The legal cannabis industry may seem like a cash cow to outsiders. Although there is potential for significant profits, however Expenses associated with running a cannabis business It can be very high, especially for those at the bottom of the supply chain – the farmers.
In addition to the costs of labor, utilities, and fertilizers used to grow the crops, farmers must also pay the costs of transporting their produce to various destinations, such as processors, distributors, and retailers. They also must pay several taxes and fees that are frequently deducted by state and local authorities to obtain a cultivation license.
Growing costs: indoors vs. outdoors
the The cost of indoor cultivation is generally higher, mainly due to exorbitant rents, which can be as high as $75 per square foot in select locations. The average cost of a greenhouse and composite planting across the country is about $50 per square foot. Indoor operations are also more expensive because they require complete control of the environment, necessitating various equipment such as grow lights, temperature and humidity control systems, water technology, and automated feeders.
High-end lighting systems alone can cost small farmers up to $120,000, while security systems can exceed $50,000, and other basic equipment can cost around $150,000. Depending on the size and location of the business, a simple operation may yield a gross profit margin of only 55 to 57 percent.
In contrast, outdoor cultivation relies on natural sunlight, allowing Mother Nature to regulate environmental conditions. But given the unpredictability of the natural elements, this can be both a blessing and a curse. Land for planting outdoors ranges from $10 to $17 per square foot, although it can be much more in some locations. Automating tasks is also more difficult in external growth processes, which can lead to higher labor costs.
Operations grown in the sun can produce multiple crops per year in states with temperate climates such as California. However, in states with shorter growing seasons, such as Illinois, Ohio, Colorado, and New York, farmers must grow at least some of the crops indoors to ensure year-round production.
The cost of making a profit by growing marijuana varies from state to state. Growers, suppliers, and consultants shared insights into fees, challenges, and strategies for managing expenses to determine estimated numbers.
Nevada faced a major concern when transitioning to recreational marijuana: whether supply would meet demand. This was in part due to the state’s high taxes and fees, such as the $5,000 application fee for growers, the $30,000 initial recreational growth license fee, and the $10,000 annual renewal fee.
The cost for medical cannabis production – $5,000, initial licensing fee – $3,000, and additional costs – $1,000. The Nevada Department of Taxation also imposes a 15% tax on medical cannabis products. Local cities and counties are also allowed to levy taxes and levies. It costs hundreds of thousands of dollars to run a cannabis business before an initial sale is made when additional costs such as utilities, labor, and fertilizers are weighed.
Oregon first experienced supply shortages, which led to an increase in licensing. However, this drove flower prices down, forcing small boutique growers out of business. Thus the top producers are pressured to run lean to stay competitive. Considering that Oregon’s application fee is only $250, it is both good and bad that it is one of the lowest in the country. Furthermore, the state only taxes retail sales of recreational goods.
According to Jazen, a farmer who works for Wisely Organics, about 20% of the revenue generated from his 20,000-square-foot indoor farming is paid in federal and state income taxes. Growth allocates 5% of its budget for farming licenses and regulatory fees, 10% for utilities such as water and power, and 15% for rents and supplies.
Labor is the highest cost, at 42%, for Wisely, similar to most other farmers nationwide. Despite the state’s inclination towards technology as a substitute for workers, Wiseley places great importance on its employees. Jazen has stated that it deliberately avoids high-tech solutions, and that its most advanced machinery is a skid-steer tractor. Although they tried a pruning machine to replace the workers, they found that the product quality was higher than that of manual operation. Currently, the machine is only used for 2% to 5% of harvest batches.
Farm licenses issued by the state of Ohio are divided into two levels. The first level, Level One, allows up to 3,000 square feet of canopy space. Farmers must pay an application fee of $2,000, an initial license of $18,000, and $20,000 annually for renewal to own a license. Level II growers must pay a $2,000 application fee, $80,000 initial licensing fee, and an annual renewal fee of $200,000 to grow cannabis over 25,000 square feet.
Buckeye Relief CEO Andrew Rayburn stated that for their 60,000-square-foot farm, he set aside 2% of estimated annual revenue for payroll taxes, 3% for licensing fees, 3% for water and power, 24% for labor, and 17% for rent and supplies, and 1% for technology.
In the largest and most established markets, annual fees for applications and a cultivation license are relatively low, ranging from $135 to $8,655 and from $2,420 to $77,905, respectively. Additionally, there is a $155 masterweight licensing fee. However, taxes can be a heavy burden.
The state charges $9.25 per ounce dry weight of the flower, $2.75 per ounce dry weight of the cut, and $1.29 per ounce of fresh plant, up to a maximum of $5,000. In addition, farmers are charged an excise tax of 15% of the average market value of their crops, whether those crops are sold or not. A land use tax may be imposed by some jurisdictions even while the field is fallow, and counties and towns may impose additional taxes and levies.
Although the legal cannabis industry may seem lucrative, there are many costs involved, especially for producers. Depending on the type of cultivation used and the region, the cost of running a cannabis business can be high. Indoor cultures are usually more expensive due to the equipment requirements; By contrast, outdoor cultivation is less expensive but more difficult to automate.
Due to different taxes and fees, the cost of making a profit varies from country to country. To ensure a profit, cannabis business owners must carefully look at their pricing. Despite the difficulties that the cannabis sector is facing, it still bodes well for individuals who are willing to put in the time and effort and manage their expenses wisely.