Three years ago, the Bakken oil wells in northeast Montana were surrounded by the increasing production of another type of oil—cannabidiol (CBD) oil.
It was unknown at the time that the high-low crude oil industry would replicate itself in the budding CBD market, and the future commodity has become a pariah crop for local farmers who took a chance.
Beau and Amber Anderson were among the farmers who viewed industrial hemp as an opportunity to diversify their family farm by pioneering something new. They were well aware that the newly authorized crop was critical to developing over-the-counter medications and an FDA-approved medicine to treat seizures. The Andersons also wanted a new crop to work into their 3,500-acre farm near Bainville, Montana.
As a result of North Dakota’s hemp restrictions, they grew the crop for the first time on the Montana side of the ranch in 2018. Their agreement with a CBD oil business promised a per-acre-planted return as long as they reached production targets. The Andersons, along with 22 other farmers in the region, believed they had a sure thing after arranging a contract with a lawyer’s assistance.
Farmers may earn up to $600 per acre under the deal with Utah-based USA Biofuels, provided they produce hemp and supply 25% of a good crop or roughly 250 pounds of raw hemp per acre. USA Biofuels was a shell business for Canada-based Vitality, LLC, which Eureka93, a now-bankrupt Canadian CBD manufacturer, later acquired.
Eureka93 violated the contract, resulting in a $65.5 million judgment for contract breach and punitive damages against all three businesses, an associated business, and some of its owners by a Roosevelt county jury. The verdict is considered to be one of the most significant in state history.
Transition Issues
Beau Anderson is a farmer who was raised in Bainville but now resides in North Dakota. He purchased the property in 1999 and planted his first crop there. Beau’s brother, who lives in Montana, approached him nineteen years later about cultivating industrial hemp for USA Biofuels. Beau was wary of the deal. His understanding of hemp cultivation was limited because it was largely a failure, heavily regulated, and harvesting for human use was challenging. Simply put, it was a poor investment.
However, the two brothers spoke with USA Biofuels to discuss their concerns. The firm requested that the Andersons cultivate 5,000 acres of hemp for the CBD oil production. Beau said it was reckless to invest that much of their property in the product. He suggested that USA Biofuels approach a group of growers instead. The business made its case to a group of around 30 northeast Montana farmers, assembled by the Andersons, several of whom concurred, while others exited.
Biofuels procured about 22,000 acres of hemp throughout the region. The Andersons’ portion totaled a little more than 600 acres, or slightly more than a fifth of their total farm capacity. They stood to earn around $280,000 from the sale under the terms of the arrangement.
“We could have raised all that [USA Biofuels] wanted,” said Beau. “The reason we did it the way we did was because if we’d have raised all 5,000 acres and they did this to us, we’d have been broke a long time ago.”
Eureka93 promised to send the hemp seed and compensate Eureka93 with $100 per acre after planting. Farmers would get an additional $400 for every dry-land acre and $600 for every irrigated acre following the harvest.
However, USA Biofuels delivered seed late to the farmers, and when the initial cargo arrived, it didn’t include enough seed for the contractual acres, according to Beau. It took several weeks and two additional deliveries to get all of the seeds planted.
Once the seeds were planted, the first payment did not come. After asking for payment for weeks, the farmers said they would sue. USA Biofuels made the initial payment in August from a Vitality-owned account.
Traders and Speculators
Hemp is marijuana’s non-psychoactive cousin. Under legal definitions, it has less than 0.3 percent THC, which is the mind-altering chemical in marijuana which can range in concentrations from 4% to 25%. What hemp does contain in higher quantities is CBD. Because hemp is closely associated with marijuana and contains THC, the government classified it as a Schedule 1 narcotic in the 1970s, the most severe drug classification available.
Industrial hemp is used to make rope, textiles, cereals, and a variety of other products. Its legal status remained unchanged in Montana until 2017 when a coalition of farmers and attorneys successfully pushed to allow large-scale hemp growing and expand production.
Ross Johnson, the Andersons’ lawyer, was one of those farmers and attorneys. His family farm advocated for hemp legalization and grew it on their property in Great Falls. Johnson and his Odegaard Kovacich Snipes partner, Ben Snipes, learned about the farmers in northeast Montana and contacted out.
The 2018 Farm Bill authorized CBD for use in over-the-counter goods and as a prescription seizure medication, facilitating industrial hemp’s development into a desirable crop. This resulted in businesses traveling to Montana in pursuit of farmers.
In Canada, Vitality, subsequently renamed Eureka93, sought to capitalize on the burgeoning demand for CBD. Rolling Stone stated in September 2018 that the Brightfield Group estimated the CBD industry would reach $22 billion by 2022. Although the organization predicted CBD retail sales would be just $5.3 billion in 2021, the group continues to forecast CBD sales may reach $16 billion in five years.
Eureka93 was the owner of a CBD oil manufacturing facility in Eureka along Highway 93. They acquired Vitality and other businesses, merged, and went public.
The company lobbied for an initial public offering on the NASDAQ or the Canadian market. Their brochures promoted their status as one of North America’s largest CBD firms.
Vast tracts of contracted hemp cultivation across Montana contributed to that posturing. The business estimated those acres to be worth hundreds of millions of dollars. Later, when it would restrict farmers from selling fast-decaying hemp bales in late 2018 and most of 2019, it cited its IPO plans. However, the company’s initial public offering eventually failed.
Eureka93 declared bankrupcy in March 2020, well after the 2018 harvest. Their publicly listed stock plummeted to fractions of a cent from the high teens. Sixty Eureka manufacturing employees were among those who remained unpaid following the collapse. According to the Daily Inter Lake, numerous employees filed wage disputes with the Montana Department of Labor in January 2020.
In Montana, commodity trading requires a dealer license to safeguard farmers and their enterprises from dubious transactions. The state also demands a bond as part of the procedure.
Before signing the deal, Beau Anderson contacted the Montana Department of Agriculture to determine whether hemp constituted a commodity and if USA Biofuels was authorized to trade in commodities. The Department stated that hemp was classified as a commodity and USA Biofuels did not possess a license at the time, but was in the process of obtaining one. Vitality ultimately obtained a dealer’s license from the state and paid a $25,000 bond. Millions of dollars were at stake in the deal with northeast Montana farmers.
“I asked [DOA], how in the hell do you let a company that comes in and contracts 20,000 acres of hemp at $500 an acre—so you know what that value is,” said Beau. “And they ended up with a [bond] for like 20,000 or 25,000 bucks.”
The Andersons filed a claim for the bond along with hundreds of other farmers.
Hemp Harvest
In general, hemp fared well in northern Montana. According to the Andersons, the farms that grew the product encountered every conceivable circumstance. Crops ranged from dry to wet and everything in between, but were decent.
Some of the difficulties associated with growing hemp for human use, such as CBD oil, become apparent during harvest. Beau argued that it should have been a warning signal since the firm had no say in how the product should be harvested, kept, or packed.
Beau swathed the plant, dried it like alfalfa, and baled it. All that remained was for USA Biofuels to pick it up and bring it to Eureka93’s facility. That never occurred, and the firm failed to fulfill the contract’s obligations for the second consecutive year.
The Andersons and others ended up putting thousand-pound bales in fields beside roadways after speaking with the firm. The bales remained there awaiting transplant.
“The only drawback they found was that the plants reeked of a “skunky smell.”
“Agronomically, it was fun to raise,” Beau stated. “It was fun to watch it grow.”
Legal Conflict
Neither party in the lawsuit contested that the contract had been violated. Before the start of the trial, a judge handed down a summary judgment that all defendants were liable for the contract violation. Additionally, the judge permitted the continuation of the damages claims.
The trial in 2021 focused on whether the farmers were eligible for damages. The farmers asserted that they might have recouped part of their expenditures if they had been permitted to sell the hemp bales before they degraded.
“Defendants made repeated representations to Plaintiffs that they would receive what Defendants owed them with knowledge of their falsity,” Roosevelt County District Court Judge Katherine Bide stated. “And Defendants concealed material facts with the purpose of depriving Plaintiffs what they were owed as well as lulling Plaintiffs from exercising legal rights to seek other methods of recuperation.”
The business barred the farmers from selling the bales because they continued to represent them as assets in briefings to investors and in documents submitted to the state to obtain their commodities dealer’s license. If Eureka93’s merger had been successful in listing on the NASDAQ at the anticipated IPO price, Kenney, Hoggan, and Rendimonti’s stake in the businesses would have been valued at $100 million, the judge stated in the ruling.
Though some farmers, such as the Andersons, planted hemp on a small percentage of their land, the damage was substantial but not debilitating. They relied on alternative crops. Others, the lawsuit alleged, planted it across vast swaths of their land, inflicting significant harm and mental distress.
The defendants’ lawyer, Mark Parker of Parker, Heitz & Cosgrove in Billings, contended the lawsuit was nothing more than a breach of contract caused by the participants’ CBD speculation collapsing. He compared the fall to other commodity failures involving emus, chinchillas, and Jerusalem artichokes.
Parker stated that the agreement in this instance required the commodity and money collected before payment. He explained that that was impossible following the fall of speculative CBD pricing, leaving the firm with nothing to pay.
The jury decided to award $65.5 million, assigning damages of $10 million to each business, USA Biofuels, Vitality, Eureka93, and Surety Land Development, and $5 million to the owners and agents of the firms Corey Shirley, Owen Kenney, and Kent Hoggan. Parker represented Shirley, Kenney, Hoggan, and Surety Land Development.
No counsel represented the limited liability companies USA Biofuels or Eureka93, which have since ceased operations. Parker distanced his clients from Eureka93, claiming that when the businesses combined, the founders of Vitality became minority shareholders in Eureka93. Vitality used USA Biofuels as a shell coompany.
According to court papers, David Rendimonti received a modest $1 million in damages because he was the only plaintiff to present evidence of his complete net worth. Before press time, Rendimonti’s attorney did not return a call to his office.
Future Farming
Parker has already filed an appeal notice, which he stated stems from his position that this was an unfulfilled contract that does not justify penal or emotional damages.
Snipes and Johnson added that they face legal obstacles in enforcing the decisions in other states and countries, such as Canada. As a result, it is uncertain if the farmers will be compensated.
The Andersons are unsure if they will grow hemp again in the future. Although the crop was not difficult to produce, harvesting presents various technical challenges depending on the intended application. It has a foul odor, but the Andersons stated that as a rotational crop, it acted as a detoxifier. Regardless, the harvest must be profitable enough to justify the dangers associated with ensuring their future.
“We were looking at it as an investment for our children’s future,” Amber Anderson explained. She expressed optimism that cycling hemp and CBD oil into their company will pay off due to the promise of significant returns. They may continue to fund and operate the farm with normal crops and utilize the proceeds from hemp to plan for education for their four children and possibly retirement. “We saw it as, if this works out this year awesome, now we have a little bit of security for us.”
Original article: https://billingsgazette.com/news/state-and-regional/crop-failure-why-a-montana-jury-gave-hemp-growers-65-5m/article_c24458e0-a787-548f-923b-64a84d2b4b1d.html
