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Processing, Extraction from a Farming Perspective and Risks to Avoid and Protect Against

Processing, Extraction from a Farming Perspective and Risks to Avoid and Protect Against

Processing and extraction. This stage in the supply chain either emotes a sense of comfort accompanied by happiness or is the cause of deep down, gut twisting pain. Hell, before I had any skin in the game this was a topic that I was not looking forward to breaching. You all have had your eyes and ears to the market this year and have heard the constant industry feedback about the lack of processing across the nation and the hardships it has caused countless farmers. You may be one of those operations, you may also have killed it and done something that just happened to work out great for you. For my own processes from seed to shelf, I have talked with countless processers, industry experts and organizations that have done it both in a way that worked for them and also others who “failed”, but learned critical lessons. I quote fail because I hate the connotation that the word has, it almost portrays the existence of the end and it very well may have been for some, but in my life I have failed many times and from those failures I learned and grew to be a better functioning entity. I also want to be perfectly clear that just because I have come to the conclusion on how I created and cemented processing relationships, does not mean that it is the right way to go about business for yourself, again these are all specific to myself and the way I personally navigate and do business and form relationships.

In the past and more so this year, even for a large majority of operations, they were able to land contracts or an agreement with processors, only to realize they were left with rotting biomass and a failing means to build capital. This in turn caused an enormous amount of frustration, anxiety and in several extreme cases, farmers to take their own lives. When reading about people betting the farm and losing it, it creates a huge sense of sadness within and the complete opposite when I hear of a heroic turnaround. For every operation that hit the jackpot this year, there were also operations sustaining major losses and going under. This makes sense in such a new market that is seeing upswings in the amount of crop going to field and lack of infrastructure to process that acreage. Just this year it is estimated that the amount of land licensed to grow in the U.S. has grown more than four times from 2018. The numbers translate as this: from a collective based on Vote Hemp’s annual survey of each state’s agriculture departments, as a whole there was 511,442 acres licensed by farmers to grow this year. If you compare this number to the year before, that is a 455 percent increase over 2018. The numbers break down over the last years at 2016: 9,770 acres, 2017: 25,713, 2018: 78,176 and as just stated, 511,442 in 2019. It definitely needs to be noted that in my own estimation that I have personally seen here in Michigan, I would venture to say that only 40%-50% of the licensed acreage was really planted and of that actually planted, there was probably a range of 15%-20% of that yield that was lost due to harvesting, drying or literally pick one of a thousand things that could degrade the % of cannabinoids actually realized this year. Even then, at about 230,000 acres being planted in 2019, about 130,000 acres would then be planned for harvest. Here in Michigan the numbers given by MDARD (Michigan Department of Agriculture and Rural Development) were 572 licenses to grow, 32,614 acres and 423 registered processors. When you have eyes on your local market, it is obviously easier to see that certain regions are more prone to their own unique problems. What I personally saw and confirmed with colleagues, officials from the state and reading personal experiences, was in people’s estimations, it matched that 40%-50% actual harvested number.

With so many woes, challenges, frustrations and anxiety over processing I guess I wanted an account of what I plan to do for next year. I want to put down what I have learned from farmers, processors and the industry as a whole and what I plan to do to be as preventative as possible when it comes to the conclusion of months of preparation. Long ass days, sweat, tears, leisure time out the window and time with family being limited should pay off, but with anything, especially this industry, there is no guarantee. There will probably be a reoccurring theme that those of you that know me and what I speak to will come to understand is a corner stone of my belief system when it comes to business and that is a propensity to engage and connect with people. This isn’t just connecting on LinkedIn, becoming friends with someone in a FB group that you like what they have to say or even getting stoked because an industry leader you reached out to actually friended or followed you back. This is once you make those connections, make a good and honest attempt to follow up on those connections, go out to lunch or grab a coffee. Actually put time in your calendar to follow up and have talks. There were so many times this year that I picked up or took a call, not knowing where or how we would even have an interest in one another, only to have a completely unexpected and pleasant outcome because of that conversation or meeting. In fact, it has happened MORE than NOT happening. That says a lot. First, those willing to make the connections and schedule a conversation are going to have a much higher probability of being quality. If not now, down the line for sure. The second, people in this industry are, in my opinion, more willing to engage and connect genuinely than other industries. Perhaps it might have something to do with the amount of cannabinoids flowing through our system compared to other industries. This is something I love about this industry, you cannot just simply go to Google, type in “quality hemp farms” or “quality hemp processors” and be inundated with highly reviewed companies, they just aren’t there yet. So, what do I have to do? I have to connect, build relationships, reach out and be willing to foster good and authentic relationships with people in the industry.

As I was newer to this industry at one point than I am now, there were and still are many things to learn. Once I scoured, researched, attended expos, and ultimately started building my network and relationships of industry people, is then when I could put those to use for my operations. I needed to understand every aspect of the operation and supply chain. Just like with any business, I didn’t have to have my core competencies in all areas, but I damn sure better be able to understand, relate it intelligibly to my business and go about it with a business mindset. I would say to date, I have probably spoke with over 40 different processors in 6-7 different states and read countless articles pertaining specifically to processing. It could be much higher, it could be much lower, but those are the ones I actually engaged with on a more personal level and was able to acquire pertinent information from. As of today, I have an agreement in place for my estimated 36,000lbs of processable flower material and a plan to utilize the stalk, bast and hurd portions of the plant for experimentation purposes as it relates to construction techniques and mixtures for next year.

My Obligations, Questions and Processes

So, for the purpose of the content herein, I am laying out what I have done and my plan for next year and how what I learned this year is dictating our business plan. We are at the extraction part of our operation and all of the work leading up to it, vetting and finding good genetics, germinating over 40,000 plus seeds in our greenhouses, transplanting those seedlings to field, constantly monitoring (tissue samples, etymological management, irrigation, culling males, dealing with pests, security and a whole host of hurdles), harvesting, drying, bucking, trimming has been done. At this point I am NOT, hopefully, actively looking for an extractor. *Some use processor and extractor interchangeably and some define processing as the steps involved up to the point of literally extracting out of it the cannabinoids, extraction. I apologize if interchanging their use is not the norm for you.* At this point I should be continuing conversations I had the year prior, or definitely months in advance of purchasing seed for your upcoming season.

I have two good friends who both do processing/extraction that I speak to regularly and that continually keep me abreast of industry trends and knowledge that I may not be privy to. Nick Young (krystilion), who I came to know through a networking platform and later had an awesome coffee date with my wife, myself and his wife has come to be one of those extractors that I can definitely get on board with. Nick is willing to educate and answer questions I have and ultimately is a good guy. My wife and I recently went to an industry dinner with him and this is a relationship I would never have made if I had gone about doing business how I had years before. When I reached out to him and asked him about what areas he felt smaller farmers and startups should be inquiring about, he had several areas that came to mind right away. Overarching all of these is something both extractors, Troy Rider being the other, absolutely felt was essential to have in your corner. A professional set of eyes, AKA attorney. Early on when my wife and I first decided we were going to file articles of incorporation; we were privy to having owned and operated a business in the past and realized it was crucial to have an attorney as someone we could always go to and rely on. He was not just someone we found on Google and called and retained their services, no. He was someone I had been friends with for years and knew was genuinely vested in our success. It didn’t cost much to, in a sense put him on retainer, but it also eases your mind knowing that you have someone fighting for you in your corner. Troy Rider, the owner of The Terp Co., industry veteran and all around authentic, good guy stresses the importance of someone who will back you up agreeing that this “absolutely” is a sound business decision. It really shouldn’t cost you anything and can literally cost you everything if you do not have one when you really need one.

The amount of time, sweat and tears you are putting into your plants and to not understand or being fully engaged in the process of what happens to them after it leaves your control is crazy to me. I heard tons of stories this year about farmers putting plants in the ground and not having a clue how they were going to harvest, how they were going to dry, let alone where and then of course what they were going to do with material once it needed to be processed and extracted. These were many of the farmers and operations that I read about this year falling into financial or operational trouble.

Transportation

I want to make sure that I can get my processable material to my extractor when the time is ready and that it will go off without a hitch. Anyone knowing anything about logistics will know the shortest distance it needs to travel would be best, but is the shortest distance the best facility and can they handle your capacity? I also needed to understand the arrangements of getting my material to my processor. Some processors will split transportation costs, or you are fully responsible for or in other cases they are so established they may offer to come and pick it up. In my personal situation, I am extremely grateful that I will not have to transport further than 13 miles and I have talks with the major farming facility I am neighbors with who will lease out their semis and drivers at a very lucrative rate. Mind you, I also do have other contacts and trucking companies in case Plan A, B or even C fall through.

Agreement

Prior to anything and therefore maybe this is misplaced, I should definitely have an agreement in play. Agreements can be simple or extremely complex and this is where having an attorney review or at least be in on the conversation can be beneficial. If you are having to disseminate a lengthy and attorney worded document, things can get challenging. I am not going to lie, the agreement I have with my extractor is so simple and straight forward, to some of you it may be laughable, but I feel good about it. My boy Nick Young had this to say:

“Get contracts reviewed and signed 3-6 months in advance. Make sure the timeframe is agreed upon. What happens if it's delayed? When is liability transferred? If your crop starts at 10% potency, but then gets shipped in a hot truck and tests at 8% by the time it reaches its destination, who is responsible for the lost 2%? Is the contract for a splits-based agreement? splits and consignment? toll processing? Make sure everyone understands what the desired outcome and billing/payment strategy is.”

Absolutely golden and another thing. If you googled some of the verbiage, at one time I did too. That’s what is awesome about this, is drop your ego, ask questions and even if you think you know, get clarification. There are many times when I have to suck it up, eat shit as Gary Vee would say and be humble, ultimately, I feel better about it at one point and I learn valuable lessons.

Processing Technique

For a while, I was caught up in the debate of different extraction methods and being pulled initially into two different camps of thought. Ethanol vs. supercritical C02, then came steam distillation and a further breakdown of solvents into Hydrocarbon and natural solvent extraction. You will have to do your research and decide what and why you wish to go with one over the other. Your situation may not even call for this delineation, as dependent upon the closest and only extractor may only do Ethanol or C02. Either way. It’s good to know and well to ask. Dependent upon also if the extractor is purchasing your material or if you are trying to market it a certain way will also play a role in which technique you lean to. For my purposes, I decided on ethanol extraction being that it’s important for me to have certified organic CBD/CBG oil. Oh, and the operation I went with is strictly ethanol.

Storage

When thinking about where my hard-earned material is going to be sitting, I want to insure myself of a few things. First, security. Is my yield going to be sitting in a padlocked shed? Are there cameras? Is someone on property at all times? Are they insured? Ultimately do I feel confident and secure that my baby is in good hands? I can say that on a personal and business level I feel good with where mine will be next year. He has been in the business for over 20 years, fighting for its legality before it was even talked about in the Farm Bill, has had security systems in his past businesses oh, and he puts on CCW classes. Package deal, I love it. This is Troy and he initially brought up the issue of security to me after my initial thoughts on storage went to how it was stored and would it lose or degrade in percentage of CBD. To which he explained: “The material coming to us should already be dried and cured and prepped to certain standards before we do anything with it. If this is done properly, there really shouldn’t be any worry about the material being stored losing any of its quality.” Thinking about it he is absolutely right. Bucking and drying the material once dried properly, typically in a 60-65 degree, 45%-50% humidity-controlled environment for 10-14 days will get you there. Again, do not jump on these numbers as they more or less are what work for US and you may be different.

Timeframe

This is one that a lot of people have overlooked in the industry and I too was guilty of it at first. This is having an understanding of the time frame of the product to completion. When I say that, I am sure, just like me, some of you will say the throughput or that this processor can do 50,000lbs a day or that this facility can do 15,000lbs of drying material in 15 minutes. It’s great to know the throughput, but as both Troy and Nick pointed out knowing when your material is coming back to you and more importantly getting a specific date and time for your material to be delivered and extracted are paramount.

“When making a decision for a processor, what is their timeframe for processing YOUR crop? Processors love to tout their throughput (X lbs./day), but what contracts do they already have in place? If you're a farmer and you're going to sign a commitment (highly recommended), where do you fall in line? If you have 10,000 lbs. on a split based contract, when are they going to process your crop? If 100,000lb toll contract comes along, does that push your crop back? Time is scarce in this business so getting into a locked position is key.” – Nick Young

Cleanliness and Certification

You should have the right to see the location of where your future profits are being handled and to understand, at least at a basic level, the processes that will go into the extraction of your material. I have been invited into multiple locations and facilities, even without any talk of putting an LOI or agreement on the line and again, these are the type of people who are speaking to education and building their product and brand and I appreciate the hell out of it. In fact, I have referred to or at least talk many organizations up to others that may have exhibited a flawless, clean smoothing facility as a place to use as a bench mark when they are seeking whom they should do business with. I was able to gauge, in my limited knowledge even, the care and quality of operations dependent upon their organization and cleanliness, even if it was comparing a $35,000 pole barn setup, to a 22,000 square foot multi-million-dollar facility. Quality shows. And it should go without saying, if you have put in all this work, I can’t imagine $1,350 dollars here in Michigan would be too much for an extractor with thousands of dollars invested would not pay to license themselves, but you never know!

High Quality Product, not Quantity

This is a principle that we are abiding by and for good reason. With a limited number of processors and only being able to do so much biomass, extractors are also going to crunch the numbers. Both Troy and Nick overwhelmingly agreed this is an issue that a lot of farmers overlooked this year. Instead of row spacing, genetics and the whole cultivation of the plant being looked at from an intimate relationship, some looked at it from a big ag approach without having the infrastructure or ability to make that approach feasible. “Gold in, gold out” is verbiage Troy uses to put this plain and simple. The better-quality product you have, the higher percentage of cannabinoids per pound, the easier and more cost effective it is to the extractor. This makes sense when there is limited time and space for the majority of extractors in the market. It only stands to make sense then, that extractors want the best of BOTH worlds. High volume with a high percentage of cannabinoids, terpenes, or the specific combination and compounds they are looking for. It costs time and money to process more material with less percentage of CBD, CBG or whatever it is you are shooting for. If you have 50,000 pounds of 6% biomass and 45,000 pounds of 10% biomass and the extractor only has space for 50,000 pounds, it is only common sense the extractor is going to favor the higher quality product. This speaks to a mainstay for Troy who emphasizes quality over quantity. Quantity, in my specific situation is of utmost importance. I did flirt with and lost sleep many nights worrying about the fact that we were doing somewhere around 45,000 pounds, realized we would lose some of it and that quantity was not going to attract many extractors. In my ability to press on and build relationships with others who were focusing on quality and therefore were not fully scaled yet, we found a nice cohesive relationship. I have to take a moment and point out how at every step, playing to my strength of building trust filled, quality relationships with people and vendors helps me solve a majority of the challenges I face on a daily basis. Without them, I would not be doing this and gearing up for next year.

Final Thoughts

Although I could delve into a plethora of other avenues within the supply chain as it relates to extraction and processing, these were my big ones and they landed me awesome and lasting relationships with people across the nation and even some globally. The ones I really dialed in on were local and the best part of them is they started off as well-intentioned relationships with good people that, at least the two I spoke to in here, are people and organizations I can refer to as friends. I have a solid plan of what my processing, or extraction rather, will comprise of next year. If you are anything like me, once this “step” was taken and agreed to, wow I felt much better and could now start losing sleep about other aspects of the organization. Remember too, processors and extractors have dumped an exorbitant amount of money into their infrastructure and setups. They too need to recoup on market swings from the year and adhere to market trends. I needed to place myself the best within this market and place buffers in along the way.

Now, time for bullet points:

·      Network, reach out to and talk with multiple processors/extractors in state and out of state.

·      Ask how they process.

·      What is their throughput, but more importantly their timeline for YOUR business?

·      How will the transportation to their facility be paid for? Split? On you? Will they pick it up?

·      What is the cleanliness and organization of their facility? See where your hard-earned cash will be sitting. It speaks to quality and procedures.

·      Agreement, LOI, contracts months before harvest.

·      High quality percentage of CBD/CBG/compounds over quantity (in my situation)

·      “ground up, not ceiling up” process (Troy)

·      Security of the facility?

·      Constant engagement with the extractor, always be checking on your spot.

·      Research, research, research.

·      Talk with other customers of the extractor, vet them.

·      Build a trusting relationship.

·      Be willing and humble to learn.

As the industry will stay in a flux of downturns, upswings, looking bleak and then looking strong, it is my responsibility to be as educated and preventative as possible. This will allow me to jump on opportunities when favor shows itself and safeguard against potential market risks. It also puts me in a unique position to hopefully help others along the way. I get a distinct sense of happiness when I can help or provide resources or referrals to someone, both in and out of business, and feel an obligation to as well. I had to start and learn somewhere and so are many others. I cannot forget this. I beg you to reach out and help someone else along the way, they may even repay the favor one day. Nonetheless, we will see how this structure and plan works for us over the coming months and hope to revisit this in the future. I appreciate the time and dedication of those in the industry breaking their backs and racking their brains each and every day, every minute to create a positive and awesome industry. You are who inspire me and I’ll keep doing me.

Thanks to both:

Nick Young, Krystilion (www.krystilion.com)

Troy Rider, The Terp Co. (www.facebook.com/theterpco/)

You guys rock and keep me committed to doing better.

Best of Luck and Sincerely,

Rusty

Align Agro


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