By Tony C. Dreibus
Cannabis growers threatened by everything from thieves to federal raids to plant pests and diseases have another concern: The rising cost of electricity to produce their crops.
Outside of licensing fees, energy ranks as one of the top expenses for marijuana cultivators in many states – in some cases hitting $10,000 or more a month for large grows.
The high cost of electricity used to power grow lights, heaters, fans and other equipment necessary to produce marijuana can significantly cut into cultivators’ profits, which they then pass on to distributors, dispensaries, retailers and, ultimately, customers.
With power needs rising as the industry balloons and cultivation sites increasingly moving from mom-and-pop operations to large-scale facilities, many growers are exploring alternatives to producing cannabis in warehouses and implementing technology that helps lower energy use.
Growing in greenhouses, for instance, is much more cost-effective than cultivating cannabis inside, cutting energy use by about two-thirds, said Bruce Bugbee a professor of crop physiology at Utah State University. And once plants are produced outdoors, energy costs are almost zero, he said.
Double-ended, high-pressure sodium lights also help, and some cultivators are exploring the use of special lenses and fiber-optic energy systems that channel sunlight into buildings. Many have said they’re using LED lights to bring down electricity prices.
But what really helps is using natural sunlight, Bugbee said.
“It’s not hard to see the economic (benefits) of a greenhouse – the sunlight’s free,” Bugbee said. “Eventually (cannabis production) will all just all go outside. Economics will dictate that it’s grown in the most efficient way.”
According to a 2012 study by Evan Mills, a scientist at the Lawrence Berkeley National Laboratory, about 1% of all electricity used nationally at that time was funneled toward marijuana cultivation. The percentage is likely higher now that more medical and recreational marijuana programs have come online in more states.
Indoor marijuana growers in Colorado use about 200 gigawatt hours of electricity each month, or about 0.5% of all the power distributed in the state, utilities company Xcel Energy said. While that may not seem like much, it’s the equivalent of more than 285,000 homes.
“If you had a big factory making widgets you’d be using less power,” said Toni Fox, the owner of 3-D Cannabis Center in Denver, which spends about $6,000 a month on electricity to run a 10,000-square-foot, 3,500-plant indoor grow operation. “Some of my rooms are on 24 hours a day – sometimes I have to run half my rooms for 12 hours and then shut them down so I can turn on (the lights) in the other half. We’re maxing out our power usage.”
With industrial warehouses sometimes blocked together in areas where grows are allowed, finding enough power to run lights, heaters and other equipment necessary to produce marijuana indoors can severely reduce profitability.
Using that much artificial light “is a waste,” said Van McConnon, the chief executive officer of Colorado Cannabis Systems in Boulder. “It’s an environmental disaster,” he said.
But moving outside is often easier said than done. Each state sets its own laws with regard to whether they allow greenhouse production.
In California, those decisions are left up to individual jurisdictions, meaning one county will allow greenhouses while a neighboring municipality won’t. In Colorado, outdoor cultivation sites are allowed, but growers must jump through several regulatory hoops and ensure security is up to snuff.
And while growers will save money in the long run, initial costs associated with cultivating outside of a warehouse can be high. Greenhouses, fencing, barbed wire, thick walls and security guards are costly, as is installation of cameras to monitor each facility.
Government officials in many states also put those who want to grow in greenhouses through “permit hell,” said McConnon, who equated electricity use at an indoor grow to a massive data center.
“The fact is something’s got to give,” he said. Lawmakers in states where cultivation is legal “are going to have to let growers grow in greenhouses” with fewer regulations because of the incredible amount of energy indoor production uses.
Government officials and energy companies themselves are also concerned about the amount of electricity used by marijuana growers.
Boulder County, Colorado – where producers will have to use renewable energy for half of their production in 2015 and all of their output in 2016 and beyond – has implemented a fee, called a surcharge or tax by some, of 2.16 cents per kilowatt hour. That money goes toward programs that can help growers produce marijuana more efficiently.
Something needed to be done to educate cultivators on how to more efficiently grow cannabis thanks to the “astoundingly high” amount of energy they used, said Ron Flax, the county sustainability examiner. He maintains that the fee is neither a tax nor a surcharge, rather it’s a way for growers to offset their carbon footprint.
“What we’re going to be doing is giving them high resolution data they can access real time,” Flax said. A team of advisers specific to the industry will work with producers to ensure they adopt best practices and help with design of new facilities and retrofit older warehouses to maximize efficiency, he said.
Energy company Xcel assigns an account manager to customers that have “higher levels of usage” to find ways to bring down their energy costs, spokesman Gabriel Romero said. That’s across all industries, not just cannabis, which isn’t treated differently, he said.
It’s usually larger growers that work with the account managers, he said. Many large companies also work with lighting companies to find more efficient growing bulbs. The utility isn’t going to run out of energy anytime soon, but if more grow operations open in a confined area, those companies could have a problem getting enough power.
“The good news that if (growers) are spread out enough in different areas and service territories, we won’t have any issues, but it’s certainly something we’re watching,” Romero said. “We’re in good shape but we’re keeping an eye on things especially as newer operations come online.”
In Mason County, Washington, the primary utility company implemented a separate billing category on Dec. 1 for cannabis cultivators. Growers are charged 6.5 cents per kilowatt hour, plus a system charge of $1.94 per day.
Small businesses, by contrast, pay 7.15 cents per kilowatt hour but only $1.02 to $1.30 per day in system charges. Large corporations pay only 4 cents and charges of $2.06 a day. The creation of the separate category upset some cannabis business owners, who said they’re being treated unfairly.
A study by Northwest Power and Conservation Council estimates that cannabis demand in Washington State alone is forecast to rise about 35% by 2020. Energy demand to produce more marijuana, in turn, will rise by about the same amount. The council recommended growers use more efficient lighting and heating, ventilation and air-conditioning units or moving to greenhouses.
Companies that specialize in energy efficiency will increasingly move into the cannabis sector as the industry, and the amount of money coming into the space, increases, said Peter Kelly-Detwiler, a partner at Boston-based NorthBridge Energy Partners LLC.
“Now that this (industry) has come into the light, literally, we’re going to see an emergence of technologies and companies that want to meet this growing need,” he said. “And there’s a huge need to do that because it’s really wasteful. It’ll be interesting to see this thing evolve, and I expect change in a fairly short period of time.”
As marijuana acceptance increases and more states legalize cannabis, more growers are going to get into the game. That will mean an increased need for fertilizers, grow lights and electricity.
While margins for most growers are strong right now, once “we move forward with this grand experiment and legalization moves from state to state,” prices will come down, said Jon Kozlowski, a sales team leader at Growers Supply in South Windsor, Connecticut, a maker and seller of greenhouses for agriculture production.
New entries in the cannabis industry, which could include large tobacco, alcohol or pharmaceutical companies, will be business savvy and seek less-expensive ways to grow their crops, likely including energy-efficient grow bulbs for indoor growers and greenhouses for producers who want to move outside.
“We live in this age of instant information where Google gets us the answer in two seconds, so we sometimes look at an industry like cannabis and think it’s a lot further along than it is, but there’s a lot of room to grow,” Kozlowski said. “There’s so much knowledge out there. It’s just marrying the technology with all of that experience to make everything more efficient. That’s really where we see the industry going.”
Tony C. Dreibus can be reached at Tonyd@mjbizmedia.com