In this new “Business Overview” series, the Fire Business Strategies team will provide a basic overview of the major cannabis license types along with a discussion of some of the keys to successful and sustainable operations and other major considerations.
Cultivators, also known as cultivation centers, growers, and more, are the first step in the cannabis value stream. In mature and maturing markets alike, cultivators are subject to significant market pressures due to falling wholesale prices for bulk flower. To succeed, today’s cultivators must carefully balance product quality and selection with economies of scale.
Cultivation Keys to Success
1. Vendor Relationships
Cultivators must develop strong and sustained relationships with manufacturers and retailers in order to succeed. More than mere vendor relationships, these relationships can and should inform many aspects of cultivation strategy from strain selection to production planning and scheduling. As such, understanding where your business fits in the broader cannabis marketplace should be a “day 1” priority.
2. Cost and Scale
Bulk cannabis flower, and, to a lesser extent prepackaged cannabis, is a commodity. As such, wholesale prices in mature markets and those with open licensing are significantly lower than those in new markets—and this is true for products from top shelf to value lines. Cultivators that succeed do so by aggressively seeking out efficiencies that allow them to consistently produce quality product at competitive prices. It’s no surprise then that economies of scale are a significant factor in the long-term success of most cultivators. However, in states that allow it, even small cultivators can preserve healthy margins while maintaining competitive wholesale pricing by diverting all or part of their crop to value-add consumer packaged goods like prepackaged flower and pre-rolls.
3. Horticultural Experience and Planning
Many of the expenses associated with cultivation can be considered (though not for accounting purposes) as “fixed” costs on a per-square-foot-cultivated basis. That is to say that, once a lighting system and grow medium is identified, plants will generally consume approximately the same amount of electricity, water, fertilizer, CO2, and cultivation technician time on a square foot basis, regardless of yield.
This is where an experienced team with an understanding of both agribusiness and the unique characteristics of the cannabis plant can set your business above the rest. Experienced cultivators understand how to maximize yields, minimize downtime and waste, and select superior genetics that meet the needs of the business and market on an ongoing basis.
Superior genetics, in turn, have higher yields in terms of wet weight, higher potential cannabinoid and terpene concentration, greater marketability, and greater resistance to common pathogens—reducing wasted crops and technician time combatting infestations. Careful, data-driven selection of genetics and techniques can help maximize and balance these qualities based on the specific business needs of each cultivator.
Cultivation Tiers
Many states categorize cultivation licenses by size, or “tier,” with smaller cultivators subject to lower licensing fees than larger cultivators. Tiers may be determined in a variety of ways. The two broad categories of size limitation are plant count and square footage. Within these categories there is considerable diversity. In states that rely on plant count, jurisdictions differ on whether plants in vegetative and/or clone stages are considered for purposes of plant count. In states that classify cultivators by square foot, jurisdictions differ to whether square footage is calculated based on building footprint, cultivation area footprint, or the footprint of the plants within the cultivation area. Further complicating matters, in certain states vertical racking of cannabis plants can dramatically increase cultivation allowance within a given footprint, while other states calculate a cultivator’s production capacity based on canopy area rather than footprint.
Outdoor vs Indoor Cultivation
One of the most significant costs cultivators encounter is their electrical bills. An obvious way to minimize these costs along with other start-up costs is by conducting some or all cultivation activities outdoors. Several states offer specific licenses for outdoor and greenhouse cultivation. Other states, however, do not distinguish between outdoor, greenhouse, and indoor cultivation, or prohibit outdoor cultivation entirely. In certain states, local governments may further restrict the zoning or structures in which cultivation can occur.
Conclusion
Check in next Monday for the next installment in our “Business Overview” series: The Manufacturer. As always, if you’d like to learn more about how Fire Business Strategies can help set your business up for success, please visit our contact page to schedule a free initial consultation!
