Canopy Boulder, a company that has invested in 64 different cannabis companies, believes investing in cultivation is a bad idea.
Micah Tapman, Partner and Managing Director at Canopy Boulder said, “People say I'm going to invest in a grow facility in Pennsylvania or in Florida and I say, what's the lowest possible cost of production you can achieve for a pound of cannabis. $800? Bad idea.” He went on to add, “We have investors looking to get into cultivation now, who are coming in out of big agriculture who believe their cost of production per pound of cannabis can be $100-$200 a pound. It's ridiculously cheap. It's half of what producers in Colorado are able to achieve. It's going to drive all of the $600, $800, $1,000 a pound cost people out of the business.”
Doug Brown of Contact High Communications agreed saying, “It's going to be a race to the cheapest flower, and that eventually will lead to the commercial triumph of the biggest grows - the grows with the most efficiencies. I would think grows somewhere in the middle might vanish, but state laws are so quirky things might shake out differently in different states.”
The price of flower has been dropping over the past year and especially in the more mature markets of Colorado and Washington. Brightfield Group Data found that Colorado has the lowest statewide price for flower in 2017 at $218.44 per ounce. William Honaker, senior analyst at Brightfield said, “Denver is home to 200 plus grow operations or essentially two for every one dispensary. That increased output is putting pressure on prices.”
Washington state is also experiencing a boom in cultivators with roughly 550 producers in 2015 that grew to the mid 900's by early 2017. That significant increase in production Honaker says contributed to a 10.9% price drop. Rigid testing curtailed Oregon's supply and prices have risen by 10%. The latest market, Nevada has also seen prices fall 14% over the past year, but they are expected to rise as the new adult use market is needing more supply than the cultivators were prepared for. Flower prices in Nevada are the highest in the country now commanding $296.26 an ounce.
So, it's very understandable why Canopy Boulder only invests in ancillary businesses. Products and services like software, technology, consumer products and media plays around the cannabis industry is their specialty. None of their investments “touch the plant” as they say. Tapman said, “Investing in those categories is a wise thing to do.”
Another reason he dislikes cultivation investments is he feels that it's a get rich quick mentality with many looking to make a buck today. “We're not looking to make money over the next two years, we're looking to make money over the next 10-20 years,” said Tapman. He added, “We see ourselves creating long-term companies that will create tremendous wealth.”
Having said that, Tapman isn't negative on the cultivation space with regards to the products within that sector. He noted that there was a great deal of innovation around grow lights, child-resistant packaging and even nitrogen filled containers. “They could be used for tomatoes or even basil,” he said. “That to me I where a lot of this wealth will come from. Forcing innovation into agriculture.”
While Canopy Boulder is mostly known as an accelerator that seeds startups, Tapman said the company just launched a $20 million growth stage fund with the intention to take those early stage companies beyond the startup phase. “We'll make about 10 to 15 investments into cannabis related companies. I'll help shepherd those along and find exits for them. My business partner, Patrick, keeps his focus on the accelerator, seed stage side. He will continue to grow companies, to find and nurture companies through those seed stages and bring them into the industry.”