No two cannabis cultivation operations are the same. While many may follow the same model or processes to reach a similar result, which is awesome cannabis, geographical location alone sets up each facility to run a little bit differently; not to mention the other dynamic factors that go into commercial cultivation.
The size of the facility, how many people are on staff, and the plant’s level of care all influence the true cost of growing on a commercial scale.
However, no matter the location, size, or efficiency of a commercial grow: labor and electricity are typically a cultivation operation’s two biggest costs.
Cost of labor for a cannabis cultivation operation
According to a report released by Vangst on salaries in cannabis, cultivation employees in the United States are being paid anywhere from $11.75 an hour to $147,500/year depending on geographical location, experience, position, and expected responsibilities.
It’s no secret that cannabis trimmers are among, if not the lowest-paid workers in the industry. This job report proves it, with Oklahoma’s trimmers and post-harvesters making an average of $11.75 an hour, while California’s high cost of living motivates cannabis cultivation companies to pay trimmers an average of $16.75 an hour. States with a cost of living leaning towards average, like Missouri, Michigan, and Nevada, pay trimmers about $13 an hour.
Cannatech is the fuel to our industry’s future, and there are plenty of cultivation-focused gadgets being produced in an attempt to reduce costs at the grow. Namely, labor costs.
Cannabis cultivation companies can employ trimming machines, eliminating the human trimmer’s role. This lowers labor costs by lessening staff members, freeing capital to pay a smaller staff much better wages.
However, buying equipment like trimming machines isn’t the appropriate route for every company. Craft cannabis companies, for example, likely won’t utilize trimming machines. Craft cannabis cultivators focus on small-batch cannabis, running high-quality nutrients, and focusing on upholding the integrity of every batch they send out.
That might sound like every other cannabis company, because who doesn’t want to deliver the best product, but craft cannabis companies use cultivation methods that would be impossible on a larger scale. They also use organic and sustainable methods, and many times have set-apart packaging larger companies likely couldn’t replicate. Their customers are focused on organic products, gently handled, and small-batch cannabis.
So for these companies, buying a trimming machine isn’t worth it from a cost standpoint, and it’s ultimately not what their target audience wants to see.
Large cultivators with a large trim crew and lots of weight might analyze the benefits and drawbacks of installing a trimming machine. Even if the staff size isn’t reduced, trimmers won’t have to meet certain numbers and can better focus on hand-trimming certain products and maintaining the trimming machine’s integrity, while touching up bud the machine might have missed.
If a company does decide to reduce their staff, a smaller staff can be paid better with a trimming machine and give them more time to focus on quality control.
Cultivation companies are also implementing techniques like “fresh-frozen” to eliminate the dry and cure process, which also contributes to labor costs. This strategy is primarily used for extracts and concentrates, but it’s used across the board for other cannabis products. The cultivation team will freeze the flower in a vacuum-sealed bag at -38℉ immediately after harvesting and removing the branches, stems, and leaves.
Vangst’s salary report includes post-processing alongside trimmers.
What’s the cost of electricity at a cannabis cultivation operation?
Electricity is a huge cost, if not the biggest, for cultivation companies; especially indoor facilities. Greenhouses are becoming more popular because they utilize the sun and reduce electricity costs, sometimes by as much as 80%! According to Marijuana Business Daily, it costs approximately $42 per square foot in electricity for startup large-scale cultivation operations.
Cannabis cultivation companies are able to reduce their electricity costs and pay a fraction of what they would pay growing indoors. In colder states, however, indoor facilities reign because outdoor growing environments are unpredictable and uncontrollable. The weather presents a huge issue, especially during freezing months of the year.
LED lighting is also another way to reduce costs, as they consume less electricity than traditional bulbs.
How software helps cannabis cultivators manage costs
When it comes to managing the moving parts associated with running a grow, it quickly becomes daunting. Flourish Software allows each imputable cultivation element to be logged, making room to maintain a consistent product. Also, it helps identify where cash is going and what can be reworked if overspending is caught in a particular area.
Tax code 280E is every cannabis business’ best friend, right? This tax code prevents cannabis businesses from deducting business expenses from their taxes, creating sky-high tax rates for many cannabis companies. The one exception for cannabis companies is the Cost of Goods Sold (COGS), which is considered to expense directly related to the production of cannabis. The sale of cannabis doesn’t count as production, for example, and doesn’t qualify as a COGS deduction.
Therefore, cannabis cultivation companies are able to claim a lot more expenses than dispensaries or other plant-touching businesses, because their COGS is much higher as they produce the product.
But, cannabis cultivation companies are only able to take advantage of every COGS if they have a clear and dated record of their costs. Flourish Software has a full-plant additives feature, along with a historical log to help achieve this and ensure cultivation companies are ready for tax season.