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Hemp By the Numbers: Calculating Potency, Yield Per Acre & Broker's Fees
One of the most confusing aspects of the CBD products in the hemp industry (hemp-derived low THC Cannabis products) are the numbers used to determine aspects such as potency, pricing and commissions. Postings on social media or even in face-to-face meetings have not yet resulted in solid “best practices” for the hemp space. We are headed in that direction but we still have a ways to go.
To follow are what I hope are some helpful guidelines when entering into a hemp transaction.
Potency: The percentages of compounds (primarily THC and CBD) found in hemp material vary widely depending on the cultivar grown, and the methods used to dry, cure, and store the biomass material and the methods of testing the finished biomass. At this point the preferred way pricing on hemp biomass is calculated is based on the dry weight percentage of CBD in the plant material times a dollar price per percent. Testing milled material is preferred since it allows for a much more consistent product to test.
For example, if the hemp you are selling tests out at 10% CBD by weight and you are asking for $3.00 per percent, then the per pound cost is $3.00 per % x 10% per pound or $30-per-pound. Obviously the higher the average CBD percent, the more money you can ask per pound. This price per percent of CBD changes throughout the season, with the lowest prices at the time of initial harvest in the Fall and the highest prices at the end of the Summer when it may be very difficult to locate good quality material.
Net Dollars Per Acre: For farmers trying to figure out how much they can net from their growing operations, I offer a simplified guide. Determining dollars per acre starts with density. Planting density for high CBD crops varies widely from 1,000 – 4,000 plants per acre. You then take the number of plants multiplied by the weight of the stripped (shucked) leaves and flowers per plant when harvested and dried to determine total pounds per acre.
As an example, since the numbers vary quite a bit let’s take a conservative number of 1,500 plants per acre yielding a dry weight of one (1) pound per plant. This would mean a yield of 1,500 pounds per acre. Multiply $1,500 by the $30-per-pound value we calculated earlier, and we are talking about $45,000 gross income per acre. Growing costs also vary widely depending on a number of factors. Using a $5,000 to $10,000 cost to prep, plant, and harvest each acre, a farmer can conservatively expect a $35,000 net profit per acre. Any farmer of a traditional crop such as wheat, corn, or soy will tell you that this yield far exceeds the next most lucrative crop, tobacco.
If your primary motivation is the money, you can expect to have a challenging time finding partners to work with.
Broker Commissions: Having personally served in the roles of consultant, broker, manufacturers rep., buyer, and seller, I have seen first hand the level of greed that has woven its way into this part of the industry. Brokers tend to tack on anything from just a few dollars per pound on biomass to several hundred dollars per kilo for isolate onto the sales price to the final buyer. This additional fee can compound greatly when you discover you are in a “broker-chain” where several brokers are all adding their respective commissions. The broker fee practice will standardize over time, but at this early stage in the industry the expectations for large profit are often way over the top.
For example, if I am working on a sale of 100 kilos of isolate a month, and tack on $100 to each kilo, I can expect to see my bank account grow by $10,000 per month. On the other hand, if I am working on one of those 1,000 kilo a month deals (the vast majority being Polka-Dotted Unicorns – PDU’s) and I add only $25 per kilo, then I could become richer by $25,000 per month. This possibility of perceived riches helps drive brokers and others to focus on those far less likely deals. For this reason I encourage all folk doing intros to not be greedy and help make deals happen. Moreover, a handful of successful smaller deals will pay all your bills and allow you to escape on that long-awaited vacation.
I realize these examples only scratch the surface of the numbers in the hemp space. However, I hope this helps clarify expected finances if you are growing high CBD hemp, wanting a fair price of your crop based on its cannabinoid potency, and what constitutes a reasonable broker fee.