In 2013, Paul Murdoch fell off his roof.
“I had so many opioids, I was swimming in them,” Murdoch, owner of Horn Creek Hemp in Southern Oregon, says of his post-surgery medications. “Then my son brought me CBD, and it was like magic.”
So Murdoch had an idea: To start growing hemp on his family’s farm, where they run a smoked meat company. They started playing around by growing just a few hemp plants for personal use. It went well. So in 2017, they started growing hemp by the acres on a commercial scale.
But the industry they thrust themselves into, only two years into its federal legality, is struggling to stabilize. The 2018 Farm Bill broadly legalized hemp cultivation and transfer over state lines, ushering in an industry highly anticipated to be a cash cow.
Unsold Hemp Going to Waste
But just ahead of the new year, Whitney Economics dropped a report that shows hemp farmers nationwide are still sitting on 135 million pounds of hemp cultivated in 2019 — and likely much more because of data gaps — that still hasn’t been purchased by a buyer.
It’s sitting in barns and warehouses across the country. And it’s likely to go to waste the longer it sits, as its shelf life dissipates the longer it sits unpurchased.
“If it’s not processed it’ll degrade in quality and it will also change in terms of its chemical makeup, so it may quickly become worthless. So that’s a big deal,” Beau Whitney, the founder of Whitney Economics and economist who studies hemp and cannabis, tells The News Station. “It also means you’ve got another big slug of plants from [the 2020] harvest, so you have a continuation of oversupply in the market.”
Excess plant flooding the market creates a steep drop in the price farmers can get for biomass, leaving farmers in a precarious financial position going into this new year and questioning the crop they thought would usher in big profits.
Hemp is expensive to grow, requiring hyper-tailored amounts of sun and water. So settling for a price point far below what it’s worth is a harsh reality for farmers to succumb to — but they’re running out of time.
Whitney’s latest report on hemp paints a dismal picture reminiscent of Oregon’s cannabis glut in the winter of 2017, when regulatory agencies licensed so many overzealous cannabis farmers to grow that excess product plummeted flower prices. Many Oregon cannabis farms didn’t survive that winter financially, and backed out from the industry.
The report shows an industry roiled by overproduction and regulatory murkiness, leading to a lack of buyers for biomass grown by eager farmers across the country. Whitney’s report shows 63% of cultivators are without a buyer for their 2020 harvest, which is still just a slight drop from the 65% of farmers without a buyer the previous year.
“Every single hemp farmer we know has excess hemp sitting around”Mason Walker of East Fork Cultivars in Takilma, Ore.
The results were damning. Last year was another fluke for the crop that many promised would be the future of industrial materials, livestock feed and personal wellness, marked by a dissonance between cultivators, processors and buyers.
“Early on my business partner, he was always on me that he thought everyone was growing too much. I convinced him last year to do 22 acres,” Josh Gulliver — who owns J&J Organics in Philomath, Oregon, where he grows hemp and herbs — tells The News Station.
At the start of this year, Gullivan was still sitting on 16,000 pounds of hemp from 2019, which, he says, “is more than I want or need.”
So he’s pivoted, something those in the cannabis industry are known for after enduring half a decade of a roller coaster industry plagued by product gluts, patchwork legalization and environmental challenges. Gulliver’s used some of the hemp to make “biochar”, or fertilizer for his fields, that’s created by burning the hemp in closed containers with no oxygen so the plant contains its nutritional value.
Last year, Gulliver planted only four acres of hemp.
But even though total acreage is down, the number of cultivator licensees increased, Whitney’s report shows — suggesting farmers decreased the amount of hemp they grew in 2020, but more people flooded the supply market.
Farmers, realizing they’ve overproduced, are scrambling to churn their excess plants through a processing facility to create oil, which has a long shelf life until it’s purchased for commodity products like makeup, drinks and various topicals and edibles. But processors, emboldened to enter the market this year after data showed that farmer output far exceeded what processing facilities could handle last year, are now struggling to find buyers for their extracted products and oils.
Farmers in all Regions Hurting
Processor licensees jumped from 3,000 in 2019 to over 6,000 in 2020 — and many of those processors are sitting on unpurchased products, too.
In Tennessee, where the number of licensed hemp acres jumped up 13,000 from 2019 to 2020, farmers struggled to get access to processors, largely because they hadn’t created relationships with processors prior to harvest.
Other states decreased licensed hemp acres this year by over half, including Oregon, Vermont and Wisconsin.
Some states butchered the rollout of hemp production less than others.
Georgia requires growers to have an agreement with a processor if they’re to obtain a license with the state. 2020 was the state’s first year of production, and growers planted only 360 acres this year.
“I think most [farmers] viewed this as a trial year to get their production system down- and growers were cautious about entering into hemp based on hearing what had happened in other states with oversupply,” Tim Coolong, researcher and professor of Horticulture at the University of Georgia, told The News Station. “It’s quite different than a situation where thousands of acres would be licensed to be grown without a processor lined up.”
These markets have to go through a sorting process.”Phil Jennings
Gulliver also owns a processing facility, so he’s able to make much of that hemp into oils and tinctures. But the demand for oils isn’t high enough to churn all that biomass through the processor.
“From the processing perspective, we’re not turning that 16,000 pounds into oil, because we’re sitting on 200 kilos of oil,” Gulliver says. “It doesn’t make sense to spend the money to process right now. We’re just waiting for this Hail Mary to pass.”
Farmers haven’t completely missed the signs from the cannabis glut and the 2020 oversupply: total licensed hemp acreage was down by 27,000 acres from 2019.
Small Farmers Hit Hardest
While some larger cultivators only grow on a contract basis — meaning they know the buyer before even planting the seed — many smaller and medium-sized farms scramble to find a buyer throughout the cultivation process.
“Every single hemp farmer we know has excess hemp sitting around,” Mason Walker, co-owner of East Fork Cultivars in Takilma, Ore., told The News Station.. “If you’re in southern Oregon and your hemp is sitting in a barn, it’ll degrade quickly. It’ll get brown and oxidize.”
The CBD quantities won’t dip drastically, but the longer it sits, “you lose chances to sell it in non-commodity markets,” Walker says. Commodity uses for hemp include biomass, crude extracts, distillate and isolate.
East Fork has a couple thousand pounds of hemp biomass leftover from 2019 from 12 acres, and they’re struggling to find a buyer who will pay what the farm thinks its hemp is still worth.
For Gulliver, he says it would take him getting desperate to sell his leftover hemp for a low price.
“If I could get 50 grand for it, I could pay my employees, I could pay my lease on the land,” Gulliver says. “But unless I’m desperate, I cannot let that happen.”
And that lack of buyers, Whitney says, is largely due to regulatory murkiness created by inefficiencies and loopholes of a fractured oversight from three federal regulatory bodies: The Food and Drug Administration, the US Department of Agriculture, and the Drug Enforcement Agency.
“Either growers didn’t have any problems or they did, and they did in a big way”Beau Whitney
Not all farmers say they’ve struggled to find buyers. Phil Jennings, who owns Village Fields Hemp based out of Georgia, planted 1,300 acres of hemp in 2019 in Virginia — and though he has two warehouses filled with biomass from that year still, he’s had steady buyers — most of whom are processors — and hopes to be rid of all of it within the next four months.
But he’s not naive: He’s seen the industry struggle, and this year he only planted 100 acres. He wants to wait for the market to stabilize before plunging in again.
“These markets have to go through a sorting process. Once the get-rich dudes fall out and it stabilizes back to people who are going to stay in the business,” Jennings says. “We gotta let this market clean up.”
Whitney says the confusion comes conceptually from regulators straddling the line between considering hemp a viable industrial plant and an illicit drug.
One of the primary culprits that’s roiled the market along the supply chain, giving little confidence to farmers, processors and product developers, is the DEA’s determination that at no point during cultivation can the plant contain more than .3% THC — the most commonly known psychoactive component of marijuana (hemp’s cousin).
That determination sent “shockwaves” through the industry, Whitney says. He compares it to the production of orange juice.
“In the processing of oranges for orange juice, one of the byproducts of processing oranges is alcohol. So if you applied the same principle that the DEA is applying to hemp, you’d have all these orange juice manufacturers violating laws about not producing alcohol,” Whitney says.
So product manufacturers, for fear of being hit for processing an illegal plant that’s deemed illegal two weeks prior to harvest after it’s already been purchased, are holding off from purchasing.
That applies to makeup companies, beverage companies and other industries capitalizing on a novel industry.
“They’re doing product development behind the scenes, but they’re not introducing products into the market out of fear that they’ll one day overnight become illegal,” Whitney says. “All this money that’s sitting on the sideline waiting for murkiness to clear.”
So for fear of testing hot, buyers are counteracting that in a simple way: By not buying.
And who gets hurt most from buyer hesitancy? Farmers who already harvested hemp and are sitting on hundreds or thousands of pounds of unused, aging biomass.
Whitney says that .3% determination is disrupting every part of the supply chain.
“Either growers didn’t have any problems or they did, and they did in a big way,” Whitney says. “And when I asked the farmers what percentage of their crop would be deemed illegal that tipped over that point, about 25% of their crop on average did.”
This Happened with Marijuana
The hemp oversupply from 2019 is a dark deja vu to the great cannabis oversupply of 2017 — what the owners at East Fork call “the winter of sorrow,” only partly in jest. They were forced to furlough many of their workers while the leadership team continued to work for free.
“What happened with cannabis in 2017 is what happened with hemp this past winter, but multiply it by 50 times,” Walker says.
East Fork is lucky to have the proper storage infrastructure to preserve their hemp biomass for several years, but most farmers don’t have that infrastructure in place and don’t have the overhead money to invest this late in proper storage.
“Regulators aren’t familiar enough with the plant to make solid policy around it,” Whitney says. “And they’re drawing these distinct lines in the sand rather than allowing regulatory flexibility early on so regulators can learn.”
Though CBD oils, tinctures and edibles are what comes to mind for most when they think of hemp, that’s just a sliver of what the plant can do, Whitney says — and it’s likely not the future of the plant, even though 82% of cultivators grew for CBD this year, according to Whitney’s report.
“What happened with cannabis in 2017 is what happened with hemp this past winter, but multiply it by 50 times”Mason Walker
Julie Lerner, CEO of the commodity trading platform PanXchange, says the CBD market is just “a fraction of production, a tiny tiny fraction of the retail prices” — and says the demand simply isn’t there for how much hemp is leftover from 2019.
“The demand isn’t there. A little bit of hemp goes a long way. A kilo of isolate can make thousands of tinctures,” Lerner — who thinks eager farmers jumped the gun — tells The News Station. “It’s what a gold rush looks like in this century. They thought they struck gold on this thing.”