Since 2018, the production of hemp has now been legalized within the United States. The key strengths for the hemp farming and hemp cultivation market is now the incredible demand (with CBD products as the primary driver behind this growth). The gross margins generated on a per pound basis are substantial. These farms and cultivation businesses can achieve profitability very quickly once their first harvest has been completed. One of the other key strengths for hemp farming is that it is relatively easy to do as compared to other types of cash crops. Given the strong demand (and now complete legality of hemp cultivation), most financial institutions are willing to provide substantial capital injections for farmers and entrepreneurs that want to enter this industry.
As it relates to weaknesses, the primary issues faced by these businesses are two fold. First, there is now a tremendous amount of competition as it relates to number of producers growing hemp. Venture capital firms and other private funding sources have been a three-fold spike in the number of farmers seeking capital to develop large scale hemp producing enterprises. This competition will eventually push down the prices of hemp (for both flower and hemp biomass sales). The second issue regarding these businesses is that they have substantial operating costs (including facility expenses, land leases, irrigation, and processing costs). The other weakness faced by the business is that there are high operating costs related to distributing raw and processed hemp to third party wholesalers, retailers, and dispensaries.
The opportunities for hemp farming businesses are substantial. First, many farms seek to produce their own CBD products, which carry substantially high gross margins. Second, many hemp farms will often seek to produce crude hemp oil (which as numerous purposes) from their hemp biomass. This can be a substantial secondary stream of revenue for hemp farms and cultivators. The continually changing regulatory and legal framework of this industry will continue to allow hemp producers to develop new revenue streams over the next ten years. One of the other major opportunities that hemp farms enjoy is their ability to process their hemp onsite (for flower and oil), which produces substantial profits for these businesses on a monthly basis.
For threats, these businesses will face downward pricing pressure as more and more farms produce hemp as a primary or secondary crop. It is very rigid and grows in most climates. As such, a new hemp farm operation should prepare for downward pricing once this now nascent industry becomes more mature. Now that the legal issues surrounding hemp have been remedied, this fast growing industry is expected to triple over the next five years. The other threat faced by the businesses may come from the improper production of hemp, which may fall outside of the currently permissible legal framework for this crop.