Indoor growers face challenges during winter months

Small indoor cannabis growers have difficulty competing with outdoor growers during this time of year

Cannibis grow

Fall harvest season is generally one of celebration for Washington’s cannabis industry, but for Clark County’s small growers, it marks the start of the roughest time of the year.

Outdoor growers, many of whom are centered in the Spokane Valley, harvest their sungrown crops in October. In November, they trim and cure the buds, then flood the market with inexpensive product from December through March. And small indoor growers, which make up the bulk of Clark County’s cannabis producers, just can’t compete with it, which leaves them in a tough spot, said Jim Mullen, chief operating officer of The Herbery dispensary chain in Vancouver.

“Even before legalization and recreational cannabis, this is a trend in the cannabis marketplace,” Mullen said. “You get fall outdoor crops that come in with lower price points, and indoor slows down. Clark County’s indoor growers are in a tough spot with that, there’s no doubt. They’re all trying to run lean and mean.”

Clark County currently has 25 cannabis growers and processors. The larger ones, like Cedar Creek Cannabis, Fairwinds Manufacturing and Sunshine Farms, have built enough brand loyalty and consumer demand that they’re likely to remain successful even through the lean fall harvest times. But smaller tier 1 indoor growers with little overhead face a much more challenging road – and harvest season has broken many a small businesses’ back in the industry.

Indoor growers face a host of extra costs that outdoor growers don’t have to deal with – including electricity and the installation costs of lighting, heating and humidity systems – but the advantage of indoor grown cannabis is that it can be grown all year round, whereas outdoor grown is only available during limited months.

Added to those costs are industry-wide costs of meeting regulatory changes, which happen frequently and often with little warning, and costs from increasingly strict laboratory testing, said Dave Rheins, CEO and co-founder of the Marijuana Business Association.

“It’s very, very difficult,” Rheins said. “And those things that would help growers create a more efficient business – agriculture technology, automation – that’s very capital intensive. On top of that, the federal prohibition means there’s little access to capital through any conventional means. The whole thing is stacked against small growers.”

Dave Gaines, former owner of Vancouver’s U4iK Gardens, a tier 1, said price fluctuations have been especially hard on growers of that size. After his experience running a tie-one operation in the city, he said he’s ready to move on to something different.

“It’s hard to make it as a tier 1,” said Gaines, who has been growing medical cannabis since the 1980s. “There’s not enough stores in Washington to get all your product to. Other growers come in and undermine you. It’s almost not even worth it.”

Part of the problem is that the state has allocated far more stores than have actually opened. That’s mostly due to areas that still have cannabis bans in effect. Vancouver, for instance, was allocated and eventually allowed 12 stores. Clark County, on the other hand, was allocated six stores, but has a ban in effect. Those six stores would add a lot of available shelf space for small growers, if allowed, Gaines said.

Many growers, especially the smaller ones, live from sale to sale. Shelf space is critical for them. And a good fall harvest can drive small indoor growers out of business if they don’t plan well – and sometimes even if they do.

“The indoor guys have to sell wholesale for at least $3 a gram to pay the bills,” Gaines said. “But when you have big tier 3 or tier 2 outdoor grows undermining that by a dollar or more a gram, it’s hard to stay in business. You feel like you’re going backwards the whole time.”

Many Washington growers modeled their businesses on state guidelines that suggested a $4 a gram wholesale market goal. But prices for wholesale cannabis have dropped lower than that. And with some outdoor coming in at $1.50 a gram, it’s really hard to compete, Gaines said.

Still, dispensaries like The Herbery and High 5 Cannabis, which try to highlight local Clark County growers, have helped keep some small growers around. But overall the market pressure remains extremely challenging, Gaines said.

“If there were more stores in the state of Washington, finding shelf space wouldn’t be so bad,” Gaines said. “The market is just so flooded. At the end of this month with all the outdoor growers, those small growers will be struggling to get a few thousand dollars worth of indoor product sold.”

The deluge of growers in the market looking for shelf space also affects stores, said Calista Crenshaw, owner and manager of High 5 Cannabis in Vancouver.

“We constantly have people dropping off samples trying to get on our shelves,” Crenshaw said. “We try to bring in a lot of different growers. Some you see once and never again, others you grab a hold of and never let go.”

She said she tries to work with Clark County growers whenever possible, but the high turnover on that side of the industry sometimes makes it hard to track them down.

“It’s constantly churning,” Crenshaw said. “A lot of them have new names, new grows. The licenses turn over all the time. I know it’s a constant struggle.”

The lack of consistency also baffles some consumers in the market.

“So many owner-growers, when they first start out, they’re trying to sell you their product, their pride and joy,” Crenshaw said. “But after that they hire a grower so they can go out and sell more. And when that happens they stop paying attention to their grow, and the quality goes down. That cycle repeats a lot in this industry.”

Good sales people can be hard to find, but good growers that remain focused on product while hiring quality sales staff – rather than trying to do everything themselves – often have an advantage in getting their product on shelves, she said.

Rheins said changing the way cannabis is sold could also help struggling growers. In Washington, cannabis consumers generally shop by brand name and THC counts (THC is the active component in cannabis associated with the “high” feeling). In a true agriculture market, cannabis would be sorted according to grade and quality as a commodity, Rheins said.

“We don’t have that grading yet,” he said. “We went in the other direction, which is productization.”

Eventually he thinks a grading system would be a better fit for the overall industry, but since the industry is based on marketing right now, he also suggested that small companies focus on their sales staffs.

“I think eventually we’ll see some sort of exchange where price values are set broadly,” Rheins said. “Of course, some people will never sell into a system like that. But at this point, while we’re in a state by state market, things are likely to remain fragmented.”