If you’re looking to invest in a business that is constantly on the rise, then hemp oil might be a choice to consider. This industry is blooming on a worldwide level. Take a look at these statistics from 2017.
Source: Statista, 2019; Where Hemp Production Blooms
In 2019, the industry was worth $4,71 billion, and by 2025, it is estimated that the number will be around $27 billion. So, if you are planning to invest in hemp oil, there is no time like the present.
However, make sure you educate yourself on the overall hemp oil production costs before testing the waters. Let’s start with one major concern for future business owners and entrepreneurs.
Is Hemp Oil Production Legal In The US?
Before we can answer this question, we need to understand the difference between hemp and marijuana. In 2018, the US Congress enacted the 2018 Farm Bill that defined hemp and marijuana. Hemp is a cannabis plant that cannot contain more than 0.3% of THC, while marijuana can. As you may already know, THC is the psychoactive component of the plant, or, the substance that makes a person high. Hemp was also removed from the Controlled Substances Act and it’s now considered to be an agricultural product.
So, in answer to the question, hemp is now legal. But, the 2018 Farm Bill comes with some strict restrictions. For example, if you as a farmer have more than 0.3% of THC in your hemp, this bill doesn’t protect you and you might face charges, based on the state you live in. Also, the entire process is highly regulated by the government, since this is not a typical herb or agricultural product.
Before coming up with a business plan, be advised to do your research and learn more about specific regulations regarding your country’s laws. Now that we got this covered, let’s focus on the expenses.
Hemp Oil Production Costs – Where To Start?
If you want to be a hemp farmer first thing you need to do is to get a license. Whether you want to be a farmer or only a researcher, you need to check the state’s regulations and get the required license beforehand. You might also be a subject of a criminal background check. Plus, farmers must test their hemp for a percentage of THC regularly and if they exceed 0.3%, the hemp will be destroyed.
That being said, it’s important to note that since this is a relatively new industry, there aren’t that many valuable economic studies and universally accepted research for calculating the costs of hemp oil production.
Here are some of the major hemp production costs that need to be taken into consideration:
Hemp Cultivation Costs
When it comes to cultivation costs, one smart advice for every new businessman is to start small. If you have a land of 50 acres, you might be tempted to use it all. But for starters, use around 1 or 2 acres. You may have read somewhere that not a lot of money can be made with an acre or two. That may even be true, but the reason for this advice is that quality hemp seeds are quite expensive.
You need to be careful when buying hemp seeds since many of the scams are encountered in this part of the process. Usually, there are two ways to scam a hemp buyer:
- Male seeds rather than females. Hemp farmers need female seeds because they create the flowers needed for hemp harvesting. Male seeds create seed pods.
- Seeds with a high level of THC %.
That is why it is better to start small, test different growing methods and sourcing vendors and increase your hemp production from there.
The price range for hemp seeds varies from $0.6 to $2 per pound. This may not seem that much, but note that you will need approximately 25-40 pounds per acre. There are approximately 27,000 seeds per pound. . The cost to grow can vary from $300 to up to $1500 per acre. Many factors can affect this price, the soil, the country and the quality of the seeds are among the most important ones.
Regarding hemp production costs, there were two studies done – one in New York and one in Alberta. The one in Alberta is from 2015 and it was done on two different kinds of lands – dryland and irrigated.
Irrigated Land
Dryland
Source: INDUSTRIAL HEMP SEED PRODUCTION COSTS AND RETURNS IN ALBERTA, 2015
As the study suggests, the production costs are significantly different based solely on the land.
The study from New York shows different types of production and harvesting costs – for hemp fiber, hemp seed, and hemp fiber and seed.
Source: Economics of Producing Industrial Hemp in New York State: Costs and Returns, 2019 Budgets
Many factors influence the total amount of hemp production costs. The factors can vary from year of production to state, to quality and type of seeds.
Hemp Harvesting Costs
Hemp harvesting is done with combines. Up until 2017, the costs for harvesting were much higher – from $970 to $2500 per acre. Newer machines have more effective characteristics such as bigger cylinders, rotary design etc. that make the entire process go faster and easier. Nowadays, the estimated amount of harvesting costs is around $300 to $600 per acre.
Hemp Extraction Costs
Finally, it’s time for extracting the hemp herb into hemp oil. This is the most important part of the process since this is the result of all those months of hard-working. The hemp oil extraction begins with separating the stalks from the flowers and the seeds by using a decortication machine. There are different methods to do the extraction, which deserve their spot in a different blog post. For now, it’s important to remember the most popular methods of extraction hemp seed:
Supercritical CO2, Steam Distillation and Solvent Extraction.
Each one of these methods has pros and cons. However, you can get a cleaner and healthier end-product with a longer shelf life by using the CO2 method. That’s why this method is highly recommended and one of the most effective ones for hemp oil extraction.
The price range for these CO2 extraction machines varies from $4000 to $445,000 per machine. The type of machine you’ll choose varies on many factors, such as the land size, amount of hemp, method of extraction, etc.
After extraction, the product still contains substances like THC. The process needs to continue until full hemp oil with lower than 0.3% of THC is produced. This process can cost from $5000 to $7000.
Investing in quality extraction machines and equipment will affect the quality and price of the product, so choose them wisely. Alternatively, you can forgo the capital investment in owning your own equipment and outsource the process to a service provider. You can pay a flat fee based on the amount of material processed or pay for the service by splitting the yield, typically this is a 50-50 split.
Legal, Insurance and Banking Costs
The hard part about hemp oil production is not just about the production itself. As we mentioned at the beginning, even with the 2018 Farm Bill, there is still a lot of restriction for the owners, both current and potential. Every hemp producer would benefit from having a legal advisor on his/her team. Since the FDA still hasn’t approved the use of hemp oil, this product is still somewhat in the “grey area” of the law and that uncertainty creates some risk.
Another thing that may frustrate future business owners are the banking regulations or restrictions regarding this industry. For example, Fortress Payment Technologies issued a statement in May 2019 that all e-commerce selling of CBD products would no longer be able to use their services.
For these reasons, any future investor needs to make sure to be legally covered and protected before entering the industry.
To Sum The Hemp Oil Production Costs:
As you might already know, the hemp industry is on the rise. Even more with the pass of the Farm Bill at the end of 2018. Although not perfect, this bill is giving chance to any business to invest in hemp herb. Since this is a relatively new industry, there is not much research about hemp oil production costs. However, if you are willing to invest, there are few things to remember:
- A license is a must if you for hemp production
- Hemp herb should have lower or exactly 0.3% of THC
- There are different costs: cultivation, harvesting, extraction and legal.
- Almost all costs depend on the state you are living in and the law regulation there.
Make sure you have legal support at all times and do your research before investing in the hemp oil production business.