consider:
- Staggering different varieties to finish harvesting at different times so they can use existing labor.
- Investing in equipment to mitigate the cost of labor.
Regenerative agriculture practices can also dramatically reduce labor, plus the cover crops improve soil health, said Adrienne Snow, co-founder and business development manager of Western States Hemp in Fallon, Nevada.