Could our farmers cash in on legal cannabis?

Hemp trials in Canterbury in 2004. Hemp has no or very low levels of THC, marijuana's psychoactive ingredient.
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Hemp trials in Canterbury in 2004. Hemp has no or very low levels of THC, marijuana's psychoactive ingredient.

Dairy, wine … hemp?

If the currently restrictive laws on the cultivation of cannabis were loosened, it could change the agricultural landscape of New Zealand.

"I think it will be up there with dairy and other agricultural commodities," says Richard Barge about low-THC industrial hemp. "It will catch up with wine industry and things like that."

Barge is part of the NZ Hemp Industries Association (NZHIA), which advocates for the economic, environmental and health benefits of the hemp industry. Its members work across all areas of hemp production, from growing and processing to retail.

NZHIA's focus is industrial hemp, used in textiles, cosmetics, medicines and food, and it does not actively advocate for the legalisation of high-THC cannabis. However, it can see the benefits that would flow to the farmers that grow the low-THC version. "It will be a several billion-dollar industry."

THE WHOLE PLANT

Industrial hemp crops currently return a profit of between $3000-$4500 per hectare - which compares well to a hectare of ...
Grant Matthew / FAIRFAX NZ

Industrial hemp crops currently return a profit of between $3000-$4500 per hectare - which compares well to a hectare of dairy land

A small hemp industry already exists in this country; about 40 farmers with special licences growing around 200 hectares of the plant.

They can only grow a version of the plant with very low levels of THC, so that it can't be used as a psychoactive substance. And they can only use a small fraction of the plant - the leaves and flowers cannot be sold.

That leaves its oil and fibres for clothing and building materials. It will soon become legal to sell the seeds for food.

Even with these restrictions, industrial hemp crops currently return a profit of between $3000-$4500 per hectare, per year, according to the NZHIA. This compares well to a hectare of dairy land, which returned a loss of $734 per hectare in the 2015-16 season, although it did return profits of $1981 per hectare in 2013-14.

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"We want to use all the parts of the plant," Barge says. 

"But we are still left with the flower and leaf material - that is still in no man's land and it is a bit frustrating because that's the potential of changing your $4000 per hectare to $40,000 per hectare."

And this level of profit would be before any production of high-THC cannabis for psychoactive substances, given the myriad potential uses of industrial hemp.

WHAT IF IT WERE LEGAL?

If the government allowed the cultivation and sale of cannabis with higher THC, an industry to supply medicinal or recreational use would likely emerge. Any such operations would be more expensive to set-up and run than the existing low THC hemp growers, but should also reap higher profits.

One Australian study attempted to model the costs and potential yields of a medicinal cannabis operation qne found that an outdoor growing operation might produce between 700kg and 1500kg of dried cannabis per hectare per year.

At the current black market price for cannabis of $17 per gram (based on a 1.5 gram tinny being worth $25) a New Zealand operation with a yield at the bottom end of this range would take in close to $12m per hectare per year.

However, there are likely to be significant taxes imposed on the legal sale of cannabis and there is also evidence to suggest that once it is legalised, prices will fall.

Associate Professor Chris Wilkins of Massey University says without legislation that keeps the price of cannabis artificially high, prices would plummet from current levels.

"We can expect order of magnitude declines in the price of cannabis [following legalisation]. There has been some modelling that prices could fall to 10 per cent of current price.

"In the United States there was a steep decline immediately after legalisation. There is reason to believe that once those industries get more mature that those prices are going to continue to fall."

Wilkins advocates for a minimum price for cannabis in a legal market.

"If the price falls to some trivial level, levels of heavy use are going to be problematic," he said.

All of this makes it difficult to say with any certainty what profit levels might be for a legal cannabis growing operation that is focussed on producing recreational or medicinal cannabis and there would be significant set-up and production costs involved.

However, it seems probable that the industry would be significantly more profitable than traditional agricultural production.

 - Stuff

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