Critical Considerations for Cannabis Cultivation Entrepreneurs
This article is an introduction to the basic considerations for all potential cannabis cultivation facility developers, to help explain the order of things and associated costs and complications, so that you can get off to a good start. I find that most people who contact my website need this kind of primer, so I’m making it available now in written form with the hope that new industry entrants can make good choices from day one.
Of course building a marijuana grow facility is not advised for some people. It’s expensive and complicated and, in many legal cannabis regions, it’s also highly competitive. Indoor plant cultivation requires maintaining tight temperature and humidity ranges, and fresh breezy air movement at all times. Without clean and controlled conditions all the time (literally 100% of the time), plants quickly develop mold, insect and/or nutrient problems that take all of the joy out of being grower and possibly also all of the profit out of being the cultivation facility business owner.
Because so many investors and entrepreneurs are jumping into the cannabis cultivation business lately, an oversupply problem is developing in many places, which is gutting the value of a wholesale pound of finished cannabis flower. For wholesale producers approaching potential buyers, this means that only the highest quality flowers will sell. Anything “B grade” or below ends up going to extraction, fetching about the same price as the cost of production, hence the cultivation project breaks even or loses money.
The Importance of a Having a Great Lead Grower
If you haven’t grown cannabis before, or if you haven’t personally become intimate with the quality differences in various samples of finished cannabis, it’s unlikely that your first cultivation facility will produce easy sellable product in a competitive marketplace. You can possibly overcome the odds by hiring a great grower, but it’s very hard to find one. Almost all of the project managers I’ve encountered believe that they’ve hired a good grower, and a year later, they are looking for a new one. Most of the best commercial cannabis growers either work for themselves or have already been swallowed up by well financed projects.
It takes a uniquely talented person to run a professional cultivation facility. This person needs to be a systems thinker, have management/people skills, be sensitive to micro changes in plant appearance from day to day, and have experience with early recognition of a myriad of common problems cannabis can acquire. S/he needs both a broad sense of project goals and a detail-oriented awareness of plant development and tracking. Start thinking now about how you might find this person. Some of the cannabis staffing companies have resumes from growers with commercial experience from Oregon, Washington, and Colorado where cultivation has been happening legally for several years already. Your cultivation consultant can help you interview and choose people from these staffing pools.
Construction Planning Process and Build-out
As a project developer, first be aware that ground-up construction will significantly delay the start of cultivation project over leasing a pre-zoned cultivation warehouse or building space. The clients I’ve had who have pursued ground-up construction get bogged down full time for an average of 2 years working their way through the permitting and compliance processes. They are often in debt by over $3 million before breaking ground. If the investors have deep pockets and a lot of patience, then no problem, but usually this delay is a source of major frustration for those involved.
For ground-up facilities, there are many more permits and approvals to obtain, and sometimes deal killers occur, like the discovery of an endangered species nearby or archaeological evidence found on site. Also, neighbors will often stall a cannabis project by objecting at public hearings. Unfortunately, hardly any project proceeds without some kind of unexpected costly hindrance coming out of left field.
Getting into the Details
For the sake of getting into some more practical planning information, let’s assume you are either purchasing or leasing a warehouse in a properly zoned cannabis cultivation area. This is the most common scenario and the path of least resistance for any soon-to-be cultivation facility operator. Now what?
There’s actually a fairly typical pathway that must be pursued. Let me break it down for you:
Several agencies and contractors will need to be hired to bring your whole project together. If you are well financed, you’ll hire out project management to a business management company, but more commonly, you will be acting as your own project manager. This means you will serve as the hub for the agencies and contractors to come together. It’s up to you to either know all of the rules unique to a cannabis business development project in your jurisdiction, or to be able to quickly access them, so that you can make the right decisions with your project team as things progress. I’ve seen license applicants use attorneys for quick answers to regulatory questions, or they also sometimes use lobbyists or cannabis compliance specialists.
The contractors you will need to hire for construction planning are:
A Cannabis Cultivation Consultant This is someone who can teach you the different cultivation method options you have to choose from, tell you the costs of the various options, the ease of use, pros and cons, and help you devise a reliable system before you’ve built any walls in the building. Different cultivation methods use room space differently, so the rooms essentially get built around the furniture and the plant canopies. Like any good business person, you need to have a detailed and fairly well guaranteed system planned out in order to hit the ground running. Your cultivation consultant also teaches you how to implement efficient day-to-day operations that minimize labor and supply costs and streamline workflow. Look for a consultant who does not sell products of their own or accept commissions from any equipment companies, but rather, one who has tried many different kinds of cultivation systems and knows how to strike the best balance between low cost, simplicity and large, high quality yields. (Full disclosure: this is a service I provide for controlled-environment marijuana cultivation sites under 50,000 square feet in size.)
An Architect The architect creates submittable drawings for the Planning Department based on a layout and information provided by the cultivation consultant. The architect must be licensed in your state and preferably have some cannabis facility design or other similar design experience, with buildings such as data centers, indoor pools, or food processing–facilities where indoor conditions are environmentally unique and highly controlled.
A Mechanical Engineer The engineer should have experience designing indoor plant cultivation facilities and will design the system for your environmental controls, electrical and plumbing requirements based on information provided by the cultivation consultant. The engineer will also design back-up power systems and HVAC redundancy so that mechanical failures won’t mean immediate doom for your precious plants. Some architecture firms have engineers on staff, but the bulk of the projects I’ve worked on have hired separate engineering firms. The engineer does not have to be locally licensed, but if s/he is not, you’ll need a locally licensed engineer to stamp the drawings for submittal to the Planning Department before you can begin construction. (Note that the first engineering-related issue you must address is ensuring adequate electrical service to the facility. Service upgrades are usually required and can cost anywhere from $10,000 – $1,000,000 and can take from weeks to months to be completed.)
A General Contractor This person will need to be licensed in your state and should have applicable construction experience. S/he will take the drawings approved by the Planning Department and start construction. Both the architect and the general contractor should be familiar with the construction codes so that no choices will be made along the way that could jeopardize your project as it moves towards final approval.
Other contractors that some projects need:
A Structural Engineer Sometimes this service is needed to determine the weight capacity of the building in case HVAC equipment or solar panels need to be mounted on the roof.
An Environmental Engineer Sometimes this service is needed to calculate needs and create systems for handling waste water, odors, and any other potential environmental hazards that cannabis cultivation facilities can cause.
Major Cultivation Equipment Suppliers
The first few equipment suppliers you’ll need to contact (with recommendations from your cultivation consultant and engineer):
Lighting Company This company will create a lighting layout based on the light intensity recommended by your cultivation consultant. The layout will help the engineer and architect get a clearer picture of the project they are designing. Your cultivation consultant should be aware of the pros and cons of the various lighting companies and their products and will audit and possibly revise layouts provided by these companies. Expect to spend about $65 per square foot of plant canopy for the cost of LED lights.
Racking/Benching Company This company will provide the “furniture” that your plants sit on. You might choose two-tier mobile racks or single-tier stationary benches, depending on your budget and ceiling height. With dimensional variations from one racking provider to another, you need to choose your cultivation racks before the cultivation consultant draws out your rooms. Your cultivation consultant should be educated in detail about the differences and pros and cons of the racking and benching options. Benching has a wide range of pricing depending on the quality of construction and features, but will run between $25-$50 per square foot of canopy.
HVAC/Dehumidification Company This company will take information from your cultivation consultant and engineer about electrical use and moisture quantity generated at the site, Co2 requirements and air circulation/filtration, along with your ideal environmental settings for various stages of growth, and give you a quote on the equipment required to control the indoor conditions of the site. Even LED lights produce a lot of heat in high concentrations, and further, plants release high quantities of moisture as they grow, so expect a price around $125 per square foot to get this system purchased and installed. (I know that sounds like a lot, but skimping on the environmental control system is a near-definite death sentence for your project.)
Irrigation/Fertigation Company This company will handle water management for your plants. They’ll design and install a system that controls nutrient injection into the water, serves the plants based on signals from timers or sensors, collects the drainage, filters it and returns it to the plants. Some cultivation sites still discard their runoff, but a medium or large cultivation facility, in order to meet environmental regulations, will likely be required to either recirculate the water or use a boiler to evaporate the waste down to a powder or sludge. Either option will cost the project around $150,000 on average. This is one of the big expenses that doesn’t change much based on the size of the facility, where lighting, racking and HVAC are all priced according to the canopy size.
Security Company This company will install cameras, doors, locks, safes, vaults, lights, alarms and recording systems. Some of them will also provide SOPs and help you directly with regulatory compliance paperwork. Expect to spend anywhere from $2-$5 per square foot on the service, hardware and installation combined for this piece of the project.
* Note that there are several other smaller companies that will get used for supplies and less critical functions, like those providing nutrients, grow media, containers, measuring equipment, etc, but we are focusing on the big-ticket items right now.
On top of all of these above costs- permitting, attorney/s, designer/s, admin, consultants, and structural equipment- the one other hugely significant cost is construction labor and materials, which could very well be your highest cost at about $175-$200 per square foot.
A word to the wise: Do not make your equipment choices based on sales pitches from the companies providing the equipment. All sales pitches sound good and do not warn you about the problems you will encounter with their products. It might seem self interested when I say this, but one of the main reasons you need an experienced cannabis cultivation consultant is to help you navigate through the sales pitches and equipment and supply choices, so you won’t unwittingly choose a flawed system. Experienced commercial cultivators have already tried most of the methods and well known equipment on the market and can keep you from reinventing the wheel.
Compliance and Business Planning
The construction process I’ve just described will be on its own track while you also have to manage and pay for the development of these other equally critical areas of the project:
License Acquisition and Compliance with the local/state/federal regulators (whichever is applicable) during your project planning process. Besides satisfying the codes and rules of facility construction, you’ll also need to satisfy the requirements of the cannabis regulatory agency in your region. This agency will inspect you during and after your construction process to ensure full compliance with their rules. They’ll be interested in how you track and secure the plants and products, lab testing compliance, employee screening and tax collection. You will also need to satisfy requirements of environmental regulators, health officials and worker safety agencies.
Configuration of Your Business Entity and its internal administrative systems. This includes your contracts and agreements with investors, partners, employees and possibly even potential chain-of-custody associates such as distributors, testing labs, and retailers. It also includes the creation of your administrative computer and human resource systems.
Creation of a Brand, product line and marketing plan. What strains will you offer and why? How many other THC/CBD products will you produce or brand? What will their wholesale value be in your region, given the competition and likely trends? Your cultivation consultant and extraction consultant (if you are also processing cannabis) should have valuable input on this.
All of the above boils down to a project cost pushing towards $500 per square ft. Yes, it’s very expensive, but I have found that It’s better to make the project smaller and do it right than to skimp on any of the critical functions or legal requirements.
Please feel free to submit suggestions and edits to this article, or to contact me for support on the development of your cannabis cultivation facility.
Jennifer Martin, M.A. is a veteran commercial indoor grower from Northern California who consults for licensed cultivation facilities in the US and Canada. She is the winner of the 1998 Bay Area Cannabis Cup, a regular industry trade show speaker, and professes expertise in the areas of LED cannabis facility design, rockwool cloning/propagation, custom nutrients, genetics evaluation and acquisition, and facility operations.