The cannabis industry has experienced a significant transformation in recent years, with the legalization and decriminalization of cannabis in many regions around the world. This shift has led to the emergence of two distinct yet interconnected sectors within the cannabis market: cultivation facilities and retail facilities. While both play a vital role in the cannabis supply chain, they exhibit notable disparities that have a substantial impact on the economy.
Cultivation Facilities: Nurturing the Green
Cannabis cultivation facilities are the backbone of the industry, responsible for the growth and cultivation of the cannabis plant. These facilities are typically large-scale operations that require advanced horticultural techniques, specialized equipment, and a controlled environment to ensure the optimal growth of cannabis plants. Cultivators must navigate various factors such as lighting, temperature, humidity, and nutrient levels to produce high-quality yields.
One of the most significant disparities between cultivation and retail facilities lies in their resource requirements. Cultivation facilities demand substantial capital investment for equipment, real estate, utilities, and staffing. High-quality lighting systems, advanced climate control mechanisms, and nutrient delivery systems contribute to the significant start-up costs associated with these facilities.
Beyond the financial aspect, cultivation facilities often face regulatory challenges. Licensing requirements, zoning restrictions, and compliance with state and local regulations add another layer of complexity to their operations. However, despite these challenges, cultivation facilities have a direct impact on job creation, local economies, and tax revenues. They provide employment opportunities in rural and urban areas alike, stimulating economic growth and revitalization.
Retail Facilities: The Consumer Experience
On the other end of the cannabis supply chain are retail facilities, where consumers can purchase various cannabis products, including flowers, edibles, concentrates, and topicals. Retail facilities offer a diverse range of products to cater to the preferences and needs of consumers, enhancing the overall cannabis experience. These establishments range from dispensaries to specialized stores and require a different set of considerations compared to cultivation facilities.
Unlike cultivation facilities, retail establishments tend to have lower start-up costs. However, they face their own unique challenges. Navigating a complex web of regulations regarding product labeling, packaging, and sales is crucial for compliance and consumer safety. Retail facilities must also provide a safe and welcoming environment for customers while ensuring age restrictions are strictly enforced.
Retail facilities play a pivotal role in shaping public perception and acceptance of cannabis. As these establishments become more mainstream, they contribute to the normalization of cannabis use and promote responsible consumption practices. This normalization, in turn, has implications for the broader economy.
Economic Impact: Cultivation vs. Retail
The economic impact of cannabis cultivation facilities and retail facilities extends far beyond the cannabis industry itself. Both sectors contribute to job creation, tax revenues, and local economic development. cultivation facilities often require a larger workforce due to the labor-intensive nature of plant cultivation and processing. These jobs span across various skill levels, from horticulturists and technicians to administrators and security personnel.
Retail facilities, while generally employing fewer people per establishment, create job opportunities in customer service, retail management, and education about cannabis products. Moreover, both cultivation and retail facilities contribute to the local economy through real estate demand, leasing agreements, and utilities consumption.
From a taxation perspective, both sectors generate significant revenue for local and state governments. Cultivation facilities are subject to cultivation taxes and other regulatory fees, contributing to state coffers. Retail facilities, in addition to sales taxes, often face excise taxes on cannabis products. These revenues can then be channeled towards public services, education, infrastructure, and social programs.
It’s All Economics
Having more cultivation facilities and fewer retail facilities can have detrimental effects on economic stability. The balance between suppliers and retailers plays a crucial role in maintaining a healthy economy, and an excessive skew towards either end can lead to negative consequences as we are realizing in the current economic state.
A robust economy thrives on competition, which drives innovation, efficiency, and lower prices for consumers. When there are an excessive number of suppliers combined with fewer retailers, this can create challenges in distribution and logistics. Retailers act as intermediaries between suppliers and consumers, helping to streamline the flow of products and information. When there are fewer retailers, distribution networks can become strained, causing delays, inefficiencies, and potential shortages.
Economic stability relies on a balanced employment landscape. An overabundance of suppliers with limited retailers may lead to job losses in the retail sector, affecting consumer spending and the overall labor market. This can create ripple effects across various industries and reduce the purchasing power of consumers, ultimately slowing down economic growth.
Moreover, concentration of power among a few suppliers can lead to monopolistic tendencies, stifling competition and limiting consumer choice. Monopolies can dictate prices, control supply, and hinder market dynamics, negatively impacting economic stability.
Closing Thoughts
The disparities between cannabis cultivation facilities and retail facilities highlight the intricacies of the evolving cannabis landscape. While cultivation facilities require substantial investments in equipment and compliance, retail establishments focus on creating a positive consumer experience and normalizing cannabis use. Together, they form a symbiotic relationship that drives economic growth, job creation, and tax revenues.
As the cannabis industry continues to mature, it is crucial for stakeholders, policymakers, and entrepreneurs to recognize the importance of both cultivation and retail facilities. Striking a balance between these sectors will be vital for achieving a sustainable and prosperous cannabis market that benefits not only those directly involved in the industry but also the broader economy and society at large.
Committee Blog: Working With Your Local Government as a Cannabis Cultivator
The regulated cannabis industry is inextricably linked to politics, and all politics is local — so when trying to open and operate a cannabis business, you’re almost sure to need to work with local government in some way.
To help our members understand how to start these relationships right, the NCIA State Regulations Committee hosted a webinar on how to approach local government earlier this year. That focused on identifying your relevant local authorities, how to introduce yourself, and how to properly navigate those relationships.
Once you’ve figured out who to talk to and have gotten in touch with them, they’ll often have questions about the cannabis industry, and there is plenty of good information you can proactively share as well. To help NCIA members inform their local governments about the wide range of issues surrounding our industry, we’ll be diving even deeper with a series of blog posts.
We’ll be starting this series where the whole cannabis supply chain begins: cultivation. Future posts will touch on processing, retail, and more. Even though states categorize their licenses differently, with some issuing stand-alone cultivation licenses and others combining cultivation with processing (or sometimes issuing vertically integrated licenses, with retail too), we’ll be focusing in on the various operations individually.
ECONOMIC IMPACT
When elected officials hear about a new business wanting to open in their town or city, their first question is usually, “how many jobs will it bring?” Mayors, city and town councils, departments of economic development, and other government entities are often laser-focused on building up the local economy, so explaining how your business will help them towards that goal is integral to moving your project forward.
Lucky for them, cannabis cultivation is a very labor-intensive endeavor, and you’ll likely be hiring dozens of people to staff your facility. If you’re an experienced operator who knows exactly how many people you need to hire and in what roles, let your local government know! They’ll be interested to see the range of responsibilities and necessary experience, from entry-level trimmers to mid-career managers to botanists with a Ph.D. If you’re still figuring out your exact staffing plan, providing a range of possibilities will help them understand the scale of your project. Be sure to avoid pie-in-the-sky estimates that you’ll never be able to reach — in the long run, it’s always better to under-promise and over-deliver than to make it seem like you were pulling a bait-and-switch. Also do not forget to include all the contract jobs created by constructing or retrofitting your facility.
Beyond the sheer number of hires you’ll be making, it’s important to talk about the compensation and benefits that you’ll be providing to your employees. If you’re starting everyone above the state’s minimum wage — or better yet, starting everyone at a living wage (generally thought to be at least $15/hour) — highlight that! If you’re providing health insurance or other benefits to your hourly employees, let them know! Elected officials like to see companies doing better than the bare minimum, and love to see companies that do even more.
Your physical facility will also have an economic impact on the community that’s worth talking about. If you’re buying your building, you’ll be paying property taxes, and you can let your elected officials know just how much you’ll be contributing to the tax base. Mayors and councilors always love to see unused space being occupied, so if you’re making use of a vacant or neglected building, be sure to let them know. This goes double if you’ll be making improvements to the building that increase its value (and triple if you’re using a local construction company to make those improvements).
Finally, consider whether you will be providing any additional revenue to the local government. While some state cannabis laws do allow for local taxes, these typically apply to retail rather than cultivation. Massachusetts and some other states also make heavy use of “community host agreements,” or CHAs, where a business commits a percentage of its revenues to the local government for a limited period of time. If either of these applies to you, be sure to provide elected officials with the relevant parts of state law, and the specifics you’re willing to offer. If you plan to financially support any charities, provide details — and if you’d like some guidance on what local charities are doing the most good, just ask, since most officials would be happy to tell you some of their favorites.
PUBLIC SAFETY
Elected officials also care about public safety, but usually follow the lead of their police chief and fire chief, for whom safety is their one and only priority. It’s good to proactively highlight the ways your facility will improve public safety — if you’re installing outdoor security cameras or floodlights, those can protect your neighbors as well as yourself, and there have been multiple cases where cameras on a cannabis business have helped solve an unrelated crime.
It’s important to remember that police and fire chiefs are spread thin and need to know a little about a wide variety of topics. Unless there are already cannabis businesses in their town, they probably haven’t read the state security requirements to open a facility, so providing an overview of the state law can help demonstrate how tightly regulated you will be. Knowing that the state already has rules for waste disposal, product storage, and controlled access areas can alleviate many of their initial concerns.
Once you’ve explained the security features of your building and run through the state requirements for cannabis businesses, you should address any lingering fears or questions that they may have. Two of the most common concerns are the safety of employees while transporting product or cash, and the risk of your building being targeted by burglars looking to steal product.
Regarding employee safety, explain how you will be shipping product to processors or dispensaries. Are you delivering it, are they picking it up, or are you using a third-party transporter? If you are transporting product yourself, explain both the state requirements and your own operating procedures, from GPS tracking to using two employees for each delivery.
You should also go into detail about your banking relationships. Many people outside the industry assume that it’s 100% cash, but if you’re part of the large majority of cannabis businesses with bank accounts, let your local officials know, especially the police chief. They will be much more comfortable if they know your customers will be wiring payments directly to your bank, rather than dropping off duffle bags full of cash at your facility.
Regarding burglary, be sure to re-emphasize your security measures, from cameras and fencing to access control and alarms. Explaining the cannabis life cycle may also be helpful — since plants are not useable products for most of their life, they’re poor targets for theft. This means that cultivation facilities are not prime targets for burglars, but in the rare cases that they are targeted, you can point to examples where cameras have led to burglars’ arrests.
COMMUNITY IMPACT
While economics and public safety are almost always the top two concerns of local governments, they may also be worried about other impacts on the community and how your business will affect residents’ quality of life. Common questions include whether your facility will emit any odor, and if it will increase traffic in the area.
Cannabis is famous for its strong odor, so it’s understandable that people would ask about it. Whether your state requires it or not, it’s advisable to use charcoal scrubbers or other odor mitigation technology to prevent your plants’ odor from escaping the building. Knowing that you’re taking steps to address this concern will help elected officials feel comfortable welcoming you into their community, especially if it’s in a densely populated area.
Traffic concerns may arise, especially if there are recent news stories about mile-long lines at dispensary grand openings. You can address this easily by explaining how cannabis cultivation facilities are not accessible to the public, and the main people coming to your building will be employees and inspectors, not customers.
When built and operated properly, cannabis cultivation facilities should be virtually indistinguishable from any other commercial warehouse. Unless you have very explicit signage (which we do not recommend), most people driving or walking by will not even know that you’re a cannabis business.
GOING FURTHER
Even after you have addressed all of your local government’s concerns, there will probably be even more questions — and that’s okay! This is a great opportunity to keep the dialogue open. Be sure to stay up to date on state laws and regulations so that you can serve as a resource for local officials. Because they’re spread so thin, they will appreciate having someone like you as a go-to when they have questions about cannabis politics or the industry.
If you’re able to offer tours of your facility, that’s a great way to build relationships with your local officials while educating them about your business and the cannabis industry as a whole. They may also appreciate invitations to events hosted by state cannabis regulators, or local industry conferences where they can get broader exposure to the cannabis world.
And of course, it’s important to be a good member of your community. Whether it’s participating in local projects, supporting local organizations, or organizing your own trash clean-ups or other events, staying active and visible will help the community know that they can count on you being a good neighbor.
Be sure to stay tuned for future installments in this series, where we will be addressing other cannabis license types. Our next blog will focus on processors.
VIDEO: The Benefits of Legalizing Cannabis
In this third installment of NCIA’s animated educational video series, we explore the benefits of legalizing cannabis nationwide and beyond. Learn how ending federal prohibition can improve public safety and add economic opportunities to our communities, and how you can help.
The fastest-growing industry in the United States relies 100 percent upon the simple cultivation and harvesting of one plant, cannabis sativa — its buds, its leaves, and the diversity of organic compounds the plant provides, including THC.
If the plant is grown indoors, as is most legal cannabis in the United States, it first needs a building before it ever digs roots and spreads a canopy. The building requires complicated lights, many of which are manufactured in the United States. It demands a wilderness of HVAC networks, to maintain a healthy temperature and humidity level. Irrigation systems, potting soil and soil amendments, complex sprinkler systems in case of fire, high-tech security systems — all of these and much more must be in place before the first plant begins to rise towards the light.
And these first steps produce jobs and work: real estate professionals, lawyers, accountants, bookkeepers, electricians, carpenters, plumbers, HVAC specialists, irrigation experts, sprinkler and alarm installation technicians, factory workers. Once the building is ready, the company needs horticulture experts and trimmers, among others. And it requires ongoing work, too, from electricians and other trades specialists, as things break and need to be replaced or updated. The cultivation of the plant alone is a rapidly-developing career field.
But hands-on growing represents just one small patch of the cannabis landscape. Every step along the way, from seed to store, propagates work for people in hardhats, lab coats and blazers. And all of the jobs are Made in the USA. Even more, due to the patchwork regulatory environment, cannabis industry jobs also tend to root, and stay put, within individual states and communities.
Legal cannabis today in the United States is the ultimate homegrown industry. Detailed sales data from industry market research firm BDS Analytics reveals astounding growth within states where cannabis is legal. For example, during the first quarter of 2018 in Colorado, where sales of recreational cannabis have been legal since 2014, dollar sales of concentrates in recreational shops grew by 47.4 percent compared to the first quarter of 2017. Concentrates do not represent a tiny piece of the overall recreational marketplace: During this year’s first quarter, adult use concentrates sales hit $85.35 million, and captured a full 30 percent of the recreational marketplace. That’s an enormous chunk of the state’s mature adult use cannabis market, and yet sales still expand by close to 50% within a year.
And with all of that growth, quarter after quarter, comes increased need for workers.
States with laws that replace criminal marijuana markets with regulated industries are also benefiting from significant tax revenues that support important programs like school construction, law enforcement, and drug education. According to the National Cannabis Industry Association’s , the five states that allowed adult-use sales realized nearly $800 million in combined state tax revenue alone.
Industry investment and market research firms The Arcview Group and BDS Analytics predicted in their study US Legal Cannabis: Driving $40 Billion Economic Output that the industry will hatch 414,000 jobs in a multitude of fields both directly and ancillary related to cannabis by 2021 — everything from delivery drivers to retail sales pros to extraction technicians, warehouse workers, bakers, marketing gurus, and PhDs in pest control.
The industry’s impact is certainly felt in Colorado, which began retail cannabis sales for adult use on Jan. 1, 2014 — the first in the nation to do so. Many economic experts attribute the state’s lowest-in-the-nation unemployment rate, at least in part, to the cannabis boom.
Colorado’s ascending sales results, as well as those in the other cannabis-legal states, would likely resound with even more oomph if two difficult issues could be resolved: banking, and the ability to write off business expenses for cannabis companies.
As the industry’s leading national advocate, NCIA is working hard on both fronts.
The Small Business Tax Equity Act of 2017, co-sponsored by Rep. Carlos Curbelo (R-FL) and Sen. Ron Wyden (D-OR), seeks to let cannabis companies operating legally under state law to implement business-related tax credits or deductions for expenses — the entire issue is often referred to simply as 280E (the applicable section of the tax code) as shorthand. For now, the federal government treats marijuana sales in legal states the same way it treats sales of illegally-trafficked drugs — needless to say, people illegally selling controlled substances cannot itemize tax deductions or claim business-related tax credits but NCIA believes that state-licensed businesses should not be caught up in the wide net cast by 280E.
Meanwhile, the Secure and Fair Enforcement (SAFE) Banking Act seeks to provide a “safe harbor” and additional protections for depository institutions that want to engage with cannabis companies that are in compliance with state law. Rep. Ed Perlmutter (D-CO) and Sen. Jeff Merkley (D-OR) are co-sponsors of this important legislation, which finally would, among other things, provide cannabis companies access to bank loans — taken for granted in most industries, but long outlawed in legal cannabis.
The success of the industry truly astounds despite such profound roadblocks. Success in alleviating such banking and taxation headaches would further stoke what is already the hottest industry in the country.
Research into the economic benefits of cannabis legalization and regulation is just beginning, and for now it remains too early to make definitive declarations about how legalization will influence the economic path of different communities. Undoubtedly the effects will vary from location to location — the effect on San Francisco, for example, may be entirely different from the effect on Fort Collins, Colorado.
One early study, conducted by the University of Colorado-Pueblo’s Institute of Cannabis Research, found that legalization in Pueblo, a diverse, blue-collar area about two hours south of Denver, could be responsible for the County’s recent success. In addition, the study rejected predictions that legalization would bring increased homelessness and crime to the region.
“When compared to similar communities in states where cannabis is not legal in any form, Pueblo appears to be doing better on a variety of measures,” the study says. “Overall, the positive changes that are noticed in Pueblo County, such as increasing real estate values, higher income per capita, and more construction spending may be attributed to legalization of cannabis in the state of Colorado.”
To date, cannabis still represents a fairly small slice of the employment pie in Colorado. A recent study conducted by the Federal Reserve Bank of Kansas City estimated the industry directly supports 17,821 jobs today. The study’s author writes: “Employment in the marijuana industry is a relatively small share of total employment in Colorado, but in recent years it has been one of the state’s fastest-growing industries,” adding that between 2016 and 2017 jobs in cannabis rose by 17.7 percent.
The study also noted the effect Colorado’s cannabis industry has had on state government coffers; in 2017 alone, it added $247 million to the budget. Cannabis tax receipts go to a variety of places. The state’s Building Excellent Schools Today school construction program, for example, receives the first $40 million from excise taxes on wholesale cannabis, and Colorado Gov. John Hickenlooper recently signed a bill that will drastically increase this amount. Local governments receive another 10 percent of the taxation haul.
Nationwide, the cannabis industry now supports close to 10,000 active cannabis licenses — that is, businesses that need licenses to grow, manufacture, distribute or sell the plant, according to CannaBiz Media, which tracks marijuana licenses. These “touch-the-plant” businesses are the sturdy and rapidly expanding trunk of a flourishing industry — without them, none of the other jobs and businesses that are sprouting up around cannabis sales today would exist.
But if touch-the-plant businesses are the trunks of the industry, the branches, leaves and flowers are the ancillary jobs — those that don’t grow, manufacture or sell marijuana directly. Of those anticipated 414,000 cannabis jobs by 2021, many will not sprout directly from licensed businesses. For example, software developers targeting the cannabis industry are flourishing. Entrepreneurs across the country are opening factories that make everything from plastic containers and child-safe bags for cannabis, to customized extraction equipment. New legal, public relations, marketing, and other professional services appear every day that revolve around the industry.
During a recent economic conference, Ian Siegel, the CEO of ZipRecruiter, which is a prominent job recruitment marketplace, said of cannabis: “Twenty-nine states have legalized marijuana [in some form]. There’s a 445 percent job growth in job listings in the category year-over-year.” By comparison, Siegel said other hard-charging industries like technology and healthcare lag far behind, with job growth at 245 percent and 70 percent respectively. He also noted that cannabis jobs expansion grew at a more rapid pace during Q4 2017, which saw an increase of 693 percent compared to the previous year.
As growth rockets ahead (new jobs, workers with new skills, growing tax revenues, etc.), the same trajectory is beginning to rise in Canada, where adult-use cannabis use is expected to begin later this summer. Despite Canada’s relatively small size — with a population of 35 million, it is smaller than California and dwarfed by the United States population of nearly 326 million — it enjoys a distinct advantage on the global stage: Canada allows cannabis exports. Growers and manufacturers in Canada ship cannabis to Germany, Israel and other countries that seek cannabis for their medical programs (only one other country in the world, Uruguay, enjoys legal adult-use cannabis use and sales). This is a fairly small market, for now. But as more and more countries embrace the medical, if not adult-use, benefits of cannabis, it is a marketplace destined to expand and grow increasingly dynamic. Permitting cannabis exports remains another NCIA priority.
Either way, the cannabis revolution is here, across the United States — where it all began. It is the ultimate homegrown industry, one we all should embrace, nurture and strengthen. It’s good for America, and good for America’s cities, towns and citizens.
This post was co-authored by the National Cannabis Industry Association, the largest cannabis trade association in the U.S. and the only one representing cannabis businesses at the national level and BDS Analytics, the leader in providing comprehensive cannabis market intelligence and consumer research. Learn more about NCIA by visiting: thecannabisindustry.org. Learn more about BDS Analytics by visiting: bdsanalytics.com.
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