• Jake Fanella

The Hemp Farmer’s Playbook

VeriLeaf works with financial institutions to help them onboard and serve hemp businesses. The following article was created based on months of conversations with financial institutions, hemp businesses, and questions we frequently see being asked by those in the space.


Now that hemp is federally legal, almost everyone seems to want to get involved. From existing farmers looking to convert their land to businesspeople trying to capitalize on a new emerging market, there is clearly a lot of buzz around the space. At first glance, it seems easy – it’s legal so why not just jump in and start planting?  Let’s take a look. 


Show Me The Money!


While much is still speculative, the projected profits for growing hemp are hard to ignore. Anywhere that corn grows is said to be ideally conditioned for growing hemp, so states such as Nebraska and Iowa are well-positioned to make the transition. However, the versatility of the crop makes for a lucrative opportunity in almost any climate.


By the numbers, an acre of hemp grown for fiber might fetch about $300 in profit per harvest, whereas an acre of hemp grown for CBD is expected to bring in $2,500 an acre or more. It could be much higher if you have a specialty purpose or seed, like producing high-quality CBD. For context, the most profitable corn and soybean farm in the midwest brought in $275 an acre in 2018 (1). Comparing those figures, it’s fairly clear where all the excitement around hemp comes from. 


Although promising, it’s important to understand that current figures around hemp are only projections. These numbers will fluctuate as the demand for hemp does, and will also be largely dependent on the number of acres and size of the farming operation. Presumably, as hemp becomes more mainstream its market forecasts will become more accurate. 


But Wait, Don’t I Need a License?


To varying degrees, hemp cultivation is legal in 46 states since the 2018 Farm Bill passed. Effectively, the 2018 Farm Bill gave states the autonomy to decide whether or not to allow hemp production within their borders. As the 2020 growing season quickly approaches, only

South Dakota, Idaho, New Hampshire, and Mississippi are choosing to remain on the sideline.  Growing hemp in legal states is not as simple as buying some seeds and planting away. If you’re interested in growing hemp, the first step is to familiarize yourself with the rules of your state. State laws will likely overlap in some regards, for instance, every state will require growers to be licensed. However, laws are very rarely, if ever, completely uniform across different states. North Carolina, for example, operates under the 2014 Farm Bill which requires that growers have a clearly defined research purpose for growing hemp. On the other hand, in South Carolina, essentially anyone who passes the background check should be able to obtain a growers license.


Those interested in processing or distributing hemp should also begin by familiarizing themselves with their state’s rules. Again, rules may differ on this, but the vast majority of states do require those entities to be, at the very least, registered with the state. 


Is it Legal? Will I Get Arrested?


The 2014 Farm Bill allowed states to create hemp pilot programs. In short, the 2018 Farm Bill is a broader and more expansive version of its 2014 predecessor. The 2018 Bill imposes minimum requirements for the USDA’s governing plan. To comply with federal standards, the state’s draft plans must include these requirements as well. Key elements include: 

  1. USDA approval of state plans to license & regulate hemp 

  2. Requirements for state inspections and testing

  3. Standards for negligent violations 

Perhaps most substantial was the update released by the USDA just this week. In conjunction with the preview of the interim rule, the USDA also released guidelines for sampling, guidelines for testing, and requirements for lab testing results. Some quick highlights from the recent rule include:

  • THC levels exceeding 0.3% are considered marijuana

  • Processes for collecting & maintaining information on hemp production sites

  • Procedures for sampling & testing hemp to ensure the cannabis grown & harvested does not exceed the acceptable hemp THC level

  • Procedures for ensuring effective disposal of plants that violate the legal THC threshold

Converting your land to grow hemp will not be as easy as transitioning from corn to cotton. Essentially, hemp will remain a restricted crop for the foreseeable future, so you will have to be on your game in terms of compliance and best practices. Although it will require an enhanced level of preparedness and attention to detail, there is no reason to be intimidated. 


So, where do you start? This is a unique industry and getting into it should be a well thought out endeavor. In the following sections, we will dive deeper into the key elements to consider when becoming a hemp farmer, including:

  • Know the market for selling your crop

- CBD By The Way..

  • What’s The Deal With Banks, Insurance and Lending?

  • Other considerations

Know the Market for Selling Your Crop

Hemp is undeniably one of the most versatile crops. Since the first federal permit in 1937, researchers in pilot states have identified more than 25,000 different uses for the crop. The LEGO Group has even announced plans to replace its classic plastic building bricks with hemp bioplastics by 2030. 


A few fun facts:


  • 1 acre of hemp will produce as much paper as 2 – 4 acres of trees

  • 1 acre of hemp will produce as much fiber as 2 – 3 acres of cotton.

  • Hemp is frost tolerant, requires only moderate amounts of water, and grows in all 50 states.(2)

One of the most lucrative uses of hemp continues to be CBD – a non-psychoactive compound extracted from hemp plants. As a farmer, if you are interested in producing hemp for CBD extraction, you can find specialty or genetically modified seeds bred specifically to maximize CBD harvest. 


CBD, By The Way….


We have to admit we’ve been very hemp focused in this article and haven’t really jumped into CBD. We will in another article soon, but for now note these general trends about CBD:

  • Assumed to be legal if derived from Hemp, in a legal hemp state and less than 0.3% THC.

  • CBD is oversighted by the FDA and they haven’t officially posted rulings at this time.

  • State regulators and law enforcement are cracking down on the outlandish claims producers are making in terms of life saving health benefits.

  • Your bank or insurance company will definitely raise eyebrows if you start selling CBD products, especially consumables and dietary supplements. 

There is a lot to unpack when it comes to CBD. Stay tuned for a breakdown of helpful background and action items for getting started as a CBD processor or retailer. 


What’s The Deal With Banks, Insurance and Lending?


Unfortunately, these doors are largely closed to commercial accounts, and often even the individuals behind the business struggle to maintain their personal accounts. Agricultural loans to farmers producing hemp are even harder to come by than a bank account. The handful of institutions that are active in the space operate discreetly and rarely market their services.


Similar to tobacco and alcohol, serving hemp businesses requires financial institutions to focus heavily on compliance and advanced due diligence. As a hemp farmer, be prepared to

share information around your business and operational procedures, licenses, and geospatial data with your financial institution.


Thankfully, however, we can now see the light at the end of the tunnel. Interim guidance from the NCUA on how to successfully serve the industrial hemp industry has prompted numerous community credit unions across the country to open their doors to hemp businesses. State banking authorities have issued guidance in Illinois and California, as well. These guidances, while limited, are setting best practice standards for others to follow.


Think your business is prepared to take the leap now? Have your business documents, operational procedures, and licenses ready to go? Register for VeriLeaf’s Community to get started and access our network of hemp-friendly banks, insurers, lenders, and more. 


What Should I Consider Around Accounting & Tax?


Three Tips from Olivia Butler of Adam Shay CPA

  1. Research and Development Tax Credits: Are you involved in activities that qualify for a Research and Development (R&D) Tax Credit? Many activities in various verticals of the hemp industry could qualify for the lucrative R&D credit. Whether you are experimenting and improving processes for growing, cultivating, or processing the plant, or researching and designing new uses for the plant, you may be eligible for this tax credit. Qualifying could benefit you by an offset to income tax or even payroll tax.  

  2. Sales Tax: exemptions, filings, compliance, collecting & remitting, and more. Are you eligible for any sales tax exemptions? Are you collecting and remitting sales tax? Are you eligible to receive a refund for sales tax paid before being granted an exemption? What do your state laws require regarding sales tax? Sales tax compliance should be at the front of your mind when you consider compliance for your hemp business. It is highly likely that you are either eligible for a sales tax exemption, should be collecting and remitting sales tax, are required to file sales tax returns (quarterly or even monthly), or are not completely compliant with your state laws regarding sales tax. Ensuring compliance early on will likely set you apart from many others in the future.

  3. Accounting records should be: accurate, timely, and compliant. Are you using a formal accounting software? Do you have a bookkeeper? Are your bank accounts reconciled every month? One of the biggest mistakes a business owner can make in an industry that is experiencing such rapid growth is not investing in the resources that will determine the future of your business. The hemp industry is still very new to many which poses a higher likelihood for audits and inquiries. Ensuring accuracy and compliance is imperative to success in this market, and that cannot be obtained without a solid accounting framework. 

Other Considerations


Seed Varieties: 

Understanding and identifying acceptable seed varieties can be difficult to do. Results from soil tests as well as the crop’s intended end purpose can help guide seed variety decisions. States generally have a list of certified, low THC content seed they permit for cultivation. Again, a 0.3% THC content or lower is required by the USDA. Any crop which tests above that threshold must be destroyed.


To save yourself time and frustration, avoid purchasing from online retailers offering catalogs of hemp seed varieties. While enticing, many of these vendors do not account for what’s permitted in your state and lack the ability to properly track the origins of the seed. 

Transportation: 


Transporting seed and finished crop, particularly across state lines, also presents unique challenges of its own. One potential issue, although less likely, is the possibility of a neighboring state’s law enforcement officers seizing plants at the border. More likely, however, is the possibility of having imperfect paperwork or documentation for the plant’s compliance with THC thresholds. Without the proper documentation, the plants could be seized in states where marijuana or its transport is illegal until proper documentation is received that proves the plant’s status as hemp and not marijuana. 


As with all things related to hemp, the key is to familiarize yourself with your state’s laws and be prepared to align with it when it inevitably changes. 


We Want to Hear Your Thoughts & Comments! 


Have a question on Hemp that wasn’t answered above? Drop a comment below and one of the VeriLeaf team members will help point you in the right direction. 


Also, be sure to sign up for VeriLeaf’s Community to join in on the conversation, find business services, and learn how to build a successful hemp business!


For more information on accounting and tax around hemp, please visit Adam Shay CPA for help on how to get started!

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