21 April 2022 |
Six Problems Facing Cultivators in 2022
By Kaitlin Domangue
Data keeps us informed. That’s why I (Kaitlin) love diving into any and all cannabis industry reports.
Retail reports are my favorite, but any report with strong data (and great graphics, I can’t lie) is something I’m sure to sink my teeth into.
Cannabis Business Times and agriculture tech brand, Prospiant, have partnered for the last six years to create a State of The Cannabis Cultivation Industry Report.
2021’s report was jam-packed with meaningful data, but reading the top six problems cultivators are facing stood out the most.
On The Cultivation Side of Things
1. 31% of respondents said insect + pest/disease prevention and control is their biggest cultivation challenge
Cannabis is susceptible to various pests and diseases, like bacteria, viruses, mites, and aphids, just to name a few.
About a quarter of the total loss in a commercial cultivation facility can be attributed to pests and diseases, according to one source.
Pests include insects, microbial organisms, weeds, mollusks like snails, and vertebrae like birds or snakes. Treatment methods vary depending on the problem, but a good IPM approach will always start with preventing pests and diseases.
A $20 million operation might lose between $225,000 and $350,000 due to damage from pests and diseases alone. A cultivation operation can figure pest control expenses claim 1.2 to 2.5% of gross sales.
2. 30% of respondents said increasing their yield is their biggest cultivation challenge
More weight = more money. It’s no shock that commercial cultivators want to maximize their yield as much as possible.
Factors like the cultivar and environmental conditions play a part in determining how big yields will be. For indoor cultivation operations, growers will tell you between one to three pounds a light is the industry standard.
Nearly all factors can affect the final yield, including the plant’s nutrients, water cycle, the lights being used & their intensity, and plant containers. Genetics can also play a role, and some strains like Blue Dream and Purple Trainwreck are naturally high-yielders, but daily care still matters more than genetics.
3. 28% of respondents said achieving desired terpene/cannabinoid content is their biggest cultivation challenge
Terpene and cannabinoid profiles are what consumers first look for when they shop, so cultivators naturally care about this, too.
THC levels remain one of, if not the most important purchasing factor for consumers. Consumers want high-THC products.
“If people see THC percentage in excess of 30%, (consumers are) always going to be immediately attracted to those options,” Dominic Cundari, general manager at Michigan-based dispensary ArborSide, told MJBiz Daily.
It’s not all about THC, and consumers are starting to recognize that. Over 100 additional cannabinoids have been identified outside of CBD and THC, including CBG, CBN, and CBC.
Additionally, we are beginning to see more consumers considering products’ terpene profiles when deciding which cannabis products to purchase.
The medical consumer might utilize certain terpene profiles for their effects, whereas recreational consumers may choose terpene profiles best on taste.
On The Business Side of Things
Cultivators face unique challenges other verticals don’t face, however, all cannabis operations seem to struggle with similar operations hurdles. For cultivators:
1. 34% of respondents said compliance with local and/or state regulations is their biggest operational challenge
Color us shocked. A cannabis business struggling with regulations.
While we understand the need for regulations, many current regulations are both too much and not enough, at least in the United States.
Each state has its own rules, but most states use Metrc to track and trace cannabis products. BioTrack is used in Delaware, New Mexico, Illinois, New York, & Hawaii.
Metrc and BioTrack enable regulatory bodies to follow products from seed to sale, both in the medical and recreational cannabis markets.
Cultivators are required to track every move they make, including the plant additives they use, the strains they’re growing, their wet and dry weights, expected harvest dates, and additional data points.
There are usually full-time compliance managers on-site at cultivation operations.
2. 31% of respondents said financial management (including banking and 280E) is their biggest operational challenge
280E is the tax code preventing cannabis businesses from claiming traditional business expenses on their taxes.
Plant-touching businesses are allowed to claim the Cost of Goods Sold (COGS) and that’s it. COGS are costs directly related to the production of cannabis.
For cultivators, this includes seeds, soil, electricity, water, testing, the labor that went into producing the plant, and more. Cultivators have the most straightforward opportunities to claim COGS on their taxes because they are the ones producing it.
With that being said, cultivation operations can pay tens of thousands of dollars in energy bills alone, so it evens out.
3. 28% of respondents said competition and declining prices are their biggest operational challenges
The average price per pound of wholesale cannabis flower varies greatly depending on where you live. And while competitive pricing is great for the consumers, it’s not as awesome for cultivation operations.
In California, the price of wholesale flower has been plunging for the last year and dropped to $400 a pound last November for the most premium flower available.
According to the Cannabis Business Times report, indoor cultivation operations were paying an average of $527 per pound of dried flower in 2021. Greenhouses paid an average of $334.
At $400 a pound wholesale, indoor facilities are losing money with a $527 cost to produce one pound of flower.
In Colorado, the average market rate per pound of flower was $1,721 in January 2021. These are the kinds of numbers cultivators like to see, so they can not only break even, but take home a decent profit.
Open markets like California and even Oklahoma’s medical market are perfect breeding grounds for high competition.
There are plenty of cultivators in the state of California and it takes a substantial amount of effort and energy to not only stand out among the crowd, but hurdle California’s tough requirements to bring a product to market.
In Oklahoma, it’s a little easier to bring a product to market, but the competition alone in an open state like Oklahoma is a huge undertaking.
It’s interesting to dive into each vertical because each one is so different, but are also facing many of the same challenges.
Other verticals don’t have to worry about pests, their yield, or final cannabinoid content, but all plant-touching verticals can relate to the business challenges cultivators face.
It’s easy to lump all verticals together, especially if you’re an outsider to the cannabis industry, but each vertical is really like its own industry and ecosystem with its own set of rules, regulations, and challenges.
Here’s hoping federal legislation arrives in the U.S. soon and much of these operational challenges could fade away.