Large Colorado CBD producer announces program to keep hemp farmers in market

EcoGen Labs bills itself as the country’s largest CBD supplier that is vertically integrated.  The company has its own line of seeds which it grows it is own fields and greenhouses and which it supplies to farmers who grow on contract.

The company, which is based near Grand Junction, in western Colorado, and also has a large greenhouse facility near Phoenix.  The company also does a range of extractions which include CBD and CBG isolates as well as full spectrum CBD oil. And, as a further differentiator, the company says it designs and fabricates all of its own machinery.

Supporting famers with buyback program

Under the new program announced by the company at the end of March, EcoGen says it will provide competitively priced feminized seeds validated through genetic, germination and stability testing.  Following final harvest, EcoGen would arrange to purchase back from farmers any unsold hemp biomass grown from the seeds bought from EcoGen that meet the company's standards and arrange for shipping back to the facility for processing.

Alexis Korybut, CEO and co founder of EgoGen, said supporting farmers is crucial at this juncture in the industry.  The underlying demand for CBD products remains strong, he said, but the supply end of the business has entered a chaotic phase, one that is hard for smaller scale farmers to navigate successfully.

“Without a dedicated, committed farming community there is no way for this industry to prosper,”​ Korybut told NutraIngredients-USA. “Everybody down the chain has to make their money and have success or they will turn to something else.”​

Precipitous price drops

Korybut echoed some other reports gathered by NutraIngredients-USA and sister site FoodNavigator-USA about steep price drops for hemp raw material and for extracts. Many producers, both in the growth phase and at the level of extract manufacture, jumped into the market apparently without a clear enough picture of what the future demand curve would look like, and a drastic oversupply resulted.

“Since the end of 2018 prices have dropped more than 80%. Maybe as much as 90%,”​ Korybut told NutraIngredients-USA.

The key issue for the industry has been that some investments into plantations and extraction capacity were made anticipating that the federal regulatory process would move faster than it has.  Almost a year ago FDA convened a meeting in Washington DC on the CBD question.  The meeting went a full 10 hours and the agency heard from dozens of presenters.  Unfortunately, the information presented at the meeting and gathered by the agency thereafter seemed to have raised more questions than it answered on issues such as overall safety, acceptable intake levels, product quality and so forth.

In a memo released on March 5, FDA said it has reopened the docket on submitting information relevant to the CBD question​.  The new twist is that the agency says there is now a way for companies to submit information on the docket while still keeping trade secrets private, which had been a hurdle before.

Continued regulatory logjam meant CPG players remained on sidelines

That could be seen as a welcome change, but the fact remains that without a regulatory resolution, the use of CBD/hemp extracts in foods and dietary supplements is still technically illegal. As a result many big CPG companies that reportedly had CBD products close to the launch phase have put those plans on the back burner. That has left the hemp/CBD industry with something of an overcapacity bubble.

“Demand on the consumer end has steadily increased but not nearly as quickly as supply,”​ Korybut said. “What we are seeing is a lot of people getting out of the business because they can’t make a go of it anymore.  In the last month or two we’ve seen where labs are just dumping their inventory.”​

Korybut said the combination of the oversupply bulge that developed in 2019 combined with the new stress of the current coronavirus crisis means some companies will be in survival mode in 2020.

“Only the companies that are extremely efficient will survive if it stays like this,” ​he said.

Maintaining the farming knowledge base

Korybut said EcoGen has put a lot of work into its proprietary industrial hemp seed varieties.  The company claims it can achieve as much as 12% to 15% CBD content while keeping THC at .2% or less by dry weight.  But hitting those targets means having good informatIon on how the seeds perform in various growing situations, which is why the company is eager to keep its existing cadre of growers in the market.  It’s far more efficient and reliable than purchasing raw material on the open market.

“We much prefer to process our own genetics.  Each strain of plants will process differently, grind differently and extract differently. We do have some of our own fields, but for scalability it would never make sense for us to acquire a lot more land and put it into hemp agriculture.  So we partner with selected farmers, primarily in Colorado and Oregon,” ​Korybut said.

“We have growing protocols tailored to a specific region or even subregion, and we’ve worked these out by trial and error.  We have planted the same genetics 20 miles away and results have been drastically different because of high alkalinity in the soil or other factors,”​ he added.