The current “green rush” has brought with it an intense focus on large-scale cannabis cultivation. Across america and around the globe, we routinely hear stories of companies building bigger and bigger 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 capable of 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 are often thought of as probably the most valuable in the highly competitive application processes that most states use to find out who may be able to cultivate and dispense within their states. This value is partly produced from the simple fact many populous states initially only grant a restricted variety of cultivation licenses. For instance, Pennsylvania, with nearly 13 million people, only granted 13 licenses; Florida, using a population over 20 million, granted 7; while Ohio, with more than 11 million people, granted 12; and Ny, with 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 such limited permits is fierce, and people companies fortunate enough to win one see sky-high values connected to these licenses 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 firms 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 numerous states have the ability to control pricing and sell their product in large volume. Many of these cultivators boost their product in state-of-the-art indoor warehouses with clean-room environments that resemble pharmaceutical production facilities more than traditional commercial agriculture.
But is that this trend sustainable? Or are these businesses setting themselves up for too long-term failure? As stated inside my previous column “Are Canada’s Cannabis Companies Overextended?”, we’re already visiting a trend towards large-scale greenhouse and outdoor production, which is driving prices down in states which do not have strict limits on the quantity of licenses they grant. For example, the average wholesale price of cannabis in Colorado has dropped from nearly $3,500 per pound at the beginning of legalization in 2013 to roughly $1,012 a pound on April 1, in accordance with the Colorado Department of Revenue. In Oregon, where state ramped up licensing after early product shortages, wholesale marijuana trim (after harvest, the cannabis is trimmed of the leaves; those leftover leaves are known as the “trim” and could be used to produce cannabis products) has become selling for as low as $50 per pound, which can be reportedly driving some cultivators inside the state out of business.
This trend will only continue if the federal government’s 80-year try out cannabis prohibition finally concerns an end. Today the cannabis industry is defined by individual state markets, where no product can duhbob state lines due to laws prohibiting interstate commerce of any federally illegal product. However, when prohibition eventually ends, then interstate commerce will open and businesses will likely be permitted to import their cannabis from your state in the nation. When this occurs, we are able to expect that large-scale outdoor and greenhouse production will dominate the current market as cannabis commodifies. Lots of the same environmental problems that make northern California perfect for the production of grapes for wine may also make it ideal for large-scale commercial cannabis production. The largest greenhouse complex in the country, estimated at approximately 300 acres (approximately 13 million sq. ft.) of greenhouse space, is found in Wilcox, Ariz., because the desert conditions allow it to be ideal to manage humidity in a greenhouse setting, something which adds a massive additional cost to greenhouse operators on the East Coast. The same conditions will affect cannabis.