Industry Snapshot: Cultivation Lighting

Data, trends and challenges

by John Schroyer

Let there be light… lots and lots of light.

That’s the mantra of many indoor cannabis cultivators, who are constantly searching for new lighting technologies that can help them boost efficiency, increase yields and speed up the time to harvest. Hence the huge spike in demand that lighting companies serving the cannabis industry are seeing. Aside from a bevy of startups entering the field, several long-established lighting companies traditionally focused on general agriculture have pivoted in recent years to target legal marijuana cultivators across the globe. Some of those mainstream lighting companies even say that the cannabis industry now accounts for more than half of their sales.

The cannabis cultivation lighting industry is even burgeoning in states such as Illinois and New York, which don’t have their medical cannabis programs fully up and running yet.

“I see a boom in sales before a state even goes online,” said Nate Lipton, co-owner of Growers House, an online retailer of all types of lighting systems. “I think the marijuana industry is outpacing just general lighting.”

Market Dynamics

Lighting companies have an enormous market to tap: There’s an estimated 1,600-2,200 wholesale cannabis cultivation businesses in the U.S. and over 1,000 dispensaries and recreational marijuana stores that grow their own cannabis, according to the Marijuana Business Factbook.

The biggest states for companies that cater to commercial marijuana growers are those that have already legalized recreational cannabis – namely Colorado and Washington State, where retail sales are underway. Several medical marijuana states such as Arizona and California also provide ripe markets for lighting companies, as will up-and-coming recreational markets such as Oregon.

One factor lighting companies have to take into consideration is the legality and prevalence of outdoor growing. States that mandate indoor grows are ideal for lighting companies, of course. But demand is still high in markets where many cultivators grow outdoors.

“The two biggest states that are heavy with outdoor grows are California and Oregon, but even (in) those states we’re seeing a lot of development towards indoor cultivation, for a variety of reasons,” said Tim Sulzer, the horticultural sales manager of Illumitex.

Some growers prefer to cultivate indoors because they want absolute control over the environment, while others do so for security reasons. Regardless, many lighting companies say their revenues are ballooning.

“We’ve tripled every year, and this year we expect to triple again,” said Shelly Peterson, vice president of sales for Urban Gro, a Colorado-based distributor of agricultural lighting systems. Peterson’s company began selling to the legal cannabis market in 2013, and annual revenue is now in the millions, Peterson said.

Business Hurdles

Lighting systems are a vital part of any cultivation operation, unless an outdoor grower relies solely on the sun. So arguably the biggest challenges for any lighting company looking to get a foothold in the cannabis space revolve around competition and product differentiation.

At least 90% of commercial cannabis cultivators typically use high-intensity discharge lights, also known as HID lights, said Growers House’s Lipton. That segment of the market is dominated by a “flood of fixtures and lighting technology coming from Asia,” added Urban Gro’s Peterson. She named three central companies that are the biggest players in that space, including Gavita, Lights Interaction and PL Light Systems.

But there’s a growing segment of companies moving toward light-emitting diode fixtures, commonly known as LED lighting. These businesses are focused more on developing new technology to help cultivators improve yields, offering a variety of options for chemical results, and driving down the overall price of production.

One main obstacle for these companies is simply customer education. LED products are more costly to purchase and install, but they also consume up to 75% less electricity than HID technology, according to some experts.

“The technology is so early, and people had bad experiences with LEDs. They’ve been over-sold, over-hyped, and they haven’t performed,” said Jack Abbott, the founder and CEO of Intelligent Light Source, which has been engaged in research and development on a LED lighting system for use on cannabis since 2011. “We’re still early in the development of LEDs, let alone in plasma and other things that are coming down the line.”

Another LED evangelist, Chris Walker of the Swedish agricultural company Heliospectra, said longstanding grower mentality has been the biggest hurdle for his company.

“That’s no small task, in that building something that’s not HID has been a significant challenge, not just for us but for anyone that’s in the space,” Walker said.

Ceramic metal halide bulbs and fixtures represent another type of lighting technology that might gain traction in the future, said Stephen King, vice president of research and development for Surna, a climate-control company in Boulder, Colorado. King said he expects the future of the lighting market to be a battle between ceramic metal halide and LED.

“LEDs are more expensive and they’re more efficient, but ceramic metal halide bridges the gap between those two,” King said.

Trends to Watch

Looking forward, keep an eye on these emerging trends:

  • LED Will Dominate Though Growers House sells both HID and LED lighting systems, along with plenty of others, Lipton agreed that eventually LED technology will overtake HID systems and dominate the market. The reason? Energy efficiency. “LED technology as it is now is getting close, but it’s not reached a critical mass where it’s ready to replace HID,” Lipton said. “But it’s trending that way. I do expect that to happen.”

    Walker of Heliospectra estimated that in five to seven years, the 90% of growers who use HID systems will reverse course, and that 90% will use LEDs. “The most interesting business trend is going to be with the growers that have the wherewithal to test new technology, because they see that there’s this pending price war,” Walker said. “They’re going to be forced to look at, how do they reduce their cost of goods, and there’s only one way to do it, and that’s reduce your electricity charge, because that’s 50-60% of the cost of goods. And 70% of that charge is for your lights. It’s a matter of economics.”

  • Big Ag is Coming The rise of LED technology ties directly into the approach of Big Agriculture, say those in the lighting business. Growers who don’t use LED lighting run the risk of losing out to major agricultural producers who insiders expect to take over large-scale cannabis production.

    That means any smaller operations that don’t find a way to produce more craft-style cannabis could be run out of the industry.

    “We have direct knowledge of very, very large greenhouses and landowners in the traditional agriculture business who are now talking about” whether it’s time to get involved in the cannabis industry, Abbott of Intelligent Light Source said. “So you’re going to have a craft market and a commercial market. The existing growers, many are going to be blown out of the commercial market, and some of them will get absorbed…Ultimately, I don’t see how commercial growers are going to survive unless they create a special product.”

  • Moving Indoors More executives in the lighting industry fully expect that they’ll have to further adapt their products to appeal to cannabis growers who are setting up in greenhouses instead of warehouses. That doesn’t mean they’ll be out of business; it just means they’ll have to revamp their fixtures to offer something more than just lamps to be hung from ceilings.

    “In lighting, in a greenhouse, you want to permit the least amount of shadows as you can,” Peterson said. “But the indoor fixtures will not work in greenhouses. They’re way too big. They block the sun.”

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