(Editor’s note: This story is part of an occasional series of commentaries from professionals connected to the cannabis industry and first appeared on Marijuana Business Daily. Amy Steinfeld helps lead Brownstein Hyatt Farber Schreck’s marijuana and industrial hemp industry group. Jack Ucciferri is a law clerk for the firm.)
Beware of getting caught up in the race to secure a hemp farm.
The risk of getting stuck with an impractical or unproductive site is high. But the cost of mitigating that risk is relatively low.
Below are six things to consider before buying or leasing a hemp cultivation property.
Assembling a strong due diligence team (including a land use planner and attorney) will help tease out site-specific factors and regulatory issues at the outset.
1. When it comes to water, don’t assume anything.
Water must be top of mind, but too often it’s an afterthought.
Property due diligence must consider the water supply and source because a property’s supply is often dependent on complex water rights, local ordinances, state regulations, politics and hydrology.
It’s important to consult a water lawyer and a hydrologist early in the process.
2. Understand your local ordinances: Buffers, zoning and sensitive receptors.
Some states afford cities and counties the power to regulate hemp cultivation.
Depending upon the jurisdiction, hemp cultivation may or may not be allowed on certain land-use zones.
Hiring a land use planner before closing escrow is key. It’s essential to understand local regulations, along with the zoning and what that means for the property and activity you have in mind.
Some jurisdictions allow vertical integration on agricultural properties. Others require that hemp be manufactured off-site. Trucking wet plants to a manufacturing facility can dramatically change your business plan and bottom line by increasing transportation costs and being reliant on third party processors.
Speaking of, do you have a plan to process your hemp? The hemp supply chain is in its infancy, and last year there was a glut of biomass on the market.
You should also examine the surrounding neighborhood. Due to potential odors, some jurisdictions require that hemp be setback from sensitive receptors, like schools, residences and hospitals that could preclude planting or significantly reduce your planned acreage.
3. Know thy neighbors (and elected representatives).
Proximity to other businesses or residences could also increase the likelihood of waking local opposition.It’s important to consider the political climate and potential project opponents. NIMBY sentiments can quickly go from dormant to overdrive. Unfortunately, a long history of propaganda linking hemp to dangerous drugs is not easily dispelled.
Conversely, is marijuana being cultivated outdoors in the region? Each male plant could release enough pollen to make entire lot of hemp exceed the legal threshold for THC.
What about nearby hemp growers? How much confidence do you have in their operational ability to eliminate male plants before they put your entire cannabinoid investment at risk?
It’s imperative to recognize the current political landscape and where it’s headed. Local hemp regulations can be highly dynamic. Is an election on the horizon that might alter the political support for the industry? Are new regulations being contemplated that might make it harder for you to plant enough acreage where you want to plant it? Are you confident that you can get your crop planted, sampled, tested, harvested, and sold amid evolving regulations?
Proper due diligence includes vetting the neighbors, getting to know the relevant political leaders and local sheriff, and understanding existing and future land uses to anticipate conflicts.
4. Understand your state’s hemp production plan.
Has your state submitted a hemp production plan for USDA approval or is it still drafting the plan? If so, have you discussed that plan with your attorney and are you comfortable you can abide it while making a profit?
Is your state continuing to operate as a pilot program under the 2014 Farm Bill framework this year? If so, will you be able to secure the right research partnership at the location you have in mind?
5. Verify all seller representations sooner than later.
Even if you know and trust the seller, that doesn’t mean you should trust their understanding of the site or applicable laws. Sellers are often well-intended but operate under false beliefs.
Buyers should carefully review any state or local authorizations and confirm that the project has all needed authorizations, that they are transferable, and that no criminal activity is associated with the site.
6. Know the visible and invisible secrets—climate, water and soil quality.
Understand your regional environment and choose the right seeds. Extreme weather events can impact cannabinoid and THC levels.
Beyond finding sufficient water and decent soil, the buyer must ensure neither the soil nor water supply will contaminate the crop.
Hemp must be lab tested for THC content by law, but more and more buyers request that it be tested for residual pesticides and heavy metals. Since hemp is a bioaccumulator farmers need to be wary of past site uses and associated contamination to ensure their crops attract the best possible price in the marketplace.
Regarding water quality, test not only the water supply’s pH and salt levels, but also for potential other contaminants. Water and soil remediation can be cost prohibitive.
If there are neighboring farms, the buyer should determine what and where they are spraying and consider whether pesticide overspray can be avoided and, if not, how it might be mitigated.
Dirty soil, water or regional pesticide use could render the crop virtually unmarketable especially if you are growing for smokable flower, tinctures or topical applications.
Hemp is a relatively high-value crop that seems almost destined to change the world in manifold ways.
But don’t let the industry’s bright future cloud your judgment on a particular project or parcel.
Find a team of consultants you trust and empower them to help you analyze plan implementation, timing and budget.
A little bit of foresight and investment on the front end will go a long way toward ensuring the long-term success of your operation.
Amy Steinfeld can be reached at [email protected].
Jack Ucciferri can be reached at [email protected].
The previous installment of this series is available here.
To be considered for publication as a guest columnist, please submit your request to [email protected] with the subject line “Guest Column.”