The Cannabis Farming Operating Environment
As I’ve shared in other posts, the operating environment for
cannabis farmers is challenging. It also
offers significant opportunity for astute, highly skilled operators.
It’s no surprise that competition in the space is
increasingly rapidly. An estimated $18.5
billion was raised in the industry last year alone and I expect 2019 will
surpass that figure significantly as corporate interests eye their prize and as
social acceptance globally continues to improve. According to data provided by Veridian
Capital Advisors, U.S firms have already raised over $3 billion as of early
March, most notably a $1.6 Billion investment by Altria in a Canadian firm.
As with any industry,
increased competition drives margins lower.
Excess “rents” or profits go away quickly as we have seen with flower
and distillate prices. Less efficient,
lower quality market participants go out of business or are swallowed up by
someone better if they’re lucky. Such is
the capitalistic paradigm. As we have
seen to the north and to the east, mom and pop operators struggle to find a
lasting foothold when things get tough.
Another challenge for farmers is price volatility. Throughout the year cannabis prices swing
quite significantly based on supply and demand.
Late spring and summer see the firmest prices, but few small producers
are able to hold out that long without getting paid. Many are forced to “dump” product at low
prices in the fall and winter in order to make land payments, pay employees,
and support their own lifestyle. Skilled
growers with desirable product, though, can use developing forward markets to
improve certainty. These contractual
arrangements lock in prices pre-harvest and are a nice tool to consider if more
predictable cash flow is desired.
Farmers are also challenged by the relationship between
demand, scarcity and input prices. On a
local level here in Humboldt for example, increased demand for services like
consultants and well contractors has led to upward price pressure and
significant delays in availability of service.
Theft and fraud also challenge the farming landscape as does
the “milk the cow” mentality many have when serving the industry. I’ve heard several lines of business such as construction,
consultancy services, landlords and others speak blatantly about “dope grower”
rates that can tack on 50-100% or more on service fees normally charged to
other customers. Because everyone
assumes growers are shitting money, they knowingly and willingly feed at the
trough with exorbitant prices. As one
alleged insurance scandal recently showed, some desperate to fill their own
coffers are not afraid to steal from farming operations.
Taxation, fees, and a constantly changing regulatory
background also complicate things for farmers who have less time to spend on
admin. With the piecemeal and fragmented
regulatory environment in California, moving compliance hurdles are simply too
much for some to bear.
Despite a host of challenges, significant opportunity also
awaits cannabis farmers. For the first
time ever, farms can create a brand and proudly tell their story to the world
via social media and some advertising outlets.
Through quality, differentiation, authenticity, and story-telling, farms
of all sizes can connect with a consumer base in an intimate way. Awards, accolades, product mentions,
interviews, print media, and instructional videos are just a few ways to get
your farm on the map and your product on dispensary shelves.
Product diversification also offers many viable outlets for
farms to investigate. CBD, raw acids,
extracts, breeding, tourism, and nursery operations are just a few areas you can
explore to find a market for your product.
Information and technology advancements also offer
opportunity for farms to get educated and improve the efficiency of their
operations. Technological advancements
can improve farm output and quality while information platforms like Green
Flower Media, cannabisbenchmarks.com, Cannabis Business Times, and Marijuana
Business Daily can help farmers understand business trends, pricing, and other pertinent
industry data.
Farmers also have a huge opportunity in helping to further professionalize and legitimize the industry. Thru compliance, stewardship, compassion, and charity, farmers can position themselves well to capture business from conscientious consumers, while playing a role in facilitating the push to create safe, barrier free cannabis access worldwide. In so doing, they can capitalize on ever increasing markets while making lasting social and environmental improvements through their work and charitable efforts.
All the best,
Jesse Duncan
As I’ve shared in other posts, the operating environment for cannabis farmers is challenging. It also offers significant opportunity for astute, highly skilled operators. It’s no surprise that competition in the space is increasingly rapidly. An estimated $18.5 billion was raised in the industry last year alone and I expect 2019 will surpass that figure … Continue reading The Cannabis Farming Operating Environment →Read More
