The New Green Rush

With CBD now being incorporated into seemingly every product on the planet, it seems likely that the hemp industry will surpass marijuana in the coming years.

Hemp Business Journal, which estimated $390 million of CBD products were sold in the United States in 2018, expects sales to reach $1.3 billion by 2022. Meanwhile, Brightfield Group is even more bullish, predicting a $22 billion industry by 2022.

Either way, one thing is clear: The CBD rush is on.

The booming nutraceuticals category will keep growers like Oregon Fusion busy in 2019.

Farm Bill infuses new life into the agriculture sector

With the landmark 2018 Farm Bill signed, sealed and delivered and the asinine federal prohibition of hemp finally lifted, a new day is dawning for American agriculture and the cannabis industry.

The Farm Bill brings increased opportunities for banking, crop insurance and the possibility of USDA Organic certification. However, it’s also a double-edged sword, giving hemp farmers and CBD producers some much-needed federal protection, but also opening the industry to further regulation as the Food and Drug Administration aims to control ingestible products.

“It’s these unknown regulations that could put companies out of business,” says Adam Kurtz of Fusion CBD, a vertically integrated hemp producer with operations in multiple states.

Plus, legalization and legitimacy will inevitably bring in big-time investors, leading to consolidation and corporate farming, a far different landscape than the modern hemp industry’s mom-and-pop roots.

“We still have this window of opportunity to develop brands, to expand farming operations and really see where this can take us,” Kurtz says. “As an industry, we need to learn how to donate properly and lobby as a group. If we don’t learn to work together, we’re going to be taken out one by one.”

But even the need for more organized lobbying efforts is evidence of a maturing industry. In past years, many hemp farmers didn’t know exactly where they would sell their harvest.

Historically, growing crops has always been the easy part of agriculture, says Barry Cook of the Boring Hemp Company, a state-licensed Oregon hemp farm.

“We’re creative. We’ve got good soil. We can grow anything, anywhere, anytime,” he says of American farmers. “It’s selling what you grow that really becomes the challenge.”

Now, with the tremendous spike in demand for CBD, it’s not so much a question of whether the crop can be sold, but if extraction facilities can process the thousands of acres of hemp being cultivated. To that end, Cook sees a huge opportunity in the processing and refining side of the industry, as manufacturers and consumers seem to have a limitless appetite.

Nothing But Hemp in Minnesota carries more than 120 CBD-based products from well-known West Caose brands. Photo courtesy of Nothing But Hemp.

Retail on the rise: From mainstream outlets to niche stores

The beautiful thing about CBD is that essentially every retail business in North America can sell some type of cannabis-based products. Pet stores can sell CBD dog treats. Yoga studios can sell CBD topicals. Barbers can sell CBD hair care products. Coffee shops can sell CBD beverages. Smoke shops can sell CBD rolling papers. The list is endless: health food stores, mainstream grocers, mom-and-pop bodegas, cannabis dispensaries, pharmacies, sporting goods stores, etc.

As Altitude Products founder and CEO Krista Whitley puts it, “CBD is their opportunity to own a piece of the Green Rush.”

While state-licensed cannabis retailers are often at odds with the broader CBD industry, the opportunity to sell hemp-based products has led to an explosion of CBD-focused retailers, particularly in the Midwest and states that have yet to legalize marijuana for recreational use.

In Minnesota, which has one of the most restrictive medical marijuana programs in the country, Steven Brown started Nothing But Hemp as a kiosk in St. Paul’s Maplewood Mall. The positive reception and explosive sales growth led Brown to immediately open two standalone locations with more of a “West Coast vibe.”

The company sells more than 120 different products — everything from tinctures, oils and vape pens to edibles, topicals, patches, pre-rolls and hemp flower — from brands including Charlotte’s Web, Siskiyou Sungrown, Select CBD and Funky Farms. The shops are called Nothing But Hemp, but they could just as easily be called Everything But THC.

“It’s just like walking through a dispensary in San Diego,” Brown says.

Brown originally opened Nothing But Hemp to gain a foothold for marijuana dispensaries, for when laws change in the North Star State. Now he’s not sure if he’s going to go that direction as CBD sales have been nothing short of spectacular.

“The first month, we were doing okay,” he says. “By mid-November, we were doing unbelievable. Every month, we keep doubling or tripling our numbers. It’s been very interesting to grow this fast.”

Brown plans to continue expanding, with a goal of having six shops in the Twin Cities area and then licensing the brand to other operators.

Nothing But Hemp has a small handful of competitors in Minnesota, including, to a certain degree, the four state-licensed dispensaries. It’s unclear what regulations may look like in the future or when stricter oversight for CBD products will come into play.

“It’s going to be interesting to see how it evolves,” Brown says. “I do think there will be regulations on CBD. … The Pharmaceutical Board would probably prefer us not to be in business, but I don’t think that’s going to happen, considering all the money that’s in CBD. I just think they’re going to want to regulate it better.”

But perpetual uncertainty is a fact of life for every business in the cannabis space. It’s the joy of operating on the bleeding edge of social change.

“Sometimes it keeps you up at night because you don’t know exactly where things are going,” Brown says. “I could wake up tomorrow and a new law is in place.”

Will the state require licensing? Will edible products be outlawed? Will vertical integration be mandated? Brown wants to focus on retail, but he’s contemplating whether it makes sense to buy a farm or extraction equipment to stay ahead of the curve.

“I don’t want to go that route, but those are questions I ask myself every day — what’s the next step? — just in case.”

At Oregon Fusion’s partner farm in Roseburg, Oregon, workers hang thousands of acres of harvested hemp to dry during the 2018 season.

Oregon farm benefits from experience

Adam Kurtz of Fusion CBD has watched the U.S. industry develop from its infancy, witnessing the growing pains first-hand. That head start has led to vital advancements in cultivation and harvesting techniques to get better yields and more potent cannabinoid profiles, while reducing operational inefficiencies.

Fusion CBD, a national consumer brand, is actually one component of a larger business: Oregon Fusion is a state-licensed hemp operation that also works with partner farms; New York Hemp Alliance is the company’s New York farming operation; and IndustrialHempExchange.com is a B2B sales platform. The four businesses operate independently with corporate offices on the East Coast.

Like Brown, Kurtz says it takes flexibility to be successful in the hemp business: “You really just have to be prepared to be nimble. Things are forever changing.”

Another important lesson Kurtz has learned is that not all companies and people are who they say they are. Entrepreneurs in the hemp space have to be careful who they’re doing business with, particularly when buying seeds, genetics, plant material and other raw commodities — a word of wisdom that also extends to consumers.

“That’s why we’ve been very careful about how our brand is rolled out,” Kurtz says. “One way we’ve navigated that is having a call center and fulfillment center. Customers can call in, ask questions and place an order right over the phone.”

E-commerce and brick-and-mortar sales both account for about 10% of Fusion’s current revenue, but Kurtz sees that shifting toward brick-and-mortar sales as e-commerce for CBD becomes an oversaturated arena.

“We sell to head shops, glass shops and tobacco shops all across the country,” he says.

Oregon farmers may have an early advantage in the booming national CBD market, but the Farm Bill and various state programs leading up to its passage have brought a host of new competitors, including many from states that have remained opponents of marijuana reform.

From left to right, Allison Hope Justice, Deborah Justice and Amanda Justice Schell of The Hemp Mine, one of the 20 original hemp licensees in South Carolina.

Fending off the sharks in South Carolina

About three years ago, Allison Hope Justice left South Carolina for Southern California, bringing her deep knowledge of horticulture to the medical marijuana industry as OutCo’s vice president of cultivation. Six months later, Christopher Cortina, another South Carolina native with agri-business experience, also joined OutCo.

When South Carolina legalized hemp in 2017, Justice, who has a Ph.D. in horticulture, encouraged her family to apply for a hemp cultivation license, triggering a chain of events that brought her and Cortina back to their home state — armed with a valuable education in cannabis. Justice’s family partnered with OutCo and another investor to create SC Botanicals, an extraction and consulting company that serves the burgeoning South Carolina hemp industry.

“There aren’t too many South Carolinians who understand vertically integrated cannabis, so these farmers definitely want to work with someone local,” says Cortina, who has been SC Botanicals’ operations director since September 2018.

SC Botanicals does toll processing for local farms, including the Justice family’s Hemp Mine. Farms grow and harvest their crop; SC Botanicals extracts full-spectrum oil from the plant material, keeping a portion for itself and returning the remainder back to the farm. SC Botanicals also helps farms navigate the unfamiliar new industry, as well as selling its own oil wholesale.

“It’s more of a partnership; kind of a co-op that we’ve formed,” says Justice, who now spends most of her time in South Carolina.

Because SC Botanicals produces full-spectrum oil, rather than isolate, quality of the plant material is paramount.

“I can’t turn hay into gold,” Cortina says.

While potency and yields vary drastically from one farm to the next, Cortina says he was “absolutely blown away by the quality. I was expecting sort of the ragged-looking, beanstalk-like plants typically associated with industrial hemp.”

Instead, what he found was fragrant, high-quality crops that were indiscernible from marijuana, aside from test results (which regularly surpassed 21% CBD and almost 3% terpenes for some cultivars).

However, the look and smell of cannabis attracted a persistent and unexpected pest: thieves.

“During the last two to four weeks of harvest, people would hop over the fences to steal whole plants,” Justice says. “Obviously that’s not because they think it’s hemp. … There was one farm that had eight arrests this year just from people jumping over the fence and stealing plants.”

And sadly, that number is likely to rise in 2019; South Carolina is effectively quadrupling the size of its hemp program, licensing an additional 20 farms, to bring the number up to 40, and allowing each licensee to grow 40 acres of hemp, up from 20.

Yet, optimism runs high as consumer demand for CBD continues to rise and the passage of the Farm Bill creates an even larger B2B market, with major cosmetics companies exploring the space.

“We’re all super excited,” Justice says. “I think overall we had a successful year. There were a lot of growing pains. There were a lot of things learned in the first year, and I’m sure there will be a lot of things learned this year.”

Humboldt Apothecary founders Susan Cleverdon (left) and Gillian Levy.

New opportunities at the intersection of THC and CBD

CBD can be described as the “gateway into cannabis.”

While many people remain intimidated by THC, CBD has opened the door for a lot of people who never would have considered using a cannabis-based product, says Gillian Levy, who founded Humboldt Apothecary in 2015 with her business partner, Susan Cleverdon.

California has long been known for its high-potency, high-dose cannabis products, but Levy and Cleverdon wanted to develop products that weren’t available in the state’s dispensaries at that time.

“It was kind of the industry standard, like ‘how many milligrams of THC can you cram into a chocolate bar?’” Levy says. “That was kind of the barometer of whether or not something was desirable.”

Humboldt Apothecary took a different approach, creating products that would allow consumers to receive the benefits of cannabis, while still allowing them to go about their day. The craft cannabis company makes tinctures with a wide range of THC-to-CBD ratios. Tinctures have been a steadily growing segment of the cannabis market for several years, a boon for companies like Humboldt Apothecary.

However, recreational legalization in California has been a bumpy process to say the least. Licensing delays, local bans, increased competition, high taxes, declining prices and the general high cost of compliance in a strictly regulated industry have shuttered many businesses or pushed them back into the illicit market. Levy says the state has seen “waves of extinction.”

Humboldt Apothecary has been fortunate to survive the tumultuous transition. Aligning with the right people, making a few smart choices and having “a whole lot of luck” helped.

“I won’t lie; it’s been a huge challenge,” Levy says. “It’s been a very stressful year, and I don’t think you would find a single cultivator, manufacturer or dispensary that would argue that point.”

But legalization also creates plenty of new opportunities. Many people looking for alternatives to pharmaceuticals are more open to cannabis products, in part because of the growing buzz about CBD. Most of those people never would have gotten a medical marijuana card, but they now have access to those products at adult-use retail shops.

“That has been a great benefit for us,” Levy says.

Humboldt Apothecary products are currently available in more than 200 California cannabis shops, and the company plans to launch a national CBD line in the near future. Although other CBD product manufacturers jumped headfirst into the national market, Humboldt Apothecary held back. Having developed a reputation for quality, Levy was hesitant to slap the Humboldt Apothecary brand on hemp-derived products.

“But with the passing of the Farm Bill, there’s a clearer pathway to making sure the product we put out is from top-notch sources,” she says.

 

‘Dirt nerds’ beat the drum loudly for the hemp industry

Boring Hemp Company is a family owned company — “which means we don’t always agree,” the company says on its marketing literature — with decades of experience in traditional agriculture, fruit production and nursery stock.

“We’re kind of dirt nerds,” Barry Cook says. “We’ve worked a lot with the soil and getting things to grow where it’s been difficult to grow.”

When his sons approached him with the idea of planting industrial hemp as a rotational crop on the farm’s fallow nursery ground, Cook started researching the plant.

The more he learned, the more intrigued he became.

“I became a heck of a horn-tooter and drum-beater (for hemp),” he says. “It’s a fun plant to grow and it’s kind of rejuvenated my enthusiasm for agriculture in Oregon. It brings economic hope, and it fits with our core value of being able to preserve precious natural resources.”

Cook describes Boring Hemp Company as a “three-legged stool”: It provides consulting and genetics to other farmers, in addition to its own cultivation.

“We tell every farm: Try not to reinvent the wheel here,” Cook says. “It’s not a terribly expensive crop to farm, but it is a ridiculous amount of money when it comes to your cashflow burn rates, and that’s because we’re talking about an annual crop. We’re talking about a significant investment that will eat cash for 12 to 18 months.”

Boring Hemp Company has been able to sell its entire crop every year so far, and the upcoming season could see a dramatic increase in demand.

“I’m all in and excited about where we see the hemp industry going in the United States with the 2018 Farm Bill passing,” Cook says.

Altitude founder and CEO Krista Whitley has invested a lot of time working with mainstream retailers to sell products like the Bella brand and Black Belt CBD line.

Brand-builder’s company takes off ‘like a rocket ship’

Four years ago, Krista Whitley started a business in the comfort of her own home, brainstorming brand concepts on her couch and formulating niche CBD products in her kitchen.

Her timing and execution couldn’t have been better; Altitude Products has “taken off like a rocket ship in the last couple years,” she says. “We’ve certainly moved off my couch.”

Whitley, once the sole employee and driving force behind Altitude, now has 57 employees helping manufacture more than 350 individual SKUs in a 13,000-square-foot Las Vegas warehouse. The company produces four brands with THC, which account for about 5% of Altitude’s revenue, in addition to 11 CBD brands.

Altitude has found success in focusing on niche markets, having created highly targeted products, such as the Black Belt CBD line for martial artists, the irreverent Jack line of men’s products, the Whisker Wellness line for pets and the luxurious Bella line for women dealing with eczema, psoriasis or other skin sensitivities. But while the products might be niche, the market is massive.

One of the company’s top-sellers is the Bella Aqua d’Amore, a water-based, CBD-infused personal lubricant for women who experience discomfort during intercourse — one out of every three women, according to Whitley.

“One-third of American women is a pretty large market,” she says, adding that the Aqua d’Amore gets rave reviews because “we’re targeting a specific need and doing it in a classy manner with a lot of grace.”

But not every Altitude product has been an instant hit.

While the Black Belt CBD line has been popular, Altitude’s pre-workout protein products have not. The company began to scale back on them because topicals, recovery rubs and capsules have proven to fit better into athletes’ training regimens.

“What we figured out was that at the end of the day, the consumer is not interested in having a protein CBD shake in the morning,” Whitley says. “The way they want to consume CBD was much different than we’d hypothesized.”

Another component of Altitude’s success is its partnerships with retailers. The company works with mainstream distributors and hundreds of specialty retailers to put its niche products directly in front of the right audience. For example, its personal lubricants are sold in adult shops across the nation, the Jack ‘Stache Cement is sold in more than 250 barber shops and boutique hair salons and the Black Belt CBD line is available at nearly 100 gyms and dojos following its October 2018 launch.

“I invested a huge amount of time in going out and educating mainstream distributors,” Whitley says. “For a lot of them, it took 18 months to two years before they would finally come online.”

The company sells some products through cannabis dispensaries, but the number of pot shops in Nevada doesn’t compare to the thousands of potential retailers that can sell CBD products.

Plus, the passage of the 2018 Farm Bill added jet fuel to an already skyrocketing business.

The legislation “has been a fantastic catalyst for mainstream growth,” Whitley says. Several large “box stores” that were previously on the fence about CBD products have now jumped fully on board.

“We’re seeing exponential growth in mainstream distribution channels that we couldn’t have imagined three or four years ago,” she says. “We’re excited to help blaze the trail to get these products on the shelves of mainstream retailers.”

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