Growing Legal Marijuana as a Business

Canada has recently started to prepare itself for the ultimate regulation and legalization of marijuana in 2018. This fact was recently brought to my attention so I took some time to do some research as a potential investment opportunity myself. Now I am by no means an expert, I did not conduct an exhaustive analysis but based on my own research I have decided to steer clear of investing in the marijuana industry and we will discuss why. Now your state may have different regulations which could impact your decision. One of those important questions is whether your state limits the number of growing licenses or not. If you have competition from everyone and their Grandmother your profit margins are very likely to tumble.

Street values of super high quality marijuana back in the day were up to $4,000 a pound. Now after legalization by 2016 in Colorado that price had halved to just over $2,000 and by the end of the year to $1300 a pound! Those falling prices will make it increasingly difficult for smaller scale production facilities to be profitable. The huge 100,000 foot greenhouses will still make money but smaller growers without a niche will find it hard to keep afloat.

How much does producing a pound of marijuana cost? To determine that you would need, first establish what type of growing facility you would use. And keep in mind you will also have added costs related to regulations and requirements imposed by the government like added security or special buildings. Now setting up a commercial green house is not that much say $40-$60 a square foot equipped. So a 10,000 foot facility would run approximately $400,000. Now add in the cost of staff, electrical, etc and determine growing times and yield per plant and you have an approximate production cost. Obviously in a greenhouse situation the larger you build the lower your overall costs will be giving the big investors an advantage.

Now on a smaller scale a simple warehouse grow with LED or HPS lights could be started up for much less money. But your costs go way up. Now one of the potential solutions in a warehouse would be to grow clones, and multiple crops per year by controlling the flowering and vegetative stages. This isnt something you can do with natural light as your crops will follow the natural lighting and flower only once in fall. This of course depending where you live but is true for Canada.

Once you have the numbers of those fixed costs that will be specific to your area – your growing space, greenhouse or warehouse, your equipment including venting, dehumidifiers, growing lights, soil, fertilizers, seeds (and seeds arent cheap!) your human labor costs, electrical costs based on type of lights you will use, rent or land costs now you can associate a fixed number. Its easy then to determine how many plants you could grow based on your available square footage and growing capabilities, and how much yield per plant.
Additionally in Canada securing a license to grow marijuana is highly, regulated and there are dozens of hoops and requirements you will need from alarm systems, proper buildings in which to grow and dozens of other considerations. But at this time there is no information to advise on what exactly is needed. So you can hire a consultant for a couple of hundred thousand dollars to walk you through – or just guess. As of a few months ago health Canada had received almost 1700 applications, and approved only 43. So you have about a 2.5% chance of getting approved.

As with any industry there have apparently been a rise of “marijuana consultants” who for a fee can help you get licensed or create a business plan – but judging from this CBC news article at least a few of them are just taking your money and offering little value. So buyer beware.

I also saw references online to Canada allowing legal importation of medical marijuana from Uruguay. Now if a country with perpetual sun, inexpensive labor and low building costs is allowed to export marijuana in any quantities, how will that impact local Canadian growers? That is another unknown.

Chart: Colorado wholesale marijuana prices tumble in 2016

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