Hemp businesses are facing increased production and pricing uncertainty in a period of dramatic change.
The hemp industry continues to expand at a remarkable rate. Managing that growth in business means companies need to manage the complexities of growth, cultivation, retail, and operations with complex tools that can scale and adapt to handle the additional opportunities.
Enterprise resource planning (ERP) software is an ideal way to integrate data, processes, and security across your hemp business. An agriculture ERP solution gives your company a significant competitive advantage.
Here’s a look at why growth in the hemp industry necessitates advanced ERP tools.
State of the hemp industry
The hemp industry is in the midst of the first year hemp could be harvested after the plant was removed from the Controlled Substances Act. Despite there being state-by-state variances in wholesale prices, as hemp becomes a national commodity, there will be a leveling of price as producers compare across state lines. However, for now, there is still a great deal of regional variability in price.
After passage of the 2018 Farm Bill, industrial hemp production became a legal business practice. In the next year, the industry changed rapidly. Hemp-based products are now available at dispensaries, smoke shops, supermarkets, and convenience stores nationwide.
Demand is huge for hemp-based products and the market is starting to respond. According to one database provider, as of September 2019, there were:
- 12,343 active hemp licenses, with nearly 12,000 of the in the United States and the remainder in Canada
- 544 active hemp seed licenses in the United States
- 10,672 active cultivator licenses in 30 states
- 1,323 active processor license
Cultivation was one of the key growth stories in 2019. There was a significant expansion of cultivation licenses as farmers began growing what is perceived as a highly profitable crop.
The federal Department of Agriculture reported in August 2019 that U.S. farmers nearly quadrupled the amount of land committed to hemp in one year to 128,000 acres in 2019 compared to 27,000 acres in 2018. That 328 percent increase far eclipsed the second-largest growth crop – maple sap, which grew 85 percent in the same period.
According to Cannabiz Media, acreage dedicated to hemp production is growing exponentially – with approved acreage growing by 12 times in Tennessee and by three times in Kentucky.
The math makes sense for farmers to shift to hemp.
“There are a lot of things you can do on a farm, but there aren’t a lot of things you can do to make money,” Will Brownlow, a Kentucky farmer, noted in a 2018 interview shortly after he shifted to hemp. A dense acre of flowers containing CBD could yield $30,000, compared to $500 an acre for soybeans, he said.
“The plant is a weed,” he said. “And it likes to grow.”
The top 10 states with the largest number of cultivator licenses as of September 2019 were:
- Tennessee (2,913)
- Oregon (2,534)
- Kentucky (972)
- Colorado (759)
- New York (422)
- North Carolina (396)
- Pennsylvania (328)
- Vermont (311)
- California (291)
- Montana (258)
The top 10 states with the largest amount of land growing hemp in 2018 were:
- Montana (13,141 acres)
- Colorado (5,562 acres)
- Kentucky (4,615 acres)
- North Carolina (3,263 acres)
- North Dakota (2,669 acres)
- Tennessee (726 acres)
- Wisconsin (665 acres)
- Minnesota (583 acres)
- Oregon (496 acres)
- New York (332 acres)
States are rapidly expanding the number of approved acres and cultivators for hemp.
A look at several states and hemp production
Here’s a closer look at the state of hemp production in the top three states in 2018 acreage.
- Colorado. Farmers characterize the regulatory climate as favorable, in keeping with the pioneering role the state has taken in many areas of cannabis and hemp, including the first U.S. pilot hemp program. Colorado faces a challenging actual climate for hemp production. The arid, low-humidity climate means crops are thirsty, with high irrigation demands during peak growing seasons – May to October. However, in 2019, heavy rains hurt early planting, meaning farmers had to rework fields several times. Severe weather can also be an issue, with both long snow seasons and hailstorms in northern Colorado always a threat.
- June 2019 Supply
- Licensed acres: 80,000
- Licensed indoor square footage: 9 million
- Licensed growers: 2,300 active registrants
- Product Prices
- Hemp flower: $200 to $500 per pound
- Whole-plant biomass: $25 to $60 per pound
- Kentucky. U.S. Senate Majority Leader Mitch McConnell is a vocal champion for his state’s hemp business and drove the crop’s inclusion in the 2018 Farm Bill. In 2019, the state approved 5 times as many hemp farmers and triple the acres than in 2018. A very wet spring has meant a challenging growing season.
- March 2019 Supply
- Licensed acres: 58,000
- Licensed indoor square footage: 6 million
- Licensed growers: 1,047
- Product Prices
- Hemp flower: $200 to $400 per pound
- Whole-plant biomass: $25 to $40 per pound
- Montana. The top producer in 2018 predicts to double production in 2019. Long known for grain production, hemp is a promising option for farmers facing difficult tariffs. The state has passed laws that make it easier for hemp farmers, too. The dry northern climate means a short growing season and permission to tap into federal water resources on a case-by-case basis.
- June 2019 Supply
- Licensed acres: 40,000
- Licensed indoor square footage: Unknown
- Licensed growers: 250
- Product Prices
- Hemp flower: $200 to $400 per pound
- Whole-plant biomass: $40 to $60 per pound
Impact of legalization on hemp companies
With the legalization of hemp cultivation, the impact on cannabis companies has been significant. Companies today need to be increasingly vigilant about changes in the industry.
Pricing was a complicated issue in 2019. The increase in cultivators and acres committed to hemp has meant an overproduction of the product, leading to extensive supply. That production may be outpacing consumer interest, driving a reduction in pricing across the country.
According to one analysis, CBD isolate prices fell from a high of $9,470 per kilogram in October 2018 to $4,133 per kilogram in August 2019, a decline of more than 50 percent in less than a year.
This pattern is not unexpected. As Hempgrower.com noted, cannabis markets behaved similarly in the year after legalization. The states of Oregon and Washington each saw “an immediate spike in prices, followed by a dramatic oversupply and subsequent price crash. Only now is the Washington market beginning to feel a shortage in the cannabis market—a correction, of sorts—signaling a stabilizing process.”
Regulation also contributes greatly to the uncertainty facing the hemp industry today. While the federal government has not yet issued any guidelines on hemp growing, many states and local jurisdictions are creating mandates in the growing, use, sales, banking and documentation required for hemp companies to remain in business.
The many different regulatory structures is a complex issue that is best served by a hemp ERP solution that monitors and tracks data, provides reporting on demand, and generates documentation necessary for each different regulating entity.
There are also the very tangible constraints that regulatory pressure is putting on farmers. Take THC content, for example. Restrictions on potency are common and need to be addressed by each farmer, who may not be familiar with growing techniques for this hands-on crop.
The 2018 Farm Bill explicitly spells out that industrial hemp is any cannabis plant with less than 0.3 percent of tetrahydrocannabinol (THC). It also makes clear that cannabidol (CBD) is still classified by the Food and Drug Administration as a drug ingredient that is illegal to include in food or health products without FDA approval.
This uncertainty in terms of federal regulation means that farmers and companies are taking the long view when it comes to markets and growth, believing that the federal-state-local discrepancies will eventually shake out.
Using hemp ERP to drive business success
Rapid growth, regulatory mandates and price uncertainty means having an ERP that can accomplish the myriad skills your cannabusiness needs. Sage X3 offers an ERP product with your hemp business in mind.
With Sage X3, you have access to a powerful tool that provides best-practices ERP software to integrate data, deliver transparency and productivity and improve business outcomes. For cannabis and hemp companies, Sage X3 offers industry-specific advantages including:
- Traceability via RFID, barcode or manual entry
- Operational data capture
- Intuitive user interfaces
- A configurable quality control module
- The ability to integrate with state and province regulatory systems
NexTec helps companies manage their business software needs. Our experts offer extensive expertise into the vendors, products and features for enterprise resource planning and other software tools.
In partnership with Sage X3, NexTec has developed a single platform for managing your hemp business. From operations management to distribution, NexTec’s Hemp Business Technology solution delivers industry-specific value, including:
- Financial and operational management
- Traceability controls at each phase
- Plant processing including drying, trimming, curing, extraction, product manufacturing, testing, and packaging
- Inventory tracking, pre-delivery and delivery
- Product recall management
- Complaint management
- Production scheduling
- Supply chain management and distribution
- CBD production processing
- Material Requirements Planning (MRP)
With Sage X3 and NexTec, your cannabis business can stay ahead of the rapidly changing cannabis and hemp industry changes.
Learn more about technology that runs your hemp business.