Robert K. TracyCPA · Broomfield, CO

Hemp Economics

The Wide Applications for Cannabis Sativa

Hemp and cannabis are the same species of plant

Cannabis and hemp are the same species of plant irrespective of the U.S. Federal government's arbitrary demarcation line of .3% THC. Per the Feds, a cannabis sativa plant with THC levels above .3% is considered "marijuana," an illegal Schedule 1 drug. For those few subspecies that never produce THC above .3%, those plants are classified as "hemp," and legal, with heavy constraints. While many chemovars of industrial hemp produce some level of THC during their 4-month life, for the majority the level is minimal, ephemeral and effectively not psychoactive — but above .3%, and therefore illegal.

It's like Roma tomatoes cooked into sauce or Beefsteak tomatoes you eat raw — they're both tomatoes. Likewise, hemp and cannabis both come from the same plant species. Some species are cultivated for recreational consumption, some for fiber or hempseeds or biomass. There are hundreds of subspecies of hemp, and absent prohibition, only 5% of the cannabis cultivated today would be for recreational use.

The hemp plant produces four distinct agricultural end crops: (1) cannabinoid-rich flower; (2) hempseeds; (3) bast fiber; and (4) hurd & biomass. The chemovar grown, cultivation method employed and location depend on whether one is growing for cannabinoid oils, seeds, fiber, or hurd & biomass.

Cannabis sativa — valuable applications far beyond "getting high"

Cannabinoid Flower
Raw flowerganja, marijuana · THC, CBD, CBG, CBN · animal feed · THCV, CBDV, CBGV, etc.
Cannabinoid oilrecreational "get high" · Rx medicinal · health & wellness · personal hygiene · skin care
Bast Fibers
Consumer textilesapparel · handbags & shoes · carpeting & rugs · luggage · curtains & awnings · sheets & blankets
Industrial textilestwine & rope · tarps & canvas · filters & nettings · graphene substitute · brake/clutch lining · caulking & insulation · paper
Hurd — Biomass
Paperfine & specialty · cardboard packaging
Building materialshempboard/plywood · insulation · fiberglass substitute · hempcrete · wallboard & plaster · bioplastics
Othermulch/compost · cat litter · animal bedding
Hempseeds
Raw seedhuman food · animal feed
Hempseed oilhuman food · oil paints, wood finish · shampoo, soap · cosmetics, skin care
Protein mealhuman food · animal feed

The stalk is decorticated to separate bast fiber from hurd biomass. Source: "The Wide Applications for Cannabis Sativa," Robert K. Tracy.

Cultivation differs by desired end product

Cannabis grown for cannabinoid flower like THC and CBD requires different chemovars and cultivation methods than industrial hemp grown for fiber, biomass and seeds. Cannabis grown for cannabinoid flower grows best outside near the equator or inside climate-controlled grow rooms; each plant needs space to bush out and can see 3 to 4 harvests per year. Because plants are spaced out (2,000 to 2,500 plants per acre), herbicides may be needed for weed remediation, and pesticides may be needed to control aphids, spider mites, grasshoppers and mold.

Industrial hemp grows best outside between latitudes of 30° and 60°, is planted far more densely, and grows as a single vertical stalk 6 to 12 feet high with one harvest a year. Because of its rapid growth — 3 to 4 inches in a single day — when planted densely (500,000 to 1 million plants per acre), hemp outgrows all competing plants, effectively eliminating the need for herbicides.

Cannabinoid Flower

Growing latitude
30°N–30°S, or indoor
Plants per acre
2,000–2,500
Appearance
"Christmas tree," bushy
Harvests / year
3 to 4
Pesticides
Yes
Herbicides
Yes

Bast Fibers

Growing latitude
30°–60°, outdoor
Plants per acre
800,000–1 mln
Appearance
Single vertical stalk, 6–12 ft
Harvests / year
One
Pesticides
Minimal
Herbicides
Not needed

Hurd — Biomass

Growing latitude
30°–60°, outdoor
Plants per acre
800,000–1 mln
Appearance
Single vertical stalk, 6–12 ft
Harvests / year
One
Pesticides
Minimal
Herbicides
Not needed

Hempseeds

Growing latitude
30°–60°, outdoor
Plants per acre
400,000–500,000
Appearance
Single stalk with seed head
Harvests / year
One
Pesticides
Minimal
Herbicides
Not needed

Revenue per acre multiples higher than existing crops

Industrial hemp's superior economics versus existing crops comes from higher biomass yield relative to input costs. The biomass produced can also serve as feedstock to a far wider variety of end markets than corn (food, ethanol), cotton (fabric, food) soybeans (food) or wheat (food) — providing a sturdier demand floor and more optionality for farmers. On average, corn generates about $600 an acre on 175 bushels harvested, while cotton generates about $570 per acre on 880 lbs of fiber plus another $90 to $170 per acre on roughly 1,000 lbs of cotton seed.

Revenue per acre — acreage economics with current crop, July 2020 prices

Revenue per acre for cotton, corn, soybean and wheat calculated from USDA yield statistics and July 2020 crop prices. Hemp revenue based on current wholesale hempseed prices, with hemp fiber priced at July 2020 cotton prices and hemp hurd priced at the July 2020 NBSK price of $1,142/metric ton. Source: USDA National Agricultural Statistics Service; USDA 2021 forecasted operating cash costs.

Acreage economics with current crops, July 2020 prices
Current cash cropAvg yield per acreRevenue per acreMarginal cash cost per acreContribution margin
Cotton880 lbs fiber + 1,000 lbs seeds$660 – $740$440$220 – $300
Soybeans50 bushels$440$159$281
Corn175 bushels$600$330$270
Wheat50 bushels$250$127$123

Source: USDA National Agricultural Statistics Service (yield); market prices, July 2020 (revenue); USDA 2021 forecasted operating cash costs per acre (excludes overhead, capital, financing costs and taxes).

Hemp grown for fiber & biomass

Cultivating hemp for fiber and biomass sales ranges from roughly $1,000 to $4,300 an acre depending on quantity and quality of output. An acre of hemp generates about 9,300 lbs of dry unretted stalks, which clean down to around 7,850 lbs of dry retted stalks. Those are then decorticated — fiber separated from hurd — into about 6,250 lbs of dry hurd and 1,600 lbs of hemp fiber.

Revenue per acre — hemp fiber & biomass, Canada/China pricing
OutputAvg yield per acreValue per lbRevenue per acre
Dry Hurd (biomass)6,250 lbs$0.104 – $0.50$650 – $3,125
Dry Retted Fiber1,600 lbs$0.272 – $0.725$435 – $1,165
Total revenue per acre$1,085 – $4,290
Revenue per acre — hemp fiber & biomass, cotton/wood-pulp pricing (July 2020)
OutputAvg yield per acrePrice per lbRevenue per acre
Dry Hurd (biomass), priced as wood pulp $1k/MT6,250 lbs$2,834
Dry Retted Fiber, priced at cotton $0.65/lb1,600 lbs$1,040
Total revenue per acre$3,874

Dry Retted Fiber breaks down further into 1,250 lbs Dry Line Fiber and 350 lbs Dry Tow Fiber. Sources: Manitoba–Canada Government Ag Stats; "Fiber Crops," James M. Dempsey, University Presses of Florida, Gainesville; US-NBSK price for the 12 months ended July 2020 was $1,142/metric ton.

Hemp grown for grain (hempseed-focused)

Growing hemp primarily for hempseed yields about $2,377 from seed oil and protein meal, plus a smaller secondary fiber & biomass stream, for total revenue of $3,000 per acre. Target plant density for hempseed production — 10 to 12 plants per square foot — is less than half the 23 to 28 plants per square foot targeted when growing for fiber & biomass, so fiber and biomass output is roughly half.

Revenue per acre — hemp grown for grain
OutputAvg yield per acrePriceRevenue per acre
Hempseeds850 lbs (385 kg)$2/lb wholesale$1,700
Hemp seed oil26.5 gal (100 liters)$4.50/gal wholesale$119
Hemp protein meal645 lbs (290 kg)$3.50/lb wholesale$2,258
Subtotal — hempseed oil & protein meal$2,377
Dry Hurd (biomass), wood pulp pricing2,100 lbs$952
Dry Retted Fiber, cotton pricing560 lbs$364
Subtotal — fiber & biomass$1,316
Total revenue — hempseeds, fiber & biomass$3,000

As shown in the source report — the fiber/biomass and seed subtotals sum to $3,693, while the report's stated total is $3,000; reproduced here as published. Source: Fiber Crops by James M. Dempsey, University Presses of Florida, Gainesville; Manitoba–Canada Government Ag Stats; imported hemp SKU pricing per USDA, "Hemp as an Agricultural Commodity," June 2018.

Hemp is friendlier to the environment than cotton or corn

Hemp's nutrient requirements are generally lower than cotton and corn, hemp uses far less water, and hemp requires far less herbicide and pesticide. Because hemp outgrows competing plants, minimal to no herbicides are needed. Corn is America's largest crop with over 90 million acres under cultivation — roughly one-third for animal feed, one-third for human food, and one-third for subsidy-dependent ethanol.

Industrial hemp vs. cotton vs. corn — inputs and harvest yield
MetricIndustrial HempCottonCorn
Planting seeds / acreFiber 40–50 lbs; Grain 18–23 lbs10 lbs10 lbs
Nitrogen (lbs/acre)100100158
Phosphorus (lbs/acre)404565
Potassium (lbs/acre)6022048
Water (gal/acre)366,000490,000435,000
Pesticides (lbs/acre)0.25.80.30
Herbicides (lbs/acre)Minimal to none1.101.20
Yield per acreFiber grow: 6,250 lbs Dry Hurd + 1,600 lbs fiber; Grain grow: 850 lbs hempseed + 2,100 lbs Dry Hurd + 560 lbs fiber880 lbs fiber + 1,000 lbs seeds175 bu / 9,800 lbs

According to the Environmental Justice Foundation, "cotton accounts for 16% of the global insecticide releases — more than any other single crop." Hemp produces over 4 times the hurd that trees produce in wood, preserving forest and capturing 4 times more carbon in the process. In a 1916 U.S. Department of Agriculture bulletin (No. 404), botanist Lyster Dewey and chemist Jason Merrill found that "the most important point derived from this calculation is in regard to areas required for a sustained supply, which are in the ratio of 4 to 1. Every tract of 10,000 acres which is devoted to hemp raising year by year is equivalent to a sustained pulp-producing capacity of 40,500 acres of average pulp-wood lands."

Beyond "getting high": medical applications

Over 100 cannabinoids have been identified in the cannabis flower. A selection of the most-studied phytocannabinoids and their documented attributes:

THC

Psychoactive · analgesic · anti-anxiety · anti-inflammatory · antioxidant · appetite stimulant · muscle relaxant · reduces eye pressure · sedative · stops nausea & vomiting

CBD

Antipsychotic · analgesic · anti-anxiety · anti-bacterial · anti-convulsant · anti-depressant · anti-inflammatory · antioxidant · anti-tumor · muscle relaxant · neuroprotectant

CBG

Analgesic · anti-anxiety · anti-bacterial · anti-inflammatory · anti-tumor · promotes bone growth · reduces eye pressure

CBN

Mildly psychoactive · analgesic · anti-bacterial · promotes bone growth · reduces eye pressure · sedative

CBC

Analgesic · anti-anxiety · anti-bacterial · anti-fungal · anti-inflammatory · anti-tumor · promotes bone growth

THCV

Analgesic · anti-anxiety · promotes bone growth · reduces tremors · decreases appetite · stimulating effect

Abbreviated from a larger reference table; this is not medical advice. Sources: "Cannabis Revealed," Dr. Bonni Goldstein; "Cannabis Pharmacy," Michael Backes; National Center for Biotechnology Information; U.S. Patent #6630507.

Who wins and who loses?

The pharmaceutical, timber and cotton industries face billions in displaced revenue. See the full breakdown, including the $97.4B pharmaceutical TAM at risk.

Read Part II