Cannabis companies can gain an edge by preparing for changes that will follow legalization
The excitement over federal marijuana legalization has tempered in recent months as other issues have taken center stage in American politics. Although the timeline for federal legalization has stretched beyond what many industry stakeholders anticipated, this delay doesn’t mean that cultivation operators should take a wait-and-see approach. Fortune favors the prepared, and smart companies should start positioning themselves now to gain a competitive edge in the future.
How can U.S. cannabis cultivators prepare for federal legalization when they don’t know what it will look like or when it will happen? The first step is to anticipate the likely ramifications of legalization. This is not difficult. Potential scenarios will be influenced by basic economic principles of supply, demand and production.
Armed with a rational assumption of how the market will play out, savvy entrepreneurs can start making moves to help ensure their business survives and thrives under federal legalization.
What will this new reality look like for cannabis growers? Here are four likely scenarios.
1. Investments will pour into the cannabis space.
Improved access to traditional sources of capital will allow cannabis entrepreneurs to benefit from the same financing options available to any other legal business. Operators will have the freedom to safely pursue money through bank loans, lines of credit and institutional investors, and they will be able to make and accept credit card payments without the possibility of their accounts being abruptly shut down.
2. THC will be on the move.
Federal legalization will permit the interstate transport of THC. Currently, all THC-containing products sold at dispensaries must be cultivated, manufactured and sold within that state. Under federal legalization, this will change. All plant material, extracts and THC-infused products will be grown, manufactured and packaged in the states that are most accommodating to their businesses and then shipped across the country.
3. Standardization will reign supreme.
Operators should anticipate much closer scrutiny of their quality assurance programs. Commercial growers will be required to implement a quality management system to help guarantee the safety and consistency of their end product. Growers should expect strict enforcement through audits, surprise visits and mandatory reporting.
4. A mass exodus of growers will leave for the Southwest.
Legalization will result in the relocation or expansion of cultivation facilities to areas of the country most favorable to cannabis cultivation. Sunny, warm and dry growing conditions help keep capital and operational costs low. Outdoor growers and commercial greenhouse operators should look toward Arizona, California, New Mexico and Texas.
Location, location, location
This last scenario warrants special attention. The migration of growers to sunnier states will be one of the most significant disruptions to the commercial cannabis industry. Where companies choose to grow will directly affect their likelihood of success. But whether growers choose to leave the past behind for better overall growing conditions or stand their ground as a local business, entrepreneurs should keep the following in mind as they weigh their options:
– Leave the past behind: Northern growers who head south to save on production costs should not bring their greenhouses with them. Different growing environments require different solutions.
For most of the year, growers in semi-arid regions need to filter intense sunlight and humidify dry desert air to ensure optimal conditions for plant growth. Humidity levels in these regions of the U.S. can drop so low that it increases pest and disease pressure and can potentially complicate a crop’s ability to take up nutrients. This isn’t a worry for growers farther north, but they lack the long days and longer growing seasons of southern latitudes. New buildouts in warm and sunny regions should not skimp on shade screens, evaporative cooling equipment or high-pressure fog systems.
– Stand your ground: Indoor growers will find it increasingly difficult to compete against low-cost growers based in the southern United States, because indoor cultivation is the most expensive way to produce marijuana. No other commercial crop is grown primarily indoors. So far, high price points have justified the high cost of production, but this will likely change under federal legalization.
The key to survival for indoor growers will be to focus as much energy on spreading their story as they do on cultivating their plants. Quality products won’t sell if nobody knows they exist. Consumers looking for more than just a high will be searching for products that strike an emotional connection, and you can’t do that with cheap, mass-market weed.
Regional varieties grown by local producers can create a story that resonates with cannabis consumers and help smaller cultivators differentiate themselves from the big, national players. Indoor growers should focus on small-batch, limited edition, craft-quality flower that tells a story and creates an emotional connection that inspires consumers to buy.
We don’t know what the future holds, but we can still be prepared. The best growers make rational assumptions about future scenarios and then position themselves to win. Astute cultivation businesses don’t worry about getting left behind; they look around, they look ahead and then they lead the pack.