The Big Myth About Growing Cannabis

Cannabis is Really Hard to Grow Consistently at Scale

Stanford professors are no dummies. And Keith Humphreys is not only smart, but has served multiple Presidents and was even honored by the Queen of England. But there is a big difference between helping create government drug policy for decades and knowing just how hard it is to grow high-quality cannabis consistently at scale.

And the Honorable Professor Humphreys is not the only smart person who believes that cannabis is easy to grow. After commenting on this tweet, I drew the attention of noted money manager and short seller, John Hempton of Bronte Capital, who also believes that cannabis is easy to grow and that prices will keep heading down.

Along with Mr. Hempton and Professor Humphreys, many investors also believe that cannabis is easy to grow. What is remarkable about this is that all they have to do is look at the recent results of almost every major Canadian and U.S. cannabis company to see that this is not the case.

There is a kernel of truth in their beliefs. Cannabis is easy to grow in small batches, especially if you don’t really care about consistency and you only grow a strain or two. But if you want to grow at scale and grow consistently high-quality cannabis, that’s when things go off the rails.

Consider the example of Canopy Growth (NYSE: CGC). The Canadian cannabis company spent billions of dollars trying to dominate cannabis in Canada. Yet, despite spending all that money, they could not grow cannabis without mold. I highly recommend that investors read this article from last year about Canopy’s problems. Soon after this article came out, they shut down this facility. 

If cannabis is so easy to grow, how is it possible that Canopy could not grow at scale? 

It turns out that cannabis is a very sensitive plant mainly due to the fact that the cannabis bud or flower has no real protection. Graham Farrar, the President of Glass House (OTC: GLASF), told me that you need to imagine that you are “growing an apple without the skin to protect the fruit.”

That leaves it vulnerable to mold and pests. My bet is that most investors have no idea that large cannabis farms employ “spotters.” These are employees who are trained to look for mold and pests and are constantly checking to make sure any infected plant is immediately removed, and any infestation of pests is mitigated. Pests like aphids and others can quickly spread. Ever notice how in a lot of grow facilities, employees are wearing full protective gear? That’s not to protect them, it is to protect the plants.

Then there is the consumer and their ever-changing tastes and desire to have new strains and new experiences. Investors and outside observers may have heard about the need to have the latest genetics and strains. It turns out that high-quality cannabis is very much like fast fashion. You must stay up to date on consumer preferences and the latest and most desired strains, or your flower will not sell.

Obie Strickler, the CEO of Grown Rogue (OTC: GRUSF), has bi-weekly meetings with his cultivation and sales teams to make sure they are growing the most desired strains and to make sure they don’t lose sight of what consumers want right now.

Another argument used when saying cannabis is easy to grow is that it is like broccoli or any other agriculture commodity. Could you imagine asking your friends if they had tried the latest strain of broccoli that just came out?

I can just hear the conversations: “That Cookies and Cream broccoli is lit yo!” Again investors reveal a lot of ignorance when they don’t even understand how important it is to stay on top of the latest genetic trends.

Now imagine you are trying to stay on top of different strains in different grow facilities in different states while turning harvests 4-5 times a year, all the while trying to avoid pests and mold.

Then after you grow it, there is trimming and drying and storage. And one strain may need different drying, humidity, and temperature conditions than another for the best yields and results.

This is why most cannabis farming is done in an indoor industrial setting. It is also why indoor flower prices are often three times what outdoor prices are. You need to tightly control the environment with cannabis, or you could be screwed.

Just ask most large American cannabis companies known as MSOs (Multi-State Operators). I’m sure top MSO executives used to believe it was easy. I bet you they don’t believe this anymore. Go to any competitive state where cultivation licenses are not limited, and you will either find no presence by large MSOs or they are not the top selling flower. A great example is the state of Massachusetts. Many of the top companies have excess capacity and some like Curaleaf (OTC: CURLF) are even shuttering their capacity. And then there is MariMed (OTC: MRMD), which is selling out, has the number one selling flower, and commands a price at least twice what the average flower price sells for.

I have heard that Cookies, the global brand, and asset light cannabis brand, has had numerous difficulties in the US and Canada sourcing the highest quality product from growers and struggles to maintain the quality and consistency that they demand.

And here is the key point: no one has ever grown cannabis professionally at scale like this before. Yes, people have grown cannabis illegally and consumed it illegally, but no one has ever tried to make consistently high-quality cannabis on the scale like is being done right now. In fact, some cultivators believe and have told me that it is almost impossible to grow cannabis consistently at really large scale and that only craft cultivation works. The main reason is that they know how hard it is and it has never effectively been done before.

And this is one reason cannabis prices have actually stopped going down (in the Western US prices are heading up and prices in rest of the country are stabilizing). Now that all of the crazy zero-interest rate speculative capital is gone, a lot of people, companies and investors who thought it would be easy to grow cannabis are exiting the market or shuttering capacity in mass. 

And this is why I’m obsessed (yes, I admit it) with Glass House and Grown Rogue. To me the biggest problem and bottle neck in cannabis is not limited licenses. It is operational excellence, and it is specifically answering the question of how to grow high-quality cannabis at scale and at an effective cost. How in the world can you create a brand if it doesn’t have a consistent quality, effect, and cost? I believe the companies that solve this will create a lot of value for themselves and their investors. 

What is so utterly fascinating about studying and researching cannabis cultivation is being told on one hand by investors that cannabis is easy to grow and then to hear from cultivators growing the product that growing at scale is nearly impossible. Then there is me in the middle, who acknowledges it is really hard, but is seeing a handful companies succeed in different ways.

So, whenever I hear someone say that cannabis is easy to grow and that prices will continue to go down, I immediately know they have not done any real due diligence on cultivation of high-quality cannabis and have not talked to any cultivators who are trying to scale cultivation.

P.S. This is why I love researching and am so obsessed with the cannabis space. Few are doing much in the way of due diligence, channel checks or talking to private operators about how cannabis cultivation actually works. And most investors are completely baffled or have pre-conceived notions that are easily proven false. 

This is also why I’m writing about it. I get wonderful feedback and responses all the time and I am grateful to all the industry insiders who have reached out, connected and shared their wisdom with me. I continue to learn and that is my ultimate goal.