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,