Marijuana Venture has always believed that for the legal cannabis industry to become consistently profitable, many businesses need to evolve and embrace proven practices from similar industries.
On the cultivation side of the industry, the need to adapt is especially acute as former methods that worked with no taxes and little oversight are rapidly proving themselves less valuable in a regulated, taxed and highly competitive environment. One of the characteristics of most mature industries is specialization within the business community. This can be seen in both big and small companies.
Take aerospace as an example: Boeing could make jet engines if it wanted to, but instead sticks with its core competency and builds the fuselage, while Rolls-Royce and General Electric manufacture the engines.
Similarly, McDonald’s could operate cattle ranches if it wanted, but its core business is running restaurants. Raising cows and shipping beef is left to ranchers, feed lots and packing houses.
This is the way smart business works in America. While there are exceptions, specialization is the norm because in the long run it leads to more efficiency and greater profits. This explains why you rarely find a tobacco farmer trying to sell his own cigarettes or a farmer selling his steaks directly to Safeway.
Growing cannabis commercially is inevitably going to go the same route as all other forms of agriculture: Farmers grow the crop, wholesalers/distributors buy and distribute it, and retailers sell it. Along the way, companies will develop models that focus on services and products that allow others to focus on their core competency.
For example, a business could fill the same niche as a commercial nursery that supplies fruit tree starts to orchardists. In Oakland, California, Dark Heart Nursery is doing just that in the cannabis space. Marijuana Venture recently spoke with Dark Heart CEO Dan Grace who explained his business model and other views about how the commercial cannabis industry may evolve in California.
Marijuana Venture: Do you have a background in marijuana cultivation or agriculture?
Dan Grace: Neither. My background before cannabis was really in activism. There are many of us still left in California who started out trying to make a positive social change. Over the years we’ve picked up some business skills, but I’m still proud to be part of a business community that values social progress.
In developing Dark Heart, though, I’ve always looked to conventional agriculture for best practices. These guys operate at large scale and with small margins. Efficiency is the name of the game. Cannabis is a unique plant, but there are few cultivation issues that confront us that haven’t been addressed elsewhere in conventional ag.
Fresh cuttings are tagged and staged to move farther down the work line. Photos by MAIKA PHOTOGRAPHY.MV: How did you come up with the idea to create a business that supplies cuttings to growers?
Grace: Ten years ago, when we first got started as flower growers, we used to go to great lengths to get clones. It was always a shady back-alley transaction and you never knew what kind of genetics you would get. Often the plants were pest-infested. It was a horrible experience. When we did find a reputable nursery, it was almost impossible to get the plants we needed when we needed them.
With some help from friends, we started to learn how to make our own clones. We got better and better at it and soon started selling them to other growers, and we’ve never looked back. I think our initial experience as flower cultivators really helped us understand the trials and tribulations that growers go through, how important their work is and how important it is that we do a great job. If we can ensure that our customers get great quality plants every crop cycle, at least that’s one less thing they have to worry about.
MV: It sounds like Dark Heart is following a tried-and-true model in agriculture. Did you model your business after another?
Grace: Not just one in particular, but certainly we’ve gathered many best practices over the years. An early role model for us within cannabis was Oaksterdam Nursery. They had the first great cannabis nursery that I ever knew about. As we started to look at conventional ag, we started working with trade groups. Farmers — and especially nursery people — are a friendly bunch. At the end of the day, they’re all problem-solvers and we like to share our best solutions to challenging problems. One of my favorite groups is the International Plant Propagators’ Society. We get together once a year and share nursery tours. Everyone is really collegial. We’ve learned a lot there. And now we’re becoming a resource for conventional farmers and nursery people who are interested in cannabis.
MV: Was it hard to convince growers to buy your cuttings instead of growing their own?
Grace: It depends. I find that more experienced growers understand the value. They understand that maintaining moms is going to take up space and labor resources. It’s also going to make it more difficult to maintain a successful pest management program.
Purchasing from Dark Heart gives them access to a top-notch library of genetics and it gives them a fresh, clean start on their crop cycle. Returning customers also understand the value in Dark Heart Nursery’s quality. Not very many people can consistently create clones of the stature and quality that we do. Growers have a lot to lose by using lower quality home-grown clones. They will see an increased cycle time and a reduced yield.
Some of the newer operators with less experience have a harder time understanding the value. They’re looking at their spreadsheet and seeing that they can save money by producing their own plants. For some of them, it may well make sense. But for most of us, it’s better to ‘stick to our knitting.’ Everyone makes money in Excel, but in the real world we tend to do best when we stick to what we know. For us, that’s clones; for our customers, that’s flowers.
MV: We’re big believers in sticking to a specific skill set, meaning those who cultivate should stick to that and leave tasks like sales, packaging, etc. to others. Do you agree?
Grace: Totally agree. I think we all create the most value by sticking to what we know best. Most industries are not vertically integrated. In fact, the larger an industry sector is, the more it tends to become atomized. You often have relatively small firms owning one niche. I think the cannabis industry still has a long road to maturity. I can’t predict how long it will take, but ultimately, I think, specialization will win out over integration.
MV: Are pathogens a problem?
Grace: Pathogens are a huge problem in any crop, but the problem is really pronounced with cannabis. We just don’t have a lot of resources to fight pathogens. There’s not much research on pathogens that affect cannabis, so there are few recommendations on how to treat them. We are also far behind most crops in breeding cannabis. The genetics haven’t been improved to help resist pest and disease pressures.
Dark Heart Nursery CEO Dan Grace used the Oaksterdam Nursery as an early role model for his business. Photos by MAIKA PHOTOGRAPHY.MV: Last summer, growers all over the West got hit by hemp russet mites. How do you ensure clean cuttings?
Grace: We dedicate a lot of resources to our integrated pest management program. We have a full-time staff member dedicated exclusively to managing this program. As with any IPM program, ours starts with exclusion. We focus on keeping the bugs out. From there we actively trap and scout pests. Every week we record data from our pest traps to develop a quantitative understanding of the pest pressures confronting us. This helps us monitor the success of our program and make adjustments as needed.
From there we focus on biological controls. Over the last few years we’ve become fans of predatory insects within the garden. Every week now we add new batches of predators and they’ve been really useful. We also apply preventative and curative pest treatments as needed. Also, every clone that leaves our facility is closely hand-inspected to ensure that nothing made it through the cracks.
MV: Is there an art to having the right strains available? It seems like consumers jump around from one hot strain to the next. Timing sounds like it’s important. Are you able to anticipate demand?
Grace: It is an art for sure. There are a lot of ‘boutique’ or ‘trendy’ strains that you see and then you see those that really stick, that the growers know is a proven genetic, that has many of the elements a grower looks for and that vendors will purchase. We have a substantive research-and-development process — we test the genetics, we check the yield, the length of time it takes in cycle and that we can create a quality clone that can be purchased time and again. We make sure that growers will get the results they want. This takes time, but it also means quality that growers can depend on.
MV: How big is your facility and how many cutting can you create a year?
Grace: We cultivate in 20,000 square feet of space in Oakland. We produce hundreds of thousands of plants each year.
MV: Do you supply both indoor and outdoor growers? Are their requirements different?
Grace: Yes, we supply all sorts of growers — indoor, outdoor, light dep, etc. Their requirements are quite different in many respects.
First, There are certain strains that appeal to each type of grower. Indoor growers, for example, love short-cycle OG strains (Fire OG for example). Outdoor growers, on the other hand, prefer longer-cycle and higher-yielding sativas (like Sour Diesel). Consumption habits are also much different. Outdoor growers come to us all at once in the spring, whereas indoor growers purchase year-round.
MV: How has the state been when it comes to licensing?
Grace: To be determined. California is just now rolling out its rules; 2018 is when the regulated program will really start to be implemented. This year we’re dealing with a lot of red tape at the local level. It’s a huge challenge and a big distraction. It’s certainly going to cause disruption within the industry. Overall I think it will be worth it, but we’re in for some rocky times.
MV: What do you see coming down the tracks with full legalization in California?
Grace: California will once again be the center of the cannabis economy. We have a huge consumer base and a lot of companies that already have long track records in the industry. I think you’re going to see scale and innovation unlike anywhere else in the world.[contextly_auto_sidebar]