The Farm Bill opens a raft of opportunities for would-be hemp cultivators including marijuana growers and smaller, traditional crop farmers. But doing it well will require shrewd planning and savvy dealmaking.

 

When mulling a foray into growing hemp, consider the following:

 

• Ask for payment up front when making a deal to cultivate on behalf of another business such as a processor or a manufacturer of products like hemp lotions or CBD oils.

• Research who you’re buying your seeds from and where they’re coming from. You want to avoid being duped into buying marijuana seeds or another undesirable type of seed.

• Follow the wine industry’s lead and market your hemp with a focus on terroir, emphasizing how factors such as climate and soil can affect the quality of the plant.

• Be aware that growing acres of hemp is labor intensive and will require more employees than the typical agricultural or marijuana cultivation operation.

• Instead of shelling out big bucks to start a large operation, begin small so that mistakes won’t sink your business.

 

“Do it small, and do it right” said Cory Sharp, CEO of HempLogic, a consultancy in Moses Lake, Washington. “The farmer has to control his own destiny.”

 

LOCK DOWN YOUR MONEY

 

Sharp recommends that a hemp grower who contracts with a processor should first secure in writing that the processor will pay at least $1,000 an acre for the crop.

 

Next, the grower should get that money up front.

 

If the customer isn’t going to provide you with the genetics—either seeds or clones—then add that to the cost per acre. Seeds can cost up to 80 cents apiece and clones around $4 per plant.

Also, work out a deal to get a “kicker,” where, for example, you’re receiving an additional bonus of $1.50 per pound per 1% of the CBD you produce. If you’re contracted for $4.50 per pound for a CBD content of 3% but your plants come back at 4%, you should get an additional $1.50 per pound—for a total of $6 per pound. Make sure to get that in writing before your crop leaves the field.

 

“Don’t get involved with somebody who just wants you to grow for them and they’re going to promise you all these riches at the end of the year,” Sharp advised.“Make them pay you up front.”

 

AVOID SEED SCAMS

 

Would-be hemp growers also need to be wary when securing seeds for their crops. In short, you want to avoid getting scammed.

 

Two common scams for buyers of hempseeds are:

• Seeds that are male rather than female. Female seeds create the flowers that hemp cultivators want; male seeds, by contrast, produce seed pods.

• Seeds that are, in fact, marijuana—versus hemp—with a high THC content.

 

Joe Frey, co-owner of Western States Hemp, a cultivation operation in Fallon, Nevada, sidesteps getting conned by making sure he knows the seller through a first- or second-hand source, such as a trusted business contact.

 

“I think you’re going to see a lot of banks get into this—banks that have been staying out—because of what the Farm Bill has done in terms of removing legal uncertainty,” Hartenbach said.

 

TAX RELIEF ARRIVES

 

Another immediate Farm Bill financial advantage: taxes.

 

It’s not too soon to start claiming business deductions, said Sean Covi, a vice president at Trilogy Financial, a California-based financial services firm with offices in Denver.

 

Covi, who works with businesses to reduce their tax burdens, laid out some basic federal tax tools to brush up on before sitting down with a tax expert:

• R&D Tax Credit: This credit sub-sidizes work that seeks improved efficiencies, business performance, risk reduction or new technology. The R&D Tax Credit could apply to things your company is already doing but couldn’t deduct under 280E. Hir-ing a tax-reduction specialist is your best bet to finding R&D credits.

• Property depreciation: Business-es can accelerate depreciation on commercial assets, such as a green-house or manufacturing facility. Depreciation can occur even faster for a business' personal proper-ty, such as extraction equipment within a building or even the walls and lights. “We can carve that out and it’ll depreciate over five, seven or 15 years as opposed to 39 years, which is traditional depreciation,” Covi said.

• Cost segregation: This is where a business conducts a study of its own assets and costs to capture other depreciable assets it might be missing. Businesses can then use the cost-segregation study to force a reduction in their property taxes, because the personal business property is now depreciating faster than the real property.

• Work Opportunity Tax Credit: This federal tax credit incentivizes the hiring of certain employees who’ve faced obstacles landing a job, including veterans and ex-convicts.

 

These credits start at about $900 per hire and can go up to $9,600, with an average credit of about $2,400, Covi said.

 

HOPE ON THE HORIZON 

The Farm Bill’s many implications will take years to play out.

 

The biggest challenge for hemp entrepreneurs may be surviving market volatility without losing focus on the plant and bringing it to the public.

 

“There’s this huge opportunity to jump on it now,” Medterra’s Hartenbach said. “People feel like  they need to act now or never or grow their business.

 

“But I think doing things the right way, and not taking shortcuts, will really benefit them.”