As the hemp/CBD industry continues its explosive growth, EcoGen’s sale of 20 million feminized hemp seeds this past March at the annual NOCO Hemp Expo in Denver demonstrates just how big the industry could become.
The Colorado-based company is a vertically integrated supplier of hemp-derived ingredients and a manufacturer of white-label products for the industry. It has placed a heavy focus on genetic research and an in-house breeding program, which has helped it earn the trust of hemp farmers, as evidenced by the company’s massive $11-million sale this past spring.
Here, Derek Du Chesne, EcoGen’s chief growth officer, discusses the company’s genetics and its plans for next planting season, as well as his advice for farmers entering the space.
Cannabis Business Times: Why did the company originally decide to launch a breeding program?
DDC: Joseph Nunez, our co-founder, started building out processing, extraction and refinement equipment in 2013, for the medical marijuana community. He outgrew that industry very quickly, and then, once the 2014 Farm Bill passed, he started building out processing and extraction equipment on an industrial scale. In 2015-2016, it was more of an issue getting the right quality biomass. It doesn’t matter how big or great your machines are—if you don’t have the right material to put into them, you’re not going to get the right end product. That forced us to get into creating our own genetics and hunting all over the world for different phenotypes and strains, and crossbreeding and trying to create hemp strains that were made for yield and for cannabinoid profiles and terpene profiles. Originally, hemp was used for textiles and fibers, and not really [for] developing the cannabinoid profiles.
CBT: What are some of the overall goals of EgoGen’s breeding program?
DDC: We’re not trying to be the biggest farmers out there and we probably never will be. There are people who have been doing it for generations and have been doing it a lot better than we are. We have about 413 acres of our own farmable land and about another 1,000 acres of partnership farms, where we supply the genetics and the consulting, and we’ve been helping a lot of these soy farmers and corn farmers convert their fields over to hemp. It’s been really exciting helping to build out this infrastructure network of partnership farms, as well as our own farms.
CBT: What is the company’s overall business strategy as the hemp/CBD industry continues to grow and evolve?
DDC: Our core strength and our core business has really been our raw materials. Last year, the market shifted from just isolate and distillate to finished goods, so we brought on Jolie Chitwood from Soaptopia. She’s been manufacturing for 20 years. We brought her on to steer our white-label/finished goods department, which was great for us because that’s where the market was shifting and it’s much higher margins than just raw materials.
Then we started doing pain creams, topicals, eye creams, serums, gel caps, tinctures—anything you can imagine, other than food and beverage, we do in our facility for finished goods. We haven’t really launched our brand yet, but we’re going to be launching our consumer brand soon.
CBT: What did the sale of the 20 million CBD seeds at NOCO Hemp Expo this past March entail? How has it impacted the company?
DDC: The total value of that sale was a little over $11 million. We did two harvests of genetics so far this year, and in April was our first real, significant harvest, and we did over 50 million seeds. We do a [feminized] high-CBG flower strain, [and] we have a couple other feminized strains that we do.
When you’re buying genetics, it’s really a trust buy. It’s really a reputation buy. A lot of the farmers, especially this year, don’t know if you have a quality product [or if] two weeks later, [you’ll be] bankrupt. That’s really scary for farmers because it’s the most important decision they’re going to make all season. So, last year, we offered our genetics on a smaller scale—one farm for 300 acres and another farm for 500 acres. We took two farmers that we worked with last year on a larger scale, and they wrote recommendation letters on: “These are the strains we grew. These are our results. We found one male in 300 acres or no males in 500 acres, and here’s our yield.” We included that along with [a] 100-percent feminized test with our genetics packet, and right when we hit the market, we did a couple smaller sales, and then one client came along and bought 20 million genetics—20 million seeds.
The market last year was doing anywhere from $1 to $3 per seed, and we wanted to come out and disrupt the market with a higher quality product. With seeds, when you’re charging $1 to $4 a seed, you’re cutting off a lot of these farmers who want to get into it. So, we charge $0.60 per seed. With that, we had tremendous success. We sold out of our first harvest within 10 days. In June, we had our second harvest, and we sold out of that in a weekend. We had a little over 50 million seeds. We kept 10 million seeds for ourselves, for our own farm, and then we sold a little bit more than 40 million. We’re having another genetics harvest here in November, which will probably be bigger than both of those combined—it’ll probably be 70 million. It’s hard to gauge, but we expanded on our genetics operation more for this harvest, so we’re very excited for that, especially because a lot of states opened up [hemp markets] at the end of planting season. A lot of people have been waiting for our genetics to come out so they can get ready for next harvest.
Our goal is to do a seed project. We want to do half a billion seeds. We’ve built out the facilities to do it and in theory, we’ll be able to do it. It’s exponentially larger than what we’re doing, but by this time next year, we want to continue our genetics and offer it at $0.20 a seed. We want to service Paraguay, the Philippines [and] South Africa. We’re just excited to provide the best quality seeds at the lowest possible price. As our genetics improve and our technology improves, we’ll be able to drive those prices down, so it opens up more markets that more people have access to.
CBT: What is your overall outlook on the size and growth potential of the hemp/CBD market?
DDC: Two years ago, if there was a client that wanted 10 kilograms of distillate or isolate, that was a big client. That was a big order. Now, Japan opened up, Hong Kong opened up, and we have contracts with clients that are 1,000 units a month, which is more than some companies were producing all of last year. I can’t give out their names just yet, but it’s all these household brands that we grew up with, whether it’s the cereal we’re eating or the drinks in our fridge. All of these companies have been waiting and doing R&D and formulations on products, just waiting for the FDA to give some guidance and approve it in food and beverage.
I think the pharmaceutical industry probably would’ve gotten CBD banned, but the cat’s already out of the bag and now it’s so many different companies with so many different interests, and now you have every vertical [like] tobacco, cosmetics, pets, food and beverage—all these companies lobbying pro-CBD. So, I have no idea how big this industry is going to get, but the fact that the world has embraced it in such a quick way [with] so many different industries and [pieces of] legislation [is promising]. It’s an industry that’s grown so much off consumer demand and consumer results, and I think CBD is going to be like sugar. It’s going to be in everything. A couple years from now, you’re going to [go to] Sephora and you’re going to see undereye cream from Loreal or Revlon or whatever with CBD in it. It’s going to be such a popular raw ingredient.
CBT: What advice do you have for farmers who are trying to enter the hemp space?
DDC: As this industry grows and farmers are looking for a way to get into the industry, [they need to] make sure that they are getting their genetics from a credible, reliable source, and make sure that they’re only purchasing feminized genetics. A lot of people bought unfeminized seeds, and even if five percent of your crop are males, it’ll ruin your entire crop. It’s a very good industry for farmers to get into, but for their neighbor’s sake and due to crosspollination, just make sure if you’re going to get into the industry, you do it the right way. Find the right genetics. Make sure it’s feminized.
Also, another thing I’m seeing for farmers is they made a big investment into farming, but when it comes to drying it and storing it, which is two-thirds of the battle, they made zero investments or infrastructure for it. The last thing you want is to spend months on this crop and [then] you’re trying to dry it or process it and it gets moldy.
Editor’s Note: This interview has been edited for style, length and clarity.