Hemp Business Banking Is Still a Work in Progress. Here's the Latest
Departments - Smart Start: The Interview
West Town Bank Chief Operating Officer Melissa Marsal discusses why the bank works with hemp businesses, why others have been slow to catch up and what hemp growers should ask when shopping for services.
Despite hemp’s status as a federally legal industry, many banks have yet to catch up with regulations. Hemp farmers are still having trouble finding banks that will provide lending and other financial services.
“Because hemp is not yet a well-known product, it’s not easily funded by agricultural programs. And the second you’re outside of those programs, funding becomes very hard to find,” says Dan Miller, the founder and CEO of Steward, a crowdfunding platform for sustainable farms.
Those operating cannabidiol (CBD)-related businesses have it even tougher as they operate in regulatory limbo, with CBD not approved for sale by the U.S. Food and Drug Administration (FDA) and illegal to market as providing any health benefits. Several states have also deemed CBD illegal.
West Town Bank & Trust (a subsidiary of Integrated Financial Holdings Inc.) is one financial institution that has opened itself up to hemp businesses. The bank now services more than 100 hemp-related businesses, many of which are concentrated in the Southeast, though the company provides services across all 50 states.
Marsal
West Town Bank & Trust (WTB) provides an array of services that include checking and savings accounts, online and mobile banking capabilities, remote deposit capture and positive pay, “an automated cash-management service used by financial institutions employed to deter check fraud,” as explained by Investopedia.com. The bank also recently launched a joint venture with payment processing experts to form West Town Payments LLC to offer brick-and-mortar and online hemp businesses a payment processing platform, which works in tandem with the bank’s commercial services. In addition, the bank has lenders who focus on providing hemp businesses with access to capital, while a partnership with West Town Insurance Agency Inc. allows the bank to offer a variety of policy types.
Here, Melissa Marsal, the executive vice president and chief operating officer of West Town Bank, discusses what hemp businesses need to know when seeking a financial institution to partner with and why banks have taken so long to catch up.
Theresa Bennett: Why do you think it’s taken so long for banks to catch up with this industry’s needs? How did WTB move so quickly?
Melissa Marsal: Taking the time to develop a comprehensive program [that] ensures these businesses are compliant is an extensive process. Additionally, I think many banks are taking a “wait and see” approach as it relates to the SAFE [Secure and Fair Enforcement] Banking Act, which is still in limbo. The act was designed to prohibit federal regulators from punishing financial institutions for the sole reason that they choose to provide … services to cannabis companies, their owners and their employees. [The National Cannabis Industry Association (NCIA) expects the SAFE Banking Act to be re-introduced to Congress in early 2021 after failing to pass multiple times since its introduction in 2019.]
This hesitation on the part of financial institutions to provide services to hemp-related businesses has led to a multi-billion-dollar industry operating largely on a cash-only basis. Our team knew we had to take an “all-in” approach with this vertical, doing our part to not further impede the industry’s growth, as there are many risks involved with not being able to properly track funds for businesses that operate solely on a cash basis.
The opportunity was really recognized for us with the passage of the 2018 Farm Bill, which identified hemp with a THC [tetrahydrocannabinol] level of 0.3% or less as no longer being a controlled substance. … We then spent the better part of 2019 figuring out federal regulations and the varying state-by-state restrictions, and built out a comprehensive, compliant program … We have trademarked our program with the motto “Hemp Banks Here” and developed an original logo to go along with the message. We are garnering accounts and building relationships in the industry on a daily basis, and it has been a very successful venture for us.
Bennett: How do your services to hemp and CBD businesses differ from your services to other businesses?
Marsal: The process in which we deliver our services is really the main differentiator. One of the considerations with the hemp industry is that it is classified as “high risk,” which is a banking term indicating a need for enhanced due-diligence and customer monitoring. Our partners at RiskScout Inc. provide an enhanced due-diligence, on-boarding and monitoring software platform for our hemp customers. With this partnership, RiskScout filters out prospective businesses through a technology-enabled application, which includes a very detailed list of questions aligned with the internal policies and procedures of our hemp compliance program. We then utilize the same technology to help manage the ongoing compliance monitoring and reporting.
That said, bundling financial solutions and products together can actually be extremely beneficial for these businesses, helping increase revenues, reduce risk and improve cash flow. For example, the powerful combination of onboarding technology, payment processing and treasury management wrapped into one offering helps eliminate compliance concerns. There have been countless horror stories with merchant service providers and settlement banks not being on the same page when it comes to accepting hemp businesses. In addition, hemp businesses can take advantage of bundled pricing options, increased financial security and having an entire team of experts that understands their business and the industry. With shared data and access to financial activity and transactions, our team can more effectively anticipate our hemp customers’ needs for additional financial service products.
On the flip side, one specific product limitation involves the lending side of things. Even in a scenario where a business has all of the appropriate COA [certificates of analysis] [and] licenses in place and follows all of the applicable state and federal guidance, there is still an inherent risk for making a loan to a hemp business. For example, default of a purchase contract by a processor and testing above legal THC limits are not insurable causes of loss under insurance programs. Furthermore, sales channels for hemp-based commodities are still new concepts for this growing industry, and the amount of product needed to meet demand remains ambiguous. Bottlenecks within hemp supply chains have led to excess supply with massive amounts of product sitting in storage, resulting in testing complications and volatile pricing for both seed and specialized equipment. Many of these situations are out of our control, so lending is typically done on a case-by-case basis.
Bennett: What should hemp-related businesses know and come prepared with when seeking a bank that will work with them?
Marsal: They should know not to feel scrutinized when a bank asks difficult questions during the onboarding process. In fact, it’s quite the opposite. Where most banks go wrong banking hemp businesses is by following a “don’t ask, don’t tell” approach. It’s a good way to get into trouble and a terrible way to partner with customers. Financial institutions are not exempt from having internal controls in place to determine the risk profile of the entity based on the nature of the business.
For their own safety, hemp businesses should ask themselves four key questions when looking for a banking partner:
Does the bank have a dedicated team of hemp industry experts that understands the latest industry news and legislation?
Does the bank have a compliance program in place that demonstrates a mastery of the rules and regulations?
Is the bank carefully vetting my business by asking a series of hard questions to ensure it understands my operation?
Does the bank have a solid reputation in the hemp community, and is it able to truly help grow my business by making introductions to the right people and associations?
Finding the right banking partner for a hemp business is not like walking into a branch and opening a checking account. When done right, the onboarding process will take some time, but it ultimately boils down to safeguarding the customer to avoid being kicked out of the financial institution down the road, which can be very disruptive to their operation.
Theresa Bennett is editor of Hemp Grower.
Demand for Smokable Hemp Flower Is Rising, But It's a Complicated Market Segment
Features - Feature
Despite its current state of regulatory flux, this market segment can provide a big payoff.
For many farmers, the 2020 hemp season added heartache to an already grim pandemic year. Excess biomass from 2019 left deteriorating in storage drove wholesale prices to new lows. But the year’s end yielded a bright spot in one market segment: smokable hemp flower.
This segment is not without its challenges, as noted in an article in the January issue of Hemp Grower. Some states have banned it, while others have embraced it or looked the other way. But for hemp farmers and consumers, craft hemp flower and smokable hemp popularity keeps growing.
From Bans to Benefits
As general counsel for the U.S. Hemp Roundtable, a nonprofit coalition of hemp industry advocates, Jonathan Miller understands the smokable hemp debate. He finds farm groups are particularly supportive of smokable flower. “When it comes to the selling of flower, it is the easiest … way to the marketplace—and it’s also quite a profitable opportunity,” he says. However, Miller says that some members of the hemp industry have concerns regarding potential health risks inhalable products may present.
In addition, much opposition to smokable hemp flower rides on law enforcement’s inability to easily distinguish federally legal hemp flower with low tetrahydrocannabinol (THC) content from higher-THC cannabis. Miller hopes technological advances soon remedy that problem—for law enforcement and for consumers.
“But, for the time being, there is—particularly among some law enforcement—a real hostility toward selling hemp flower because of the fear that it’s just an end run around the marijuana laws,” he explains.
With U.S. Hemp Roundtable membership divided on how smokable hemp should be regulated, Miller says the organization is staying neutral for now. “It creates a real challenge when you have each state doing its own thing,” he says. “We’re hopeful that, like on some of the issues we’ve talked about with hemp and CBD, the FDA finally comes in and recognizes and regulates these products.”
Adam Koh, editorial director for industry data and intelligence firm Hemp Benchmarks, underscores the smokable segment’s attraction to farmers. As 2020 prices for most hemp products fell, finally leveling off late in the year, bulk flower was an exception. “Smokable hemp is one [segment] where we’ve seen it have the most significant price increase of any of the hemp product categories that we track,” Koh shares.
Hemp Benchmarks reports wholesale bulk flower prices were down more than 50% from December 2019 to May 2020. But bulk flower value slowly began to rise and finally passed back into a positive price difference in November 2020 from the previous year—the only major category to do so. Month-over-month pricing increased 32% from November to December 2020, when bulk flower was selling at around $250 per pound.
Hemp consumers have learned (and research shows) that inhalable products offer the fastest delivery of medicinal and therapeutic benefits of cannabinoids. As the hemp market matures, it appears consumers are willing to pay more for high-quality craft hemp flower. And farmers are responding.
“We are seeing more indoor-grown and greenhouse-grown smokable hemp coming to market as the popularity and demand for the product has cemented itself last year,” Koh says. “It seems like some growers are running their operations somewhat similarly to those who grow THC cannabis—cultivating it indoors so that the flower can be grown in more controlled cultivation conditions.”
Koh adds that some smokable hemp that meets U.S. Department of Agriculture (USDA) standards for organic certification is commanding premium prices relative to Hemp Benchmarks’ assessed averages. International pricing for hemp flower is rising as well.
Caught at the Crossroads
As the smokable hemp debate moves forward, state bans have left some flower farmers in limbo. In Texas, a state ban prohibits the manufacture, processing, distribution and retail sale of hemp for smoking. But a subsequent legal challenge and temporary restraining order prevent the ban from being enforced until the lawsuit is resolved. (As of press time, the next hearing for the case, Crown Distributing LLC et al. v. Texas Department of State Health Services et al., was set for March 22.)
Texas grower Taylor Kirk is founder of 4K Pharm LLC, a self-described family-owned craft cannabis farm operating as a licensed hemp producer, manufacturer and distributor in the state. Before starting the farm, Kirk was director of cultivation and vice president of operations for one of Texas’ three medical marijuana licensees.
Kirk and his wife and business partner, Megan, received their hemp production license in May 2020, and they focus their energy on producing premium craft hemp flower.
An indoor propagation and vegetation area complements the farm’s 2,400-square-foot, custom-built light deprivation greenhouse. But the uncertainty introduced by the Texas smokable hemp ban has kept the couple from moving forward with some aspects of their business plans.
“I don’t want to be viewed in a negative light in the industry here,” Kirk explains. “My goal is premium flower production. I am a cannabinoid hemp producer, but I’ve held off of investing in the equipment necessary to manufacture smokable hemp, which would be basically pre-rolls and cigarettes, and I’m waiting for the court case to be settled.”
With an unenforced ban in place, Kirk says smokable hemp is still being marketed and sold everywhere. Retailers he’s spoken with estimate that 50% to 60% of their hemp shop sales come from smokable hemp—much of which they’re buying from other states because of the ban.
For Kirk, who reiterates his intention to “operate with complete transparency and within the legal boundaries,” the ban puts him and his raw, dried-and-cured hemp flower in a difficult spot—one that has him examining his options for moving forward, depending on the final ruling on Texas’ smokable hemp ban.
He says there’s no question that flower—especially premium craft flower—represents a farmer’s most lucrative avenue. Over the past year, he saw regional wholesale pricing for hemp flower range from $300 to $1,500 per pound, depending on quality and cannabinoid content. His greenhouse-grown flower typically brought $500 to $1,000 per pound. “Retailers are selling product for roughly double the wholesale cost,” he says.
Kirk believes conscientiously crafted hemp flower can also overcome negative consumer perceptions caused by misleading and mislabeled CBD products. “When you look at smokable hemp, you can’t ignore the quality of the flower and a test result that shows you the percentages of cannabinoids and the safety aspects of microbial contamination or heavy metal contamination or pesticide contamination,” he says. “They know exactly what they’re getting in their flower.”
4K Pharm LLC, a self-described family-owned craft cannabis farm, has focused its energy on producing craft hemp flower since May.
Photo courtesy of 4k Pharm LLC
Driven by Medicinal Benefits
Maryland’s hemp laws don’t treat hemp flower nor smokable hemp differently than other forms of the crop. Though the laws don’t threaten hemp flower production, industry uncertainties are still in play. For Tyler Van Wingerden, vice president of family-owned and -operated Catoctin Hemp, enthusiasm for the health benefits of hemp-derived cannabinoids has the farm hanging in for a third year. Van Wingerden is putting energy into smokable flower as part of a larger plan.
Catoctin Hemp shares the property with Catoctin Mountain Growers, the family’s 35-year-old ornamental plant business that has 600,000 square feet of greenhouse space. In the company’s first year of growing hemp, Van Wingerden put Catoctin’s expertise to use growing hemp starts, which are also referred to as “liners” in the greenhouse industry and “clones” in hemp. The company expanded into extraction when farmers who bought their starts experienced a bottleneck in extraction. All in all, that first season went well.
But 2019’s biomass glut and low prices led fewer farmers to plant hemp starts in 2020. Some cut back production; others went with cheaper seed instead. With a sudden excess of unsold hemp starts, Van Wingerden saw an opportunity in smokable hemp flower. He planted 1 greenhouse acre with approximately 12,000 plants last year.
“There was a big learning curve” at first, he shares. Relatives in the medical cannabis industry provided helpful advice, but Van Wingerden says, “you still always have to learn a lot yourself.”
The operation received positive feedback for the crop’s color, taste and smell, but not for its bud size, he says. Van Wingerden attributes that, in part, to the company’s first run at drying and curing flower, which left buds way too dry, he says. And when growers are paid by weight, overly dry buds mean lost revenue.
This year, he’s trying four new hemp varieties along with refined post-harvest handling. “We’re going to go on for another turn of some smokable here, along with some other varieties that we’re trying,” he says. He plans to devote about 50,000 square feet (just more than an acre) of greenhouse space to hemp flower for 2021.
Over the past two years, Van Wingerden has gone from a skeptic to a believer in the medicinal benefits of cannabinoids. That belief is keeping Catoctin in the game. “We are super excited about that aspect of the plant ...,” he says. “If that wasn’t the case, we would not be with it anymore.”
Cultivation Comparisons
Both Kirk and Van Wingerden say growing premium hemp flower is a much more labor-intensive process than growing hemp for extraction or other purposes. “That’s a whole other beast to learn just how you handle it post-harvest, and [it’s] very different than how you handle hemp biomass,” Van Wingerden says. “And it’s obviously very different than how you handle a petunia.”
For any grower expecting to add hemp for an extra turn in the greenhouse (like they might do with a crop of fall pansies), Van Wingerden urges caution. He describes a hard line between growing hemp and handling it after growing, but he says even growing hemp isn’t simple.
He compares the rooting process to a poinsettia, a notoriously fussy greenhouse crop. “We rooted half a million hemp cuttings in 2020,” he says. “These are very similar to the poinsettia plant in the attention and care they need in rooting.”
Kirk considers hemp a little more forgiving than high-THC medical cannabis, but he believes growing for higher cannabinoid content in either market leaves plants more finicky. That’s another reason that controlled environments such as indoor and greenhouse grows yield higher-quality crops. But that too comes at a cost.
Craft hemp flower producers invest time, labor and inputs comparable to premium recreational cannabis or medical cannabis growers, but margins don’t stack up.
Hemp Benchmarks puts it in perspective: While wholesale pricing for bulk CBD hemp flower was around $250 per pound in December 2020, a pound of outdoor-grown flower in the cannabis market brought $900 per pound. Greenhouse-grown cannabis hit $1,400 per pound.
“From the last round, we know we need to raise our prices a little bit. It is a very expensive and tedious thing to produce a high-quality bud for smoking,” Van Wingerden says. “In our ... region, [medical cannabis] is fetching about 10 times more per pound than what we’re having people try to pay for the hemp.”
He acknowledges that bureaucracy, regulations and restrictions faced by medical cannabis growers warrant a higher price, but not tenfold: “... From a growing, curing and processing standpoint—it’s almost identical,” Van Wingerden says.
But while biomass remains a tough sell right now, and despite price disparity with medical cannabis, he believes business models with hemp flower can be profitable.
Flowery Futures
Miller expects the demand for smokable hemp flower and other inhalable hemp products will increase. But industry obstacles to the segment’s growth must be resolved.
“To me, the most important thing we can do as an industry is really promote the development of technology that helps distinguish between hemp and marijuana—kind of roadside THC testing,” Miller says. “If that comes into wide use, it will eliminate most of the challenges that we see from law enforcement.”
Koh advises growers lured by flower’s price relative to biomass to research the added time and labor the crop requires. “For those growers that are looking at it and seeing the price difference and thinking maybe they can make up their margins that way, it’s important to be aware that it does come with extra costs to bring a really solid product to market."
Van Wingerden likewise advises greenhouse growers or hemp farmers considering smokable hemp to do their homework. “Don’t just take numbers from articles online. Go talk to people who are doing it. Get an idea of what’s going on and kind of see the process happening,” he suggests. He thinks seeing what it takes to harvest and process hemp for smoking might change some minds.
“It’s a lot of people. It’s a lot of work. ... Just get an idea before you jump into it because there’s a lot involved,” he says. “The growing process is almost easier than the curing and drying process. ... And you’ve got to do it right.”
But, Van Wingerden adds, if growers focus their attention and don’t take post-harvest work lightly, they can reap some rewards. “If you have a nice bud, and it looks good, smells good and has good size, you should be able to get paid for that,” he says. And for many hemp farmers, that sounds like a good incentive to start.
Jolene Hansen is a Minnesota-based freelance writer specializing in the hemp, horticulture and cannabis industries. Reach her at jolene@jolenehansen.com.
The Potential of Autoflowering CBD Genetics
Departments - Smart Start: Research Roundup
Finding reliable genetics has been one of many burdens for the blossoming hemp industry. Autoflowering varieties might help.
Finding reliable genetics has been one of many burdens for the blossoming hemp industry. That is, in part, because many genetics available on the market are photoperiodic, meaning they need to be exposed to darkness for a specific amount of time to trigger flowering. Since day length varies by latitude, genetics that perform well in one geographic region may not grow well—or at all—in another. (For more information on photoperiodic varieties, visit bit.ly/HG_photoperiodism.)
Courtesy of Cornell University
Larry Smart, Ph.D., has spent the past two years researching autoflowering hemp varieties used for cannabinoid production.
As a possible solution to the problems that come with day length-sensitive varieties, some hemp growers are exploring autoflowering genetics. Instead of flowering after a set period of darkness, these varieties flower after an amount of time that isn’t dependent on light levels.
Larry Smart, Ph.D., head of Cornell University’s Hemp Research Team, has spent the past two years researching autoflowering hemp varieties used for cannabinoid production.
“I still think that’s one of the biggest challenges [in the industry] right now is developing varieties that have flowering times matched to specific latitudes,” Smart says. “Companies have been actively marketing and promoting autoflowering varieties to growers, so we want to make sure that we’re doing some science-based testing and providing non-biased information to growers.”
Autoflower Trials
When Smart began trialing autoflower varieties in 2019, he experimented with two CBD varieties from hemp breeding company Kayagene. He started these from seed in the greenhouse and planned to transplant them into the field after 15 days, as recommended by the company. But from the start, the genetics came with a learning curve.
“If they experience any stress at all, which is not uncommon in a greenhouse, then they will be triggered to flower,” Smart says of autoflower varieties. “Our fields weren’t ready on day 15, so I think we went until day 20, and they had flowered by the time we transplanted them.”
Because hemp growth slows considerably when it begins to flower, Smart says, the crops remained small and did not produce much floral biomass.
He headed into 2020 with double the number of autoflowering varieties (again, all for CBD production). This time, he decided to direct-seed them outdoors and use an overhead irrigation system.
“I would say that trial went very well just in terms of overall agronomy,” Smart says. “We’re still analyzing the data in terms of yields and cannabinoid content, but I was quite pleased with the way we were able to get that established.”
He planted all the autoflowering varieties with only 30 inches between rows and about a foot between plants in the row. This is tight spacing compared to the typical 24 square feet—6 feet between rows and 4 feet between plants—given to day length-sensitive cannabinoid varieties, he says.
Smart found the autoflowering varieties can handle the tighter spacing because they flower quicker than many day length-sensitive varieties, which keeps them at the smaller size.
And while he hasn’t yet analyzed the yields for 2020, Smart says based on trials the past two years, autoflowering varieties appear to overall have a higher proportion of flower biomass to total plant biomass than photoperiodic genetics. While a typical day length-sensitive variety produced about 50% of its total dry biomass as flower, the floral biomass of the autoflower varieties was 87% of their total dry weight. This ratio—also known as the harvest index—is a key target for breeders to maximize allocation of plant resources to flower production, Smart says. (For more results from Cornell’s 2019 hemp trials, visit bit.ly/Cornell2019HempTrials.)
Because of these varieties’ higher ratio of floral biomass and their ability to thrive in tighter spacing (allowing more plants per acre), Smart is now working to learn more about how autoflowering variety yields compare with their day length-sensitive counterparts.
There are also other unknowns: For instance, if day length does not trigger flowering in these plants, then what does? Autoflowering genetics typically have a minimum maturity time, which means they have to grow at least a certain number of days, no matter what the light conditions are, in order to flower. But as Smart learned in 2019, other autoflowering genetics appear to have no minimum maturity time at all—seedlings could flower in a matter of days.
“That’s something we really want to try to do more research on to understand the genetic basis for that maturity requirement,” Smart says.
Their Potential
Day length-sensitive cultivars can also have variation in maturity times, even within a variety. Smart says that’s a big issue he’s seen while trialing day length-sensitive CBD varieties.
“Day length sensitivity is not something that is very well-described for many varieties,” Smart says. “... Variation in flowering time is a real problem for growers. If 25% of plants flower early and the other 75% flower four or even six weeks later, it’s harder to get maximum yield at harvest time.”
This is perhaps one of the largest potential benefits of autoflowering varieties. If researchers find uniform maturity requirements within autoflower varieties, farmers across the country could theoretically plant them without succumbing to some of the largest issues they face growing photoperiodic varieties, such as inappropriate climate and day length.
Additionally, Smart says hemp greenhouse growers could use these varieties to move through multiple production cycles a year without light deprivation shading, as autoflowering genetics are not dependent on a specific night length to reach maturity.
Ultimately, though, researchers still have much to learn about autoflowering varieties. Smart says growers who want to try autoflower varieties should consider how they plan to harvest. A mechanical harvesting system, for example, may be incompatible, as the plants are too small to feed properly through the equipment.
“You want to try to match plant size with your harvesting system,” Smart says.
Theresa Bennett is editor of Hemp Grower.
Hemp Provides New Opportunities for Longtime Cannabis Operator Puffin Farm in Washington State
Features - Cover Story
Puffin Farm’s Jade Stefano gets candid about her experience operating in the hemp and state-regulated medical and adult-use cannabis markets in Washington state.
Jade Stefano, ND, co-owner of Puffin Farm in Ellensburg, Wash., is passionate about growing plants outdoors. As a farmer of regulated medical and adult-use cannabis since 2014, and hemp since 2019, Stefano has tunnel vision on growing as ecologically responsibly as possible. Strain on the power grid? No way, since as an outdoor grower, Puffin Farm uses significantly less electricity than indoor and greenhouse cultivation operations. Waste generation? No issue there—Puffin’s cannabis and hemp plant waste is made into compost and returned to the soil to increase fertility. And she uses only biocontrols and natural fertilizers.
All these practices have given Stefano and her small-but-mighty team peace of mind that they’re producing clean products. And with her CO2 extraction facility about 100 miles away in Seattle, Stefano is fortunate to have control throughout her supply chain. In the regulated cannabis market, she produces flower, vape cartridges, topicals, rosin and more. So, when the opportunity opened to operate in the hemp market after the passage of the Agriculture Improvement Act of 2018 (the 2018 Farm Bill), Stefano saw a way to offset her overhead and regulatory costs for her current product line. But this also created an opportunity to add more products that align with her standards, as well as widen her distribution channels.
In this Q&A interview with Hemp Grower Contributing Editor Cassie Neiden Tomaselli, Stefano shares more about her agricultural philosophy, the history of her farm, hemp opportunities that lie ahead, as well as her biggest lessons learned from growing hemp and cannabis in these rapidly evolving regulated markets.
Cassie Neiden Tomaselli: Will you share a little about the history of Puffin Farm?
Jade Stefano: Prior to i502’s legalization of adult-use cannabis, we were growing medical cannabis that was CBD [cannabidiol]-dominant in Seattle. [Editor’s note: Initiative 502 was voted into law in November 2012, legalizing a regulated adult-use cannabis marketplace in Washington.]
When i502 happened, we decided to transition to the regulated [i502] market. We founded Puffin Farm in 2014, and we’ve been in operation now for seven seasons growing adult-use cannabis.
We are both Sun+Earth Certified and Clean Green Certified, regenerative and organic equivalent third-party certifications, respectively. We are focused on climate-friendly cannabis and hemp that does not contribute to global warming. We are on a 20-acre riverfront farm in the Kittitas Valley. We have river-bottom soil that is a nice sandy loam consistency. That’s perfect for growing any crop you want.
Our i502 grow is 30,000 square [feet] of canopy inside a fence, and it’s got cameras and crazy security. [As for] the hemp farm, this was our second season that just finished. I would consider it a micro-hemp farm, basically 1 acre. We’re focusing on growing very high-quality, terpene-rich hemp using the same methods that we grow smokable and extraction cannabis [with]. And [it’s] dried the same way that we dry our [cannabis] crop.
The cannabis farm and the hemp farm are on the same parcel. We have our employees dual-employed, so they can go back and forth between the two.
Neiden Tomaselli: Before you operated in Washington’s hemp program, you were growing CBD-dominant varieties on the THC cannabis side of things. Can you share a little more of that experience and how it has helped your newer hemp operation?
Stefano: We have a reputation as having tasty CBD flower and extracts available [in the regulated cannabis market]. Even though CBD tends to be a smaller segment of the overall market, for us, it’s significant.
So, when hemp became legal, obviously one of the fears has been that it will put any kind of CBD products that are created in the regulated cannabis market in jeopardy [because hemp products will be] cheaper and more available. That definitely is something that we worried about.
[If we transitioned to the hemp market], we could have a source of CBD that we could produce cheaper without all the extensive regulations that we have with cannabis. In Washington, we are allowed to import hemp CBD into the regulated market and blend it with products that are then sold at adult-use cannabis stores.
We’re quality-control freaks and very wary of buying CBD from outside sources, especially highly processed isolates that are grown at massive scale and extracted with lots of chemicals. That’s one of the reasons we are growing it ourselves—so we can provide a CBD input into our two businesses [and] we have complete control of the supply chain.
Neiden Tomaselli: A lot of farmers are wary of purchasing genetics from an outside source, and others have been burned by bad actors. How do you select genetics at Puffin Farm?
Stefano: Genetics have been a total mess in the hemp market. I’ve seen and heard nightmare stories of people spending tens of thousands or hundreds of thousands of dollars on seeds that turn out to be hot for THC or hermaphroditic, suffering varying levels of crop failure.
It’s kind of the Wild West. The seed market has been unregulated. There are all kinds of yahoos jumping into it and making seeds. They’re not scientists or breeders, and they really have not had the years and years it takes to stabilize the genetics that will consistently put out under 0.3% THC [and] non-hermaphroditic plants. It is not an easy task. Unscrupulous “breeders” buy seeds of dubious origin, breed them, and then try to sell the seed with very little testing and false claims.
We have been super careful. We had some existing genetics that test under 0.3%. We decided to grow our known cultivar from clone exclusively and have avoided the seed fiasco. We did some test crops with seeds the previous season, and they were all over the place, including hermaphrodites and other issues. We got really uncomfortable with what we were seeing and decided to just completely stay away from seeds for the time being.
Our cannabis farm is sited several hundred yards from our hemp farm, so if we ended up with a hermaphroditic crop, it could cause massive damage [via pollination] to our main cannabis crop—which really is our bread and butter. The hemp chemovar we grow is an amazing variety [with] a great terp profile. It has a very nice fruity flavor, kind of like Juicy Fruit gum.
Neiden Tomaselli: How do you start those genetics for each growing season?
Stefano: Once the plants are cloned and rooted, they go into 4-inch pots, and they are kept in a greenhouse to mature for one to two months until they are well-established, [strong] enough to survive the wind, but not too big—[then they’re planted] in June. If they get too large, they actually do worse outdoors—but if they’re too small, they get stunted. We try to find that sweet spot, usually about 12 to 18 inches high at most, and then they [are planted] right into the ground.
Neiden Tomaselli: Let’s talk about the climate in Washington where you’re located and how that impacts your crop health.
Stefano: We are in the foothills on the eastern slope of the Cascade Mountains. Our elevation is about 1,200 to 1,300 feet. We’re just where the foothills turn into the valley. We’re along the [Yakima] River. It’s sort of a high-desert environment—hot, dry summers, cold winters. We do have quite a bit of wind, which is not the easiest thing, but the plants actually do well with it. It helps keep everything nice and aerated, [which prevents] mold and mildew from taking hold. It makes the plants very strong. Their stems really beef up without much support.
Neiden Tomaselli: Could you share a little more about your nutrient regimen and other ways you keep your plants healthy?
Stefano: We use a lot of cover crops such as nitrogen-fixing legumes. In our hemp field last season, we did not fertilize at all. The previous season, we put a very thick cover crop of purple vetch down, which is nitrogen-fixing, and it really flourished. It did what it was supposed to do, [absorbing] nitrogen from the atmosphere, [dying] back, and that was then incorporated into the soil for the current season. The plants were so healthy, they needed absolutely nothing.
Every year we do a soil test in the spring and see where we’re at and if we need to add anything. If there are any nutrient deficiencies that have popped up or if the organic matter is low, we’ll see that and adjust accordingly. We only amend the soil as needed. Some years we might get a little deficient in sulfur or calcium, for example, and we’ll have to add specific amounts of [those] based on the soil tests.
Our hemp field is actually on one of the more fertile parts of our farm. It’s got a pretty thick layer of old river-bottom soil that doesn’t need a lot of additives.
Neiden Tomaselli: What about pest issues? Have you seen any where you’re located? If so, how do you combat them?
Stefano: We have experienced cannabis aphids recently. They popped up several years ago. They’re very aggressive, so they are something we’re very proactive about. The treatment we use for them is beneficial insects, specifically green lacewings and parasitic wasps. Early and frequent release of these beneficials is crucial to success.
While the plants are in the nursery and early in cultivation, [we go] very heavy on various beneficial insects to kind of nip it in the bud. Prevention is much easier than a cure. It’s not a matter of if you will experience pests, it’s a matter of when.
As hemp and cannabis cultivation spread and the industry grows, cannabis-specific pests such as cannabis aphids and the hemp russet mite are going to spread [and become] prevalent. These pests were unheard of three to four years ago, but they have spread rapidly with the legalization of Cannabis sativa species and are now considered endemic at both hemp and adult-use cannabis farms where they arrive via poor biosecurity, or more alarmingly, on the wind.
We spend a good deal of money on [beneficial insects], as we don’t use pesticides on our outdoor growing crops. There are some [biopesticides] you can use, but you might need special equipment to be able to spray a field, so insects are a great way to go.
Neiden Tomaselli: And disease? Botrytis, powdery mildew—what has been your experience with these and how have you combatted them?
Stefano: Fungal disease results from a combination of genetic susceptibility to the fungal pathogen and environment. Botrytis is very cultivar- dependent. And really the only way we’ve found [to avoid it] is to grow cultivars that are genetically resistant to it. You don’t want to spray a lot of moisture on your plants at the wrong time of day—that will make it worse. But at the end of the day, there are some cultivars that no matter what you do, no matter how dry the weather is, once those buds reach a certain size, they get [infected]. You just have to cull those cultivars from your operation. You can’t grow them.
Powdery mildew (PM) is a little bit different. It’s mostly a problem on the leaves but can infect buds if unchecked. It’s also cultivar-[dependent], but it’s entirely manageable in a way Botrytis is not. Once you get powdery mildew into your genetics and environment, it’s very hard to get rid of. The best practice is to never acquire it to begin with, but that’s not always realistic. One of the downsides of cloning is that powdery mildew will stay on your clone line forever, you’ll never totally get rid of it, but it’s totally manageable with organic products.
That’s one of the benefits of growing with seed, is that you can start with 100% clean genetics every year. We typically only see issues with powdery mildew in the greenhouse, as it’s a more humid environment with less air circulation than outdoors. Even with fans and good circulation in a greenhouse, controls and prevention for PM are still needed.
For preventative spraying, we use potassium bicarbonate, which is similar to baking soda and OMRI-listed. When they’re baby plants in the nursery, we need to spray every three days as a preventative. Once they go outside, we have very few issues with powdery mildew on our hemp because of our dry climate. Our cultivar is not very susceptible, so spraying is not necessary.
Photo by David Goodman
Puffin Farm has control of its products throughout the supply chain with its CO2 extraction lab in Seattle.Puffin Farm’s drying process is the old-fashioned kind, which Stefano says works best: minimal dismembering and hang-drying.
Photo by David Goodman
Neiden Tomaselli: Can you speak to the differences in working with different regulatory bodies for both of your crops?
Stefano: It’s the Washington State Liquor and Cannabis Board [WSLCB] that regulates cannabis. They were a deputized police force. The agents would have badges, bulletproof vests and guns. When we first started, they would show up like that, and it actually created quite a bit of PTSD for many people in the cannabis space who had experienced years of being afraid of the police. It was not a good feeling.
They’ve actually revamped the agency in the last couple months. It’s no longer going to be a police force, and they’re turning it into an education division. It took many years, lots and lots of complaints from people feeling like they were being treated as criminals. There was a lot of fear and anxiety for the first five, six years where people felt like they were being hassled and fined for tiny things. I’ve lost sleep over it because the rules are so intense.
You compare that to the hemp space, where almost anybody with $1,200 can send a single piece of paperwork [to the Washington State Department of Agriculture] and get a license. They do a background check, but a basic one, and then you’ve got the license.
And they come once a year to do the THC testing [about two] weeks before harvest, and then that’s it. If you pass, you get a certificate, and then you’ve got something you can sell. If it’s not good, I guess in certain cases, you’d have to destroy the crop. That’s the worst of it.
I do feel for people who got swindled or got bad seeds and ended up in that position, but doing the due diligence as a potential hemp grower on the genetics can’t be overemphasized. It’s so important. It’s not worth taking any risks because [regulators] will destroy the crop. You’ll lose tons of money and time and energy. Having dealt with the [WSLCB], we were well-prepared for mitigating those risks and understanding the green rush climate involved in all of it.
Neiden Tomaselli: What new hemp products are you developing and where do you intend to sell them?
Stefano: The first product we’re launching will hit the market soon. It’s an all-purpose topical hemp oil, extracted using a traditional herbal medicine method, where the hemp flower is extracted in a carrier oil. It can be used as a massage oil, hair oil, a muscle rub and a skin conditioner. It’s made from organic ingredients that are completely safe so you can use it for anything. I’m a naturopathic physician, so I look at product development from a natural medicine and herbal products point of view, using organic and high-quality ingredients.
We’re also working on other topicals, which will have other herbs in them besides cannabis, so there’ll be a synergistic effect between those herbs and the cannabis. The hemp we use is whole-plant, with all the flowers [and original terpene profile]. We’re looking at launching several products in the next month or two.
We’re going to start with our cannabis retailers. They’re allowed to carry CHABA products—that’s Cannabis Health and Beauty Aids, a Washington state designation. The CHABA law was passed in 2015 [allowing] hemp topicals [to] be sold anywhere. They can be sold at grocery stores, pharmacies, and licensed cannabis retailers can sell these hemp products next to their regulated cannabis products.
So, we’re going start marketing them to our retail network of cannabis stores, and then we’re going to move from there to a wider market—supermarkets, herb stores, possibly online as well. But we want to test them out in our existing network initially. And the great thing is, whereas the cannabis products all get a sales tax of 37%, these hemp products will only be taxed the regular sales tax, which is 10% [depending on the municipality].
Neiden Tomaselli: What are your future plans? Do you plan to expand your operations any time soon?
Stefano: We could absolutely put another 8 acres at this location if we wanted to; however, we are going to wait to see what the local market looks like. Right now, the price for hemp is very low, so unless we are going to use it for our own product line or have somebody that specifically wants what we’re growing, we’re not too eager to expand.
And it would involve more infrastructure and drying space, which is always a big problem for hemp. And that’s one of the things we’ve seen in the last couple years is hemp farms, they’ve got 100 acres of hemp [with] nowhere to dry it.
Editor’s note: This interview was edited for length, style and clarity. Jade Stefano is a Hemp Grower editorial advisory board member.
Cassie Neiden Tomaselli is the conference programming director for Cannabis Conference, produced by Cannabis Business Times, Cannabis Dispensary and Hemp Grower, media brands for which she serves as contributing editor.
Industry Stakeholders Sound Off on USDA's Final Rule
Departments - Before You Go
"We are undoubtedly making progress, and we will continue to work with regulators," says Shawn Hauser, partner and chair of Vicente Sederberg's Hemp and Cannabinoids Department.
On Jan. 15, the U.S. Department of Agriculture’s (USDA’s) Agricultural Marketing Service (AMS) released its final rule on hemp. The new rule includes several changes from the USDA’s interim final rule, including:
increasing the sampling window (the maximum amount of time allowed between sampling for THC testing and the planned harvest date) from 15 days to 30.
allowing states to implement “performance-based” sampling, leading to additional flexibility in procedures.
increasing the negligence level from 0.5% THC to 1%.
Meanwhile, the total THC limit and DEA lab requirement for testing hemp remain the same (although the lab requirement has been delayed until 2022). Here, industry members share their thoughts on the rule and how it may shape the industry moving forward.
Steenstra
“I am pleased that USDA listened to feedback from the hemp industry and farmers as they finalized regulations for hemp production. The new rules mean less crops will be non-compliant, protecting farmers from crop destruction and losses. This and other helpful provisions make the new hemp rules a significant step in the right direction.”
Eric Steenstra, president, Vote Hemp, an industry political advocacy organization
Havens
“As far as negligence is concerned and sampling and more guidance around testing and what parts of the plant you’re testing–they’re positive developments. I don’t want any of my brothers and sisters in the industry thinking I’m sitting here saying it’s [a] great result. It’s a better result, but there’s still work to be done.”
Jonathan Havens, co-chair, Saul Ewing Arnstein & Lehr’s Cannabis Law Practice and Food, Beverage, and Agribusiness Practice
Graff
“Overall, the final rule’s contents in some ways show progress and demonstrate the USDA has looked into the industry as part of its public comment process. In another way, the final rule remains stagnant.”
Garrett Graff, managing partner, Hoban Law Group
Hauser
“The transition from prohibition to a legal and regulated system takes time, and USDA’s final rule is a historic step forward for hemp in the U.S. … We are undoubtedly making progress, and we will continue to work with regulators and through Congress to perfect the regulatory structure for hemp.”
Shawn Hauser, partner and chair, Vicente Sederberg LLP’s Hemp and Cannabinoids Department
“The regulations cannot override what’s written in law. In order for a regulation to override what’s written in law, the law needs to change. To ask the USDA to override the U.S. congressional definition of hemp is not something that they had the authority to do.”
Joy Beckerman, principal, Hemp Ace International, a company that provides hemp consulting and legal support services, on the 0.3% THC limit remaining in the final rule despite numerous attempts and calls from industry constituents to change it
Utkhede
“I’m an advocate [for] increasing [the THC percentage], period. The 0.3% was arbitrary. It wasn’t based on any science or data to say, you know, ‘At 0.4%, you’re going to get high.’ It was just a number that was chosen at random by all accounts. So, it’s hard to justify it when there’s no data to support it.”
Deepank Utkhede, chief operations officer, Vantage Hemp, a large-scale CBD extraction and manufacturer located in Greeley, Colo., on the 0.3% THC limit remaining in the final rule
2020 Hemp Cultivation Map
Hemp Grower's interactive cultivation data map provides a state-by-state breakdown of acres grown, licenses issued and more for the 2020 growing season. View More