Can We Talk About Pot?

In a nondescript building just across Interstate 96 from the Michigan State Police headquarters and training academy, workers move in and out of what could be any manufacturing facility in the U.S.

The white, square structure on a particularly warm summer day buzzes with activity as workers put down pungent blacktop as part of a new road to the warehouse; employees come and go. The dank smell that's slowly becoming more familiar throughout the U.S. is in the air, however, leaving little doubt that Green Peak Innovations is a marijuana production center.

"We saw a bunch of security guards walking around, so we knew we were in the right spot," says Chad Davison, 37, a farmer from Fergus Falls, Minnesota, who was visiting Green Peak Innovations' grow warehouse for a few hours with Successful Farming magazine to get insight into how marijuana is produced. "If you didn't know what you were looking for, you wouldn't have been able to pick it out."

Hemp vs. Marijuana

Green Peak Innovations opened its new building in February, supplying marijuana to the state's legal medical market. Residents last year voted to legalize adult-use, or recreational, marijuana in Michigan, and sales are expected to start at the end of this year or in early 2020.

Cannabis plants are grown for both cannabidiol, or CBD, which is infused into lotions and other oils for medicinal purposes, and for marijuana that's smoked or made into edible products as an intoxicant.

Marijuana is still a Schedule I drug, according to the Drug Enforcement Administration, on par with heroin, LSD, and ecstasy, but state legalization is slowly spreading.

Washington, D.C., and 11 states, including Michigan, have passed laws to allow adults to purchase marijuana for personal use, while 34 states allow some form of cannabis to be used medicinally, according to Leafly, which touts itself as the "world's largest cannabis information resource."

Marijuana and hemp, which was legalized on a federal level with passing of the 2018 Farm Bill, technically come from the same genus, cannabis, and look and smell the same when growing, according to a report from Tom Melton, a professor with North Carolina State University Extension.

The difference is that hemp plants contain no more than 0.3% THC, while marijuana is considered anything that contains more than 0.3% THC. Generally speaking, marijuana plants contain 5% to 20% THC, Melton says.

"You can't get high on hemp," he says in his report.

Value-Added Crops vs. Commodities

Davison, who grows several crops including corn, soybeans, alfalfa, and sugar beets on the 4,500 acres he co-owns with his father, Brent, says he made the journey from Fergus Falls to Lansing in a bid to learn more about the production of cannabis.

He planted 25 acres of hemp this year to expand his stable of alternative crops. Low prices for corn and soybeans, nonstop rainfall this spring, and an ongoing trade war with China that diminished his ability to sell his agricultural products all led to him adding hemp to his rotation.

"Our focus going forward is on value-added crops vs. commodities," he says. "Hearing the trends, there's a lot of noise about (hemp), so it makes sense to give it a try."

Hemp plants typically reach between 6 and 15 feet tall, depending on the variety and climate. Just 1 acre of hemp can yield about 700 pounds of grain, which can be processed into about 22 gallons of oil and 530 pounds of meal, according to a June report from the Agricultural Marketing Resource Center (AMRC) at Iowa State University.

An acre of hemp also will produce 5,300 pounds of straw that can be used to create about 1,300 pounds of fiber, the AMRC says.

"Industrial hemp may be an excellent rotation crop for traditional crops because it suppresses weeds and decreases outbreaks of insects and disease problems," says the group's website on industrial hemp. "Hemp may also rebuild and condition soils by replacing organic matter and providing aeration through its extensive root system."

About 24% of hemp is used to make personal care items, 19% is used in CBD output, 19% is used for food, 18% is for other industrial applications, 14% is used in production of consumer textiles, about 4% is used in supplements, and 2% goes in other consumer products.

Data compiled by the AMRC shows about 9,770 acres were planted with hemp in 2016, but that more than doubled to 25,541 acres in 2017. Colorado was the biggest grower at 5,921 acres in 2016 and 9,700 acres in 2017. In Minnesota, only 51 acres were planted with hemp in 2016, but that ballooned to more than 1,200 acres a year later.

Capitalizing on Hemp's Diversity

Shawn Hanrahan, the production manager at Green Peak, has been producing cannabis since he was a young man growing up in the Quad Cities in eastern Iowa. (He'd plant marijuana plants along a disc golf course in the spring and come back in the fall to see if they'd grown.) He says hemp production is becoming more popular not only because of legalization but also because it holds promise due to its medicinal properties and countless industrial uses.

During a sit-down meeting at the Green Peak office near Lansing, Hanrahan tells Davison that, as a hemp producer, he can potentially capitalize on demand for medicinal products made from CBD, including oils and pills, while also selling remaining product from his hemp fields to makers of industrial items such as rope and clothing.

Seeds from hemp also can be eaten, creating yet another avenue for sales, Hanrahan says.

"The population is exploding in the world, and there are only so many places we can continue to keep cultivating food," he says during the meeting. "For the textile part, we can keep growing timber, but it takes so long from start to finish, where cannabis hemp is a nine-month crop and can produce enough textiles to make clothing and food – the seeds are delicious, they're high in protein. Also, hempcrete is something that is utilized in South America that actually is earthquake-resistant – it flexes a little more than traditional concrete."

Marijuana and Agriculture

Hanrahan says he was a clandestine grower of marijuana until he moved to Colorado to participate in the burgeoning legal industry. He then took his talents to Lansing and considers himself to be a farmer in the traditional sense of the word; namely, he produces an agricultural product.

At the end of the day, he says, he and his fellow marijuana growers face the same challenges as any farmer – having to understand what make particular plants grow, how to avoid pests and disease, and, of course, the business side of the industry.

"The same common aphids and mites and beetles and fungi and mildews can affect a crop and lead to a loss of revenue, the traditional understanding of licensing requirements and registering with the EPA, and proper irrigation techniques" are some of the similarities marijuana production has with traditional farming, Hanrahan says.

Spotless Facility

Green Peak's facility is a far cry from what you might expect from a marijuana-production warehouse.

The entrance to the building looks more like the entryway to an upscale office with glass-enclosed meeting rooms, coffee makers, and an area where employees can conduct business or eat lunch. Behind closely controlled doors is the company's actual production facility.

It has a clone room, where seeds are planted and sorted by variety; a mother room where they begin growing; a vegetation room; several flower rooms, where they increase in size; a dry room, where they're hung and left until they're ready to be cured; and cure, trim, and packaging rooms.

The clone, mother, vegetation, and flower rooms all have high-tech LED lighting that simulates sunlight to allow plants to mature. The lights are left on for 12 to 24 hours a day to encourage growth.

The entire facility is immaculately clean.

To keep it that way, employees and visitors must wear clean suits into the rooms, beards must be covered, and anybody touching plants must wear disposable gloves to keep from introducing foreign contaminants to the growing plants.

After marijuana buds are harvested, they're either trimmed and packaged for sale as flowers or infused in one of the various products the company makes. Candies are a popular way for people to consume cannabis, and Green Peak has an entire division dedicated to making everything from taffy to shatter to chocolates.

Hanrahan says he would like to see marijuana infused into higher-end foods and has dabbled with cooking gourmet meals using the product.

The work isn't easy. Cannabis production is still in its infancy due to the federal scheduling of the drug. That's evidenced by the lack of equipment, production protocols, and other items traditional farmers take for granted.

Production Equipment Lacking

On his 25 acres of hemp, which he wants to increase in the future, Davison says he uses a John Deere DB 66 planter, a 5075 E tractor with a tillage implement for weed management between rows, and a single-row harvester that he'll use to harvest the crop.

"I'd like to see better weed-management tools developed to help eliminate the hand weeding within the rows and a more efficient harvester developed, one that can handle more than one row at a time yet be able to cut plants that have thicker-diameter stalks," he says.

At Green Peak, almost all tasks including planting, harvesting, trimming, and packaging are done by hand. The lack of mechanization was a surprise, Davison says, though it reduces the likelihood that plants can be harmed.

"There's more opportunity for contamination with more machines involved," he says. "Doing it by hand, it's more tedious, but you don't have to worry about any (foreign contaminants) in the machine. I just thought they would have had something figured out by now."

Davison says he would consider growing marijuana if legalization is expanded in Minnesota and if he can land one of the coveted licenses the state likely will award if the drug is descheduled. He sees the 25 acres of hemp he planted, for which he has a contract with an unnamed company, as a jumping-off point rather than a test plot.

"(Marijuana) is something we'd consider," he says. "I don't want to say no to anything until we have a chance to look into it. I want to be prepared to say yes or no when the time comes. I just don't want to be unprepared so that the decision is made for me."

The state has less than a handful of marijuana producers now and more probably will be warranted due to demand for the product, though that's up to Minnesota lawmakers, he says. With medical marijuana already legal in the state and CBD hemp starting to "gain traction," he believes it's just a matter of time before adult-use cannabis is legalized.

Adrian Almeida, the chief operating officer at Green Peak, was previously the chief innovation officer and vice president of operations with Nature Sweet, the largest grower of tomatoes in North America with 2,000 acres in greenhouses.

At first, he rebuffed executives at Green Peak because he wanted to keep working in food and had an offer to work for a produce company in Barcelona. After much research, he changed his mind and accepted the position in January.

During the meeting at the company's facility, he says about 60% of people he told rejected the idea of working for a marijuana producer, while 40% thought it was a good opportunity.

"I don't think there are a lot of industries being created like this one. It's a once-in-a-lifetime opportunity to get into an industry with such a large social impact; namely, quality jobs being created and the wonderful products and brands behind the industry. It's a lifetime opportunity."

Cannabis Markets

Jeff Kaprelian, who was also on the tour of the facility and met with Hanrahan, says he believes, at some point, there'll be a futures contract dedicated to hemp and, eventually, marijuana, much like there is now for corn and soybeans.

The contracts likely won't be available for several years, he says, and they'll likely be more linked to hemp than marijuana due to acceptance and, of course, legalization. Hemp producers including Davison would be able to use the contracts to manage their risk.

"The job of the futures market isn't to exist for speculations, it's to exist for risk management," according to Kaprelian, the director of brokerage services at The Hueber Report, a commodities brokerage service based in St. Charles, Illinois. "When you have contracts in pure spec, they have no volume – pork bellies, for example. If cannabis contracts were to exist, they'd have to be weighed heavily toward the hemp side."

Still, there's not enough information at this point for a futures market on cannabis, and there likely won't be for five to 10 years, he says.

Looking Like Beer, Spirits

Hanrahan says he sees the cannabis market eventually looking similar to the beer and spirits markets, where it's federally legal and each state sets its own laws. The alcohol industry is split into production, distribution, and retail categories under which producers must sell to distributors who are then required to sell to retailers.

Strains of marijuana that contain low THC levels are like the Miller Lite of cannabis, mid-level strains are similar to craft beers, and the high-content products are like the "lovely" tequilas and whiskeys and Scotches, Hanrahan says.

"Who knows where it can go from there? You could get into real culinary art testing stuff, which is a passion of mine," he says. "It's really the tip of the iceberg."

Kaprelian, the commodities broker from Illinois, says Green Peak, while obviously a well-organized company, may be trying to be everything to everybody, which doesn't work in the commodity business. For now, since the industry is in its infancy, a company like Green Peak can get away with attempting to handle all parts of the business – the so-called seed-to-sale model.

"It's akin to soybean farmers growing their own soybeans from their own seed, crushing it into meal, feeding it to the hogs they own, butchering the hogs, and selling the meat," he says. "All of the participants are better at doing their jobs than one person."

Regardless of how the industry shakes out, demand for items derived from cannabis plants including marijuana, CBD products, and hemp will continue to rise, he says.

Brightfield Group, a cannabis research firm, said last year that the CBD industry alone could reach $22 billion by 2022.

Big Companies Watching

Large companies are taking notice.

Pepsi and Coca-Cola both say they've considered entering the CBD-infused products market, and Constellation Brands, the maker of Svedka vodka, Corona beer, and Robert Mondavi wines, last year took a $4 billion stake in Canopy Growth, a Canadian cannabis company.

American Eagle Outfitters and Green Growth Brands, based in Ohio, recently announced a deal in which the retailer will begin selling CBD-infused lotions and balms in about 500 of its stores. Abercrombie in June said it would sell Green Growth's products in 160 stores.

Hanrahan says that's a trend he sees continuing, which is good news for producers like Davison who want to grow hemp for CBD products.

Ag Too Volatile Not to Diversify

The agriculture industry is too volatile these days to not diversify, Davison says. Industries like cannabis production only come around once every two or three generations, so it makes sense to at least try to capitalize, he says.

"Absolutely it's too risky not to (diversify)," he says. "When prices are in a reasonable range and you have two bad years of weather, it takes many years to recoup that. It could be devastating for some farmers. Diversification helps to withstand fluctuations in the market and the weather."

Growing hemp is a good way to get started in the cannabis industry, but if and when marijuana is descheduled, Davison says he's ready to jump into the legal industry. It won't be easy, however, as states that have legalized pot require a license to grow, and they're not cheap or easy to acquire.

He feels that his role as a farmer will help him land one of the coveted licenses because state governments like keeping money within their borders.

"States want to support their local farmers, their local businesspeople," he says. "My opinion is that there'll be a grower initiative of some sort, which makes sense to me. They can tax it, and if their local farmers are more profitable, that's an impressive amount of income tax the state can generate."

It's not just his agriculture background that will help him. Davison says his background in business and his education (he has undergraduate degrees in international business and Spanish from Minnesota State-Moorhead, and a master's in business administration) will all likely look good on an application.

"What will help me individually is my business background," he says. "There's a lot involved to get where those guys in Michigan are."