For the past couple of years, American farmers have been on the lookout for the next best cash crop. While corn, soybeans, wheat and other crops cultivated on American farms do sell, the payoff isn’t always that great. Enter the 2018 Farm Bill, a legislation that legalized the cultivation of industrial hemp, finally granting farmers access to a high-value cash crop.
The crop is said to have thousands of uses, with applications in a variety of industries ranging from textiles and construction to bioplastics and nutrition. Cannabidiol, however, takes the cake as hemp’s most profitable application. The chemical is one of over 100 cannabinoids produced by hemp, and it is filled with potent medicinal properties.
With just a year of legal sales under its belt, the CBD sector is already worth millions in sales, and experts estimate the sector will be worth billions by 2024. However, as regulatory authorities take steps to regulate the runaway hemp/CBD sector, there have been complaints that smaller farmers with less capital will be locked out by bigger firms.
Prairie Products LLC, a South Fargo, North Dakota-based company has introduced a novel system that will allow small farmers to compete in the increasingly competitive hemp/CBD sector. Unlike most CBD processors that purchase hemp biomass from farmers then keep the profits for themselves, Prairie Products is offering to process farmers’ hemp into CBD, sell it, then spilt the proceeds with them.
According to Tom Kading, the firm’s Chief Financial Officer (CFO) and Chief Operating Officer (COO), most of the farmers growing hemp for CBD are growing less than 5 acres of the crop.
In October 2019, the U.S. Department of Agriculture published its interim final rule on hemp. On top of stating that all legal hemp had to have less than 0.3% THC, the rule required farmers to test their crops in DEA-certified labs fifteen days before harvesting.
Farmers in partnership with Prairie Products are required to send samples for third party testing. If the hemp is within the federally mandated THC limits, the firm will bring it in then send samples to Adams Independent Testing of Fargo to verify CBD and THC levels, as well as to check for heavy metals, pesticides and herbicides, and mold.
Under the split profit agreement, the firm seeks hemp with more than 10% CBD, and they split the profits 50/50. In cases where the CBD potency is even higher, farmers can get an even bigger share. All in all, the company has processed about 10,000 pounds (10 acres) of hemp, with most of the farmers letting the firm market and sell the CBD oil on their behalf.
“We’re not promising a check,” says Tom Kading, “We’re saying, ‘we don’t know what the melt will be. We’ll process it and bring it to the cruise market.'”
CBD sector players like Willow Biosciences Inc. (TSX: WLLW) (OTCQB: CANSF) are likely to welcome such innovative arrangements that give farmers to earn better by selling processed products instead of hemp biomass.
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