Starting a hemp business is easy. Some websites and articles say you can do it with as little as $1,000! However, that might be overly optimistic. This post will walk you through some of the steps and issues to consider.
What are the basic boxes to check? Decide what part of the industry you want to be in. Know the law. Create a stellar business plan and financial projections. Get licensed. Lock in your supplier. That’s for starters.
Is hemp the same as marijuana?
Yes slightly, but mostly no. Hemp and marijuana come from the same species of plant called “Cannabis Sativa L.” But hemp is not marijuana. The main difference is the resin content – hemp is low resin, marijuana is high resin. Industrial hemp means the plant Cannabis Sativa L, and any part of such plant, growing or not, with a delta-9 tetrahydrocannabinol (THC) concentration of not more than 0.3 percent on a dry weight basis. The marijuana plant is also a variety of Cannabis Sativa L, but it produces high THC levels and low CBD levels. In other words, cannabis with 0.3% or less of THC is not considered marijuana and – most importantly – is not federally regulated, which marijuana of course still is.
What do I need in my business plan?
You will need a great business plan to present your opportunity to partners, stakeholders, investors, lenders, vendors, major customers, service providers, and regulatory and licensing agencies. A good plan can include information on scores of subjects, but you can start with the business model, market-entry plan, products and services, market analysis, regulatory environment, team, metrics and milestones, financial strategy, and marketing plan, among other subjects.
How big is the market?
It’s big, really big, and growing like a pumpkin in September, but how big, no one knows yet.
The US retail consumer market for hemp CBD was estimated by some analysts to have been $591 million in 2018 and expected to reach $22 billion by 2022 – a CAGR of 147%.
An overview of the hemp industry
As of today, the big part of the hemp industry relates to CBD (Cannabidiol), a medically-useful substance that is believed to alleviate swelling, promote relaxation, and is already being added to thousands of consumer products (topicals, creams, pet foods, food, and beverages). CBD can be extracted from either marijuana or hemp, but legal CBD needs to come from hemp unless you are in a legal marijuana state.
There are a lot of different parts of the industry and numerous business choices to pick from: cultivate, harvest, process, extract, distribute raw material, manufacture consumer products, distribute, deliver, promote events, provide information services, offer scientific services to genetics or testing, provide business consulting or other professional services, and much more.
What is the law?
The U.S. situation is continually changing. As of this writing, 33 states (+ D.C.) allow the distribution of medical cannabis with THC (marijuana), and 11 states (plus D.C.) allow recreational cannabis with THC. The cultivation of industrial hemp (again, not more than 0.3% of THC in the biomass) is now federally legal in all states. However, marijuana is still federally illegal (as is hemp with more than 0.3% of THC) as a listed Schedule 1 substance. To add to the regulatory stew, the federal legality of industrial hemp cultivation does not supersede state, county, or local regulations. This means a state, county, or city can impose greater restrictions than the federal government has. Currently, about 15 states have come out with pro-hemp laws; the rest of the states are silent or vaguely neutral. For example, California (the biggest cannabis market in the U.S.) has three different, and potentially applicable, licenses for cannabis. Comparatively, as of now, only three California counties have licenses and regulations that allow hemp cultivation.
Wait – if hemp is federally legal, what’s the problem? It’s mostly a lack of regulations. Many states, counties, and cities simply haven’t yet gotten their respective arms around all the issues. In general, you can’t cultivate hemp in any specific U.S. county without a permit. Also, the FDA currently bars the inclusion of CBD in food products. Interstate transportation of legal hemp is legal, but not all the states, counties, cities, and law enforcement agencies understand this. Banks, so far, are keeping their distance from cannabis companies, pending the possible enactment of the (SAFE) Banking Act of 2019 that prohibits federal banking regulators from penalizing banks that offer cannabis-related financial services.
What is the safest path?
Be sure you’re in a state, county, and city that are supportive of hemp. Apply for, and obtain, all necessary licenses and permits. Be aware of all relevant laws. Be aware of the banking issues. Create a great business plan.
Where can I get the raw materials?
If you’re not going to cultivate your hemp and plan to get it from others, then one crucial key is to find a supplier that won’t pull back when he/she/it gets a better offer. Issues of concern include resin content, purity, feminization, freedom from contamination, and, of course, cost.
Next, whatever the source, it is important to get certifications of cGMP (current good manufacturing practices) that conform to state and FDA guidelines. The other essential certification is the CoA (Certification of Analysis) confirming plant species, levels of CBD and THC (no more than 0.3% for industrial hemp), and presence or absence of other substances such as heavy metals or pesticides).
What is the easiest way into the industry?
Let’s say that “easiest” means simplest-fastest-least costly. That would probably be information services – start an authoritative blog or news and information website, get a lot of readers, and sell ads and sponsorships. If you have, say, 3.5 million users looking at the site, you are probably generating many millions of ad views with CPMs in double digits. That’s a lot of coin.
The big shot way into the industry – assuming you don’t happen to already own a farm, a greenhouse, a processing facility, brands, and a distribution network – is a vertically-integrated operation, also known as “seed to sale,” a step into big business with correspondingly high startup costs. The costs might well include licensing and application fees, land, buildings, raw materials, labor, utilities, cultivation, seeds or clone plugs, harvesting, trimming, processing/extraction (separation-decortication, decarboxylation, winterizing, distillation), reporting, testing, and, of course, marketing, distribution, professional services, and financial service solutions.
If you need help thinking through the issues and crafting an outstanding cannabis industry business plan, please feel free to reach out.
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