04 Sep The Opportunity for Hemp in the Cadiz Valley
“Californian,” “sun-grown,” “organic” are labels well-known around the world describing the state’s sought-after, high-quality agricultural products. Agriculture at Cadiz got its start in the 1980s when our farming business began planting a variety of fruit and vegetable produce. Three decades later, Cadiz is the largest farming operation in San Bernardino County, with 2,000 acres leased for active cultivation of lemons by Limoniera Company and a new joint venture with Glass House Farms to grow hemp on up to 10,000 acres.
Agriculture has a long, proud tradition in San Bernardino County. The first vineyards were planted in the Rancho Cucamonga area more than 170 years ago, while the local citrus industry had its beginnings in three orange trees planted in Old San Bernardino in 1857. Over the centuries, the area has quietly produced an astonishing number of crops and other agricultural products.
Today, agriculture remains an important part of the San Bernardino County economy. According to current County crop reports, farmers in the County produced more than $465 million worth of agricultural products in 2017 alone, including dairy products, cattle, trees, alfalfa and fruit. The County had 20,452 acres in production in 2017, including 14,814 acres in field crops, 3,704 acres in fruit & nut crops, and 1,934 acres in vegetable crops, and 1.4 million acres of rangeland used for grazing.
Farming in the Cadiz Valley
Cadiz owns 35,000 acres of land in the Mojave Desert’s Cadiz Valley that is zoned for farming and agriculture, so farming on this land doesn’t require any discretionary permits.
Throughout our history, we have successfully grown black seedless grapes, red flame seedless grapes, Lisbon and Eureka lemons, pink lemons and a variety of seasonal row crops such as squash, beans, and asparagus all in the desert sun. The area has a number of advantages that make it conducive to farming: very few pests, warm temperatures year-round, and clean virgin soil that has never been exposed to pesticides. Notably, in a state notoriously suffering from water supply challenges, there is current access to clean, reliable groundwater. We have seven interconnecting wells that are presently irrigating about 2,000 acres of lemons as well as our ongoing experimental and planned expansion into hemp farming.
All crops at Cadiz are cultivated with sustainable practices, including efficient drip irrigation systems. A comprehensive network of pipes delivers water to each individual plant, minimizing wasteful runoff and loss to evaporation. Similarly, efficient microspray emitters provide water to the lemon orchards. Water use at the Cadiz Ranch has vacillated between 2,000 and 6,000 acre-feet per year depending on variables like weather and crop mix. Our groundwater use is reported annually to the County in accordance with our approved groundwater management plan.
In December 2018, the cultivation of hemp was legalized by the U.S. Farm Bill, allowing farmers across the country to enter the space and meet rising demand for the crop as well as for dozens of products that U.S. companies have been importing from China, Canada and elsewhere for decades. China led all countries with nearly $1.2 billion in hemp sales in 2018, followed by the United States ($1.0 billion), Europe ($980 million) and South and Central America ($220 million).
Today, hemp product and seed from China is covered by new trade barriersand tariffs implemented by the Trump Administration in an ongoing battle over trade. The products affected by the tariff include hemp seeds and true hemp products.
When the hemp-derived cannabidiol (CBD) industry was beginning, the market was flooded with hemp material coming from China. Upon testing, the material coming from China was found to be loaded with heavy metals and other toxins because China had been using hemp to clean soils once thought to be barren.
These factors have increased demand for U.S.-grown product. As federal regulations of hemp have loosened since 2014, more acreage has been put into production.
- 2015: Roughly 3,933 acres in primarily 4 states.
- 2016: 609 producers with 16,377 acres.
- 2017: 1,211 producers with 39,194 acres. 32 universities conducted research projects.
- 2018: 78,176 acres, hemp-growing states up to 23, 40 university programs, with over 3,500 licenses issued. After 2018 Farm Bill signed by President Trump December 20, another 5 states begin growing hemp.
Interest in hemp products is generating intense market demand. Cannabiz Media reports that “Americans purchased $1 billion in hemp products in 2018 (up from $668 billion just two years ago in 2016), and that figure could climb to $2.6 billion by 2022 according to New Frontier Data’s ‘The Global State of Hemp: 2019 Industry Outlook report.’” Earlier this year, Hemp Industry Dailyprojected hemp-derived CBD retail sales could surge to $7.5 billion by 2023, up from about $1 billion this year.
Hemp at Cadiz
When the Cadiz area was first settled by the railroads in the early 1900s, hemp was identified on the original land grants as ideal crops for the area, and it remains a naturally ideal area for hemp. Cadiz is home to ample sunshine and warm temperatures, which are necessary for plant growth. Our remote location, organic soil and lack of indigenous pests also make the Cadiz area attractive for the cultivation of hemp. The Cadiz-grown hemp product would be a unique entrant in the market as open-air, California-grown and organic. It can also be turned multiple times per year (3 to 4 times in ideal conditions) and is a low-water-using crop, with estimates of 1.5-2 acre feet per acre, in comparison to tree and nut crops, which can require up to 5 acre feet per acre.
Trial and Results
In June 2019, Cadiz planted our first five acres of hemp on virgin soil at our Ranch. This trial was conducted to explore different seed and varietals that would produce and thrive in the desert environment. We expect to harvest the first five acres for quality testing in mid-September, as we simultaneously plant 20 additional acres in the same section. The new 20 acres will be in the ground by September 15 with a variety of seed and flowering types. We will be varying water application as well to test changing demands in the fall and expect to harvest this acreage beginning in mid-November through the end of December.
Our research trial has helped identify the best seed and flower for the open-air environment ensuring we will be as successful as possible as we build out in 2020 and market the biomass and seed to local purveyors.
We expect to expand to 1,280 acres (2 sections) by the end of 2020. Revenue generated in 2020 would support business operations and reinvestment in crop build-out. San Bernardino County appraisers have estimated the value of agricultural land planted to hemp at $20,000 to $50,000 per acre. We expect to use approximately 2,000 acre-feet of groundwater to irrigate the planted 1,280 acres.
Finance and Infrastructure requirements
In order to deliver on the promise of hemp, the Company expects to invest in required infrastructure and ultimately processing facilities. Our current cash resources will fund our trial and initial build-out. We expect ongoing investments in transportation, distribution, processing and related down-stream activities to be financed by revenues generated from the operations. In addition, we have begun discussions with investment banks active in the industry that could assist in the development of financing options should they be required to fully build out our hemp activities.
Unlike other crop cultivation, economic benefits from harvesting hemp can be realized almost immediately – rather than having to wait the three years traditionally associated with orchard plantings. Development of infrastructure required for hemp crop cultivation will also support the Company’s Water Project .
Over the long term, hemp cultivation will be compatible with the Water Project with built-in year-to-year flexibility to designate annual beneficial uses for the water. Hemp cultivation may also benefit from the importation of surplus water in connection with a groundwater banking program. We are studying concentrated irrigation programs as they are being evaluated in other places in California as a method to engage in groundwater replenishment and storage after first serving the crops at the surface.
Farming and agriculture enjoy foundational support in San Bernardino County, where Cadiz is the largest farming operation and has practiced sustainable farming for three decades. Newly legalized hemp presents an active opportunity, previously not contemplated, for value creation via our agricultural operations that can be added to our land management strategy without negative impacts. Current market demand for the hemp product generates tremendous upside potential, and our trial demonstrates we can engage as an active, market leading player in the space as we fully engage by the first quarter of 2020.