How to Know When to Expand Your Cultivation Business

05/20/20
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        In thriving cannabis markets, demand exceeds supply. For successful cultivation businesses, expansion is the logical next step, either through organic growth or the acquisition of operational cultivation assets. Before moving forward with an expansion project, entrepreneurs should carefully determine when is the appropriate time to expand.

 

        Keep the following in mind as you contemplate whether or not to expand your cultivation business:

 

1. Current market demand for your product

The price at which you are selling your dried cannabis flower should be an excellent indication of whether or not expansion makes sense. In hot new markets, where there are few suppliers and great demand, wholesale cultivators can charge up to $4,000 per pound for indoor-grown cannabis. In more seasoned markets with multiple cultivators, wholesale prices are closer to $1000 to $1500 per pound. The closer your sales are to $4,000 per pound, the more it makes sense to expand.

 

2. Size and growth of the market

In most U.S. states, about two percent of the population become medical cannabis consumers. Lower than one percent is rare, and it typically occurs when there are few doctors willing to prescribe cannabis, or there is a very restrictive list of medical conditions for which cannabis can legally be prescribed. In Oklahoma, more than 7% of adults are registered cannabis patients, while in Ohio only 0.6% of the adult population have registered as medical patients. Markets with more patients are more attractive for cultivators to expand.

 

3. Competition

A robust cannabis market may not make the best expansion opportunity if there are numerous cultivators competing for the same customer base. In saturated cultivation markets, wholesale flower is quickly relegated to a commodity. Established markets like California and Colorado may not hold the same potential value for expansion as a state with fewer consumers that is on the cusp of legalization.

 

4. Is Recreational cannabis coming to your state?

Impending recreational cannabis legislation should be the biggest influencing factor for cultivation companies considering expansion. This situation can be even more lucrative if the state that legalizes recreational sales is bordered by states with only medical cannabis laws – or no cannabis legislation at all – since cross-border traffic contributes substantially to a state’s total recreational cannabis sales. In the first four months of Illinois’ recreational cannabis program, transactions from out of state customers accounted for twenty percent of total state sales.