Is it expensive to grow weed?

The legal cannabis industry may seem like a lucrative cash cow to outsiders. While there is potential for significant profits, the costs associated with running a cannabis business can be quite high, especially for those at the end of the supply chain — the growers.

In addition to the costs of labour, inputs and fertilizers used in growing crops, farmers also have to pay for the transportation of their products to various parties such as processors, traders and retailers. You must also pay numerous taxes and fees, which are often deducted by state and local authorities, in order to obtain a cultivation license.

Growing Costs: Indoor vs. Outdoor

Indoor growing costs are generally higher, mainly due to the exorbitant rents, which can be as high as $75 per square foot in certain locations. The average cost for greenhouse and combo growing nationwide is approximately $50 per square foot. Indoor operations are also more costly as it requires complete environmental control, which requires various equipment such as grow lights, temperature and humidity control systems, and automated water and nutrient technology.

State-of-the-art lighting systems alone can cost small growers up to $120,000, while security systems can top $50,000 and other essential equipment can cost around $150,000. Depending on the size and location of the business, a lean operation can only achieve a gross profit margin of 55 to 57 percent.

In contrast, outdoor growing relies on natural sunlight, allowing Mother Nature to regulate environmental conditions. But due to the unpredictability of natural elements, this can be both a blessing and a curse. Land for outdoor growing ranges from $10 to $17 per square foot, although in some locations it can be significantly more. Automating tasks is also more difficult when growing outdoors, which can result in higher labor costs.

In temperate states like California, sun-grown operations can yield multiple harvests per year. However, in states with shorter growing seasons like Illinois, Ohio, Colorado, and New York, growers need to grow at least some plants indoors to ensure year-round production.

The cost of making a profit from growing marijuana varies from state to state. Growers, suppliers, and consultants have shared comprehensive insights into fees, challenges, and strategies for managing expenses to come up with estimated numbers.

Nevada

Nevada faced significant concerns as it transitioned to recreational marijuana: whether supply would meet demand. This was partly due to the state’s high taxes and fees, such as the $5,000 grower registration fee, a $30,000 initial recreational license fee, and a $10,000 annual renewal fee.

Medical cannabis production has an application price of $5,000, an initial license fee of $3,000 and an additional cost of $1,000. The Nevada Department of Taxation also imposes a 15% tax on medicinal cannabis products. Municipal cities and counties are also allowed to levy taxes and duties. Running a cannabis business costs hundreds of thousands of dollars before an initial sale is made when evaluating additional costs such as utilities, labor, and fertilizers.

Oregon

Oregon initially had supply shortages, which led to an increase in licensing. However, this caused flower prices to drop, forcing smaller boutique growers out of business. As a result, larger manufacturers are under pressure to go lean in order to remain competitive. When you consider that Oregon’s filing fee is only $250, it’s good and bad that it’s one of the lowest in the US. Also, the state only taxes retail sales of recreational items.

According to Jazen, a grower who works at Wisely Organics, about 20% of revenue from the 20,000 square foot indoor grow is paid in federal and state income taxes. The cultivation spends 5% of its budget on cultivation licenses and government fees, 10% on utilities such as water and electricity, and 15% on rent and consumables.

Labor costs are highest at Wisely at 42%, similar to most other farmers across the country. Despite the state’s leaning towards technology as a labor substitute, Wisely places great value on its employees. Jazen explained that they intentionally avoid high-tech solutions and their most advanced machine is a compact tractor. Although they experimented with a trimming machine to replace workers, they found that the quality of the product was superior to manual labor. Currently, the device is only used for 2% to 5% of the harvest batches.

Ohio

The cultivation licenses issued by Ohio are divided into two tiers. The first level, Level I, allows for a canopy area of ​​up to 3,000 square feet. Growers must pay a $2,000 registration fee, $18,000 initial license and $20,000 annual renewal to hold a license. Tier II growers must pay an application fee of $2,000, an initial license fee of $80,000, and an annual renewal fee of $200,000 to grow cannabis in 25,000 square feet.

Buckeye Relief CEO Andrew Rayburn explained that for their 60,000-square-foot farm, he allocates 2% of estimated annual income to payroll taxes, 3% to royalties, 3% to water and electricity, 24% to labor, 17% to rent and material and 1% for technology.

California

In the largest and most established market, annual application and cultivation licensing fees are relatively low, ranging from $135 to $8,655 and $2,420 to $77,905, respectively. There is also a $155 Weighmaster license fee. However, taxes can be a heavy burden.

The state charges $9.25 for each ounce of dry flower weight, $2.75 for each ounce of dry cutting weight, and $1.29 for each ounce of fresh plant, up to a maximum of $5,000. In addition, growers are charged an excise tax of 15% of the market average value of their crops, whether those crops are sold or not. A land use tax may be imposed by some jurisdictions even if a field lies fallow, and counties and cities may impose additional taxes and duties.

Diploma

While the legal cannabis industry can seem lucrative, there are many costs associated with it, especially for producers. Depending on the type of cultivation used and the area, the cost of running a cannabis business can be high. Because of the equipment required, indoor culture is usually more expensive; In contrast, growing outdoors is less expensive but more difficult to automate.

Due to different taxes and fees, the cost of making a profit varies from state to state. To ensure they are making a profit, cannabis business owners need to carefully review their prices. Despite its difficulties, the cannabis sector still holds promise for individuals willing to invest the time and effort and manage their spending wisely.

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