Long-term business plans can easily fall to the back burner when you’re busy tackling what’s right in front of you. But poor planning always manifests in one way or another: Just ask anybody who’s stuck in rush hour gridlock on a highway system that’s decades past its prime.
The same goes for hemp and cannabis cultivation facilities.
Before breaking ground on a new facility or renovating an existing one, you’ll want to have a fully fleshed-out plan in place for scaling up your operations down the line. Success in this industry requires a long-term vision.
When you’ve already put your time, sweat and money into securing that coveted license and grow site, you want to be sure your efforts aren’t wasted. Because when wholesale prices drop and competition gets fierce, your days will be numbered if you’re not equipped to make up for lost revenue.
The initial capital required to design and build a cultivation facility is steep, to be sure. Understandably, it can be very tempting to spend the bare minimum required to get your facility up and running and start generating cash flow as quickly as possible.
But trust me, that mindset won’t do you any favors. Cutting costs up front doesn’t set you up for sustainable, long-term growth—something that just about every business needs to stay on a successful trajectory. Having the ability to scale up without taking your business offline for lengthy facility renovations always proves critical.
Regardless of whether you’re establishing your cultivation site in an emerging market or a mature market, there are some inconvenient realities about facility construction and up-front costs that you’ll want to understand in order to budget accordingly.
I worked in commercial and industrial construction management for over 20 years before taking on cannabis cultivation and dispensary projects in medical and recreational markets across the country, from Arkansas and California to Colorado and Oklahoma. Along the way, I’ve seen plenty of avoidable missteps, largely owing to the fact that operators simply didn’t understand their market niche or the requirements of their construction projects. And they weren’t thinking about scaling their production or maximizing revenue potential for the long term.
Unrealistic Financial Models
All too often, investors enter this space with the idea that so long as current production targets are on track, the money will keep rolling in and expansion will happen organically. But if you don’t have a thorough understanding of the local market and the cash flow associated with your chosen product focus, things can quickly go sideways.
Strategic planning in the design phase starts with the nature of your business: Are you growing smokable flower or biomass for extraction? Is the market medical or recreational? Are you processing on-site? These considerations should factor heavily into your facility layout and business model.
An accurate financial model is essential for strategic planning. Doing some back-of-the-napkin calculations around how much money you can make per pound is a starting point, but it’ll be worse than useless if you don’t verify those price points in the context of your local regulations and potential market saturation. It’s always smart to review your business model and goals with outside experts before you lock in on a design plan.
The backbone of the design plan hinges on your facility’s ability to scale.
I’ve often seen lowballing or underestimating the costs around setting up scalable electrical, water and sewage systems within a facility. It’s absolutely OK to start operating with just a couple flower rooms to generate quick cash flow, but if the ultimate goal is to operate six rooms, make sure you have the utility infrastructure in place to support that.
Simply put, it’s much easier and much more cost-effective to scale your operations when you don’t have to drastically alter your core infrastructure. From the outset, your design team should consider the water and sewage needs to operate at maximum capacity, as well as the power load that will be required to operate additional air-conditioning units, dehumidifiers and lighting grids.
The last thing you want to do is stop or interrupt production to upgrade the infrastructure. If your facility is down for a full harvest cycle (or more), it’ll throw a monkey wrench into your balance sheet. And it makes things all the more difficult when you’re already grappling with the costs of adding benches, lighting fixtures and the like.
Other Up-Front Cost Factors
If you don’t have knowledge of how to line out the budget for a construction project, make sure to include an escalation factor because things can be unpredictable as far as timing and costs are concerned. (Escalation is similar to inflation but instead refers to the change in the price of a single class of goods or services.) And the COVID-19 pandemic has made project planning all the more challenging, with skilled labor shortages further impacting completion schedules.
Another thing I’ve learned about working in the cannabis space: Compared to mainstream industrial construction, there are significant B2B trust issues that play into up-front build-out costs. It may not be fair, but many vendors—such as those that sell electrical panels or HVAC units—require cannabis businesses to pay up to 70% more costs up front relative to what they require of non-cannabis businesses.
To avoid surprises once a project is underway, it’s best to be transparent with your vendors about the nature of your business from the get-go so you can fully understand the terms of purchasing.
Ultimately, it does take longer to recoup your initial investment if your up-front facility design-build costs are higher, but investing properly on the front end sets you up to seamlessly scale your businesses and succeed in the long run—and I can’t think of a stronger return on investment than that.
Brendan Bartolo is Construction Project Manager for Next Big Crop, a full-service cannabis consulting firm with decades of collective expertise in license procurement; facility design and construction; systems engineering; equipment and materials sourcing; operations management; and compliance. Formed in 2013, Next Big Crop’s mission is to offer top-notch consulting services in an industry that, until recently, has lacked standardization and large-scale agricultural principals. In May 2015, the company was acquired by General Cannabis Corporation, a publicly traded company servicing the cannabis sector nationally.