Agronomy service provider CropLogic (ASX: CLI) has inked a A$15 million deal with hemp manufacturer Deschutes Labs for the supply of biomass to Deschutes’ new large-scale industrial processing facility in central Oregon.
The state-of-the-art facility will commence the production of cannabidiol products next month and will be licenced to produce food-grade extracts to GMP and ISO 9000 standards.
Under the terms of the agreement, CropLogic’s wholly-owned subsidiary Logical Cropping LLC will supply biomass to Deschutes in weekly allotments from October, with payment for each allotment made in US dollars on delivery.
Provided the deliveries are completed, the total supply contract value will be around A$15 million.
CropLogic chief executive officer James Cooper-Jones said the Deschutes agreement puts the company on the hemp map and on target to achieve over $45 million in revenue from the 2019 growing season.
“This initial sale confirms that [our] agronomy, farm management and agtech expertise can be successfully applied to industrial hemp and has been recognised by industry participants,” he said.
“This supply agreement establishes CropLogic as a viable producer and assists in developing credibility amongst other hemp farmers that we are pitching to.”
Deschutes Labs has a phase one processing capacity of over 10,000 pounds of biomass per day.
The company’s management team is experienced in the cannabidoil and extract industry, as well as in the cosmetics industry including the successful marketing of retail products.
CropLogic will supply the cannabidoil-producing hemp biomass to Deschutes from its 500-acre hemp trial farm in Oregon designed to provide support to the growing US hemp market.
Recently expanded from 150 acres, the farm is grown under lease through a registered industrial hemp growers licence issued by the state’s Department of Agriculture.
The company expects production rates of up to 1.1 million pounds of industrial hemp biomass for the 500 acres of hemp, with prices set to vary between grade and variety.
The indicative cost to produce the industrial hemp biomass for the Deschutes agreement will be in the vicinity of US$7 per pound, generating potential revenues of A$71 million and profits of up to A$58 million, according to CropLogic.
Mr Cooper-Jones said CropLogic’s management team will report and recommend strategies for enhancing the 2020 growing season, drawing on lessons learned through the hemp trial farm experience.
“We have received many enquiries as a corporate primary producer and farm manager,” he said.
“We will seek to understand larger scale local production and I am sure our experienced team will be able to present a strong business case for further development of our hemp expertise.”
The trial farm review will include an assessment of seed selection and performance, scope for larger-scale growing operations and application of agtech considerations during scale up.