Commercial growers of cannabis are rapidly discovering that the maturing market is having a tremendous impact on their cost of doing business. Since cannabis growing is a highly regulated market and is experiencing an explosive growth of new demand, commercial growers are finding that they must work much more intelligently to stay profitable in the marketplace.
Here are five of the pressures facing commercial cannabis growers, which are forcing them to grow on an industrial scale in order to keep costs down and remain profitable:
Obstacle #1: Increased Regulatory Presence
Ever since cannabis growing became legal in certain areas of the country, it has also become necessary to establish traceability and tracking, and to implement consistent inspection programs. With all this additional oversight and agency involvement, added costs must be absorbed by growers in order to maintain compliance with all organizational mandates. This also includes several new taxes (for instance excise tax, sales tax, and income tax). These extra costs must also be borne by the commercial cannabis grower, which is another challenge tending to force growers into growing on a larger scale, so that greater economy can be achieved.
Obstacle #2: Supply Chain Costs
With the greater production volume of legalized cannabis, a distribution network has become necessary in order to move product through the entire supply chain from grower to consumer. The role of the distributor in the supply chain is undeniably advantageous, but just as certainly it means increased overhead, and represents yet another significant cost which cuts into the bottom line of the cannabis grower.
Obstacle #3: Laboratory Testing
Laboratory testing represents a surprisingly high expense in the overall production cost, currently fluctuating between $50 and $100 per pound of cannabis. This step, which is now necessary for consumer safety, has only come into play following legalization, but is a significant new cost added to the production process. The only really effective way of driving this cost down is to have much bigger batches to send to labs for testing so as to achieve an economy of scale.
Obstacle #4: Evolving Consumer Demand
As legalization sets in and takes hold of the market, consumer demand is evolving to a state where users seek consistency of product, as well as new product innovation. The simple days of weed in a bag are giving way to sophisticated product packaging, which must appeal to a more discerning consumer. Companies desiring to market their own brand and distinguish it from the competition are faced with the costs of branding and powerful marketing campaigns. With all these new costs of packaging, branding, and marketing, a whole series of brand-new expenses must now be included in the mix for overall production costs, and must be factored in to the bottom line.
Obstacle #5: Pesticide Challenges
Another big challenge facing commercial cannabis growers is the restrictions that have been placed on the usage of pesticides during cultivation. There are no pesticides which have been approved for use on cannabis growing, and since the federal government requires that any pesticide used in cultivation must specifically be approved for the product being grown, there are no pesticides whatsoever which can be used on cannabis. While this is certain to be a problem resolved in the near future, the problem remains for the time being, which means that harmful pests must be controlled through inefficient and costly means.