Hempire

New Mexico’s fledgling hemp industry might fall behind if the state and federal governments don’t catch up

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The 2 million hemp plants waving in a field outside Moriarty under the September sun weren't part of the plan.

But when nature does its work and seedlings show up on the job, farmers go with it.

At least these farmers did.

Santa Fe Farms harvested hemp from more than 130 acres and 17,000 square feet of greenhouses this fall, including this "naturally planted" land in the Estancia Valley where seeds fell from the previous year's mature buds. The crop is soon heading for markets that range from high-end smokeables in its topmost flowers to oil extracted from nearly the entire plant.

New Mexico entered the hemp industry last year on the heels of the 2018 federal Farm Bill that legalized cultivation of certain cannabis plants. Santa Fe Farms represents what backers hope will become a major contributor to the state's economy.

Yet, the course for a budding empire is far from charted. Federal and state regulators are grappling with rules that have everyone with a stake in the industry on edge, and though New Mexico's approach is largely praised, conflicts are at play here between the low-THC hemp program and its cousins in medical cannabis which have led to a lawsuit. Which growers and manufacturers survive depends on their abilities to respond to the market, control their harvests through to the consumer and form alliances among people who have farming skills, cannabis connections and business acumen.

Cole Daeschel and Gary Chavez are looking forward to a few snowboarding breaks come winter, but they've been laboring practically nonstop on their Santa Fe Farms project for the better part of two years. Like every other hemp producer in the state, the pair had to move from zero quickly. The growers, both Santa Fe natives, are now executive board members of the company that is poised to be an early big player with business arms that include harvesting and processing for other growers as well as their own large-scale production.

"People call it grassroots," says Chavez, "but it's more that it built into something that we had both aspired to but shied away from because of the risk involved."

Daeschel's father died suddenly in 2016, leaving behind Cedar Grove Nursery in Stanley that was a mainstay of the Santa Fe Farmers Market for flowers and vegetables. So, Daeschel, then 32, picked up the mantle. It wasn't long before squash and peppers got boring, and he was looking for a chance to turn his knowledge of cannabis growing into a job.

Chavez, 29, trained in the Santa Fe Community College alternative energy and biofuels program and took a bevy of ag courses at New Mexico State University, plus earned some greenhouse experience at a medical operation.

While the two first aimed to get into the medical cannabis scene, they quickly realized the state didn't have any plans to reopen applications for producers any time soon and the going rate to procure an existing license was in the $500,000 range.

"Then we caught wind of the Farm Bill and we switched gears and went into hemp," Daeschel explains. Both smile widely.

The first winter was rough, but they are clearly proud to have spent it sleeping in the greenhouse feeding pellets into a wood stove and nursing hemp plants to life along with some stalwart friends. For six months, they stayed at it with no income.

The pair came close to partnering with a Colorado firm until a funny feeling about the deal caused them to hit the brakes. That's when Daeschel contacted money man Steven Gluckstern for advice. Gluckstern didn't know much about cannabis, but he knew about making a business work, and he saw in the young Santa Feans an opportunity he wouldn't pass by. He's now the CEO and chairman of the board of their company.

"We were originally going to start with a few acres. We were going to gradually work our way up, but Steven comes in and he's like, 'all right let's do this.' He started buying farms and it's been trial by fire," Daeschel says.

The volunteers that popped up in Moriarty were on a field the company leased after last year's Colorado grower decided not to return. Plus, the growers hand transplanted more than a dozen other cultivars at two other plots in addition to two greenhouse locations.

This year, another high-profile entrepreneur also came on board, former gubernatorial candidate Jeff Apodaca, who had been operating a business that provided harvest, finishing and marketing services for hemp producers. His language is full of words business jargon and sometimes hyperbolic rattling off of numbers about efficient producing and processing—a cadence on a whole different level from the growers.

The venture needs all those elements to work. Daeschel and Chavez are executive board members and equals in a partnership of six that now includes Apodaca and other investors.

"We come from a place where everything gets corporatized…to grow to the level we want to go to, we have to get in bed with corporate folks and wealthy people, but we are going to hold to our values," Chavez explains. "They let us do what we know how to do and they give us the tools we need to make this dream come true."

In addition to upgrading the Santa Fe Farms machinery this fall, Apodaca and Gluckstern have been hitting the investors hard. They've scraped up what they say is $6 million and are working on another $25 million they plan to invest in a large facility for drying and processing hemp at the Mesa Del Sol development southwest of Albuquerque.

Apodaca already worked with farms around the state last year through a company he called Fathom. The merger with Santa Fe Farms just before harvest season upped its tonnage by 60%. At press time, the harvest total for the newly joined companies stood at 1.5 million pounds of biomass and 27,000 pounds of smokable flower from about 14 different growers.

Gluckstern's first job was picking tobacco in Wisconsin and he never intended to get near a farm again. Now, though, he says it's exciting. Coming from a guy who owned an NHL hockey team and helmed Warren Buffet's reinsurance division, among other high profile banking, philanthropy and investment jobs, that's a vote of confidence.

"For me, this represents a potential place for New Mexico to really cut its own future and, by the way, be a leader," he says during an interview in the Moriarty field. He's standing next to Apodaca and hemp stalks reach the height of their heads and beyond. "The real key is no one uses this plant in this form. You can smoke the top, which is the only thing that people do naturally. Everything else has to be transformed to something else. People are just figuring that out."

The farm is surrounded by signs that read "This Field Contains Industrial Hemp" and "0% THC," because to the uneducated eye, it might look like an easy haul of marijuana. For legit hemp farmers, there's always the specter of gray areas within the law and from others who flout the laws. Navajo Nation officials are facing an obstacle, for example, with a tribal member who planted thousands of square feet of greenhouses of what he says is hemp but that others claim is actually black market, high-grade THC.

Santa Fe Farms is already growing more than the entire nation did in 2014, when the Farm Bill first allowed limited hemp production for research. By 2019, when states that had been waiting for federal approval formally kicked off their programs, the number of acres had grown from 220 to 293,000 last year.

The 2018 version of the Farm Bill defined hemp as a cannabis plant containing no more than .3% of the compound THC and removed it from the list of Schedule 1 controlled substances. Almost everyone admits that's an arbitrary standard developed as part of a study in the '70s, yet it's the level upon which there was enough political consensus for success. Rigid testing programs restrict the level of THC at harvest, and too much of the compound can lead to mandatory crop destruction.

There's a movement underway to raise the limit (the psychoactive properties of THC not being discernible to most people until they reach about 7%), but unless that happens, the risk of a crop going "hot" with its naturally occurring chemicals remains a big gamble.

It's part of why, in 2019, the state Department of Agriculture issued 406 permits to growers to plant the crop. This year, just 282 sought the same permission, and even fewer made it to the still-ongoing harvest.

For many growers who stayed in the game, the idea of starting small stayed small. Of the 169 outdoor growing permits granted this year, the average number of acres of hemp per grower is 12, for a statewide total of an estimated 2,037 acres.

North of Santa Fe, plastic tunnels in an acequia-fed fruit orchard also form the home base of High Grade Organic CBD, the state's first certified organic hemp grower and manufacturer of hemp products. Soon, High Grade will claim another first: the premiere Santa Fe Farmers Market booth devoted solely to hemp.

Partners Christopher and Taylor Bassett and Daniel and Sasha Scharf sent their crop from roughly a half-acre to a Colorado extraction plant last year, trading in a 1,300-pound truckload of hemp biomass for six cases of Mason jars of processed oil that they turned into tincture and chocolate bars at a turnkey processing facility back in New Mexico.

Christopher Bassett is the lead grower, wedging cannabis next to cherry trees and between rows of melons. Farming always comes with risk, but jumping into hemp required taking on much more than just space on the farm.

"Having to take it like we have, being a grower and a manufacturer, that takes a special partnership to make that happen. In the farming industry a lot people don't go that route. In the wine industry, it's a staple of that, of estate-grown wines, but your carrot grower is not going to be your carrot juice seller, most likely," Christopher Bassett says.

This year, they're aiming to sell most of the crop as smokeable flower, which requires hand harvesting and curing, and which Scharf is responsible for keeping on the market.

"The spectrum of hemp is all over the place with people harvesting on old Roundup fields and using tractors to harvest versus us being certified organic and hand done with super attention," he says.

Hemp that's destined for smoking versus a commercial manufacturing process seems to be emerging as a leading sector of the industry in Northern New Mexico.

Brad Lewis, program director for the agriculture department's Agricultural and Environmental Services division, says that's partly because the intensive niche crop is expected to have a stronger market than commercial mass-harvested biomass.

In 2019, the nation experienced the commercialization of hemp for the first time in a century.

"When USDA legalized hemp for those states that have legal laws for hemp, we saw producers react and produce large amounts of hemp, large acres in the country," Lewis tells SFR. "The other half of it is the extraction and manufacturing remain primarily at that niche market area in there, so we had a backlog of hemp because there weren't enough extractors in the country to extract it."

During this "glut period," he says, the price of raw hemp took a dive, leading some growers to even store their crop in the hopes of making it pay later. That experience is also among the reasons why fewer acres of hemp were planned by fewer New Mexico growers this year.

Cannabis plants in New Mexico are regulated by three cabinet level agencies. Lewis' team at the state Department of Agriculture controls hemp from seed to harvest; the New Mexico Environment Department issues permits for manufacturing and inspects products heading for sale; and the Department of Health oversees the licensure of growers, patients and dispensaries for the Medical Cannabis Program.

While the governor's office controls all three, the health department has a handful of rules that growers say are seriously impeding the industry. Both the agriculture and environment departments say they need more resources and only made it through the initial startup surge by cross-training some workers as inspectors for hemp and taking them away from other tasks.

Jonathan Gerhardt manages the food program for the environment department, which includes overseeing permits and regular inspections for over 7,000 businesses in the state and, for the last two years, he's added hemp as a whole new side project.

But Gerhardt knows New Mexico is falling behind on the hemp program, holding back a critical area of adding value to the state economy. In the first year, the department approved 35 extraction and manufacturing facilities statewide and now has 24 applications pending, he explains. "We surged through that first nine months of applications, but it is just not maintainable. Unfortunately, what suffers is the turnaround time to get people up and operating and into this business and into this industry that they are eager to enter into."

Sandra Ely, chief of the bureau that includes Gerhardt's program, says vacant positions and a state hiring freeze stand in the way of those potential businesses beginning operations.

"We are not able to process permits as quickly as we'd like to; we're not able to educate the public or do as much outreach as we'd like to," she says. "It's a real challenge for us to manage this program without adequate fees or adequate general fund money."

In addition, a gap in state laws requires the department to tightly regulate testing of final consumer hemp products made in New Mexico to ensure appropriate labeling and safety, yet it has no jurisdiction over hemp products from other states that are sold here—a scenario that disadvantages local producers.

A different state law hurdle has Duke Rodriguez's attention when it comes to the hemp market. As the state's largest producer under the Medical Cannabis Program, his Ultra Health company was stoked about the potential of adding agricultural hemp. Cannabinoids such as CBD extracted from the plant are used in combination with regulated THC products to provide patients with desired formulas.

During the first year of legal cultivation for the low-THC hemp plants, the Department of Health created a rule barring medical producers not only from growing and using their own hemp, but also from buying other New Mexico-produced hemp for the same purpose.

"It was the real shocker," Rodriguez tells SFR. "Ultra Health was in the practice…of buying finished biomass hemp from local New Mexico growers and then they came to us and said, 'Are you going to buy from us today?' and currently every producer is prohibited from buying hemp produced in New Mexico and using it in combination with our own products."

In other words, you can buy a hemp cigarette at an Allsups, but a certified nonprofit producer of medical cannabis can't buy the same hemp to add to medicine. To that end: Ultra Health and five other businesses, including producers and laboratories, have joined in a lawsuit against the state in an attempt to reverse the rule and address other problems they've identified.

The state regulation issues are compounded on Capitol Hill. A trio of agencies at the federal level will have a huge impact on the future of New Mexico's—and the nation's—hemp crops.

Though insiders will debate the finer points of jurisdiction and legislative intent, most everyone agrees the federal government's definition of hemp's allowable THC level is the biggest hurdle to farmers and producers.

"Hemp is a farm product. That is victory," says Doug Fine, a Mimbres-based writer and cannabis entrepreneur. "The USDA, in crafting its regulations for hemp, is bound by an unworkable definition of hemp at .3% so that has to change at the federal level…or the industry can't function. It's too risky."

Fine, who published a book this year on small-scale hemp production called American Hemp Farmer, says New Mexico's rules pave the way for success, but can only go so far until the federal standards—from the Department of Agriculture (USDA), Food and Drug Administration (FDA), and Drug Enforcement Administration (DEA)—make more sense. He sees the sharp drop in growers from the first year to the second as a natural phenomenon.

"We are such infants in this industry—we are midwives, pioneers—that looking at numbers now would be like judging Babe Ruth's career based on his first two games of his first regular season. We are wise, I think, to not read too deeply into immediate metrics," he says, adding later, "There was going to be a correction on that anyway, from people who just thought it was a magic pot of gold and an instant get rich quick scheme—grow a bunch of CBD and the world is going to shower money on you."

Fine advocates for growers controlling the plant from seed through value-added products to the customer. While more oil extractors are moving into the market, he says development of infrastructure in New Mexico to make use of the fiber components of the plant's stalk could be feasible as soon as the state gets to about 3,100 acres of production.

Even if hemp occupied more than 3,000 acres of New Mexico soil, it would be a far cry from a major crop. For reference, about 9,100 acres of green chile were planted in 2019.

Yet, the CBD industry has gone nowhere but up in recent years. On the retail side, shopkeeper Gyana Basse is stocking goods from a number of New Mexico operations at her Hemp Apotheke on Rufina Circle and expects to soon launch her own line of skin care to go with a variety of health products she carries. Her husband Ralph Basse has manufactured body care products and essential oils through his Aromaland business for 35 years and now also produces a CBD line sold at Hemp Apotheke and elsewhere.

Gyana Basse opened the store in May 2018 and says at first it was "very tricky because there was no regulation," yet after the federal and state laws went into play, "it very quickly got much easier."

In addition to the popular tinctures and salves, her shelves also now include smokeables.

"That is turning out to be quite a big business," she says, explaining her connection with local growers at Santa Fe CBD and showing off its deep-green manicured strain called "Hempress D."

Just a few days earlier, Charlie Talachy crouched down next to a short, bushy hemp plant near Alcalde. The 31-year-old graduate of NMSU's ag program and former medical cannabis worker founded Santa Fe CBD with his cousin Adam Valerio, 33. It's a classic partnership wherein "one of them is papers and one of them is plants," he says.

During the first year, the pair planted 2 acres of hemp on a 10-acre farm they leased in Hernandez. This season, they scaled way back, growing just 50 plants at Talachy's home to develop seed stock while they continue to market bulk sales to retailers like Hemp Apotheke and Stag Tobacconist in Santa Fe and 420 Emporia in Española, along with their line of tinctures, muscle rub and prerolls from last year's crop.

Part of the reason for the scaling back was the effect of the COVID-19 pandemic on Talachy's family. With two young daughters in remote learning rather than school, he has far less time to devote to the business. Next year, and in the future if the state allows more flexibility in cannabis plants with recreational adult use, he expects expansion—not just for their business but up and down the chain.

"New Mexico tends to be local proud…It has potential to be so much for us, especially as a commodity in our state. We have so much agriable land that is not being used, traditional land that is not being used, especially around here, you can see all these parcels that are just used for grazing that have been fallow for years and years," he says.

Chavez is thinking the same thing in Moriarty as he refines his skills on a tractor that's more than twice the size of the one he'd been using until a day earlier. As the tractor munches through hemp plants like something out of Ferngully and shoots material into a waiting semi truck, he's explaining why his heart is in the game.

"You have to be able to do it at scale. The way I look at it is we are trying to marry regenerative ag, sustainable ag with conventional ag in a way that we can use implements like this for certain practices and we can still keep our craft and our boutique-style smokeable flower," he says.

He's quiet for a while, concentrating on all the points of contact he needs to monitor in the cab of the John Deere.

"I really want to try to bring back the education and the youth into farming if possible," he pipes up, a pair of yellow Air Jordans tapping on the tractor floor. "A dream of mine is to get Nike or someone else to sponsor us and get us farm gear. I don't care if it's Carhartt. I wanted to play professional sports and I have never heard of a farm getting sponsored by Nike but I bet we could if we could get them material made from hemp. I am going to pull it off—that is my dream right there."