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What to Expect When Starting A Cannabis Business

What to Expect When Starting A Cannabis Business

Posted by Celia Daly on January 15, 2015 12:00 am
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With the staggering numbers coming out of Colorado and Washington for recreational sales in 2014, the cannabis industry is looking more and more promising every day to potential business owners. However, before jumping into the foray and declaring yourself a proud license applicant to grow cannabis in your state, there are some important facts you need to know.

Growing cannabis is not cheap

The fact of it is nowadays, if you don’t have a million dollars, it is hard to compete in this industry anymore. Between the cost of space, purchasing reliable growroom equipment, and covering overhead costs, running a safe and compliant grow is costly! We have seen people with a half million dollars run out of money. As the cannabis industry grows, so does the competition and the investment needed to start.

It takes a long time between turning in an application and the day you make your first sale

Forget the day they say licenses will be awarded, things rarely happen on time. Illinois has been waiting anxiously for weeks to find out about their licenses – they were supposed to be awarded by the end of 2014.

During this waiting period, you will be spending money on your business. Most states require an address on the application of where you intend to set up your facility. This allows the licensing committee to verify the location meets all the requirements and restrictions. However, this also means you will need to have the place rented out or purchased before the application is submitted and then sit on it while you wait for approval to open your business.

Once you finally do receive your license, you will then have to start the process of building your grow. This phase can take a year or more, depending on facility size – all without a single sale.

Once you have your license and have your facility built, you are still looking at at least four to six months before any plants can be harvested and sold. For a higher quality yield, it may even be six to nine months until the first sale can be made. This is a long time to wait to have money coming into the business, especially because there will be bills and employees to pay the whole time.

Additionally, things rarely go as planned – an unavoidable fact in all aspects of life, but especially when starting a business – and it is important that you have enough of a cash flow to make it through the interim until you are able to bring money in. At this stage, small changes can mean huge amounts of money.

A commercial grow is much more demanding than a home grow.

A little realized fact about cannabis grows is that they are not scalable in the way other businesses are. The same amount of resources are required per plant, not matter the size of your operation. In fact, the larger a grow operation, the more difficult it is to maintain – more power, more cooling and more space are all needed with large grows. 5,000 lights creates a huge demand on the building’s electrical capacity and may require substantial upgrades to older buildings in order to provide enough power for all your needs.

The only real way to scale a commercial grow is to get more out of your input. Focusing resources to the best of your abilities is what makes all the difference. We will talk about this further in future posts, but for now, it is important to remember to use your resources wisely.

One of the most important metrics you can use is $/sq ft. In other words, how much money are you making per square foot of growing space? On average, cannabis growers are able to produce as little as .75 pounds and as much as 2 pounds of product per 1,000 watt light in the grow. At $3,000 per pound (the current retail average in Colorado), this yields between $2,250 to $6,000 per light. If each light covers a 4×4 sq ft space, then your $/sq ft is between $140 and $375.

If you have the space, it may be worth it to increase the coverage of each light from 4×4 to 5×5. This will allow you to increase the growing space for each 1,000 watt light, thus allowing you to use your resources more efficiently.

By using your resources and space more efficiently, you can drastically increase your yields. One grow we saw was producing 8 pounds every three months using 3,600 watts of light. After a redesign of the lighting, the same grow, in the same space was able to produce 42 pounds of product every 60 days.

The cannabis market gets more competitive every day.

In medical dispensaries, the selling price for cannabis changes fast and varies widely by market. In 2014, one ounce of medical cannabis sold for $150 in Colorado. During the same period, in Connecticut one ounce of cannabis sold for $500 – 3 times as much!

If you are an amazing grower, the cannabis industry can be a gold mine. If you are an average grower, you will be living paycheck to paycheck. More competition enters the cannabis market daily and if you are not able to adapt quickly, it will be a rough ride.

For those who have taken all this into consideration and still want to start a cannabis business, this is a great industry to be in. Things are constantly changing and we are excited to see what the future holds for you.

Topics: application, cannabis business, featured, Garden Set-Up, licensing

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