Should I Broker or Process or Split?

Anyway you roll the dice, you will find yourself making more money upgrading quality biomass to oils. This following scenario recently came up with a customer who was wondering how to weigh the options:

“I have access to low cost hemp at say $3 per (CBD) percentage point per pound and I wonder what is more lucrative: Should I process the biomass into isolate or should I broker it for $5 per (CBD) percentage point?”

Why don’t we do the math?

Scenario 1: Broker The Biomass

The first thing to do is to calculate your net from the sale.

Here are the costs:

If you pay $3 per percentage point per pound, and sell at $5 per percentage point per pound, then your net is $2 per percentage point per pound.

Here is the approximate profit:

So, 1000 lbs at $2 per percentage point per pound at 15% CBD content will yield a profit of $2 per percentage point per pound (@ 15% CBD that’s $30 per pound) multiplied by 1000 lbs = $30,000.

The thing about this is that you had the farmer do all the work, labor in the sun, and you just picked up the phone for about the same amount of profit. Congratulations. There are likely to be hidden costs in this scenario that are not discussed above.

Senario 2: Convert to Isolate with Toll Processing

Now consider paying $3 per percentage point per pound (@ 15% that’s $45 per pound) and processing that trim into oils at $113 per pound.

Here are the costs:

  • The biomass will cost you $3 x 15% = $45/lb multiplied by 1000 lbs is $45,000.
  • It will cost $113-125 per pound to process, for a cost of 1000 lbs x $113/lb = $113,000
  • Total cost of $158,000 to get to isolate product.

Here is the approximate yield:

  • Now, out of that 1000 lbs at 15% CBD content you will get about 150 lbs of crude oil, which will yield 50-60 kg of isolate.

Here is the approximate wholesale profit:

  •  At $5/g, that will sell wholesale for $272,000 less the costs of $158,000. This estimated wholesale profit will produce APPROXIMATELY $114,000 USD revenue.

Scenario 3: Split Deal

Now consider NOT paying the $113 per pound to process… instead, split the costs and profits of the isolate yield with the processor.

  •  Costs are $158,000 – $113,000 = $45,000
  •  Yield to you would be around 27 kg of isolate.
  • At $5/g wholesale, your profit less costs would be $91,000 USD.

Yes, you are making the most money with toll processing but you also have to put up $158,000 USD to get the greatest profit. The largest advantage with the split model is that you don’t need to put up the initial scratch to convert your crop into a high-value wholesale commodity.


Disclaimer:

The numbers presented herein represent averages in costs, output, and results. The analysis is not a financial guarantee and shall not be used to create business plans, obtain funds, or make any kind of financial decision. There are inherent risks in any business. Some key risks for the three scenarios of brokering, splits and toll processing have to do with quality, transportation, yield, and labor. This guidance is intended to help the customer understand options and shall not be construed as an inducement for any kind of investment. Use the information presented here at your own risk. 

 

1 Comment

  1. Michael Jones on October 16, 2018 at 7:27 am

    This business as well as farming is all new to me. I am very interested in getting into the pilot program in growing hemp an a small acreage I’m looking to buy. Possibly around 13-20 acres of tillable land to be put into hemp for a start. How do i start? Who can i contact. I’d also like to understand the scenario options, Scenario 1: Broker The Biomass, Senario 2: Convert to Isolate with Toll Processing andScenario 3: Split Deal better. Is this article mainly focussed on people already in the business and growing hemp? Or csn a perso like myself just starting out, get guidance here?

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