What kind of realistic returns can investors expect when investing in the hemp industry?
While exact numbers can fluctuate drastically depending on many factors, the average cost of production including harvest should be around $5-10k/acre with yields of 1500-2000 lbs/acre of dry, usable flower around 9-13% CBD homogenized.
What everyone wants to know is ROI, return on investment. 1500 lbs of usable flower per acre, what is the market value of that?
The market value of dried and shucked (stripped from stem and stalk)flower and leaf is priced at Dollars / %CBD / pound. Depending on the time of the season that price can fluctuate from under $3.00 per percent to over $6.00 per percent. Assuming a $4.00 per percent price and a CBD content of 10% by dry weight, the value of hemp harvested at 1,500 pounds per acre would be $60,000 gross.
I tell farmers they can expect $30-50k per acre, depending on the quality and yields. A first time farmer probably shouldn’t enter the game thinking he’s going to get $80k per acre on his first go.
Cultivation is the riskiest segment to invest in. Agriculture has always been risky. It’s a numbers game. If you invest in one farm, and that farm fails(which a good 40-50% of first-year farmers will experience failure of some sort that will drastically affect their yields) you will lose everything. The best thing would be to invest in a few farms that you have actually visited.
USDA crop insurance hasn’t been rolled out yet, and until it is launched investing in farming may be pretty risky.
Of course, I always say, “If you want to make real money, look for risk first.”
It also helps to understand the cultivation process and the agriculture industry, in general.
Extraction is a good market to invest in because you can own valuable assets (machinery) which are insurable. Cultivation is growing perhaps at 5x annually. Processing throughput is closer to only doubling.
Then there’s the brokering game. That’s a disaster for at least a couple years until the industry settles a little. The brokering game is full of shysters and scam artists that are making it very hard for legitimate players in the industry. Buying and selling ag commodities is not for the faint of heart. IT requires very technical just knowledge and I’m just not sure the average investor is willing to put in the legwork to make a successful biomass or isolate deal successful.
I’ve seen several successful business people either lose substantial amounts of money or end up on a real-life hit list. These are not stupid people. these are people who came to the table with years of experience in other industries, and in some cases with millions of their own or other people’s dollars.
In summary, I’d say that the hemp industry is extremely risky, but if you have a good tolerance for exposure to risk it is THE industry to be in. We may not see an economic explosion like this again in our lifetimes. But you be able to take advantage of a chaotic new industry, you have to be close to the chaos.