With total sales in Washington State reaching $1 billion since recreational cannabis was legalized in 2014, entrepreneurs from all around the world are considering an investment in American recreational cannabis production. From first-time business owners looking to capitalize on a new market to larger institutions and established organizations establishing a foothold pre-federal legalization, there’s plenty of opportunity for intrepid business ventures within the recreational cannabis market going forward. This is your guide to starting a commercial cannabis grow operation.
As with any new venture, getting started in the cannabis industry requires one thing among all other aspects: passion. If you’re prepared to commit the majority of your time to the cannabis industry, you’ll need to be well-versed in its history as well as current events, data, and the ever-changing political climate in order to be successful.
Education and Background
The cannabis industry is changing fast, meaning information relevant to today’s sales data, legal restrictions, and best practices may become quickly irrelevant tomorrow. Full-time research and development efforts are important to any industry, but the extent to which changes in the cannabis world are occurring requires a closer eye to current news and industry reports.
Creating a Business Plan
Creating a cannabis business plan is slightly different from that of a traditional business or initiative. Aside from typical hurdles like financing, competitive research, marketing, operations, and structure of ownership, you’ll need to closely study the state-specific cannabis regulations and ensure your business won’t run afoul of limitations placed on growers by these new laws. Furthermore, cannabis producers should consider the following:
– Security and traceability
– Employee training and compliance standards
– Removal of waste products
– Transportation and logistics for retail, packaging, and processing
– Testing capabilities and protocols
– Accurate description of grow facility, operations planning, and production process (including equipment, soil, and fertilizers to be used)
Choosing Grow Site and Setting Up Operation
Choosing to invest in a cannabis production facility over a retail storefront makes getting things off the ground a bit easier – prospective producers are able to utilize more remote, out-of-the-way locations with greater benefits to security, logistics, and future expansions. There are restrictions under current state laws that keep producers from opening grow facilities away from public schools, parks, transit centers, libraries, or arcades that cater to minors.
In Washington State, outdoor cannabis production facilities must be established in an open expanse enclosed by a physical barrier or a sight obscure wall at least eight feet high. In Colorado, producers are prohibited from growing cannabis outside of a secured, enclosed location – including high fences and semi-permeable roofing.
Fortunately, the climate of the Pacific Northwest lends itself very well to outdoor cannabis production. In fact, some rural areas of Washington and Oregon with agricultural backgrounds have found cannabis to be an easy to maintain, financially lucrative cash crop. Because cannabis roots can expand exponentially, outdoor growers can reap a far greater harvest by allowing their plants to grow to 10 feet tall or higher, uninhibited by artificial lighting or ceilings. Cannabis makes an excellent cover crop, allowing ample space on the surface for smaller crops like tomatoes, carrots, and lettuce to grow with an extra layer of protection above.
If your local climate and state restrictions allow for outdoor cannabis production, you’ll be rewarded with a product that can only be achieved through Mother Nature’s guidance, but as any farmer will tell you, their livelihood lives and dies by her hand. Just as susceptible to pests, inclement weather, and drought as any other cash crop, cannabis is a fickle plant as well as a lucrative one. In such an unpredictable and burgeoning market, it’s crucial that early entrants into the cannabis industry choose caution when determining whether they want to invest in a controlled indoor production facility or a riskier endeavor outdoors.
Indoor cannabis grow facilities must be in an enclosed and secured facility with functional windows, doors, rigid or semi-rigid walls and a roof.
Running a successful commercial cannabis grow operation is an expensive challenge. While growers can maintain a higher level of control over humidity, available light, and pests in an indoor environment, maintaining proper light levels and staying as energy-efficient as possible are top priorities for commercial cannabis production operations.
Space, Basic Infrastructure, and Soil
Whether you’re a first-time grower or experienced in the art of growing cannabis, you’ll need one thing above all else: space. You can grow a handful of plants in a 5′ by 10′ grow tent, but those looking to make a splash in the cannabis industry should consider a professional cannabis grow facility to ensure top-quality product and consistency in production.
The most important consideration in evaluating a potential grow space is ensuring proper ventilation for your crops. Cannabis plants require a lot of light, which typically emit a tremendous amount of heat. Without proper ventilation and air exchange, producers risk cooking their crop or limiting yields due to excess humidity, heat, or oxygen. Greenhouse-specific HVAC systems exist for closed greenhouse schemes and help producers program hyper-accurate climate control systems to ensure the facility maintains ideal growth conditions.
As far as potting each individual plant goes, allow for at least a 5 gallon pot for each cannabis plant. Cannabis roots expand very quickly and require a lot of room, therefore, smaller receptacles will result in smaller yields. Grow bags are also widely used in the cannabis production industry, placing them on a permeable table with trays or tarps to collect water runoff.
If you choose any aspect of your cannabis grow operation more carefully than others, let it be the soil. The grow medium is an essential aspect of growing any crop, but the quality of soil can make a tremendous difference in the outcome of the final flower. You’ll also want to carefully monitor the pH levels of your soil, as cannabis plants prefer pH environments of 5.5-6.5.
While some high-end growers are switching to permeable concrete to facilitate natural water recycling, it’s not a bad idea to use wooden pallets or plastic, grated platforms as the floor of your grow tent to help with runoff or collect for recycling.
Lighting and Electrical
Costs of electricity is the number one expense facing producers and often matches or exceeds total lease costs per month during production.
Artificial lighting, dehumidification, ventilation, air conditioning, and irrigation control systems all require immense amounts of electricity, leading some growers to investigate energy-efficiency options like the following:
HPS vs. LED
There’s much debate in the world of artificial lighting for cannabis greenhouses, but studies have shown HPS – or High Pressure Sodium – lights provide a more consistent form of lighting for indoor grow facilities.
According to the Northwest Power and Conservation Council, 20-year projections on electrical use in both Washington and Colorado throughout the indoor cannabis production industry suggest an average annual usage of 185-300 megawatts. That’s equivalent to the annual electrical use of more than 200,000 homes in the United States.
That said, no forward-thinking cannabis entrepreneur should overlook energy-efficiency standards in initial constructions. An estimated 2% of Denver’s annual energy usage went toward cannabis production facilities in 2014; projections for energy usage among states nearing legalization (including California, Nevada, and Maine) are unquestionably unsustainable. An estimated 1% of the energy usage in the United States, equating to $6 billion in annual operating costs, goes toward cannabis grow facilities – legal and otherwise.
We recommend three future-proofed upgrades for cannabis production facilities of any size:
1. Invest in Solar
Solar energy is becoming increasingly affordable – especially at larger and more significant scales. Colorado, presumably spurred by the initial successes and yet substantial energy costs of its early recreational cannabis industry, has pledged to generate more than 30 percent of its electricity from reusable and renewable sources by 2020.
In cannabis-laden Boulder, Colorado, the city has implemented a licensing solution that requires growers to use energy monitoring devices as well as paying a fee for carbon emissions, adopting renewable energy sources, or purchasing energy credits. And it’s been predicted that the cannabis legalization movement will help spur innovation and more widespread adoption of energy-efficiency solutions in general.
2. Recycle Water and Collect Rainwater
Already considered a success in achieving water-saving status in the UK brewing industry, some cannabis producers are investing in closed-circuit desalination, reverse osmosis water systems. At the same time as purifying incoming municipal water sources, these CCD systems can recover as much as 97% of wastewater, therefore reducing water demand and saving in disposal fees.
Smaller producers in rainy climates such as Oregon and Washington are investing in rainwater collection and storage capabilities to save on irrigation costs. Because a single cannabis plant can use as much as 22.7 liters of water per day and many cannabis outdoor growing seasons conflict with periods of low-precipitation, outdoor growers and those who rely on rainwater capture without long-term storage solutions won’t find much benefit in a recyclable water investment.
While it remains an industry on the verge of wider adoption, commercial and large-scale rainwater collection and storage efforts are already in effect around the world. More than 750 buildings in Tokyo, Japan are outfitted for long-term rainwater collection and storage for landscaping uses. Thrifty cannabis producers would do kindly to invest in early rainwater adoption solutions in order to negate irrigation costs and avoid shortages due to droughts or supply demands into the future.
3. Consider an Insulated, Energy-Efficient Fabric Facility
According to Confluence Denver, producers who opt for an energy efficient greenhouse facility pay about half the costs of those who grow in a warehouse. The importance in selecting a functional, sustainable grow facility early on in the life of your recreational or medical cannabis business is monumental. Recent investigations show a direct correlation between sustainable building and operations standard and profit margins on large-scale facilities, meaning larger producers and distributors may be in a more strategically beneficial market position should federal legalization occur.
There are already private projects invested in researching the most affordable methods of growing and distributing recreational cannabis in the U.S. An effort to evaluate the cannabis industry’s LED lighting requirements and help improve efficiency estimates the best and most valuable techniques for optimization are not yet public – thanks largely to the “behind closed doors” nature of the industry from a historical perspective. But early reports from first-generation growers in Colorado and Washington suggest that those invested in sustainable energy solutions benefited most from sales in the first fiscal year of legalization, whereas those growing in indoor warehouses made up about one-third of the industry’s first year of legal energy consumption.
Especially due to Colorado’s restrictions on outdoor cannabis cultivation, it’s hard to argue for any indoor grow solution outside of a covered, controlled greenhouse facility.
Security and Compliance
In a market estimated to reach between $20-35 billion by 2020, security and compliance with state regulations is critical to success in the recreational cannabis world. Not only do producers have to account for a highly-prized cash crop, but also the cash-only nature of the current, state-level restricted recreational cannabis industry. Because employees are also at risk, investigating comprehensive and sophisticated cannabis security solutions is highly recommended for growers of every size. Some security and compliance firms boast growth rates between 300-400% since legalization in Colorado and Washington.
In Washington, state laws require the following minimum security solutions for all cannabis licensees:
– Comprehensive identification system that includes the authorized person’s’ full legal name and photograph.
– Non Employee, non customer visitors must hold and display an identification badge and log their time of arrival, departure, and purpose of visit in a record that’s preserved for a period of three years.
– A security alarm system that covers all points of entry and perimeter windows. While not required, the state advises utilization of motion detectors, pressure switches, duress and panic buttons, and hold-up alarms.
– A complete surveillance system that includes a storage device and internet protocol (IP) compatible. Technical requirements include a minimum resolution of 640 x 470 pixels, 10 frames a second recording rate, and 24-hour continuous operation. Furthermore, the storage device must be secured on-premises using a strong box or locked cabinet to prevent against tampering or theft. All video surveillance footage must be stored for a period of 45 days and accessible to law enforcement or state licensing officials upon request.
Video surveillance cameras should be positioned to achieve easy and uninhibited view of any person approaching or leaving the premises as well as within view of all POS areas, perimeter entrances/exits, grow facilities, processing rooms, and distribution areas. Furthermore, all cannabis products must be placed in a quarantined storage area for 24 hours prior to transportation to another licensed facility.
– Cannabis producers and licensees must adhere to a strict product tracking system that ranges from seed to sale. State requirements vary between jurisdictions, but it is expected that most recreational markets to expand into the future will follow a similar example as Washington and Colorado.
Choosing and Promoting Product
There are plenty of ways to legally acquire high quality cannabis seeds, you’ll want to carefully consider what strains to select and how your products will match up with what’s already available on the market.
As far as bestsellers go, there’s not a lot of strain-specific sales data available, but since most cannabis seeds are sourced from the Netherlands, it’s not difficult to find information about the best-reviewed and most popular strains.
In 2016, the difference between many strains of the same name may be night and day. Recent reports post-legalization in Washington, Oregon, and Colorado have shone a brighter light on the actual genealogy – and even the classification between indica and sativa products – that may be entirely mislabeled or incorrect at the outset.
This is a troubling insight for those who depend on cannabis for medicinal purposes. Because individuals may not receive the intended reaction to treat their medical condition as a result of consuming improperly labelled cannabis products.
Seeds or Clones?
There are distinct advantages to choosing either format to begin your cannabis grow operation, but whether you opt for cannabis seeds or clones of feminized plants, you’ll want to carefully investigate both the quality and origin of both as well as the capabilities of your master grower.
Seeds allow a grower complete control over the entire growth cycle, but the process takes longer as a result. Getting clones from another grower will speed up the process, but leaves the plants susceptible to mold, disease, or shock if replanting is required.
There are three types of cannabis seeds a first-time producer can purchase: feminized seeds, regular seeds, and autoflower seeds.
Feminized seeds are widely preferred in recreational cannabis businesses due to the plants being specifically bred to only produce bountiful female plants. Feminized seeds run a bit higher than regular and autoflowering seeds, but the advantage is best seen in the producer’s ability to only grow female plants and avoid wasting time growing male plants.
Regular seeds are cheaper and more reliable than other types of seeds, but be aware that half of your crop will be male cannabis plants and will therefore not flower, requiring removal from your grow room before pollination.
Auto-flowering seeds begin to flower on their own – no adjustments to light cycles necessary. These plants tend to be smaller as a result, but yields are comparable to those of regular and feminized seeds.
The first rule of choosing a cannabis clone for the basis of your grow operation is to ensure the plant intended for cloning was taken from a female plant. Clone dispensaries and resources often sell individual clone plants from $10-15 each that have already been cut, cured, and allowed to root. This can be advantageous to a quick and rapid growth cycle, cutting 2-3 weeks off your initial production time. However, clones are susceptible to mold and pests, so be sure to check the root system of the clone before your make a purchase to look for signs of infestation.
As far as choosing which strains to sell, it’s really up to your company’s preferences and access to clones or seeds. The heavy-hitters in the cannabis market include names like Blue Dream, Girl Scout Cookies, Pineapple Express among others, so looking for more specific and unique strains to help diversify your product offerings will improve and expand your market potential going forward. http://thegallery.marketeeringgroupdev.com/nothing-but-the-hits-5-common-cannabis-strains/
As true historically as it is today, major financial institutions are averse to lending money to cannabis-based initiatives and business ventures. Under FDIC insurance rules, banks can lose their protection under federal law by taking on “existential” risks – including investment in companies who are technically violating federal law. Thankfully, more and more financial institutions are beginning to make investments in cannabis companies who support and service producers and retailers, but don’t necessarily have direct contact with the products themselves.
In the interim, private investors have filled the void where traditional funding options would usually exist. Venture capital, private equity funding, angel investors, private lenders, and cannabis business consulting firms that invest in cannabis ventures.
While specific terms and restrictions vary from lender to lender, the basic requirements for securing a cannabis-related business loan are as follows:
– Incorporate your organization
– Maintain a business bank account
– Have at least 6 months of steady operations
– Have monthly gross sales of at least $10,000
– Keep your credit score about 500
Energy Cost and Upkeep
This is a major sticking point for potential cannabis producers. Costs of electricity is the number one expense facing producers and often matches or exceeds total lease costs per month during production.
State by State Legality and Special Considerations
Among the highest percentage states by cannabis consumption, it’s stunning that Oregon wasn’t the first to legalize cannabis sales. It was the first to decriminalize cannabis possession in 1973 and the state made a push for full legalization way back in 1986, but 2014’s initiative position pushed it across the finish line.
Long deemed the nation’s largest producer of cannabis due to the region’s mild climate and proximity to California, Oregon is currently the tenth largest producing cannabis state and the fourth largest indoor growing state. With legalization still squarely visible in the rear-view mirror, the opportunity for first-time growers and second-generation producers from existing markets to establish a foothold in this jewel of the Pacific Northwest. Plus, licensing for producers, processors, and retailers in Oregon are still open, which could reduce the initial cost of setting up shop compared to a more established market like Colorado or Washington.
The state of recreational cannabis in Washington is in place to serve as a guidepost for emerging and future markets. The ability to grow, possess, and distribute cannabis products hasn’t been an easy one, with some county and local governments placing ordinances against the state Initiative 502 that effectively legalized recreational cannabis in 2012.
The initial restrictions set in place by the State of Washington Liquor and Cannabis Control Board regarding the number of licenses remains: no additional licenses for producers or distributors will be available through the state for the foreseeable future. However, private sales on existing licenses are beginning to become more common as the market has stabilized and expectations for continued revenue growth have aligned with nearly two years of financial data. As of July 2016, dispensaries in Washington topped $1 billion in total sales and bringing in a total $250 million in state excise taxes.
Looking forward, the Washington State Department of Agriculture has officially proposed hiring a new cannabis regulator who would oversee a program to certify organic cannabis products within the state. This would likely spur the Liquor and Cannabis Control Board to issue organic-only licenses for new producers, though those details have yet to be defined.
With prosperous cannabis sales of over 1 billion in 2016, Colorado cannabis is neck-and-neck with Washington State as far as consumption habits and general sales, but the first state to legalize recreational cannabis is also serving as the testbed for future markets.
The big takeaway for fellow sleepy frontier communities hit hard by economic decline should be the vast and varied successes of sales tax distribution from the cannabis industry. While not all residents of Colorado approve of cannabis legalization, the results of creating this new industry have been promising for smaller, rural communities especially. The Denver metro area is home to 85% of the state’s recreational cannabis stores, but sales tax to the general state fund have helped build roads, fund scholarships, and fight homelessness across Colorado.
In addition, neighboring states with long histories of agriculture may look to Colorado for inspiration should legalization come their way. Companies operating in the likes of Montana, Arizona, and New Mexico, which already have medical marijuana initiatives in place, may be in prime position to convert or expand their efforts to recreational purposes once legislation passes.
Industry-wide, a major impact on edible production and how states will work to regulate cannabis consumables in the future recently went into effect in Colorado. The state recently introduced a new mandatory warning label system that places an identifying emblem on the actual products themselves – not just packaging. This is predicted to drive up the costs for producers of edible products by a significant amount, as the change must come in the production process. Should other states implement a similar labelling process, new producers may opt for flower and oil production over edibles and beverages.
The newest addition to the United State’s legal recreational field is Alaska, which originally legalized the private, in-home personal use of cannabis in 1975 before a voter initiative reversed that decision in 1991. In 2014, voters in the state approved a measure that would legalize production, distribution, and sale of cannabis products.
While the 48th most populous state is known for its major industries, it’s not expected that cannabis in Alaska will reach levels of success on-par with those markets already in operation – neither will cannabis tourism, or interstate travel with the goal of trying cannabis products in nearby states.
Thankfully, applications for cannabis establishments are still open in Alaska and the market, while predicted to be smaller than Colorado and Washington at the outset, should be lucrative for early investors. Within the first 12 months of operations, the recreational cannabis market is expected to reach between $25-50 million in total sales.
As of February 2015, possession of cannabis became legal in the nation’s capitol for adults aged 21 or older, but District voters were not able to push for a fully-fledged recreational market as initially intended. As a result, residents of D.C. are able to cultivate their own cannabis plants and inbibe on private property, but any transaction – monetary or otherwise – is still considered illegal within the city limits.
Because it’s the home of the federal government, which currently views cannabis in the same light as Schedule I Substances like heroin, it’s unlikely that full legalization will occur until federal laws allow for the controlled sale and distribution of cannabis products.
In addition, the D.C. City Council must submit the city’s operating budget to Congress for approval. Legalizing the sale of recreational cannabis may jeapordize negotiations with federal elected officials, leaving D.C. residents on their own to supply and source their cannabis.
New to Market
Of all the states set to legalize recreational cannabis in the near future, Nevada is the surest bet. A timeline proposal is under review, and if accepted will allow recreational sales as soon as July 1, 2017. On par with past markets, the initial recreational license application will open only to medical marijuana dispensaries in good standing. Projections for open recreational market applications are as soon as October 2018 and as late as July 2019. With a positive outlook, this may be a new grower’s best bet.
The first state to legalize medical marijuana hasn’t had a smooth road to recreational sales so far. Without a cohesive strategy to regulate and control the medical marijuana industry, the resulting marketplace caused logistics and legal issues for county and city officials throughout the state. Governor Jerry Brown signed three key pieces of medical marijuana reform into law in 2016, strengthening the push toward full legalization ahead of the November vote.
The impact of the nation’s most populous state legalizing cannabis would be a windfall for efforts to expand legislation to the federal level. While the efforts to curb violence related to Mexico’s drug cartels along the California/Mexico border may not be as substantial as some advocates would hope, legalizing recreational cannabis in California would be the most significant step toward federal legalization and expanded efforts to reform U.S. drug policy.
Under the current reform efforts, recreational shops wouldn’t open their doors in California until at least January 2018, meaning entrepreneurs looking to capitalize on what will likely become the largest and most sophisticated recreational cannabis market need to move quickly to get a foot in the door.
Full legalization of cannabis took a hit in Arizona. Proposition 205 would have allowed people 21 and over to use marijuana recreationally. The measure also permitted users to grow up to 6 plants. Although the proposition would apply 80% of tax revenue from sales to school districts and charter schools within Arizona, it failed. The ballot had 51.32% voting no on the proposition.
While it remains illegal for Arizona residents to use recreational marijuana, prior prepositions 200 and 203 are still in effect. The measures allow people with certain conditions to have marijuana for medicinal use.
Maine became one of the first states on the east coast to legalize marijuana. Question 1 appeared on the 2016 ballot, and passed by a small margin with 50.26% of the vote. The opposition demanded a recount, but scrapped it due to cost and no major differences in voting distribution.
Prior to statewide legalization, several cities in Maine (including populous Portland, South Portland, and Lewiston) have already legalized possession and use of cannabis by adults within city limits.
The initiative permits users 21 and over to have up to 2.5 ounces of marijuana and 6 mature plants. It’s also the first state to allow “social clubs” for cannabis to allow users to consume retail recreational products on premises.
Restrictions apply, of course. Visitors to cannabis social clubs must use products there and not transport them off the property. Likewise, retail stores cannot allow patrons to open and consume their purchases within the store. Cannabis users would also be unable to use off-site cannabis at social clubs. Facilities can open as soon as February 2018.
The initiative allows users 21 and over to use and possess up to an ounce of marijuana in public and 10 ounces at home. Users can also have up to six plants and landlords cannot stop residents from growing personal plants.
The table appears set for legalization in Connecticut, with a successful medical marijuana program launched in 2012 and a positive outlook at several polls. Furthermore, law enforcement in Connecticut is already preparing for cannabis legalization and prepping officers to better identify and test for levels of THC in drivers.
Michigan’s relationship with cannabis has been contentious since medical marijuana laws were passed in 2008, but the two initiatives to legalize cannabis this year each show promise. Because the state legislature constantly revises regulations around medical marijuana, operators are forced to stay in business at the ever-present risk of prosecution.
While medical marijuana is still available for residents, an initiative to legalize recreational use was unable to get on the 2016 ballot.
Rhode Island topped Colorado, Washington, and every other state in the union for highest percentage of cannabis users saying they’ve consumed cannabis within the last month – for two years running.
That doesn’t mean legalization is a sure bet for the tiny Northeastern state. Legislation pushed in 2015 failed to take root and while polling data looks promising, 2016 may not be the year the Ocean State fully legalizes.
On the Horizon
There’s only a single medical marijuana dispensary in operation in Delaware and just 700 patients registered under current requirement, leaving prospects for recreational legalization gloomy at best. While Governor Jack Markell did indeed sign a decriminalization bill late 2015, statewide legalization has yet to happen.
Maryland is making a serious effort toward implementing an effective medical marijuana market, but unless state legislation introduced last year finds a ground well of support among lawmakers, a recreational market in Maryland may have to wait. More than 50 percent of residents support statewide legalization, but it’s likely that the state will support a recreational market before its medical marijuana business gets things rolling first.
The State of New York is preparing a significant push toward implementing a medical marijuana program, but the pressure exerted on the just five licensed producers to grow and sell enough product by January could prompt a delay in achieving full legalization statewide.
In June, New York moved to seal the records of low-level drug convictions in order to improve the circumstances of those affected by more than 40 years of “hyper-criminalization.” While this signals a softening toward general attitudes toward cannabis, the path to recreational cannabis remains squarely through a successful deployment of a medical marijuana program.
Missouri is a longshot for those considering an entrance to a legal cannabis market. The state is without a medical marijuana program or cannabis advocates in the state or executive legislature, making legalization a considerable longshot for hopeful Missourians. While the state’s efforts to legalize CBD cannabis extracts for people suffering from epilepsy and seizures, it’s not a patient-friendly environment. Only two non-profit organizations are permitted to produce and distribute cannabis oil in Missouri, meaning a network of capable and experienced growers isn’t likely to emerge very soon.
Prospects for Federal Legalization
Despite several bills introduced to both houses of Congress, the path to federal legalization continues to be at a state-by-state level. The Ending Federal Marijuana Prohibition Act of 2015, introduced by former presidential candidate Senator Bernie Sanders, currently shows a 1% chance of being enacted according to Govtrack.us.
Meanwhile, Canadian Prime Minister Justin Trudeau has been prepping to legalize recreational use of cannabis nationwide as early as 2017. Such a move would put pressure on the United States’ state-restricted markets to compete as well as strain border relations, as a greater influx of Canadian cannabis entering the United States would likely result.