The current “green rush” has brought with it a powerful focus on large-scale marijuana cultivation. Across america and around the globe, we routinely hear stories of companies building larger and larger indoor cannabis grow facility design farms. In Arizona, Colorado, California, and Oregon, cannabis is being cultivated in greenhouses more than 250,000 sq. ft. that are designed for yielding more than 50,000 pounds of flower. While large-scale Canadian producers are building greenhouses in the millions of square feet and building similar-sized facilities in Europe, Australia, and elsewhere.
In america, cultivation licenses tend to be considered probably the most valuable in the highly competitive application processes that many states use to determine who may be allowed to cultivate and dispense in their states. This value is partly derived from the actual fact many populous states initially only grant a limited number of cultivation licenses. For example, Pennsylvania, with nearly 13 million people, only granted 13 licenses; Florida, having a population over 20 million, granted 7; while Ohio, with over 11 million people, granted 12; and New York City, using a population of nearly 20 million people, granted only 5 before recently expanding to 10. For context, Colorado has roughly 1,400 licensed cultivators for a population of just 5.5 million people. Competition for these limited permits is fierce, and those companies fortunate enough to win one see sky-high values attached to these licenses just before they become operational. In Florida, a coveted cultivation/dispensary license sold for $40 million ahead of the company had seen any money in revenue. Similarly, a pre-revenue Ny license sold for $26 million.
Indeed, in states with limited cultivation licenses, those companies that hold them are able to see large returns on their investments within the near term. With artificially limited competition due to restricted license classes, cultivators in lots of states have the ability to control pricing and then sell their product in large volume. Most of these cultivators grow their product in state-of-the-art indoor warehouses with clean-room environments that resemble pharmaceutical production facilities a lot more than traditional commercial agriculture.
But is that this trend sustainable? Or are these firms setting themselves up for very long-term failure? As stated in my previous column “Are Canada’s Cannabis Companies Overextended?”, we’re already going to a trend towards large-scale greenhouse and outdoor production, which can be driving prices down in states which do not have strict limits on the number of licenses they grant. For example, the typical wholesale cost of cannabis in Colorado has dropped from nearly $3,500 per pound at the start of legalization in 2013 to roughly $1,012 a pound on April 1, based on the Colorado Department of Revenue. In Oregon, in which the state ramped up licensing after early product shortages, wholesale marijuana trim (after harvest, the cannabis is trimmed of its leaves; those leftover leaves are referred to as the “trim” and may be used to produce cannabis products) has become selling for only $50 per pound, which can be reportedly driving some cultivators inside the state away from business.
This trend will only continue when the federal government’s 80-year test out cannabis prohibition finally involves a stop. Today the cannabis industry is defined by individual state markets, where no product can duhbob state lines as a result of laws prohibiting interstate commerce of a federally illegal product. But when prohibition eventually ends, then interstate commerce will open and businesses is going to be able to import their cannabis from any state in the country. When this occurs, we could expect that large-scale outdoor and greenhouse production will dominate the marketplace as cannabis commodifies. Most of the same environmental conditions that make northern California suitable for the creation of grapes for wine will even make it suitable for large-scale commercial cannabis production. The greatest greenhouse complex in the united states, estimated at approximately 300 acres (approximately 13 million sq. ft.) of greenhouse space, is found in Wilcox, Ariz., as the desert conditions ensure it is ideal to manage humidity in a greenhouse setting, a thing that adds a massive additional cost to greenhouse operators on the East Coast. The same conditions will apply to cannabis.