Making assumptions of the hemp market

by Sonja Heyck-Merlin

In the first of a three-part webinar series sponsored by UVM Northwest Crops and Soils Program, Northeast Extension Risk Management Education and SARE, Rose Wilson discussed the basics of marketing hemp for those interested in entering the industry. Wilson, the former business manager for Harpoon Brewery, started her business, Rose Wilson Consulting LLC, in 2004. Her focus is on helping farmers and value-added producers with business planning, marketing and grant writing.

“If you want to get into hemp, what are your goals?” Wilson said. “This is really important for any crop you’re trying to grow. What are you trying to do with your farm, and how can that product help you achieve those goals?” According to Wilson, these simple questions are critical because they will guide the overall business plan and also help people develop assumptions.

In business, assumptions are things considered to be true for the purposes of developing strategy, planning and making decisions. Assumptions can be financial – for example, assuming that your lender will be supportive of lending for a hemp-based venture or assuming that growing hemp will be profitable. Assumptions can be made about infrastructure, like assuming that a current lineup of vegetable cropping equipment will be suitable for growing hemp. Assumptions can also be related to regulation, customer needs, human resources, etc.

“You’re going to test these assumptions throughout your business planning and market research process,” Wilson said. “Once you’ve tested them, you may find the plan isn’t holding true as you thought. So then you come to the iterative part of the planning process where you can revise your goals and assumptions and retest the plan.”

Having established goals, the next question for potential hemp farmers becomes whether to be a wholesale grower or to grow hemp and transform it into a value-added product. Wilson said one of the things that needs to be tested right away is the appetite and ability to do one or the other.

“If you already know you want to be a bulk producer then begin by asking yourself what are the assumptions that you’re making to support that decision,” Wilson said. Bulk growers consider if they have the necessary tools to grow hemp and then test the assumptions they are making. For example, if a grower is assuming they have the skillset to produce consistent yields and quantity, do they then have a place to dry and store that crop? If not, are they assuming that they have access to capital from their lender to build that infrastructure?

For growers who want to both grow hemp and turn it into a value-added product, many more assumptions will need to be made and tested. This will help assess if a person has the ability and capacity to transform hemp into products that meet the quality and specifications customers demand. According to Wilson, time is an easily overlooked assumption.

“Farming is a full-time job,” she said. “Anytime you take the leap from farming to value-added, all of a sudden you’ve quadrupled your full-time job.” Not only do value-added producers need to grow the crop, but they also need to produce, market and distribute their goods. Value-added producers need to understand and acknowledge that each of these additional roles take time and energy, whether from the grower or someone they plan to compensate.

After considering goals and the logistical capacity to produce a product, growers should complete an informal personality assessment to test their marketing assumptions. According to Wilson, there are four main marketing channels: bulk, value-added direct-to-consumer, value-added direct store delivery and value-added wholesale. “The question you need to ask yourself,” Wilson said, “is do you like dealing with people? Do you love talking with folks and engaging with people? Or are you an introvert?”

Testing marketing assumptions will help determine the size and scale of the operation. If a business chooses to grow, process, market and distribute their products through farmers markets, they will have to decide the correct amount of hemp to grow. The advantage of this model is that they will be able to capture the whole dollar. A value-added producer who doesn’t want to deal so intimately with the public may take the direct store delivery route. The tradeoff is that retailers typically buy goods at 65% of their retail price. Bulk producers will capture even less – the tradeoff for relying on a manufacturer to process, market and distribute the product.

“Once you have a sense of what products and sales channels feel right for you, then you have to research how many customers are out there for that market channel,” Wilson said. Whether a bulk producer or value-added direct-to-consumer, the goal is the same – to figure out who the target customer is and decide how wide of a geographical range you intend to service. Wilson cautioned that how far and wide hemp products are sold can be subject to state and federal regulations.

Wilson provided a theoretical example of a person interested in producing CBD lip balm with a value-added direct store marketing approach: “If you’re trying to figure out how many CBD Chapsticks you might be able to sell in your geographical area, talk to local retailers and see what they’re selling at the store level. You can also get a sense of what demand and prices they’re seeing. Retailers can tell you what is trending and what is on the wane. It’s wonderful to get information from the retailers.”

For marketing research, Wilson also suggested using the internet, cold-calling and using industry association lists such as grocers’ associations. Direct-market producers with an established customer base can survey their customers directly. Paid market research is another option. These firms can complete consumer-based surveys, get a sense of market demand and make suggestions about branding and pricing.

The more these assumptions – goal-, production-, marketing- and consumer demand-related – are tested and iterated, the more likely the future success of the business. “The benefit of being a self-employed individual is that you get to make all these decisions. You’re in the driver’s seat. If you don’t think about these things before you get involved, all of a sudden you’ll be a hamster in a hamster wheel, potentially stuck in a business model that doesn’t really suit you and doesn’t make you happy,” Wilson said.

2021-12-27T12:23:44-05:00January 5, 2022|Grower, Grower East, Grower Midwest, Grower West|0 Comments

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