How to Create a Business Plan for Hemp Farming

Interest in industrial hemp farming continues to build as more states follow the federal Farm Bill of 2018's lead and approve expansion of hemp production. But as the industry grows, many farmers will inevitably face some of the industry's unique challenges.

Whether you're considering hemp farming or have already incorporated it into your business, navigating these challenges can be tricky. But with some thoughtful planning and the help of an experienced hemp banker, you can better prepare for potential hurdles your business may face.

Set a business plan for hemp farming

Before clearing a field or turning over soil, you'll need to understand the costs of starting a hemp farm, along with the potential for future profit. A business plan for industrial hemp farming is often a necessity for those seeking a loan or other funding.

"In addition to the importance of having a strong business plan to help guide your day-to-day business decisions, business plans are an important component of establishing a lending relationship with most financial institutions," says Ryan Palmquest, Director of Hemp Business at First Citizens. "In fact, having a business plan or financial forecast in place before applying for a loan can help expedite the approval process."

Business plans generally include standard items, such as market information and financial projections. Not only is this information useful for investors or hemp-focused bankers, but it can also help you map out your new agricultural business and provide guidelines for spending and growth to keep you on track over the first several years.

Write a mission statement

Why are you starting a hemp farm? What are you hoping to achieve with this new opportunity? Writing a short mission statement allows you to narrow your focus and set goals for your new hemp farm.

Your final mission statement should communicate to others why you're in the hemp business, why you believe you can be successful and what you hope to accomplish in the industry. It can also help define your target customer. Will you sell hemp to textile companies, smaller businesses or both?

Develop a hemp business summary

In addition to a mission statement, your business plan should include a longer, more detailed description of your hemp farm. Describe your location, the size of your farm, how much hemp you intend to grow each year and any agriculture business or farming experience that will help you be successful. It may be helpful to read over the US Department of Agriculture, or USDA, Checklist for New Farms (PDF) to make sure you fully understand what you need to set up an agriculture business, such as agribusiness insurance, a business license or certificate, and the necessary equipment.

Your hemp business summary should also provide information about the local market for hemp. List some of your potential customers or local hemp buyers, and provide information on any established business relationships you intend to rely on as you start out. You may also want to discuss local competitors and point out any competitive advantage between your farm and theirs.

You also may want to include information on how you intend to set up your farm to comply with federal and state regulations, as well as how you plan to stay informed on the latest research. The USDA regulates hemp production under the US Domestic Hemp Production Program, while research into hemp farming is funded by its National Institute of Food and Agriculture to uncover best practices and new uses for the plant.

Plan your financial projections

The final component of your business plan will contain multi-year profit and loss projections. List out the anticipated costs of starting a hemp farm, and project your expected profit over the first 5 years. Your projections should include the following key items.

• Startup costs: Generally, these costs are one-time expenses, such as the land purchases, storage facilities and business software to help you maintain your finances. You'll also need to decide if you want to purchase or lease farm equipment.
• Ongoing expenses: These are the annual costs of operating your farm, such as seed, irrigation, fertilizer and labor.
• Projected income: As you begin to harvest, process and sell hemp, you'll make money from crop sales. Develop a projection to show how much you expect to produce and sell each year for the first 5 years.

Creating a business plan for hemp farming will ensure you're following a clear path and have a firm understanding of what it takes to start an agriculture business. A business plan is also required when applying for a farm loan.

As you progress through your first season of hemp farming, don't forget to review your plan periodically and update the document with new information and financial projections. It's also important to establish and maintain a solid banking relationship so you're financially prepared for anything that comes your way.

As a hemp-friendly bank, our market specialists have a deep understanding of the financial challenges you face in the business of hemp, including the complex nuances of the current regulatory environment. Learn more about our hemp expertise or connect with a hemp banker to get started.