Planning and Scaling your Commercial Cultivation Operation

Show Notes

Issues with Legacy Cultivators Transitioning to Legal Markets

• Many experienced cannabis cultivators have roots in the illicit market. Unfortunately, we often see that these growers have developed bad habits that don't translate well to complaint legal operations. 
• In the illicit markets keeping logs and records left a paper trail documenting illegal activity. Now operators have to keep very detailed records for regulators and to fine-tune and scientifically understand their operations. We've seen illicit operators struggle with this transition. 
• Home growers and illicit market operations are used to drying cannabis on racks in the closet, or sitting around with friends and trimming everything by hand for weeks straight. These practices do not translate to commercial operations. Old habits lead to shortcutting and poor results on a commercial scale. 
• In general, these "master growers" lack the business experience necessary to manage a commercial operation successfully. These growers do not necessarily think about long-term scalability, maximize return on investment (ROI), or define and monitor key performance indicators (KPIs). 

Business and Facility Planning

• Start by researching your intended market. 
• What types of products are allowed? 
• Are there limits on the size of your facility? Canopy? Plant count? 
• What taxes will you be liable for at the local, state, and federal levels? Considering the taxes, is it possible to operate a viable business in this market?
• What types of cultivation companies are viable in your market?
• There are five operators for 3 million people in Arkansas, requiring very different planning than a state like Oklahoma that has over 9,000 licenses. 
• If you're doing a small-scale indoor cultivation operation in a state like Oklahoma, you are just waiting to die. 
• Once you know your market, define the type of operation you intend to start and where you would like it to be in five years.
• What types of products do you intend to sell?
• Will you process the cannabis that you grow? 
• Do the local regulations provide room for you to grow your company? 
• Are there compliantly zoned properties available that could meet your needs?
• Facility Design and Layout
• For cultivators, your facility design and layout will make or break your business. Don't skimp on planning and consult experts that can help you avoid common pitfalls. Once your facility is built, it is much more costly to fix issues than investing more upfront in proper planning. 
• Know your local climate! Temperatures, days of sunlight, elevation, and site-specific details have a massive impact on your facility's design, particularly for greenhouses. 
• Cultivation facilities are living organisms. You need to design them to control the temperature, airflow, humidity, CO2 accurately, and establish homeostasis. You need to understand all of the potential vectors of contamination and design accordingly. A healthy and well functioning facility will significantly reduce your risk of fungal or pest issues and enhance your plants' growth. 
• If your facility does not perform well, you will continuously be in a reactive state, trying to save your crop. 
• Work with vendors and consultants to help plan your facility. These experts have worked with hundreds of companies and have seen and addressed countless issues and can help you start on the right foot. 
• If you're feeling rushed and overwhelmed in the planning process, stop and ask for help. Even if you take an extra week upfront to get it right, you can save millions of dollars and countless hours of stress later. Establishing a successful cannabis business is a once-in-a-lifetime opportunity, so invest the time and energy into doing it right the first time. 
• We recommend testing your layout by printing a large scale version and using different color markers to trace your vegetative, flowering, and harvesting workers' movement.
• Where do these lines intersect? Where are potential sources of contamination?
• You want to avoid having staff move from one stage of the cultivation process to another, which increases the risk of contamination. 
• We've seen poor facility layouts lead to significant pest issues. Then operators sprayed their crops with a harmful pesticide, harvested, and sold their product to be faced with a product recall. Recalls are enormous risks as they expose companies to product safety lawsuits and significant brand damage. 
• Design your cultivation facility like a manufacturing plant. Separate each phase of growth from stock plants to cloning, early vegetative, medium vegetative, late vegetative, flowering, harvesting, trimming, drying, curing, extraction, packaging, etc. All of these stages have unique environmental and quality assurance requirements. Each phase should be in a line, and you should never have vegetative workers able to intermingle with flower works or harvest workers. Have separate entrances for harvest, drying, and trimming staff far away from the stock plants to reduce contamination risk.
• Designing your Processes 
• You'll want to detail each process used to grow cannabis in your facility step-by-step. A few examples include:
• Harvesting processes
• Trimming processes
• Drying processes
• Irrigation processes 
• You'll want to plan your processes accurately so that an entire room of plants can be moved from one stage to another in a single day, and the room can then be cleaned, sanitized, and restocked later that day. 
• Variety Selection and Cultivation Timeline 
• What varieties will you grow? And why?
• How many days does each variety take to flower?
• You'll want all of the plants in a given growing bay to be very close to the same level of maturity. So if you are growing multiple varieties, match them based on their flowering times. If varieties are at different development stages, it is more challenging to maintain vital environmental conditions and cleanliness practices.
• In most cases, if you are starting from seeds, you are already too slow. 
• Where will you source your clones or tissue cultures? What are your quarantine new genetics to avoid any potential contamination?
• Pre-Construction Phase
• What permits do you need? What are the procedures and timelines required to get them? 
• Do you have the right equipment selected for the job? Will your equipment scale with your business? Or will it need to be replaced quickly? 
• Who will build your facility?
• What lead times do you need for each material used in construction?
• Research and select your vendors. Who is responsible for what?
• We recommend hiring a project manager that works for you, not the general contractor. We've seen contractors new to building these facilities make costly mistakes creating significant problems for operators. 
• Mistakes in pre-construction and construction can cost millions of dollars to fix. 
• Developing a detailed budget and timeline is vital for the construction phase to go smoothly. This level of preparedness also shows investors line by line how you will spend their capital.
• Where exactly does each piece of equipment need to be?
• Plan for the Future
• Where do you want your business to be five years from now? Ten years from now?
• How might the market change during that time? 
• Does your facility design allow for other uses in case you need to pivot and produce different products? 
• Look to Similar Industries for Best Practices and Technologies (Commercial agriculture, pharmaceuticals, cosmetics, food, etc.)
• Cannabis is an agricultural commodity, and much can be learned from established commercial cultivators that produce cut flowers and poinsettias. 
• What vectors or agricultural parameters need to be considered to ensure that cannabis flourishes in a controlled environment? 
• The USDA has approved seventeen pesticides for hemp production. Keep an eye on updates like this as they provide insights into how federal regulators will treat the cannabis plant after federal legalization. 
• Organic cultivation methods are great but do not use the word "organic" when labeling and marketing your products. Organic is a USDA designation, and cannabis is federally illegal. Consult a lawyer if you have questions. 
• What technologies do other industries used for massive cloning, seeding, or transplanting? I've seen growers digging holes and planting by hand in fields when they could plant 40 acres quickly with a tractor, the right implements, and six staff. 
• Remember, the facility needs to be maintained 24/7/365. While we may like them, cannabis plants don't understand weekends. How do you automate everything?
• Production Standards
• Many operators in the United States did not consider federal and international production standards when they planned their operations, which may prove to be a costly mistake once broader legalization occurs. 
• While all standards don't apply in all regions, it's always beneficial to understand the highest global standards and plan to make operational changes before they are required. Here are some standards that all growers should educate themselves on:
• Good Agricultural and Collection Practices (GACP) 
• Good Agricultural Practices (GAP)
• Good Manufacturing Practices (GMP)

Thoughts on Different Types of Commercial Cultivation Operations

• Indoor Cultivation
• For indoor cultivation, you are essentially playing god. You need to accurately control everything from temperature, airflow, humidity, air filtration, ingress, egress, and much more. Growing indoors is extremely expensive at any real scale. 
• On average, indoor cultivation facilities cost three times more to build out and nearly five times more to operate than a commercial greenhouse. 
• Some markets only allow indoor cultivation, so operators need to optimize their companies to keep costs down. 
• Real estate for indoor facilities is more expensive because it requires extensive infrastructure, equipment, and access to copious amounts of electricity. 
• Every little thing that goes wrong in an indoor facility puts the kingdom at risk.
• Indoor cultivation made a lot of sense for vertically integrated operations that cultivated, manufactured their products, and had retail locations. They were able to command a higher price by cutting out the middle. As markets like Colorado, Oregon, California, Washington, and others have matured and become more saturated, you have to be more than an indoor producer.
• Vertical rack systems are great solutions for indoor cultivators to maximize their growing space. PIPP Horticulture is a great vendor to check out.
• Outdoor Cultivation
• Plants love the sun, and its energy is free!
• Outdoor cultivation is advantageous as it is the cheapest to produce.
• In the long term, massive outdoor plantations, similar to what is being done in Colombia, will be utilized to produce bulk oils for edible formulation and vape cartridges. 
• Outdoor will play a significant role in the future of cannabis cultivation. 
• Hybrid Four-Season Greenhouse Cultivation
• Hybrid Four-Season Greenhouses provide a controlled environment, utilize and supplement available sunlight, and allow for five or more harvest per year and CO2 enrichment. 
• These facilities can produce the highest quality flower at the lowest cost of production. 
• Greenhouses are the only thing that is going to allow most companies in the space to thrive. 
• Allows growers to supplement the seasonal photoperiod via supplemental lighting in the morning and evening. 
• An easy and cost-effective way to produce large volumes of cannabis is to use greenhouses to prepare all stock plants, clones, and early vegetative plants before moving plants outside for the season. To do this successfully, you need an acute awareness of your region's climate and growing season.

Scaling your Cultivation Facility

• Understand your real estate from the start. 
• What are your setbacks? 
• Can you expand? If not, you may want to consider a different property.
• Are there neighbors on all sides? 
• If you can only expand vertically, are the costs of elevators, grease traps, and other necessary equipment worth the expansion? 
• Selecting the right property upfront can save you a lot of money. 
• If your facility will not support your growth, can you move the license to a different location?
• It takes a team to grow your business. Many great cultivators will not have a seat at the table in the future because their ego is not going to allow them to look for help. 
• Don't just be reactive, get proactive. 
• As you scale your operations, you need to prioritize efficiency to have better margins. 

Cultivation Methods

• While I am all about the idea that you need to give the plants lots of love, this does not mean that you need to hand water each plant. Hand watering can introduce unnecessary risks because you move around a pump, hoses, and a watering wand that touches each plant. 
• We highly recommend automated fertigation and irrigation systems because we've seen them reduce human errors via highly accurate monitoring systems (Total Dissolved Solids, PPM, EC, pH, Temperature). 
• There are many opinions on how to cultivate cannabis and many methods that work. While we have worked with many mediums, we prefer organic-based media. We feel that biomimicry in the cultivation process is essential. Our preferred methods focus on the health of the soil's microbiome, including beneficial bacteria and endo and ectomycorrhizae fungi. These naturally occurring relationships help to fortify your plants' immune systems. 
• We have worked with hydroponic operations. We like to caution those new to these techniques that your plants are basically on life support, and a single problem can quickly kill them. When you have a growing media, you have a buffer from human or equipment errors.
• More roots, more shoots. The longer you vegetate a plant, the larger your canopy. Proper plant training will give you a flat and event canopy with even light distribution.
• Sea of Green and other methods that require many small plants are not viable in specific markets due to regulations and are not the best for large scale commercial operations in general. 

Harvesting Procedures

• No offense to the Northern California method of cutting down entire plants and hanging them in a barn to dry, but as a commercial operator, you don't have space to harvest and dry plants regularly in this way. You can dry four times the amount of cannabis in the same amount of space by using wet trimming machines to remove excess plant material before drying. 
• Many growers are scared of wet trimming machines because the technology five years ago sucked. Things have changed a lot from 2015 to 2020, and the technology continues to progress. An excellent wet trimmer can replace up to 75 workers. So we recommend taking another look. 
• Methods like those outlined above are more of a necessity right now as its not a good idea to have many workers standing close together in small spaces. 
• Also, there are great machines out there that can help you buck the plant, remove the fan leaves, to prepare it for the wet trimmer. 
• There are many methods of harvesting, trimming, and drying. You'll need to tailor a process specific to your operation. 
• Another thing to consider is not to run all of the small buds through the trimmer. Instead, you can mill them and place them on flat racks to dry. This material will meet the specification that most processors want for CO2, ethanol, or mixed hydrocarbon extraction, saving you processing time and wear and tear on the equipment. 
• All sizable flowers will be bucked, shucked, wet trimmed, and then laid out on flat racks. You'll need to assign the fun staff position called a fluffer that goes through and fluffs the racks of drying flower twice a day for the first few days to ensure even drying and eliminate matted down and flat-sided buds. 
• There are great tumblers and separators that help to separate large, medium, and small buds as well as shake. By removing shake and little buds, you can typically get around $200 more per pound, and you have valuable material left over for rosin presses or other extraction. 
• Like the bays for each phase of plant growth, the harvested bay should be cleared out entirely, and everything should be dried together. Once drying is complete, the drying room should be cleared, cleaned, and decontaminated before restocking it with a fresh harvest. 

COVID

• The plant is proving to be depression and recession-proof, but the industry itself is not. Many of the commercial cultivators were on shoestring budgets before capital started to dry up. 
• Businesses have experienced supply chain disruptions for supplies coming from China and other regions. 
• Supply chain logistics are vital right now. What are the things that we need every single day? Every week? What needs to be replaced every month? We recommended keeping a little extra supply on hand right now, especially for mission-critical goods. 
• Some cash strapped companies are looking to sell right now, creating significant opportunities team looking to enter the industry.
• Don't just sit around waiting for everything to go back to normal, be proactive to weather the storm, and survive. 
• Review and Optimizing your Revenue Streams 
• Are you just selling bulk flower? 
• Do you sell pre-rolls? Pre-rolls made from your high-quality flower are great, and they have good margins. 
• What additional revenue streams and SKUs could you start? 
• What if you were to start pre-packaging flower into one gram, three-and-a-half gram, seven gram containers, and allowing dispensaries to white label those products?
• How can your trim be more effectively utilized? 

Summary

• In this episode, we covered a lot of what commercial operators can do and look at, but not all of these solutions will work for your operation. 
• Each market has unique dynamics and changing regulations; some solutions mentioned in this episode may not be allowed yet in your market. If this is the case, help to educate lawmakers on how the rules are impacting your business.
• Invest heavily in proper planning.
• Consult with experts in various disciplines and industries. 
• How can you reduce waste? Increase your revenue streams? Maintain consistent quality? 
• There is always room for improvement, so assess your operation critically, seek advice, and be proactive.
  

Resources Mentioned

• Good Agricultural Practices (GAP)
• Good Manufacturing Practices (GMP)
• PIPP Horticulture