Over-Hyped Hemp? Amid Price Drop And A Big Bankruptcy, Some Farmers Feel Burned Monday, Feb 10 2020 

Bobby and John 2 - Hemp

John Fuller is waiting for another farmer he’s never met before to talk about a situation he never imagined he would be in.

It’s an overcast January day on his farm in west Kentucky, where he grew 18 acres of hemp last year, investing more than $250,000 of his own cash. He’s one of nearly 1,000 licensed hemp growers in 2019 who helped grow Kentucky’s biggest hemp crop since the state reintroduced it, trying to cash in on what could be a $1 billion industry for CBD products made from hemp.

But now, Fuller is wondering how much of that investment he’ll get back.

“There’s some pirates that are out here. Just pirates. Us trying to get with a good, ethical processor has been a real, real challenge for us,” Fuller said.

Later that morning, Bobby Huff arrives after driving more than two hours from Clinton County. By coincidence, both men are pharmacists turned hemp farmers, who saw potential in the alleged medicinal properties of CBD.

Liam Niemeyer | Ohio Valley ReSource

John Fuller (left) and Bobby Huff (right) inside Fuller’s high tunnel.

Both men are also among dozens of hemp farmers who had contracted to grow the crop for the hemp processing company Bluegrass Bioextracts in Owensboro, Kentucky, owned by local businessmen who would dry the hemp and turn it into CBD oil.

But in November, the local business owners announced they were selling the company to a Nevada limited liability company, DTEC Ventures. The same month, Fuller received emails from the company saying the deal was off: the company said their crop tested positive for heavy metals and couldn’t be accepted. But Fuller was suspicious.

“We went back and tested our soil and tested our product…and our independent labs that we’re sending it to say ‘no heavy metals,’” Fuller said. “So what’s the deal? You know, Bluegrass has stopped accepting hemp?”

One of the new operators of the company in an email to Fuller then claimed the company couldn’t accept farmers’ hemp because of “increased scrutiny” from state and federal regulatory agencies. When Fuller reached out through email to the Kentucky Department of Agriculture to verify this claim, a KDA official said there had been no regulatory change.

The contracts that Huff, Fuller and dozens of other farmers had signed — promising potentially around $40 per pound of CBD-rich hemp for thousands of pounds of their harvest — were now just pieces of paper.

“It really makes me angry,” Fuller said. “I can get by with my day job if this whole farming thing tanked, but the farmers that used hemp in place of tobacco for last year, they’re not going to get paid for their crop.”

Liam Niemeyer | Ohio Valley ReSource

Huff (left) and Fuller (right), next to a small hemp processing machine.

The former local owners of the company now have sued DTEC Ventures for $69 million in part for failing to fulfill contracts to farmers. John Fuller held a press conference at his farm with several other contracted farmers to raise awareness about their situation. The former company owners declined to comment because of the litigation. Representatives for DTEC Ventures didn’t respond to several requests for comment.

For many other farmers in Kentucky and across the country, the hopes of a financial windfall from hemp to be a saving grace from faltering markets in tobacco, soybean and corn, has hit a harsh reality. Amid boundless rhetoric touting the potential of the new crop that many still see, some farmers suspect they’re facing unfair treatment and empty promises, wondering who and what they can trust.

Boom To Bust

With the federal government legalizing growing hemp in the latest Farm Bill, Kentucky saw a rush of interest in cultivating the crop, particularly to make CBD products. The 972 hemp growers licensed last year were over four times more growers than in 2018. The number of hemp acres harvested also quadrupled, up to 24,900 acres, and 92 percent of those acres were grown for CBD products.

Several states also grew hemp for the first time last year, with other leading hemp states including Colorado and Montana seeing a spike in their production. That large supply led to a nationwide glut of hemp. CBD-rich hemp is often sold by the percent of CBD measured in each pound of hemp.

“When we started out 2019, I had $5 per percent CBD. Fast forward to the end of 2019. Now, we’re looking at less than $1 per percent CBD. That’s a huge change,” said Tyler Mark, assistant professor of production economics at the University of Kentucky.

Mark said that glut has led to a subsequent price crash for CBD-rich hemp, and the substantial profit margins expected have now disappeared for many.

Colorado-based analytics firm PanXchange tracked the average selling price of hemp at $4.35 per percent CBD in each pound of hemp in July of 2019. By January, the price was at 74 cents. Mark said the crash is also partially because the true demand for CBD products and hemp isn’t yet known.

But because of that uncertainty, some hemp processing companies could be struggling to fulfill contracts signed with farmers when hemp markets were booming.

“If the processors did not have a contract locked in to sell those final products so that they could afford those types of contracts that they originally signed at the beginning of the year, they’ve got definite cash flow problems,” Mark said.

Another prominent Kentucky hemp processing company has struggled to pay its bills in what’s turned into a prolonged court dispute over an unfinished construction site.

Liam Niemeyer | Ohio Valley ReSource

An overview of GenCanna’s unfinished processing facility in Graves County, August of 2019.

GenCanna, based in Winchester, Kentucky, announced in late 2018 it was investing $40 million to build a second hemp processing facility in Graves County, signing up farmers throughout the state to grow hemp for the company.

As construction continued at the site, the first lien against the property was filed in early September: the Hannan Supply Company in Paducah alleged their company was owed over $250,000 for construction materials and labor.

Dozens of construction-related liens have been filed against the facility site since then, ballooning to more than $32 million combined as of late December. GenCanna also had to lay off 60 employees last year, after being a title sponsor of the Kentucky State Fair, buying billboard space across west Kentucky, and sponsoring a statewide tour for Kentucky Sports Radio.

In late January, construction company Pinnacle, Inc., based in Benton, Kentucky, pressed for GenCanna to enter Chapter 11 bankruptcy because of the overdue bills. GenCanna relented on Thursday, filing for bankruptcy in federal court.

“[GenCanna was] trying to float too much money and grow way too quickly. I think that is probably one of the biggest problems in the hemp industry is greed, and not working for what a company is worth,” said Tate Hall, President of the Kentucky Hemp Industries Association. “They should have never announced or upgraded that facility if it wasn’t going to be built in time or they couldn’t finance the building.”

Hall said GenCanna’s situation isn’t unique, as some processors in the state and elsewhere in the country expanded too fast for the hemp market to stabilize. He said that left contracted farmers in many instances out of luck in getting paid. In the case of GenCanna, he’s concerned construction companies with more resources may be paid back by GenCanna before contracted farmers.

“Just because they filed ‘Chapter 11’ don’t mean anything with GenCanna. That’s a long way from being over, and I can guarantee you those contractors are not going away. You can’t just wipe your debt off,” Hall said. “I’m 100 percent for those contractors and farmers.”

Liam Niemeyer | Ohio Valley ReSource

The unfinished construction site of GenCanna’s processing facility in Graves County, in August of 2019.

GenCanna representatives did not respond to several requests for comment. The Associated Press reported last month GenCanna said that contract payments to farmers were up to date.

Acela CBD in Maysville, Kentucky, is another hemp processor where farmers are concerned about their contracts.

“If I’m going to go down, they’re going to go with me,” said Marty Voiers, who grew two acres of hemp in Lewis County for Acela. “My dad said ‘you better be careful doing it.’ He warned a bunch about it. I didn’t listen to him.”

Voiers said he took out a line of credit to pay for labor and infrastructure to grow his hemp, including a new water line. While he said he did get paid for a single bag of hemp, because there isn’t any language in his contract on when farmers are required to get paid, he’s not sure when his full payment will come for the more than a dozen of other bags of hemp he harvested.

Kevin Burton, another farmer in Mason County who grew 1.5 acres of hemp for Acela, said he’s considering selling other parts of his farm if he doesn’t get the full payment he’s expecting.

Burton said in his experience raising cattle, stockyards have escrow accounts to pay farmers immediately when they bring cattle in, instead of waiting until cattle are marketed.

“I may have to sell some cows or sell some equipment. I got payments I have to make.” Burton said. “They contract you to raise the crop. You raise the crop and deliver it, and they say ‘well, you’re going to have to wait on your money.’”

He believes something similar should be set up for the hemp, and that farmers shouldn’t have to wait for payment. “That’s a bad job. That should not happen,” he said.

Acela CEO Andrew Culbertson confirmed that contracts with their more than 100 growers did not have language on when payments have to be made. He said their company is still paying out contracts to farmers.

But he said a reason the payments to farmers might be delayed is because of the glut in supply. Other competitors to Acela are also trying to sell hemp in an already flooded market, making it difficult to sell Acela’s hemp and reimburse farmers.

“We cut checks last week, we’re cutting checks this week, and I’m sure we’ll be cutting checks next week,” Culbertson said.

Over-Hyped?

As contract disputes and court battles continue, some farmers feel led on by processors, the Kentucky Department of Agriculture, and other stakeholders in the industry.

“Ain’t that one hell of a selling point for your industry if you’re going to go out here and spout off all this stuff about how it’s gonna be the agricultural savior of the state,” said Jamie Shaddock, a Shelby County farmer contracted with Bluegrass Bioextracts. “And then at the end of it you say ‘but don’t invest more than you can lose.’ Now what kind of bullshit is that?”

Shaddock said he doesn’t raise burley tobacco anymore because the prices for the crop have stagnated for decades, and he isn’t sure what he can raise now that will be profitable. He’s currently sitting on 25,000 pounds of harvested hemp that he’s invested at least $140,000, weighing his options.

The Burley Tobacco Growers’ Cooperative in August voted to purchase $1 million in hemp to sell CBD oil, as a way to diversify and save the faltering organization. Now, an attorney is pushing to have the cooperative dissolved and $30 million of its assets distributed to growers.

Others in the turbulent industry also believe hemp’s financial potential was overhyped and the risk underplayed, but the answer of who is responsible is less clear.

“That hype came from all over the place. I mean, even Kentucky legislators and regulators who were excited about hemp maybe inflated the value of what the crops would be,” said Katie Moyer, owner of hemp processor Kentucky Hemp Works and member of the state industrial hemp advisory board.

Moyer believes that farmers, processors, and the Kentucky Department of Agriculture all had a role to play in overhyping the industry.

Liam Niemeyer | Ohio Valley ReSource

Misting devices are set up in John Fuller’s high tunnel, filled with hemp.

She said many farmers came into the industry without having backup plans or an idea of what to do with the crop when it was harvested. While she considers some processors like herself acting in good faith in building honest relationships with farmers, other companies did not. She said certain regulations, like the prohibition against selling raw hemp, also hampered options for farmers.

“Some of that fault does lie with the regulators and KDA, who forced us into having to sell to processors,” Moyer said. “Because we can’t take that crop straight to market, we can’t just go sell hemp as flower, as animal feed. There’s no backup plan.”

Sale of raw hemp is prohibited because police are concerned the crop may be mistaken for its botanical cousin, marijuana. But Moyer said she still is optimistic the industry has a positive future ahead of it, and that the industry will stabilize on its own.

“In the free market, those processors that screw over one farmer, or they dropped the ball for one farmer, they won’t ever get another contract,” she said. “I think if we saw less government regulation and less intervention in the market, we would have less of these problems to begin with.”

Kentucky Agriculture Commissioner Ryan Quarles said he understands the anger that hemp farmers are feeling, and that his department is considering ways regulators could force processors to obligate contracts. Quarles instead puts the blame for industry turmoil on federal regulators.

The U.S. Food and Drug Administration has been in the process of considering how to categorize CBD, whether as a more tightly regulated pharmaceutical or as a nutritional supplement. That decision has substantial financial implications for the industry.

“The biggest cause of this is the federal government’s lack of response towards giving an indication of how they’re going to regulate this product,” Quarles said. “We’re entering year number seven of products being on the shelf, and the FDA has yet to give us a framework in which our processors, innovators and entrepreneurs can expect to operate.”

Quarles also said the dramatic crash in hemp price is a part of the “price discovery” process that comes with a new industry. Once the true demand is found for CBD, then the industry can more easily stabilize. He said his department did emphasize risk appropriately, particularly in orientation sessions he said that licensed farmers and processors take.

But little of that matters to farmer Bobby Huff, who’s looking at the potential for big losses.

When Quarles ran for re-election as Agriculture Commissioner last year, he advocated repeatedly for the potential of hemp. Huff feels like that campaign rhetoric led on farmers like him.

For now, he’s done with it.

“It’s going to shit,” Huff said. “I’m not gonna make anything. There’s no doubt about it.”

This story has been updated to clarify Marty Voiers has received partial payment from Acela.

Hemp Prices Crash, Leaving Ohio Valley Farmers Feeling Burned Wednesday, Jan 22 2020 

Ohio Valley farmers planted more than 27,000 acres of hemp last year — about four times more than in 2018 —  to cash in on a booming market for popular CBD products made from the crop.

Yet with that growing boom, the price of CBD-rich hemp has crashed, dropping more than 75 percent in just 6 months. Many farmers are now feeling the financial pinch of that bust.

A report from Colorado-based analytics firm PanXchange said Kentucky farmers last July on average could get $4.35 for each percent of CBD in each pound of hemp. For example, if a pound of hemp contained 6 percent CBD, then each pound of hemp could sell for about $26. Multiply that by thousands of pounds of harvested hemp, and the potential payday could be significant.

PanXchange now reports that as of December, the average price over the past six months has tanked to a little less than a dollar.

“That’s a huge change,” said Tyler Mark, a University of Kentucky Agricultural Economist who saw a similar dropoff in tracking prices himself. “If price drops or that percent CBD drops, those budgets can go negative pretty quickly.”

He said more than 90 percent of Kentucky hemp farmers grew the new crop for CBD because of potential profits. The price crashed mostly because of the growing boom and resulting glut in supply. That supply hasn’t just come from the Ohio Valley but also across the country from other big hemp-producing states including Colorado and Montana. Ohio just legalized cultivation of hemp last summer.

“In 2019, we had 30-odd states with [hemp] production. In 2020, we’re gonna have almost all states in the U.S. could potentially be producing hemp,” Mark said. “There’s winners and losers, and there could be more losers than winners for a while.”

Mark also said a large amount of hemp grown this year challenged the processing companies that turn the hemp into CBD. Some companies are being selective about the hemp they take.

Because of this price crash, some Ohio Valley farmers are sitting on thousands of pounds of harvested hemp, waiting for the price to recover in an effort to reduce their losses from their harvest.

“People were offering pennies on the dollar, and you know what? At this point I’ll burn it before I give it away,” said Tony Silvernail, an organic hemp farmer near Frankfort, Kentucky. “I think so many people jumped into it, and I think a lot of people will be jumping out, too. It’s going to be sort of crazy because you’re going to get those wild swings.”

Silvernail helps run a cooperative of hemp farmers in central Kentucky, where he said many growers are sitting on their harvests while prices are low.

West Virginia only planted 641 acres of hemp last year but also saw a lot of new growers. West Virginia Commissioner of Agriculture Kent Leonhardt said it may take several years for the industry to stabilize and avoid these price swings.

“Farmers have bought on that this is something that they can make a lot of money with over night. They went in and grew too much in the first year,” Leonhardt said. “Once 2020 is over, you’re going to see a leveling off of regulations and more balance between the states.”

Some of the uncertainty with regulation comes from whether hemp-producing states are going to regulate their industry under pilot programs founded in the 2014 Farm Bill or adopt new federal regulations proposed under the 2018 Farm Bill.

Kentucky Hemp Industries Association sent an open letter this month to the Kentucky Department of Agriculture, asking the department to continue operating under the state’s 2014 pilot program. The association claims newer federal regulations were unworkable with regard to testing and harvesting the crop.

Agricultural officials announced Tuesday that the state would continue to operate under their pilot program and move toward making “the final rule as workable as possible in accordance with the Farm Bill.” Ohio had their state plan to regulate hemp approved by the U.S. Department of Agriculture last month.

2020 Hindsight: The Ohio Valley’s Decade In Data  Wednesday, Jan 1 2020 

hindsight2020-coverThe year: 2009. A Senator from Illinois named Barack Obama has just made history upon taking the presidential oath of office. The national economy is at a low point in the Great Recession. And the Pittsburgh Steelers are the first NFL team to win six Super Bowls.

Ten years later, as 2019 gives way to a new decade, the country is a radically different place, and the Ohio Valley is no exception.

The region’s economy improved, but more slowly and more modestly than for the nation as a whole. Coal, the Ohio Valley’s bedrock industry, declined sharply, bringing turmoil and uncertainty to the communities that had long depended on mining and burning coal for jobs. And an addiction crisis just coming into view in 2009 took a terrible toll on the region as it became a nationwide epidemic.

The ReSource team took a look at the trends that have shaped the region over the past ten years, and the data behind those trends in the Ohio Valley’s economy, environment and health.

Slow Growth

Population has grown across the region, but only Kentucky has seen a substantial increase since 2009. The Commonwealth has grown by about 4 percent. Ohio and West Virginia have seen slower population growth at about one percent.

A closer look on a county-by-county basis of the three states reveals a stark difference in population trends between rural and metro areas. Population loss is primarily in the rural regions, especially those that have been dependent on coal for employment. And population gains are primarily in the urban areas or those adjacent to cities.

Individual incomes have increased in Kentucky, Ohio and West Virginia, but they still lag behind the rest of the country. The type of work that offers the most money has shifted in some parts of the region and, as the coal industry continued to decline, other forms of energy arose.

All three states are behind the national average in wage growth. Of the three states, West Virginia saw the highest wage increases at 7.4 percent. Kentucky is increasing the slowest at 4.8 percent, and Ohio workers have seen a 6.3 percent increase from 2009 to 2018.

But an economist warned that those numbers have to be put in perspective.

University of Kentucky economist Michael Clark said he was surprised to see incomes growing more slowly in Kentucky than in West Virginia, where he says the state is facing an isolated recession.

“That’s really masking a lot of the problems that West Virginia has faced,” Clark said, “because they’ve been seeing a decrease in the number of jobs and a decrease in total wages.”

In West Virginia, the mining industry remained the employer that pays the most, even as that sector saw sharp declines in employment. In comparison, Kentucky moved from mining to finance and Ohio went from information to finance as the best-paying sectors.

Energy Shift 

It shouldn’t come as a surprise to anyone living in the Ohio Valley that the mining industry suffered losses over the past decade. Overall, the Ohio Valley experienced a 50 percent decrease in mining employment since 2009, and data from the federal Mine Safety and Health Administration show that between 2009 and 2018, the region’s coal production also fell by almost half, outpacing coal’s decline nationwide. Ohio has been hit hardest with a 68 percent decline in production, followed by Kentucky at 63 percent and West Virginia with a 30 percent decline.

While some dubbed the Obama administration’s focus on greenhouse gas emissions a “war on coal,” experts say the writing was already on the wall for coal’s decline.

The main reason: natural gas.

“When you look back at what did we know in 2009, what did things look like,  I think there was a clear indication that the decline of the coal industry was upon us,” said Jamie Van Nostrand, director of West Virginia University’s Center for Energy and Sustainable Development. “Fracking was really ramping up in the Marcellus shale and so you started to have natural-gas-generating plants displacing coal and a huge number of wells being drilled.”

EIA

According to the U.S. Energy Information Administration, the federal government’s independent, nonpartisan energy statistics arm, about 93 percent of mined coal is used for electric power generation.

Some regulations did increase the cost of burning coal, including the 2011 Mercury and Air Toxics Standards which caused some older coal plants to close rather than choosing to make costly pollution control upgrades. But Van Nostrand said the falling cost of natural gas and renewable energy are the main drivers of coal generation displacement seen over the last decade.

“I know the term is used too often, ‘a game-changer,’ but it really did fundamentally change how we generate electricity in the United States,” he said.

In addition, mining productivity was dropping “because basically all the cheap coal has already been extracted.”

Between 2010 and the first quarter of 2019, U.S. power companies announced the retirement of more than 546 coal-fired power units, totaling about 102 gigawatts of generating capacity nationwide.

EIA

In the Ohio Valley alone, 34 coal-burning facilities closed from 2009 to 2017.  And more are coming as electric utilities are moving up closure dates for more of their old coal burners. Communities in the Ohio Valley are expected to be hit especially hard as plant closures have major economic impacts on local communities.

Van Nostrand said he worries about how Ohio Valley political leaders are preparing, or rather how they are largely not. The region is hoping to attract jobs and new industries, but increasingly large companies demand access to renewable energy to power their facilities. Largely, Ohio Valley states are doubling down on coal and gas, while shading out renewable energy.

Energy costs in the Ohio Valley are going up too, which disproportionately affects low-income residents and is unappealing for businesses.

“It’s incumbent upon political leaders to help manage the states through this transition and to overcome this dependence upon coal, which does not serve the ratepayers or the general economy very well at all,” Van Nostrand said.

Coal Bankruptcies

The last decade also saw multiple waves of coal company bankruptcies. That included Ohio Valley giants Patriot Coal in 2012 and again in 2015, Alpha Natural Resources in 2015 and Arch Coal in 2016.

2019 marked another round of high-profile bankruptcies including West Virginia-based Blackjewel. The chaotic filing left more than 1,000 miners without their last paychecks for months. Dozens of miners took to the railroad tracks in Harlan County, Kentucky in protest.

The country’s largest privately-held coal company, Ohio’s Murray Energy, also filed for bankruptcy. Chapter 11 restructuring has allowed many companies to shed millions of dollars in healthcare, pension, black lung, and environmental obligations.

Just as the decade closed, however, there was a bright spot for retired union coal miners and their relatives. After nearly a decade of urgent advocacy, the United Mine Workers secured funding for the miners’ pensions and health benefits through the Bipartisan American Miners Act. That legislation was attached to the end of the year spending bill to fund the federal government.

Opioid Epidemic Peaks

Perhaps the biggest story in the Ohio Valley over the last decade has been the opioid crisis and its terrible impact on communities. After a decade of grim statistics about the mounting toll from overdose deaths, the latest figures indicate the death rates have finally peaked.

From 2017 to 2018 the Ohio Valley region saw about an 18 percent decline in overdose deaths. In West Virginia that was roughly a 6 percent decline. In Ohio the year-to-year death rate fell nearly 23 percent.

While that is welcome news, those lower annual overdose death rates for 2018 are still more than double what they were in 2009, and it is hard to fathom the profound grief and disruption the region has endured over the past decade.

Changing Attitudes

The unfortunate toll of the opioid crisis forced people to challenge their ideas about addiction. At the start of the decade, most people considered addiction to be a moral failing or a choice.

But the numbers regarding opioid deaths represent family, friends, and neighbors. It’s hard to find someone in the region who has not felt the impact of these deaths in some way.

Lyn O’Connell is the Associate Director of Addiction Sciences for Marshall Health in Huntington, West Virginia. She said public perception has started to catch up with the science that addiction is a disease, and that shift has aided efforts to combat the crisis.

“We see the federal government as being more willing to allocate funding, we see that state and local legislatures are more willing to pass laws that help people and we’ve seen communities be more willing to set up the necessary treatment and recovery support programs,” O’Connell said.

There’s still a way to go dismantling the stigma surrounding addiction, but O’Connell and others working to combat the crisis say it’s important.

The more people are accepting of those struggling with addiction, the more people get help and the fatal overdose rates continue to fall.

Health And Choice

The passage of the Affordable Care Act in 2010, followed by expanded access to Medicaid in some states, changed the healthcare landscape dramatically in the last decade. The ACA, also known as Obamacare, guaranteed a number of essential services, beginning with access to health insurance, and allowed people to gain insurance even if they had a pre-existing health condition, a frequent barrier with private insurers.

Justin Dunn is a policy analyst at Kentucky Voices for Health. He said the ripple effects of the ACA have been significant and, according to one study, some 700 lives have been saved in the state as people gained access to health care for the first time.

A key part of that is the expansion of Medicaid. Kentucky, West Virginia and Ohio have all expanded Medicaid, the federal health insurance program for people living in poverty.

The availability of health care is setting the stage for a more comprehensive approach to treatment that includes looking at social determinants of health like a clean environment and access to healthy food.

Dunn said Medicaid expansion has also been an important part of fighting the opioid epidemic. He said there has been a five-fold increase in substance abuse treatment because it is covered by Medicaid.

The last decade has also been a critical period for access to abortions, said Elizabeth Nash, senior state issues manager for the Guttmacher Institute, a national nonprofit research organization focused on reproductive rights.

Nearly half of all legislation aimed at restricting abortions has been approved over the last decade, according to the institute, many of them implementing longer waiting periods between the time a woman first visits a clinic to when the procedure is performed. According to the institute, Kentucky and West Virginia are among a handful of states with only one abortion clinic still in operation.

Hemp’s Comeback 

Ohio Valley’s farm country tracked some national trends over the decade, as smaller farms generally gave way to larger ones, amid a combination of low prices, overproduction, and a bruising trade war. The American Farm Bureau reported farm bankruptcies across the country increased 24 percent compared to last year.

However, the decade also brought a resurgence of a crop that used to have a strong foothold in the Ohio Valley: hemp.

Hemp is a variety of cannabis cultivated for its fiber, seed, and a chemical compound called cannabidiol, or CBD. The 2014 Farm Bill allowed states to create pilot programs to grow hemp for research purposes. Kentucky implemented a program in 2014, and West Virginia implemented a program in 2016. Ohio didn’t legalize the cultivation of hemp until 2019, under the latest farm bill that allowed states to legalize commercial hemp cultivation.

The regional hemp industry has boomed since the implementation of those programs, with much of the rising profits from the sale of CBD products.

Hemp advocates are waiting to hear from the U.S. Food and Drug Administration about how CBD will be regulated, potentially as a nutritional supplement that can be added into food, or potentially as a more-regulated pharmaceutical. Hemp farmers are also still learning how to grow the crop consistently and successfully.

Some Ohio Valley farmers have started growing hemp as a way to diversify their business and, perhaps, provide a new source of income for places hurt by the decline of other industries such as coal.

ReSource reporters Sydney Boles, Alexandra Kanik, Mary Meehan, Liam Niemeyer, Brittany Patterson and Aaron Payne all contributed to this story.  

Grassroots Growing: Hemp Farmers Form Cooperatives Amid Growth And Uncertainty Monday, Oct 14 2019 

Shawn and Tony Hemp Harvest

Tony Silvernail swings a heavy machete at a stalk of bushy hemp and chops the plant near the root, grabbing the five-foot-tall shoot with his sun-weathered hand. 

It’s an unusually hot October day on his farm, Beyond The Bridge LLC, tucked in the hills outside of Frankfort, Kentucky. But the heat doesn’t faze Silvernail, sporting a sweat-soaked shirt, a huge smile, and a fat cigar between his teeth.

Silvernail and hundreds of others of farmers across the Ohio Valley are finally getting to harvest thousands of acres of hemp, the first harvest since the federal government legalized hemp cultivation last December.

“Oh, I’m happy as hell,” he said with a laugh. “We’re all like little kids, Shawn and I, getting all excited when we’re sitting here harvesting and talking. This is actually the glory part of being a farmer, as anybody whose livelihood depends on this. When you’re harvesting, it’s a happy time.”

Liam Niemeyer | Ohio Valley ReSource

Tony Silvernail picks up a stalk of hemp he chopped during the harvest.

He’s been an organic farmer for decades in Kentucky, and it wasn’t until last fall when he and his business partner, Kentucky State University professor Shawn Lucas, decided to try their luck at growing organic hemp for cannabidiol, or CBD. Silvernail said when he first became an organic farmer in the ’90s, he appreciated the advice experienced farmers shared with newcomers in the industry. But he said that hasn’t been the case with hemp. 

“I’ve really adopted that sense of helping, and you didn’t really get that with the hemp industry. The hemp industry is still very closed,” he said. “So, I got in a bad mood and sitting there eating lunch with Shawn downtown, and I really came into a moment of ‘you know, we just got to do our own thing.’” 

They co-founded an organic hemp cooperative for smaller hemp farmers. The cooperative purchases hemp seed and other supplies in bulk to get a better deal. It sells the members’ collective hemp harvest to processors, using the strength in numbers to bargain for better prices. And the cooperative helps farmers figure out how to even grow the crop in the first place.

Their cooperative is starting out small – 15 farmers in central Kentucky growing about 30 acres – and has already seen some challenges. They unknowingly purchased faulty seed and have had thieves stealing the crop right out of the fields. But Silvernail said it’s all part of the learning process.

Liam Niemeyer | Ohio Valley ReSource

Tony Silvernail (left) and Shawn Lucas (right) inside their high tunnel where hemp is drying.

“Ask us in November where our sales were at, how we all did,” Silvernail said. “We can cry on each others’ shoulders over a beer when we realized how badly we may have screwed up or what we didn’t do, but hopefully next year will be better.”

Cooperatives aren’t a new idea in farming. But they’re new in the hemp industry, and many Ohio Valley hemp growers are choosing to join cooperatives to share supplies and give small growers a better shot in an increasingly competitive marketplace. Regional agriculture leaders are championing hemp’s potential for farms of all sizes. But these hemp farmers worry that the sort of corporate consolidation they’ve seen in other agriculture sectors will soon come to the new hemp industry.

Consolidation Concerns

Hemp farmer J. Morgan Leach has already seen attempts by larger corporations to corner the hemp and CBD market. 

Leach, founder of the West Virginia Farmers Cooperative, said he testified in 2017 against initial versions of a state bill, that he said would have prevented the sale of CBD products in the state unless the product was approved by the Food and Drug Administration. 

That portion of the bill was supported by lobbyists from the British company GW Pharmaceuticals, the proprietor of Epidiolex, used to treat epilepsy-caused seizures. It is currently the only CBD-derived drug approved by the FDA. Other CBD advocates that year in other states also worried about similar state legislation being pushed by the company. 

Leach said initial versions of bill could have closed off a lucrative market for West Virginia hemp farmers.

“So that was one of the, I think, apparent instances where you get kind of these bigger companies that come in and try to monopolize the market,” Leach said. “We were able to overcome that and preserve this market opportunity.”

Leach doesn’t want the new hemp business to follow the route some other agricultural sectors have, such as the poultry industry.  

Large poultry companies often have extensive control over a farmer’s production and pricing. That has led to a massive class-action lawsuit alleging that large firms use data to keep prices for poultry high while payment for farmers remains low.

Leach sees that as a cautionary tale about the effect larger corporations can have.

“The company owns those birds from the time they hatch to the time they purchase them, and then the farmer is stuck with the bill for raising those and the chicken house to do it. I think that’s a poor example,” Leach said. “Some are making money, but they’re totally hamstrung to the price that the company gives them, because it’s just how it goes in that industry. [Hemp] is a new frontier.”

Liam Niemeyer | Ohio Valley ReSource

Hemp sprouts from the ground at a farm near Frankfort, Kentucky.

Leach founded his co-op in 2015 in part because he doesn’t want a similar situation to happen with hemp.

“That’s our goal, is to be able to keep the five-acre farmer in business even when the bigger companies move into this space,” Leach said. “A co-op is a one member, one vote organization, so all of my members hold shares of stock. That stock is restricted only to farming members. So, farmers are the entirety of the makeup of our organization.” 

Leach said it’s ultimately up to the individual farmer whether they want to grow in a co-op, grow independently, or grow under contract for one of many hemp processing companies entering the business.

“I think it’s just kind of a difference in philosophy,” Leach said. “I’d just rather be part of a farming co-op where I have a voice and I have a vote.”

But Leach said he’s worried about the potential for future large-scale hemp production that could push smaller hemp growers out. By banding together, small farmers can compete with larger-scale production.

Booming Growth

Jeffery Young is an agriculture economist with Murray State University’s Center for Agricultural Hemp in west Kentucky. He agrees the potential is there for future hemp consolidation.

“I don’t want to say ‘join or die,’ but it would definitely be in a smaller operator’s best interest to join in on that,” Young said. “They wouldn’t have the acreage, or the volume or the clout that a larger operator would have.” 

Young said the new industry is still years away from reaching a level of large-scale production that would pressure smaller hemp farmers. But the nascent industry is booming, and the amount of hemp grown in the Ohio Valley continues to skyrocket.

Alexandra Kanik | Ohio Valley ReSource

The number of hemp acres planted in Kentucky this year, compared to last year, nearly quadrupled to about 26,500 acres. West Virginia saw a similar jump with 641 acres planted, according to state agriculture officials. With zooming demand for hemp to turn into products like CBD, prices for the crop are far from set in stone.

“It depends on things like geography, what kind of processors are there nearby, how many are nearby, what variety is being grown, what quality of product is being produced,” Young said. “The market is still trying to get its sea legs, if you will. There’s a great deal more risk with hemp…and so through sharing of risk, that would would be a key benefit from forming a cooperative.”

Much of the risk comes from the learning curve many new growers face. Pesticides are still being tested to control weeds and insects, federal crop insurance for hemp won’t be available until next year, and in some cases, THC levels in hemp can spike above the federal limit that classifies the crop as hemp. THC is the psychoactive compound in marijuana, and is also present in trace amounts in hemp. Hemp with THC levels above 0.3 percent is reclassified as the crop’s illegal cannabis cousin, and has to be thrown out.

While cooperatives can shelter hemp farmers from some risk, the set-ups can bring on new perils for farmers as well. Aleta Botts, Executive Director of the Kentucky Center for Agriculture and Rural Development, works with cooperatives of all kinds to help them become sustainable. 

She said because most hemp farmers are still learning how to consistently grow the crop, there’s a chance that a co-op might promise a hemp processor to grow a certain amount of hemp and fall short because of crop failures.

“We’re going to get to harvest and not have those pounds to market. So we’ve built our financials on a level that we’re not gonna be able to achieve,” said Botts. 

Unlike in the rest of the Ohio Valley, Ohio farmers aren’t harvesting hemp this fall because the state only legalized growing hemp in July. But that hasn’t stopped widespread interest in growing hemp, something that was apparent at a recent summit for potential hemp farmers in southern Ohio.

Liam Niemeyer | Ohio Valley ReSource

Tony Silvernail with a handful of crumbled hemp, on his farm near Frankfort, Kentucky.

“I printed off, I think, 480 some lunch tickets, and they were all gone. So the interest is huge,” said Julie Doran, who founded the Ohio Hemp Farmers Cooperative in December. 

She was also one of the few critics who panned parts of the state legislation legalizing hemp cultivation in Ohio. She feared that the bill’s language setting “financial responsibility” standards could limit in-state participation in the state’s hemp program and instead favor out-of-state companies with more experience and access to capital.

Doran said she believes there’s a place for smaller farmers alongside larger investors, but she also cautions that farmers need to learn how to grow the new crop reliably before working with bigger companies that might want to grow larger acreages more quickly.

“It’s not like any other crop that they farmed,” Doran said. “Yes, corporate is going to come in and we are going to need them for an outlet to sell all this stuff, too. But we need to learn ourselves first. And, you know, get our feet wet before we jump in.”