- Business and Employment
The Cost of Growing Pot for a Business
There is a place in Denver, CO., the House of Blooms, that is a major marijuana production facility with 70 workers who harvest weed once week. All the "weed", or pot is grown indoors. The product is sold to numerous places that sell it for medicinal purposes to those with a prescription. Of course, gone are the days when a "lid" sold for only $15-25, like everything else, it is much more for a few ounces.
Between the 18 states that allow it, there are anywhere between 2000-4000 such small businesses, many with less than 70 workers. Together, they earn a whopping $1.2 billion, just selling Cannabis, aka, weed, pot, MJ, marijuana and a host of other names.
If you are underemployed or unemployed and thinking that this might be your own business, the startup costs are significant, just be sure you live in one of the 18 states! Also, beware that the Feds and the states are not on the same page. It is still against the law according to Federal law, so DEA will or may raid your business. In Colorado, a new law passed allows anyone over 21 to buy weed from any retailer.
Many times, the startups are small, maybe 40-60 plants grown in the basement or well hidden outside. That is how Pink House Blooms began a few years ago. Today, he has 2000 plants and earns a cool $1 million from his converted warehouse in an industrial section of Denver. After a harvest, the product is stored in a secure vault. The owner has sunk in over a million dollars to get his business to where it is.
Expenses for this size of operation are high and varies, but his electric bill averages $14,000 a month and investments are continually made to increase production. Another production farm earned $4.2 million but only had a profit margin of 6%, which because of its dangers is not good.
Common to all MJ industrial level farms is the cost of labor and this is a farm. Labor costs eat about 34% of the budget. The workers in this industry are or can be the more undesirable types that most managers would never hire. Theft is an issue. Then, there is selling the product and because of the growing competition prices fluctuate. For instance, in April 2011, a pound sold for $2900 and currently is selling for $2000.
Startup businesses can also make costly errors in production because cultivating MJ does take expertise because the product must have a good dose of THC, the drug resin that provides the "high" or relief from pain. Fighting spider mites and mildew are major enemies that can ruin a crop and one mistake can damage a harvest.
One startup, a woman who had been a landscaper, is still trying after investing $500K of her own money to convert a rundown party hall into a MJ factory. Even that amount was lacking to setup reliable production because each growing space runs about $100 a square foot at minimum. She is hoping to find another investor to give her another $150K.
Since it is illegal to grow MJ from cuttings in all states, these business owners must obtain seeds to begin their plants and the chances of it creating a worthwhile plant is akin to playing the Lotto. Starting from seeds, it is hard to tell a female from a male plant. Its the female plants that are the best for MJ production. So, the gamble is immediate.
The employees for the bigger production farms pay their workers only $11 hr. Yet, their best product sells for $50-70 per quarter ounce! So, a production MJ farm is around 2000 or more plants and to start one you need at least $700,000.