I started trying to pick up any work I could find around the marijuana business. I hit up friends, and friends of friends, and friendly folks who smelled like weed. My first gig was helping a buddy trim the 30 White Widow plants he had grown in his basement.
The business isn’t just for gangsters and degenerates anymore.
8 states (and Washington D.C.) have now legalized marijuana for recreational use, and more than 20 other states have medical marijuana laws in place. While support has been strong for marijuana, almost half of the country still lives under prohibition. It is my belief that every American deserves to have access to the medicinal benefits of marijuana, and that no government should be allowed to interfere with a citizen’s right to grow and harvest a plant on their own property for their own usage.
We love what we do.
And of course, it wasn’t that along ago when I was an “outsider” myself, and had similar misconceptions. Looking back on the journey now, these are the five most important things I’ve learned about the cannabis industry:
When it comes to dealing with lighting systems in cannabis, price typically increases linearly with wattage. As we noted, there are a wide variety of opinions when it comes to the optimal setup when growing cannabis. Although higher wattage setups tend to increase yield, it may not be true for every scenario. The lighting system is an important consideration for a new cannabis grows both financially and operationally. For a medium size grow however, we can assume in most cases a higher wattage setup is generally more sophisticated and increases the costs relating to materials. Many small to medium size grows simply don’t have the capital to install and maintain the most advanced lighting systems.
Initial Alarm & Security Set-Up & Other Admin Fees – These would be expenses that could not be capitalized
When it comes to revenue, yield is king. Grow space will of course be a key component. When it comes to strategically planning your grow in advance, you typically want to stuff your grow with as many plants as possible, while not damaging the potential quality of the product. Naturally, a larger space will allow you to produce a higher yield. The grow space is also the key limiting factor on how much money your grow can produce.
The most important consideration of profitability when it comes to a new growing opportunity is of course the size of your grow space. Consider all of the basic elements of the initial capital outlay to start a new grow: the initial lease of a new space, the license to operate as a cannabis company, all of the growing equipment,how much it will cost to prepare the space for growing. All of these costs are directly correlated to the size of the grow space. On the year over year revenue and expense side, the most important revenue driver for your new grow will be how many ounces (or pounds) your grow can yield annually. Your grow space will also play key component in large year over year expenses such as your utility bill and direct labor.
#2) The state where the grow is located
Initial Lighting System, Growing Equipment and Warehouse Preparation – This would essentially be your investment into fixed assets
When it comes to the year over year operating expense, the electric bill will routinely be one of your largest costs. Although what equipment and lighting system you install will play a big factor in this expense, your state will determine how much you are paying per kilowatt hour. Once again, if profitability is your primary motive, you would ideally have your grow supplying lighting, cooling etc to your plants basically 24 hours a day. In 2019, the price per kilowatt hour ranged from a low of 9.37¢ / kWh in Louisiana all the way to 32.76¢ / kWh in Hawaii, more than 3 times larger. Considering the impact the state can have on initial capital requirements by way of license, in potential revenue for your grow and year over year electric expenses, it is apparent why it is an extremely important consideration.
For year-over-year operating expenses, size will play a primary role in both lease and license costs. When planning any grow, it is prudent to assume there will be an escalator on the annual cost for both the lease and license. While not a direct contributor to the electric bill, your total grow space of course quantifies the maximum dimension this expense will be. Also consider direct labor. You could probably take care of a 500 square foot grow yourself. How about 10,000 square feet? 50,000? As the scale of your operation increases, you will need to increase headcount to accommodate all of the work.
#1) The size of the grow space
Other Expenses (which inevitably occur)
Annual license expense (with escalation)