What Lies Ahead for Cannabis

Cannabis growers, we need to talk. The industry is changing rapidly, and as legalization comes knocking, the old ways of growing will not be viable any longer. Today, I see us on the cusp of the first big shake-out of growers. The next 12 to 18 months will be hell for people who can’t adapt.

We need to start acting like adults and treat Cannabis as a serious 9-to-5 business.

Who am I to tell you this? Well, let me start by saying that I have never grown cannabis legally. I got my start by growing floriculture crops legally in large, commercial production facilities. I would go on to grow Cannabis illegally in a 3000 square foot grow room for 8 years. I never got caught and never ran into trouble. I avoided marijuana mitigation efforts by the state of Missouri. We grew and sold in bulk only, focusing on increasing the number of grams per plant.

During the farm crisis of the 1980s, I saw a lot of greenhouse growers knocked out of the market. Many hippies became land-rich and money-poor in no time. The smart ones shifted gears and focused on niche markets. I could list several hundred different growers who survived the crisis by specializing. What did these growers have in common? They could beat out the competition. They knew how to survive trying economic times by cost accounting. They were so familiar with cost accounting that they could tell you the cost of any crop by unit. We aren’t doing that yet in the cannabis industry, and it’s something we need to start doing.

Of course, cost accounting isn’t our only issue. There’s a host of other issues we need to resolve to be seen as a mature market. Here are some of the problems I see in today’s grows:

1. Genetics

The genetics system we have in place currently is unreliable and inconsistent. We can’t even get our names right. Other agricultural industries can buy seeds of a particular cultivar by the thousands and have a thousand identical plants. And that’s by seed, not by clone.

As the market shifts, it’s very likely we’ll see fewer cultivars come out, but they’ll have more consistent genetics and behaviors. The companies that are producing these new cultivars will be movers and shakers in the industry.

2. A Lack of Differentiated Market Segments

Market segmentation is a business term used to refer to targeted marketing. You focus on a particular audience or group of consumers (or multiple groups of consumers) to help make your product stand out. Right now, our industry is focusing either on broad swathes of society or very niche markets, missing out on significant marketing opportunities.

For example, flowers versus concentrates. The two require different approaches to growing, marketing, and accounting.

3. Too Much Pseudoscience and “Woo”

The cannabis industry relies too much on anecdotal thinking and superstitious beliefs. That is not the sign of a mature industry, and growers who are able to use scientific literature will experience much greater, more reliable success.

4. Inconsistent Growing Patterns and SOPs

We have not well-defined what makes a “great” plant, and in turn we haven’t determined the best ways to grow that “great” plant. Standardization helps reduce costs and improve quality, and growers with standardized processes will be incredibly competitive to those relying on their intuition alone.

5. Failing to Treat Cannabis as a Commodity

This goes back to what I was describing in cost accounting. Currently, accounting is not the primary driver of a grow. Since we are in the business of growing, our accounting needs to support the grow. Not the other way around.

In the next five years, we are going to see the good growers succeed and dominate the industry. These growers will generally fall into one of two groups: Big Cannabis and specialty growers. Both of these groups are going to face the same basic problems:

1. They will need to determine the cost of a gram per square-foot-week. Whoever is able to drive the cost down will dominate their market segment.
   1. Big Cannabis will be in greenhouses for bulk flower and in the field for concentrates.
   2. Boutique growers will be able to persist with higher costs in indoor grow rooms and will have to charge higher prices for it. They will have more limited market segments.
2. Growers will need to make the switch from vegetative cloning to F₁ seeds. This will be a huge shift for the industry, but seeds will lower production costs and control viral diseases, massive advantages that cannot be ignored.
3. Standardization of growing practices and cost accounting will become primary business drivers. End-to-end cost accounting will rule the grow.
4. Artificial lighting will sort itself out. Only a few specialty lighting companies will remain, and they will let the grows define the spectrum for each phase of the grow.
5. Environmental controls will become simpler. Greenhouse-specific controls will have to match the market pressure of cheaper office and home environmental controls as the margins for Cannabis begin to slim.
6. Growers using synthetics will have an economic advantage over organic growers. Organic growers will need to start marketing like they are the “Whole Foods” of cannabis and appeal to consumers.

Right now we stand on a precipice. We have a lot of great opportunities as growers, but we’re also looking at lots of challenges in the near-future. The cautious, science-based growers who have a strong emphasis on R&D and good accounting are going to win.

From the voices in my head.

You friend in growing,

Ethan