Production Efficiency & Quality Vital to Cannabis Market
Marijuana production in Colorado is quickly shifting from indoor warehouse facilities to greenhouse operations.
“Twelve to 18 months ago, more than 95 percent of marijuana production was done in warehouses,” said crop consultant Shane Hutto at Horticultural Solutions Ltd. in Georgetown, Colorado. “Now that production has dropped to 70-75 percent. There is a dramatic shift toward greenhouses. The reality is, it is much more expensive to build a greenhouse and it takes a lot more skill to run it at a high level compared to warehouse growing.”
Hutto said the reason for the shift is due to increased competition and the cost of inputs.
“Now that marijuana is a developed market it goes back to who can produce the most, the cheapest at the highest quality,” he said. “Those growers producing in a greenhouse can be twice as profitable even at a lower price. The cost of inputs is so much lower because the efficiency in a greenhouse is so much higher. Greenhouse production is more profitable than a warehouse model ever will be. There will be a dramatic decline in warehouse growing, but it will never go away completely. I expect that over 75 percent of Colorado’s marijuana production will eventually be done in greenhouses.”
Hutto said as the Colorado marijuana market continues to mature there will be an increase in “boutique” growers.
“These boutique growers will specialize in marijuana strains that only they have access to,” he said. “They will only produce a limited amount per year. This specialization will help some of the warehouse growers to survive.”
Efficiency is Critical to Success
Hutto said while some marijuana growers are starting to specialize, most of these growers are only using a small percentage of their operations for unique strains.
“Most marijuana growers are still producing a broad variety of strains trying to cover as much of the market as possible,” he said. “When recreational use was legalized in Colorado there was very rapid growth. The recreational market is now starting to stabilize. There is going to be a dramatic shift in the market as the average price drops to around $1,500 per pound over the next few years. When that happens, the small inefficient growers who are hand watering, using a lot of labor and producing low yields and low quality are going out of business. There are some of these growers who have already gone out of business at the current market price of more than $2,000 per pound.
“The growers who are efficient and automated with high productivity and low inputs are the ones who are going to be successful. Even when the price drops 25 percent, the efficient growers are still going to be making money. The drop in prices won’t hurt these talented growers. I expect there will be a 25 percent drop in the market price in about 12 months. In another two to three years there will be another drop.”
Resolving Production Issues
Even as the Colorado marijuana market experiences a decline in prices, some growers are doing little to resolve their production issues.
“Marijuana isn’t a difficult crop to produce,” said John Frey at Taller Horticulture, a consulting and supply company in Denver. “One challenge for growers is pests such as spider mites. Growing in a warehouse, which may have been a storage facility and has now been converted to crop production, has dictated two things: 1) a significant number of grow lights have been installed and 2) an HVAC system to cool the space based on the heat generated by these lights. From these changes to the facility other problems, such as pest pressures, can be generated. The design of the HVAC system was likely driven by specs from the lights, not by the direct needs of the plants.”
Frey said when warehouse growers move their production into greenhouses they become more fluent in managing pest issues and microclimates. This includes installing more advanced climate control systems to accommodate the needs of the crop.
Even though marijuana is not a difficult crop to produce, Hutto said quality is critical.
“Many of the production methods I use come from the Dutch style of greenhouse tomato growing,” Hutto said. “For high-end, top-tiered quality marijuana that is going to be highly sought after, production can be very difficult. Many marijuana growers don’t realize the numerous intricacies and different cultivation methods required by the plants. A grower can produce X amount of marijuana and achieve the yields he wants, but the difference is in the quality. The quality is going to determine if a crop sells for $3,000 a pound or half that price. The skill level of the grower and the technology employed make a huge impact on quality.”
Hutto said aroma, flavor and marketing of the plants play a major role in the pricing.
“Marketing of the marijuana plays a big part,” he said. “If a grower can build a reputation for having extremely high quality product, he can start to brand himself. Branding in this market is just starting to be successful. But it still comes back to producing the highest quality.”
Resolving Lease, Construction Issues
Frey said warehouse marijuana growers have signed leases for as long as seven years.
“There are growers anxious to finish their warehouse leases so they can build a greenhouse,” he said. “But these growers have leased the building, put in an electrical system, installed security cameras, and they don’t want to discard the several years left on the lease. So they decide it would be best to continue to grow in the warehouse.”
Frey said there are greenhouses being retrofitted and new projects being constructed for marijuana production.
“A cultivation greenhouse is being built a mile south of downtown Denver,” he said. “It’s visible from Interstate 25. For that level of exposure to be accepted is significant. When warehouse leases come up for renewal the growers will be considering their options. Large investments are being made in facilities and in the industry.”
Hutto said one factor that may lead to the construction of more greenhouses for marijuana production is the rising cost of warehouse leases.
“The landlords of these warehouses are starting to charge quadruple prime and the growers just aren’t willing to pay those prices,” he said. “My client base is 50-50, growers purchasing old greenhouses that have gone out of business and those who are startups looking to build new facilities. If a grower wants to buy an old greenhouse, he can do a cheap or expensive retrofit. But by the time a grower is done with purchasing an existing facility and doing a retrofit, it’s more cost effective to buy a piece of land and build a new greenhouse.”
Hutto said building restrictions for marijuana greenhouses are starting to tighten, particularly in certain counties.
“The key factor in finding a piece of land is zoning,” he said. “If you are going to build a greenhouse in Colorado you have to have properly zoned land,” he said. “But agriculturally zoned land is difficult to find. If you have a piece of land that is zoned properly, then you can start to apply for the various permits which have to be approved before you can start to build.”
Hutto said government officials don’t really get excited about the tax revenues that marijuana sales are going to generate.
“What really gets these county and local jurisdiction officials excited is seeing the creation of jobs,” he said. “For one project that I’m working on, I walked into the county office and told officials the project would result in 40 new jobs. Their eyes lit up like a Christmas tree.”
Hutto said the marijuana industry in Colorado is the most regulated industry in the state, more than alcohol, tobacco and firearms.
“The way the marijuana licensing structure (cultivation, infusion and sales) is set up in Colorado, every dollar has to be accounted for and investigated before a license is approved,” he said. “The reality of it is, in Colorado and Arizona it can be easy to acquire a production license. In other states that have legalized medical marijuana production, like Illinois, the licensing process is much more difficult.
“It is much easier for commercial greenhouse growers to obtain a license because they are already operating a facility, especially those with high-end production greenhouses. It is always going to be easier for an existing grower to obtain a license than someone who is new to the industry and trying to start a growing operation.”
Hutto said he expects an increasing number of greenhouse ornamental plant and vegetable growers will make the transition to marijuana.
“There are not a lot of greenhouse tomato operations in Colorado,” he said. “From those growers I haven’t heard a lot of interest in converting to marijuana. But in other states the transition is occurring rapidly. I have a consulting contract with a large tomato producer in Arizona that is converting its greenhouses to marijuana. There are some ornamental plant and vegetable greenhouse operations that have made the switch and were scheduled to be in production on Jan. 1, 2015. Those are in states that have legalized marijuana for medicinal purposes. The possibility of making money growing marijuana is astronomical with the right team members.”
For more information: Horticultural Solutions Ltd., sales@cannabishorticulturalsolutions.com, www.hortsolutionscolorado.com. Taller Horticulture, john@tallerhort.com, www.tallerhort.com.
Production Efficiency & Quality Vital to Cannabis Market
