The Prologue: This is the first part of an ongoing series by Marijuana Venture about Colorado Leaf and its owners, Keith and Brett Sprau, and the challenging process of starting a cultivation business.
By Garrett Rudolph
The end of Colorado’s vertical integration requirements opened an entirely new avenue for the Rocky Mountain cannabis industry, allowing businesses to focus their efforts solely on cultivation or retail.
The 70% stipulation sunsetted in October 2014, paving the way for a business plan for a young, Pennsylvania native with a background in business management and no previous experience in the marijuana industry.
Over the course of a 12-month stretch, Keith Sprau quit his job, recruited his brother, Brett, to be his business partner, applied for and received a license from the state’s Marijuana Enforcement Division, and raised more than a million dollars in capital.
Colorado Leaf was born.
But the Sprau brothers’ journey from concept development to breaking ground on their state-of-the-art greenhouse cultivation facility is only the prologue of an epic undertaking. Colorado Leaf could still be at least six months from harvesting its first crop, and any number of challenges that lay ahead for the brothers could still derail well-laid plans.
The Colorado Leaf team broke ground on its 17,000-square-foot Nexus greenhouse facility on May 26, just over a year after Keith Sprau first began working out the idea of jumping into the turbulent cannabis waters.
Sprau, now 32, had moved to Colorado in 2011 with two of his best friends. One of his friends was intent on becoming a part of the burgeoning industry of regulated medical marijuana.
“I told him he was crazy, there’s no way it will happen and laughed the whole drive across the country,” Sprau said.
But when Colorado’s recreational market opened on Jan. 1, 2014, Sprau found himself caught up in the cannabis fever that attracted so many business-minded people from so many walks of life. He had grown up in Northeastern Pennsylvania, graduating from Penn State University with a dual business degree in marketing and management. He earned good money working in the corporate world, but he became intrigued by the cannabis space.
“A co-worker and I started to visit dispensaries to see what the fuss was about and we were surprised by the demographics of the clientele,” he said in an email to Marijuana Venture. “It wasn’t just hippies with dreads. It was everyone. Prices were outrageous, the lines were ridiculous and the taxes were out of this world!”
At the time, Colorado’s cannabis industry was operating under the requirement of vertical integration. Retail stores had to grow 70% of their own product they sold. The removal of that requirement, which took effect in the fall of 2014, brought all Sprau’s festering business ideas to the forefront of his mind and he set his sights on a straight cultivation business model.
“No store fronts, no hassle of the FDA, no bums harassing your workers, nothing … just straight cultivation,” he said. “My mind started to race and the ideas were popping up daily.”
He quit his job in August and moved to Pueblo, where he was leasing a farm, then took a cultivation seminar at Oaksterdam University, where he would meet some of his eventual investors.
Realizing the overwhelming workload he had undertaken, Keith Sprau recruited his younger brother in September.
Brett Sprau was fresh out of law school. He had just passed the Pennsylvania bar exam. He had spent years in school, as well as hundreds of thousands of dollars on tuition without ever practicing a day of law.
“Within minutes I had him convinced to pack his bags and move to the farm,” Keith said.
Colorado Leaf received its license from the Marijuana Enforcement Division on April 27, but the company remains miles away from putting its first plants in the ground.
According to the general contractor, the build-out will take about 14 weeks, depending on the weather, Keith Sprau said. That would put completion sometime around the first week of September. If everything goes smooth with the MED’s final inspection, Colorado Leaf could have its first plants growing sometime around October.
However, acquiring plants could be a hurdle in itself. Because of Colorado’s seed-to-sale tracking requirements, companies are forbidden from acquiring clones or seeds from outside the state’s regulated system. That means the Sprau brothers will have to obtain their genetics from another licensed producer — one who might see Colorado Leaf as competitor. Competition aside, accomplished breeders tend to be quite protective of their strains.
Plant acquisition is probably the biggest challenge Colorado Leaf faces before the real work of growing cannabis can begin.
However, the company has already tackled each challenge that’s come along. Investors and business partners have come and gone. Part of the process has been finding an investment team that views the business through the same lens as the operations team.
“We started with the idea of starting small,” Keith said. “We realized there are already a lot of big players in the industry right now. Don’t get me wrong, you can jump into this as a small fish in the pond, but realistically, if you want to get your name and your brand established, you have to go bigger than (our initial investors planned).”
They finally found investors that agreed with their “build big or go home” philosophy and signed off on a build-out that could be in the range of $1.5 to 2 million, including the initial purchase of clones. That allowed the Spraus to focus on a long-term plan, rather than getting the job done fast and cheap. They’re building a state-of-the-art greenhouse to take advantage of nearly 300 days of sunshine a year in Pueblo.
Instead of using traditional HID bulbs that send electricity costs soaring, they’ve spent about $150,000 on LEDs for supplemental lighting. The upfront cost with the greenhouse/LED setup is substantially higher than a warehouse outfitted with HIDs, but Keith said he thinks it will be better in the long run, both in terms of environmental footprint and operating costs.
“People call it a ‘green’ industry, but they don’t really treat it green,” Keith said.
His goal is to keep production costs as low as possible — somewhere in the range of 74 cents a gram — while still producing top-shelf quality cannabis.
“I think that’s a pretty good starting point considering people have been doing this for years trying to figure this out,” he said. “Our approach was that if we’re going to do this, we’re going to do it right. We’re not going to produce B+ grade products. We’re going for top of the line.”