HOPE IS NOT A GOOD PLAN
Hope can be a wonderful thing. It can lift one’s spirits in tough times, inspire others, and in many cases can even have a physical effect on a persons health and well-being. Hope is a crucial emotional concept we humans possess.
Hope makes for a terrible plan, however. Sometimes, it is all we have, and in those instances hope may be the only thing we can hold onto. But in times where we have an opportunity to look ahead and strategize for our future, choosing hope over planning equates to rolling the dice on your business.
I’m referring to the practice that many hemp growers have tried of growing a crop with the HOPE that the market will shift back to favorable conditions in the near future. These mistakes are not just a small farm problem, this practice has been the downfall of operations both large and small. Corporations worth hundreds of millions have fallen prey to the same errors in judgement that smaller grows have as well.
And we aren’t out of the woods yet. There is still a surplus of hemp material from the 2019 and 2020 seasons waiting to be processed, and yet we still see folks planning ambitious grows for this season. This is risky business at best, and a plan to fail in most cases. Think I’m being pessimistic? The numbers do not lie:
We entered into the 2020 crop year with a surplus of biomass and flower material from the 2019 crop year. In 2019, growers bore the brunt of the market crash, with biomass prices nosediving 84% over a six month period from their peak in July 2019. Since that time, biomass and flower inventory has been building throughout the whole supply chain, mostly because growers were still bullish on the future. (We are kind of stubborn.)
Some more insight from PanXchange, a commodity trading platform and hemp industry analyst site:
- “PanXchange estimates that total production from 2019 to 2020 decreased from 250,000 acres to 103,000 acres. If we were to take Brightfield Group’s 2020 estimate of the CPG market at $4.7 billion, the most aggressive of analysts, the entire U.S. cannabinoid market would require only 4.4% of the 2020 biomass. This equates to only 2,819 planted acres based on PanXchange’s estimate. Using Charlotte’s Web financial statements, it seems that to reach $95 million in revenues in 2020 (equal to 2019 revenue), only 873 kilograms of distillate was needed to fulfill its entire supply chain in 2020. This amount equates to only 57 acres from the 2019 growing season.”
What does this mean for hemp farmers and the industry as a whole? Basically, there is a backlog of material yet to be converted into consumer goods and growing additional acres in 2021 without a buyer in place beforehand is pure folly. Businesses producing their own product lines of finished goods have extra layers of insulation against these market shifts but are not totally immune, either. Farmers without contracts in place will likely be better off NOT growing this year and re-evaluating later in the season after harvest as production stats start rolling in.
Discretion is often the better part of valor, and in this case it may be the difference between dying or living to fight another day.