Marijuana Business Magazine July 2019

Marijuana Business Magazine | July 2019 46 operators can move away from indoor growing, they need to.” He attributes the depressed econo- mies in more saturated markets such as Oregon andWashington state to an overabundance of outdoor- or green- house-grown cannabis. And those growers are struggling to make it with a much lower cost of production. “When you’ve got a guy that’s dropping $10 million on an indoor facility, I just don’t know what they’re going to be doing with it in five years,” McConnon said. He gave this example: If an ambi- tious company wants to be a player in the vaporizer cartridge market, it can grow 7-8 acres of cannabis outdoors, which should provide 20,000 pounds of fresh frozen material for live resin—only one harvest and enough marijuana for extraction to last a year. “That’s a great way to handle things,” McConnon said. “You’re going to see more and more of that, where people are growing for specific markets.” Production Costs One Oregonian has seen much of that firsthand. Jesse Peters, CEO of cannabis investment firm Mantis Growth Investments, focuses on the cost of production when he evaluates a company’s viability. “Indoor is the most expensive way to grow cannabis for those who are not doing it efficiently,” Peters said. “It is really easy to spend a lot of money.” To his mind, the three most expensive inputs in indoor cultivation are people, power and nutrients, in that order. For those dedicated to indoor growing, Peters recommends automating everything you can, from using LED lights to keeping your energy bill down. It also means not buying giant jugs of overpriced nutrients from your local grow store. He emphasizes the need to cut labor costs. “When we went through our audit, our labor costs were our No. 1 expense,” Peters said. “You need to look at having less humans in there doing a job that doesn’t require a human doing it.” That can be as simple as using mechanized trimmers or making sure your facility is designed to reduce the distance your workers need to walk between cultivation areas by using conveyor belts to transport plants from room to room. “All those pennies add up,” Peters said. Federal Legality Adult-use legalization in Canada has highlighted the importance of climate when growing cannabis outdoors. In the April issue of Marijuana Business Magazine, we reported on Health Canada issuing authorizations to import cannabis for research. Now, the time has come for Canadian companies to source cannabis— particularly for oil—from equatorial regions, where the plant grows easily and land and labor are cheap. Barrett Goodale, the cultivation manager at Good Cannabis in Fairbanks, Alaska, said the market is currently favorable for indoor growers in the far north, because the trade-off when it comes to energy costs can be offset by having an insulated, indoor facility. “Our building is well-insulated, and the lights alone will keep the building at a pretty warm temperature,” he said. “The companies that are using strictly indoor up here are having just as much luck if not more than the people who are relying on greenhouse or outdoor.” Consumers in Alaska are also very potency-conscious when buying flower, and indoor growers can control their variables to ensure they hit high-THC levels. But what happens if the United States joins its Canadian neighbor and legalizes adult-use cannabis sales at the federal level? “With growers in Alaska, it’s not going to be pleasant,” Goodale said. “Our electric rates are some of the highest prices in the country.” Shipping nutrients or growing media from out of state is much more expensive than just bringing in can- nabis, which is relatively lightweight and can be transported easily. Such a change would put Alaska’s existing cannabis growers and manufacturers in “a dire situation,” Goodale added. That’s not just true for Alaska, according to McConnon. In the fed- eral legalization scenario, he believes outdoor growers in places such as Oregon, southern Illinois or western Kentucky will be producing the bulk of the country’s cannabis. “You’re going to be able to grow a much higher-quality product at a much lower cost and ship it across state lines once federal legalization kicks in,” McConnon said. “Let’s say legalization happens in 2020: Anybody who spends money on a 100,000-square- foot grow in Massachusetts is sitting on a lost investment.” Ultimately, indoor growers have significant challenges cut out for them. While they may have niche opportunities in certain markets—the scenario of selling consistent prod- ucts to medical marijuana patients is one example—the hard truth is that the global cannabis market favors large-scale outdoor grows for their cost of production alone. If the United States remains a state-by-state market, indoor grows can survive—and even thrive. But when federal prohibition is lifted, it’ll be too late to start thinking about buying farmland in Oregon, Kentucky or even Colombia. Bart Schaneman covers cultivation and extraction for Marijuana Business Magazine. Reach him at barts@mjbizdaily.com. Trends & Hot Topics | Bart Schaneman