As competition increases, cannabis businesses must focus on efficiency to survive and be profitable
As we approach year three of the recreational marijuana business in Washington and Colorado, the industry continues to evolve at a breakneck speed. With Oregon and Alaska set to open their recreational cannabis markets to consumers, and several more states likely to follow suit in the next couple years, the cultivation of commercial marijuana is no longer a fanciful dream. It’s a cash crop that requires — no, demands! — cultivators who are ready to compete in a tightly controlled, highly competitive market that operates like any other capitalist endeavor, albeit with its own special rules.
To put it bluntly, if you think growing cannabis for the recreational market is going to be a cakewalk that involves group hugs, easy profits and friendly meetings with buyers who just say “yes” to every product presented, then you’re in for the shock of your life!
Because the first two states that voted to allow recreational marijuana set up their systems differently, Colorado’s growers were not initially subject to the same fierce competition as Washington’s producers and processors. (Colorado’s system originally required vertical integration, while Washington’s regulations prohibited ownership of both cultivation and retail licenses by the same party. Even when Colorado repealed the vertical integration requirement, retailers were allowed to grow their own product, giving them a non-competitive path to market.)
However, competition is growing in Colorado as a whole new group of large-scale cultivators moves into the business and operates commercial farms that are not dependent on company-owned stores for sales. What this means is that Colorado, like Washington, is going to see increased competition, and cultivators will be forced to become far more efficient than in the past.
With that in mind, here are five of the most common mistakes I’ve seen and heard from marijuana producers:
- Hiring a “master grower”
There are probably a lot of great master growers who really know what they’re doing in the marijuana industry (although I’m still uncertain what the term “master grower” actually means). However, one of the typical complaints I hear from failing business owners is that they hired somebody who was supposed to be an expert in growing marijuana, but was unable to handle the full responsibility of growing commercially. These master growers are often great at growing pot, particularly on a smaller scale, but know nothing about commercial ag systems, automated greenhouses, commercial quality nutrients, managing employees, etc.
In the end, many of these so-called master growers are fired because the operation needs a far more qualified manager than somebody who had been growing marijuana in their garage for several years.
Legal, commercial cannabis farms are real businesses. They require people with highly specialized skills and experience in commercial agriculture or horticulture.
If you’re hiring somebody to run your commercial grow operation, be wary of bringing on a grower whose only experience comes from tax-free, illegal businesses. Many of the folks who learned their trade from High Times are not ideally suited to run a large-scale farm.
A lot of growers and processors are still hand-trimming buds. Hand-trimmed buds might look better and retain more terpenes, but it adds a significant cost to bring the finished product to market. Figuring a cost of $20 an hour for a manual trimmer, and six to eight hours to trim a pound of cannabis, the average cost per pound for hand-trimming is $120 to $160 per pound.
Sure, there will always be a market for high-end “artisan” hand-trimmed product, but the reality is that (a) only a few producers will succeed as high-end manufacturers, and (b) as with all other industries, 90% of consumers won’t be able to tell the difference in the final smoke, and will be shopping based on price alone. Simple economics tell us that a commercial grower who adds $160,000 to his cost of production for 1,000 pounds of flower is going to face steep competition from growers who are far more efficient and pay more attention to production costs.
- Attending pot shows
The Marijuana Venture staff recently attended the annual Cultivate trade show in Columbus, Ohio. (For more information, check out www.cultivate16.com.) It’s the largest horticulture trade show in North America, and is put on by the American Horticultural Society (www.americanhort.org). There were more than 600 exhibitors, including most major companies involved in controlled-environment agriculture (CEA). From greenhouses to soils to the latest in supplemental lighting and temperature controls, the massive show takes up the entire Columbus Convention Center and will be even larger with a revamped floor space in 2017. Yes, it’s a mainstream horticulture show, but most of the exhibitors already manufacture products for the cannabis industry. Many companies were willing to talk only about cannabis cultivation, and had products on display that were clearly targeting the newly legal marijuana industry. That’s not to say you should abandon the traditional marijuana trade shows altogether, but if you want to learn about commercial ag products and see the latest in CEA equipment, this is the show to attend.
- Sales and marketing
In most forms of agriculture, proven practices and methods have evolved to become industry standards. In the relatively new legal marijuana business, many growers have big dreams of making millions of dollars and creating national brands, even before they’ve harvested their first crop or sold a single gram of cannabis.
As stated earlier, growing commercial-scale marijuana is a far cry from growing in a garage or basement. Furthermore, I’d suggest that one of the smartest moves a grower can make is to seek advice from — or emulate — growers of other commercial crops.
I’ve had this discussion many times with many growers, but it’s still worth repeating: In traditional agriculture, farmers grow crops, while distributors and wholesalers buy the crop to create the value-added finished product. These are clearly defined and well-practiced business models that have worked for decades.
Think about it: Ranchers raise cows and sell them to feed lots. They would never try to slaughter their cows and sell steaks to Safeway.
Apple growers grow apples. They sell their apples to wholesalers who store, process, package and distribute them to retail outlets. Apple farmers never try to sell their apples directly to Walmart or any other grocery chain. Why would cannabis farmers buck that established trend?
- Using metal halide lights
Many indoor growers use primarily high-intensity discharge (HID) lighting to grow cannabis. And while some are migrating to newer LED and plasma technology, HIDs remain firmly entrenched as the most common — and in many applications, the most cost-effective — form of supplemental lighting for CEA. Research conducted by Utah State University Professor Bruce Bugbee, one of the world’s foremost experts on horticultural lighting, demonstrated that the double-ended, 1,000-watt high-pressure sodium lights are the most effective.
Bugbee’s team concluded that when it comes to plant growth, the amount of light a plant receives is far more important than small differences in spectrum. In other words, the photosynthetically active radiation (PAR) from a typical 1,000-watt, double-ended HPS is about 40% greater than the PAR produced by a standard, 1,000-watt metal halide of the same size and power consumption. In simple economic terms, you would need 1,000 standard metal halides to have the same growing power as 600 double-ended HPS bulbs. Growers could save 40% on their electricity bill by using only HPS instead of metal halides or a combination.
Greg James is the publisher of Marijuana Venture and SunGrower & Greenhouse magazines. He has more than 25 years of experience running a consumer software company with more than $500 million in sales to Walmart, Costco, Amazon, Best Buy and other major retailers.