As a plant and data scientist, my professional passion sits at the intersection of nature, its intricate processes, and innovative technologies that enable us to understand those processes better. When I founded Adaviv, this passion drove our mission to help farms be more profitable and sustainable through sensing innovations, software automation and plant-level insights (data).
What I’ve learned along the way is that as powerful as such technologies are, ultimately every crop must be grown hyper-efficiently to scale. More data, new software and automation are only worth their weight when they drive lean operations. To survive — and win — we need consistent quality, at the lowest cost of production.
The problem of the $1,000 pound
When Colorado and Washington legalized recreational cannabis in 2012, experts predicted the plant would commoditize. While local market dynamics within each state persist, cannabis prices are dropping across the board and data indicates we won’t see an increase anytime soon, making sub-$1,000-per-pound wholesale flower prices the new norm.
Recently, wholesale prices for cannabis flower in Colorado dropped to an all-time low, squeezing cultivation margins and reflecting a market facing oversupply. At $658 per pound in September 2022, Colorado wholesale prices are down more than 60% from $1,721 per pound in January 2021.
California, another mature cannabis market, also saw wholesale prices fall up to 60% last year to $200 to $500 per pound, though we have seen some recovery to around $750 to $1,000 per pound, depending on quality.
In Massachusetts, limited retail licenses, cultivation limitations and oversupply are driving prices down to $2,950 per pound, a $1,000 decrease from December 2021.
The average wholesale price for legal cannabis within the U.S. is now $1,281 per pound, according to Cannabis Benchmarks.
What do prices mean for cultivators?
Oversupply and increased competition are narrowing already razor-thin margins among cultivators. In this new climate, cultivators must seek solutions to grow high-quality cannabis fast and efficiently.
So what is quality, and what should we consider when catering to today’s consumers? High THC (and total cannabinoids) per dollar remains the leading factor in most markets, but research shows that consumers make their ultimate decision based on price per milligram. Even the industry’s top brands are struggling to break through a price-per-milligram ceiling.
Prices for manufactured products (beverages/edibles) are dropping as markets mature and brands compete, in large part fueled by investor dollars. As cannabis consumers become more educated, demand for “better” effect-based products should attract consumers — research indicates that product formulations and novel strains will become bigger drivers for consumers in the future. Notably, many infused beverages have seen sales growth through promotions and heavy discounting.
This example of a classic industry life cycle means that as consumer taste diversifies and appetite for quality increases, the cultivator dilemma is two-fold: they must balance quality demands with price compression. These dynamics also exert pressure on the supply chain and expose inefficiencies, such as high labor costs, energy-intensive cultivation infrastructure and inefficient use of plant inputs. However, for the lean grower, this is an opportunity to not only survive, but win.
Surviving is one thing, winning another
Now is the time to either develop lean operating habits or get left behind. Challenging market conditions impact all competitors and level the playing field. This puts the onus on cultivators to adopt a lean and agile mentality.
So what are cultivators to do? First, look upstream. Cultivators will need to become experts at driving efficient operations that minimize costs while producing high-potency flower and successfully creating diverse strain portfolios.
Consistency remains a problem even for the most prominent companies, where standard operating procedures are carefully crafted for every process and strains have gone through extensive breeding. Reliably hitting your cost-per-gram goals is difficult. Cultivators may need to turn to data-driven technology to enable precise and nimble operations.
Unlocking efficiencies for growers
Once a cultivation facility is up and running, the highest recurring producing costs are plant health, labor, energy and consumables, such as nutrients, water, substrates, etc.
Cultivators will inevitably need to automate tedious tasks and track quantitative key performance indicators to identify system waste and best practices in recipes, crop steering and integrated pest management. Cultivators must make those processes repeatable, scalable and independent of a large labor force. This will also give cultivation managers more time to focus on product quality rather than running around putting out fires.
As the digital evolution of numerous industries has demonstrated, cultivators need to adopt technologies that enable a transformation to lean efficiency standards under these five principles:
- Adopt automation to reduce time spent on manual, tedious tasks;
- Collect accurate data at scale;
- Derive KPIs of plant and labor performance;
- Establish plant-centric SOPs, and;
- Foster a continuous improvement mindset across the organization.
Reaching target benchmarks
Prioritize technology designed to automate the most tedious tasks while generating KPIs at scale, making strain-specific crop steering and recipe generation rapid and repeatable. Managers of cultivation facilities require intelligent machines and AI that can automate human tasks like crop scouting and standardize reporting and data aggregation. Automation and more AI-enabled tools can uncover factors to predict and improve performance, reduce processing time, enable flexibility, foster scalability and increasing savings and productivity.
These technologies can also include networked, IoT substrate and soil sensors that provide reliable data. Easy API data access and integration are key features that must be considered. New vision systems, which automate the tedious task of measuring plant-level KPIs such as density or growth, can provide invaluable data to inform crop steering.
When plants are pushed to their yield limits, growers will inevitably need to fight pests, pathogens and diseases like botrytis. To ensure against yield losses or calamities, earlier detection and rapid detection-treatment capabilities are critical. Technology that helps cultivators focus on recipe innovation and strain selection, while keeping pest pressure low are game changers for consistently achieving better yields and greater crop uniformity. Lack of consistent crop steering tasks can lead to inconsistent harvest and product quality. Technologies that help growers measure uniformity within cultivars at the individual plant level are necessary to ensure all yields reach target benchmarks.
Likewise, cultivators must not overlook technologies enabling team members to communicate effectively and react quickly, ultimately upskilling all staff and minimizing downtime. Clear, consistent and data-driven SOPs will allow new labor to be trained quickly in a high-turnover industry while ensuring efficient execution.
What’s next for lean cultivators?
Unfortunately, the path to profitability has proven more complex than at first it seemed to many. As the process of cultivating cannabis at scale matures, technology adoption and lean production habits will be the difference between an operation going bankrupt or getting acquired.
For operators and cultivators to thrive, they must work with technologies proven to drive ROI. Be wary of solutions with high installation costs that throw data around instead of delivering simple metrics, insights and trends applicable to the grow. Instead, focus on solutions, integrations and partnerships that work toward plant-level data and multiple aggregate sources of cultivation data.
Ultimately, sustained operational success relies on being open to behavioral change across the organization, including adopting new tech to consistently attain high yields borne out of expert growing processes — not as a replacement for grower knowledge. As industrial manufacturing, traditional farming and other similar industries have shown, adopting technology for lean practices has caused massive shakeouts of inefficient businesses, while the efficient ones consolidated and grew into industry giants.
The cannabis industry is still young, but cultivators can set a path for profitability in their organizations with the right efficiency-focused technology.