Sunday, June 9, 2019

Danger Zone in Cannabis

I think we are in crazy time.

Cannabis Expo 


Southern Oregon had its Gold Rush. Then orchards. Now it is cannabis. 


People could get badly hurt.

Gold was found in 1851. By 1859, when Oregon was admitted to the Union, Jacksonville was the largest city in the state with 18,000 residents. Ten years later the miners were gone. 

Then we had an orchard boom, with frantic overplanting. People went broke. Then a lumber boom, with federal and private forests cut trees far faster than they grew. The trees were gone, and so were the mills and jobs.

We are in a cannabis boom, with gigantic plantings of the CBD type of cannabis. 

The marijuana that most people know from recent history contained THC, the chemical that made people euphoric or sleepy, or ravenous, or all three. It got people "high." It had its own boom and bust.

CBD-cannabis is different.

There was giant money made in cannabis. A grower of THC-type recreational marijuana three years ago might have sold his crop for $2,200/a pound, and might have gotten 1,000 pounds off an acre of land: $2,200,000 gross income. He would have planted all-female cloned starts, taken exquisite care of his crop, and invested $200,000 to get his crop to market. Net for the season was $2,000,000. Of course it drew people. 

A grower called it giving the "Ritz Carlton" treatment to the limited plantation sizes available under the "recreational" or "medical" set of rules set by the state of Oregon. An industry quickly emerged in fertilizers, soil amendments, specialty equipment, security cameras, and a work force of growers and processors. 

Growing THC cannabis, behind locked gates
The profits available distorted farm prices. Growers did not need good farm land. They needed good EFU zoning and isolation, where they could secure their crop. Often they brought in soil and grew in 200 gallon pots. They trucked in water. They didn't need a farm, they needed a site. 

With margins that stunning it all made sense. Growers bought land for cash, setting a value of $15,000/acre for farm land where THC-bearing marijuana could grow. 

We got oversupply of THC- marijuana. The price fell from $2,200 a pound, to $1,700, to $750, to auction sales at below the cost of production: $60 to $150 a pound. 

Bust.

Some growers took their THC profits and left the industry. Others have made a transition, reinvesting their profits in big specialized equipment that allows them to grow a plant containing large quantities of the CBD chemical, bred carefully to have virtually no THC. 

Cannabis went from wanting THC, to wanting to avoid it at all costs.

CBD rows, under plastic
CBD is used to make medicine. Consumers can find it in products now. CBD in coffee, in food, in cosmetics, in pain medications. Some people say it has extraordinary medicinal qualities. It has an aura of mystery and illegality, something forbidden and now available, a magic potion.

Maybe, in fact, it helps with childhood epilepsy. Maybe it really works to relieve pain. Maybe there is a multi-billion dollar market. 

But meantime, tens of thousands of acres are being planted in Southern Oregon, on speculation that there is a huge market for it.

There was in fact a market for the product grown on the few hundred of acres of CBD grown last year and it provided growers with gross revenue that varied greatly but approached $200,000 an acre. That sent a price signal. Capitalism works. 

Local residents see bare fields everywhere in rural southern Oregon, places where grass and alfalfa used to be. Some have been put into rows already, with plastic showing.

This crop goes into the ground, like corn or grain or any other farm crop. Soil and water now matter again. EFU zoning matters, but isolation does not. It is grown openly and because it lacks the get-you-high THC, and it does not need to be secured behind fences. Growers are looking for farmable land, with flat terrain, ample water, good soils. 

Setting up a GPS guided 3-row planter
The equipment to grow it is expensive and specialized. Growers want quantity so they can use that equipment efficiently. Perhaps thirty times as much CBD is being grown as last year. There are no legal constraints against growing it, at least in Oregon, but states other than Oregon, Colorado and Kentucky have been slow to update their rules, so Oregon growers have a window of opportunity to hit the market before it goes fully national and enjoy--perhaps--another year or two of gold rush margins.

It is planted under plastic, with drip lines for water and specialized liquid fertilizers. Tractors create a mounded row, lay down the drip line and plastic, then secure the plastic with soil on the edges, then tamp it down, all in one move, three rows at a time. 

It can prepare two acres an hour. Some growers, like with the equipment shown here, use GPS guided equipment, with rows straight to within two millimeters. It costs some $4,000/acre up front to acquire the feminized seeds of the CBD-only cannabis plant, grow them in greenhouses to transplant size, then plant them in the mounded rows.

The transition to CBD has distorted the farm market once again, but in a different direction. Traditionally farm land in southern Oregon is farmed virtually without rent. Farm owners allow farmers to farm it for free or token rents, to keep it in production and not a nuisance. There was no crop that grew that made any money for the landowner beyond a subsistence amount. Farm land is open space and a rural life amenity for farm owners--not a source of income beyond taxes and insurance. 

(Even vineyard land. There is little money in growing grapes. What money is made, if any, is made in the winery, with margins made on the wine,  with grapes purchasable at the cost of production. Wineries survive economically as wedding venues and event sites and because they can mark up the grape juice when it is packaged as wine.)

Mound, drip line, plastic
This year farmers who have land that is suitable for CBD are getting $500-$1,500 an acre rent, but they are being warned that this may be a one-time thing. Next year rents locally will drop dramatically as large scale industrial acreage comes available elsewhere in the state. Southern Oregon was early to the CBD industry because it had grower expertise from the THC industry, ready to make the transition, but land patterns and topography in this area are less suited to industrial farming scale. CBD grows well here, but it can be grown anywhere grain or forage crops are grown

Boom. Bust. Capitalism at work. Profit opportunities attract investment. Sometimes the investment is misplaced.

Is this a market at the crazy top? There is evidence of it.

I will conclude with two stories. The first may be familiar. Joe Kennedy, the father of JFK, was a bootlegger and Wall Street financier. He thought the stock market overpriced in 1928, so he exited the market, but then watched the market climb through early and mid 1929. He began to re-think his position and decided to go down to Wall Street to visit his broker to get back into the market. He stopped to get his shoes shined. The lad spent the minutes with Kennedy telling him about the stocks he had purchased and giving Kennedy stock tips. Kennedy turned and returned home, kept his assets in cash, avoided the stock market crash, and emerged richer than ever.

His reasoning: when shoeshine boys are buying stocks, then it means that the popular enthusiasm had reached its tippy, overpriced top, and it was in the crazy zone. Get out.

Black wheel tamps down plastic, blade secures it.
My second story is of a woman of forty with a high school education here in Southern Oregon, with a secure job at a nationally known company, a job she had held for twenty years, a job paying over $50,000 a year, with full benefits, vacation, 401k match. She quit the job this spring to grow a single acre of CBD on land she owned, telling the boss that she was resigning so she could make some real money and retire early.

It may work out for her. I hope so. 

Or this may be the indication we are deep into the crazy zone.



3 comments:

Rick Millward said...

Serious research into CBD is beginning, due in part to funding from producers. It won't take too long to codify its medical value.

A little reading of hemp history found that it's also useful for literally thousands of other things; fabric, clothing, construction materials, paper, biofuel, plastic composites, and more. Hemp production was banned throughout the United States in 1937, with the passing of the Marihuana Tax Act, promoted in part by the cotton and chemical (fertilizer) industries.

Hemp is generally considered better for the environment which I guess explains its resurgence, other than being included in pot being legalized. Maybe the Rogue will become the Silicon Valley of Hemp!

Unknown said...

The second paragraph about all the trees being cut is sheer lunacy. For instance, when the O&C act of 1937 was enacted, there were an estimated 41 billion board ft crowing in the O&C lands of the 18 O&C counties. When the most recent management plan from the BLM was adopted, there were an estimated 80 billion bd ft growing on those same lands.
Further, on the US Forest Service side of things, in 2002 the USFS through modeling determined that the annual growth on the Rogue River-Siskiyou National Forest (the Rogue River NF and the Siskiyou NF were actually combined into the current one later in 2002) was approximately 1.25 billion board feet / year. Not once in the preceding 100 years had over 700 million board feet been harvested in any one year. The average annual for both hovered around 500 million ft in good years and much less in economic downturn years. We've always had a substantial net annual growth here in SW Oregon. Throwing out such emotionally charged figures as you did is totally unwarranted and even harmful. Get the facts right before you publish false numbers as facts.

Anonymous said...

I have a much different take, based on two real life experiences, not statistics. (You know, "Lies, Damn lies and Statistics"...;) )

It was 1973 and I had applied for summer work at the Plywood mill in Grants Pass where my father worked. I needed a decent paying summer job to pay for my education. The Superintendent told me he would hire me if I stayed in college, but "If I catch you trying to make a career out it, I will kick your ass. It isn't going to last."....

Fast forward to to around 2009. I was having lunch with a childhood friend and classmate with the last name of Jantzer. He is the grandson of the owner of what was a prominent logging family in the valley, Jantzer Logging. We were talking about the demise of the local logging industry and he said, "Back in the day there was no way my grandpa thought they would ever run out of big logs to bring to mill, but they did."...

The fact is, the industry cut itself out of the low hanging, big dollar fruit that sustained it for a long time, before the supply that was attainable profitably, was gone.