Best techniques haven’t been determined yet
One of the interesting things about the marijuana business is that its relative newness means just about everyone in the industry is a pioneer. In particular, the cultivation and production sector has no real tried and proven commercial models to follow.
Unlike other forms of agricultural production that have been refined for decades, growing marijuana is a crapshoot in which cultivators take their chances and roll the dice on a particular grow method or model. Thus, all growers are basically in a wait-and-see game that will ultimately be decided by market forces, marketing prowess and consumer demand.
If you read about the two cultivators featured this month, you’ll discover two completely different approaches to the same endeavor. Both are growing legal marijuana for the retail market, and both have the ultimate goal of making a profit. However, the approaches are at complete opposite ends of the spectrum: One license-holder created a state-of-the-art indoor facility that can fairly be described as “space age,” while the other went a different route and settled on an outdoor grow best described as “old-school” or “back-to-nature.”
Which is the better way to go? That’s the unanswered question. High-tech has much higher initial set-up costs, as well as significantly greater ongoing operational expenses. Low-tech is the opposite: set-up costs are minimal, and operational costs are low.
The high-tech facility produces marijuana in a controlled environment that virtually guarantees a continuous output of predictable, high-quality product. With everything tightly controlled, the production guesswork is largely gone, and the operators can focus on refining their marketing and sales messages, as well as their back office functions. On the other hand, low-tech has a significant advantage cost-wise, but it comes at the expense of predictability and consistency; factors like the weather and seasonal price fluctuations can have a big impact.
Who wins? That’s the $64,000 question that won’t be answered for several years.
Finally, what’s important when measuring success in this unique business can also vary because of unique personal goals, rather than traditional measures based purely on numbers. What are the most important metrics of success? Is it year-over-year growth? Gross sales? ROI? Margins? Quality? Margin dollars? Low carbon footprint? EBITA (earnings before interest, taxes and amortization)? Market share? At this stage of the game, it’s all a complete unknown because the future — unlike with most businesses — is also a complete unknown.
As I’ve said before, I owned and operated one of the top-10 largest consumer software companies for 20 years. It was a lot of work, but also super rewarding. There were plenty of parallels with the marijuana industry: venture capital, fast growth, excitement, new companies, dreamers, emerging technologies, crazy valuations, etc., etc.
However, there are several big differences between the two industries. Unlike cannabis, computers are perfectly legal everywhere, and there was no chance of the government stepping in to stop the advances in technology. And, perhaps more importantly, scaling up was relatively easy once you knew the game and had relationships with big retailers. Neither of the above are present in the current legal marijuana industry.
I’ll end by saying this: Indoor, outdoor, greenhouse or some combination … which is best? It’s all guesswork right now, and all we really know is that we don’t know. Anyone who says they do is selling snake oil.
Greg James
Publisher