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Blog
28
Sep
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Dan Michell

Hemp Extract Market Overview
#pricing #hempextract #featured

Overview

Industrial hemp can be broken down into three main verticals: seed, fiber, and cannabidiol (CBD). Whilst fiber and seed have historically been considered the primary uses of hemp, in the last several years there has been a surge in both supply and demand of CBD. This increase is largely due to the increased understanding of the effects and potential benefits of CBD, coupled with the improved cultivation techniques and plant varieties that boost the yield (i.e. production volume per acre) of CBD. Historically, due to the restrictions in domestic production, hemp derived CBD was imported mostly from European sources. However, Section 7606 of the Agriculture Act of 2014 opened the door for domestic production of industrial hemp with several states, most notably Colorado and Kentucky, leading the way.

As an emerging industry, the world of CBD in the United States has yet to develop industry standards for best practices and methods to maximize production. A high degree of experimentation is currently taking place amongst grower and processors. This has resulted in a substantial variability within all aspects of the industry from cultivation to processing and even applications.

Over the last several years the industry has evolved dramatically as legal barriers were lifted. Continuing experimentation and agronomic research may provide large leaps in yields and optimized cultivation techniques

Cultivation and Processing

Current cultivation techniques can differ substantially from grower to grower but some standard methods have emerged. High CBD hemp cultivation tends to utilize smaller plant varieties, as opposed to hemp cultivated for fiber and seed which utilize larger varieties that maximize the yields of these products. These smaller varieties, typically 2-6 feet in height, maximize CBD production within the plant as opposed the growth of the stalks or seeds. These smaller varieties are planted less densely allowing the plants room to grow without too much competition from surrounding plants. An optimized density for CBD production with the US has yet to materialize, but researchers at institutions like the University of Kentucky are currently conducting experiments to determine the optimal plant density to maximize CBD production. Anecdotally, farmers in Kentucky and Colorado are planting 1000-2000 plants per acre. CBD concentrations within these varieties can range anywhere from 4% to over 10% CBD concentration on a dry weight basis with growers continuously looking to increase these figures to maximize production. Indeed, several varieties around touting well over 10% CBD concentration in the first few years of cultivation. A high CBD cultivar will produce around 30 kg of pure CBD per acre.

There is a large amount of experimentation taking place in CBD processing. Industrial standards have not yet been identified. Raw plant material is obtained from growers within the same state and then CBD is extracted from the plant using an assortment of extraction methods and solvents to separate the CBD from other compounds found within the plant. Basic extraction involves running a particular solvent, whether that be carbon dioxide (CO2), ethanol, butane, or hexane, through dried plant material to separate the CBD. While all solvents are applicable in the extraction process and poses their own benefits and drawbacks, industry standards appear to be favoring CO2 as consumers have raised concerns over the health effects of other solvents. CO2 varies from other solvents in that in requires higher temperatures and pressure to extract the CBD from the plant material. This process is typically slower and more expensive than other extraction methods and as a result command a premium. This process is the first stage of extraction and results in a dark oily extract that typically holds around 10%- 30% CBD concentration depending on initial CBD present within the plant material, extraction method, and equipment used.

Additional processing techniques can be applied to further increase the CBD concentration with processors boasting proprietary techniques to improve potency and quality. Stages like decarboxlyation, winterization, and dewaxing all serve to remove plant material or other compounds from the extract to gain a higher CBD potency. The extract can be processed up to isolate form with over 99% CBD potency which takes the form of a white powder.

Wholesale and Retail

After initial processing the product is ready for wholesale or branding and bottling for retail sale. CBD can wholesale in a variety of different forms based on customer needs, from first stage extract with as low as 5% CBD concentration all the way to pure isolate of 99% CBD. Certain buyers prefer working with CBD in pure isolate form as it allows them to customize their retail product with additional additives of their choosing and taste. Other buyers prefer the range of other compounds that come from the whole plant material and exist within extracts of lower concentration.

While only a handful of processors currently purchase hemp directly from farmers, extract CBD, and sell it wholesale, there exist a firms further down the supply chain. These firms continue the refinement through processing methods of their own, brand and bottle the wholesale product, or combine the CBD with other materials to form new products ready for retail sale. Once out of the hands of wholesalers, the CBD is transform into a plethora of retail products including tinctures, balms, sprays, oral gels, as well a host of topicals through numerous combinations unique to each retailer. Certain processors and wholesalers carry their own retail brands that go straight to shelves and avoid these firms further down the supply chain in order to hold a high degree of vertical integration.

Wholesale Pricing

In the current wholesale market, pricing is based primarily on the CBD content present within the material. Most sellers price based on grams of CBD (i.e. $40/g) regardless of the form. The nature of the CBD compound does cause a small wrinkle in this pricing strategy that requires a slight alteration to this strategy. CBD is the active compound that most buyers and seller are concerned with. However, in the plant and the extract there exists another compound CBD-A Through a simple stage of processing by simply heating the material to a specified temperature, CBD-A is transformed into CBD. Buyers and sellers recognize this procedure and as a result include the content of CBD-A within their pricing mechanism. Total CBD content is therefore CBD and CBD-A combined. However, the process of converting CBD-A to CBD does result in a slight loss in the overall mass of the material, around 12.3%. The total active CBD content with an extract is therefore calculated as the mass (in grams) of CBD combined with the mass of CBD-A discounted by a factor of .877

While the amount of CBD constitutes the primary pricing mechanism for CBD products, the different stages of processing can also affect the price. Price per milligram of CBD present remains flat across lower concentration of CBD with jumps in price after additional stages of refinement. For example, extract of 5% and 10% will have the same price per milligram of CBD. However, once an additional stage of refinement occurs, whether that be decarboxylation, dewaxing, etc a small premium will be attached to this new refined product and the price per milligram will increase slightly.

Conclusion

As a relatively new industry many aspects of CBD have yet to centralize around standard cultivation, harvesting, processing, and pricing mechanisms. A high degree of experimentation is still taking place in all stages of the supply chain to determine optimal processes but standard operating procedures appear to be emerging as the industry matures.