December 21, 2018

On December 20 President Trump signed the $867 million Federal Farm Bill, which among other things, legalized industrial hemp production. This action, opening up a new agricultural category for investment, is already sparking big moves.

On the same day, Sanitas Peak Financial announced the launch of a $50 million private equity fund focused on all aspects of industrial hemp production from farming, to extraction, processing, laboratory testing, and distribution.

Co-founded by E. Nicholas Mortimer and Charles Wellso in Colorado, Sanitas Peak has been investing in hemp production for the past two years, with Mortimer and Wellso investing their own capital in each transaction.

“We’ve been on the ground in Colorado, investing alongside hemp farmers, manufacturers and distributors for the past two years,” said Charles Wellso, Sanitas Peak co-founder and managing partner. “We have an intimate understanding of the challenges faced by hemp producers and believe that a hands-on investment approach can help each of our portfolio companies thrive, while unlocking the incredible potential of industrial hemp.”

Untold Potential for U.S. Farmers

By removing hemp from the list of controlled substances and legalizing its production, the Farm Bill will be the catalyst to turn what has been a boutique activity since 1937 when the Marihuana Tax Act of 1937 made the possession of cannabis and hemp illegal, into a business that has the potential to generate revenues of more than $20 billion per year by 2020.

Despite the fact that hemp cannot be used as a recreational drug, it has been categorized by the U.S. government alongside drugs such as heroin, LSD, and marijuana for decades. In reality, hemp is currently used in the production of more than 25,000 products worldwide including food, beverages, textiles, furniture, automotive parts, beauty products, and building supplies. And as demand wanes for tobacco and dairy, trade tensions cut into global markets for U.S. goods, and climate change shifts production maps, the potential that the legalization of hemp  poses for U.S. farmers is significant.

Highly resilient, able to thrive in a range of conditions, naturally resistant to most pests, and since it grows in such highly concentrated spacing, naturally combats weeds, hemp is so useful and sustainable, that its cultivation was mandatory for the settlers of Jamestown, Virginia. And before the 20th century, was a key resource in the production of everything from ship’s sails to the paper on which the Declaration of Independence was drafted.

In fact, until the beginning of the 20th century, up to 90 percent of all paper was made from hemp, which is the top producer of biomass in the world. One acre of hemp can produce as much paper pulp as 4.1 acres of trees over a 20 year period, and can produce two to three times more fiber compared to cotton, at approximately 1,000 pounds per acre without the chemical inputs.

Today, U.S. manufacturers still use materials sourced from the hemp plant, but have been in the position of having to import the needed fiber, oil, and seed from China, Canada, and Europe.

However, with legalization comes the freedom for hemp farmers to now transport their crop across state lines to waiting processors; the ability to secure crop insurance; and the ability to access banking and financing services.

“Our experience has shown us that the lack of funding and infrastructure in the hemp space has resulted in market fragmentation, inconsistent production standards and underdeveloped processing and manufacturing logistics,” said Mortimer, co-founder and managing partner of Sanitas Peak. “We believe that by providing both funding and business support to our investment portfolio companies, we can improve these inefficiencies and create sustainable value.”

-Lynda Kiernan