Start-ups have two options for building a new cultivation site: they can either piece together all of the individual components that make up a cultivation facility or invest in a turnkey project. Although turnkey facilities initially cost more than do-it-yourself projects, they offer entrepreneurs the benefit of a reduced learning curve and a rapid entry to market.
Frugal entrepreneurs may see the value in saving money by doing it themselves, but they should be careful that saving a penny today doesn’t cost them a pound (of cannabis) later.
Do it yourself
Start-ups often prefer to do it themselves because they don’t want to pay the “marijuana tax.”
Although not a tax in the traditional sense, this term refers to the mark-up of goods and services sold to buyers in the cannabis space. Equipment or technology commonplace in other industries magically becomes more expensive when it’s destined for the cannabis world. HVAC equipment, climate control technology, and water purification systems that are standard components in residential and commercial applications are often granted new life (and a new price tag) when sold to a cannabis cultivation facility.
For this reason, many entrepreneurs prefer to rely on trusted contacts within their own network of electrical, HVAC, and plumbing experts to circumvent these perceived high prices and build their facility by patching together individual systems and components.
In a typical 20,000 square foot indoor facility, an entrepreneur could easily save $200,000 in start-up capital by doing it themselves.
Turnkey
Turnkey projects are plug-and-play cultivation facilities.
The entire site is designed, built, and commissioned for the client, and the keys to the operation are handed over with ongoing support throughout the launch of the new business. All of the equipment, technology, and systems “talk” with each other, so there are no delays caused by incompatible parts or systems that won’t communicate.
Entrepreneurs that go this route are cognizant of the elevated upfront costs compared to do-it-yourself projects, but they are more focused on the value of avoiding delays, skipping the learning curve, and coming to market quickly.
They recognize that the lengthy commissioning of incompatible equipment or crop disruptions due to the construction of facilities that simply don’t work can result in lengthy delays and forfeited market share.
Sticking with the example of a 20,000 square foot indoor facility, a cultivation business of this size should expect to produce 400 lbs. of dry flower each month during its first full year of production. In new adult-use markets, where growers are commanding upwards of $4,000 per pound of dry cannabis flower, even a 2-month delay could cost a new cultivation business more than $3 million in lost sales.
How to decide?
Turnkey cultivation projects make sense for groups that want to achieve a rapid market entry and ensure consistent production once they get there. Turnkeys work well for groups that are new to cannabis and lack horticultural expertise but can raise capital for expenditures that show a noticeable return on investment.
Turnkey projects are not appropriate for groups where speed to market is not essential.
It’s also not a good option for groups with unrealistic expectations of the capital and operational funds required to launch a cannabis cultivation business. If the budget is insufficient—or worse, nonexistent—then everything will be too expensive. If a company was unsuccessful at raising the needed capital to launch a sophisticated grow operation, bootstrapping and a long, hard slog through enemy territory will be the only option.
Conclusion
When entering hot new cannabis markets, time is of the essence. Demand is high, and supply is low. Cultivators that can rapidly launch their business and come to market with quality product will enjoy high price points and a profitable operation.
However, demand will not always outstrip supply, so the first few years of a cultivation business could be the most lucrative.
Turnkey cultivation projects can offer the entrepreneur a chance to seize this market opportunity with less risk, less downtime, and a greater likelihood of success.
The post How to Save $200,000 (and Lose $3 Million) Launching Your Cultivation Start-Up appeared first on Cannabis Business Executive – Cannabis and Marijuana industry news.
