MJBizMag August 2020 - 57

INCENTIVE FOR SUPPLIERS TO CONTINUE PROVIDING PRODUCTS TO THE ILLICIT MARKET
Chart 6: Estimated Production Costs Per Pound of Marijuana: Indoor Illicit Grow vs. Legal Indoor Grow
Es�mated Produc�on Costs Per Pound of Marijuana:
Indoor Illicit Grow vs. Legal Indoor Grow
Harves�ng*
$8
Illicit Grow
Materials
$100
Ligh�ng
$75
Ligh�ng
$75
Rent
$100
Manicuring
$130
Labor
$40
$458/pound
total
Harves�ng*
$16
Legal Grow
Materials
$100
Materials
Ligh�ng
$75
Rent
$100
Rent
$100
Manicuring
$130
Labor
$80
Drying/Curing*
$10
Drying/Curing
$5
Cul�va�on tax
$0
Harves�ng
$8
Tes�ng
$0
Harves�ng
$16
Cul�va�on tax
$154
Drying/Curing
$10
Tes�ng
$40
$705/pound
total
Drying/Curing*
$5
$0
$100
$200
$300
$400
$500
Produc�on Cost per Pound
Note: Prices based on Caulkins 1,500-foot indoor model. Assumes 10,000 square feet of cultivation space producing 4,200 pounds of cannabis per year.
*Labor-intensive processes are estimated to cost roughly double for a legal grow because of time-intensity involved in tagging each plant with RFID tags, logging nutrients and measurements
at various stages of the growing and harvesting cycles.
Source: Reason Foundation Marijuana Taxation and Black Market Crowd-Out report.
Copyright 2020 Marijuana Business Daily, a division of Anne Holland Ventures Inc. All rights reserved.
logging nutrients and measurements at various stages of the growing and harves�ng cycles.
Source: Reason Founda�on Marijuana Taxa�on and Black Market Crowd-Out report
Copyright 2020 Marijuana Business Daily, a division of Anne Holland Ventures Inc. All rights reserved.
Legal cannabis cultivators spend nearly $250 more than their illicit counterparts to grow a pound of cannabis. Cultivation and testing
make up most of the price difference.
Part of the fundamental problem with the illicit market has also been the high barriers for entry to the legal industry
including compliance costs with various state laws that easily run into the hundreds of thousands of dollars.
The costs of doing business legally are quite clear, particularly upstream in the supply chain. The average cost of
producing an illegal pound of cannabis indoors is only $458, contrasted with the average cost of $705 per pound for
legal indoor growers.
market supports jobs and fattens tax
coffers in participating states.
In the event of federal legalization,
That means there's very little financial incentive for operators who have a solid footprint in the underground
market-including out-of-state buyers for flower in places such as Texas, Georgia and New York, which are all major
destinations for illegally grown California cannabis-to even try to participate in the legal market.
however, those states might not have
much choice.
" Ultimately, interstate commerce
is going to have to be allowed, " Krane
said. " We don't really restrict the free
movement of goods across state lines. "
Dayton agrees that interstate business
And because enforcement has failed for decades to stamp out the illegal marijuana market, there's no good reason
to think that any new wave of police tactics will work. Rather, what most in the California market are hoping for is to
quash the illicit market through economics. If legal retailers can get decent price parity with illegal operators, they
might be able to take the profit motive out of the illicit market over the long term, thereby turning the tables on their
underground competitors and removing any solid reason for them to continue doing business.
is a key component of federal legalization
fighting off the illicit market.
He pointed out that the current legal
market has built-in costs such as high
taxes and licensing fees that would be
alleviated by legalization.
By opening interstate trade, cannabis
could be grown primarily in those
regions that are best suited for it, which
would allow for larger economies of
scale, according to Dayton.
" There are states in this country that
are never going to legalize cannabis
on their own, " he added. " Federal
legalization could really make a big
difference there. "
partnering with businesses on other
continents since Day One of adult-use
marijuana legalization.
Dayton believes that in the future, most
cannabis will be grown in Central and
South America because land and labor are
cheaper in those regions and the climate
is better suited for cultivating the plant.
That likely will result in U.S. companies
developing operations and building grow
sites in countries such as Colombia or
Mexico to meet production needs.
" That's going to be the most efficient
way to grow cannabis, " he said. " That's
going to lower the price, and that relates
back to competing with the illicit market. "
SLAYING THE STIGMA
As long as marijuana is federally illegal,
12
states with point-of-sale platforms.
" People would feel more comfortable
if there was federal involvement in
enforcement of the rules. "
The public would be comforted
by the safety that comes with federal
regulations and traceability, according
to Saik.
He compared federally regulated
marijuana to how the public views
pharmaceutical medicine.
" We don't worry much about the
contents of our ibuprofen when we
buy it off the shelves, " Saik said. " The
government has a role in making sure
the products are safe. "
August 2020 | mjbizdaily.com 55
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IMPORT, EXPORT
As seen elsewhere, in Canada for
example, legalizing cannabis federally
would allow U.S. companies to export
and, more likely, import product from
overseas.
Canadian companies have been
certainly perpetuated by the federal
government's lack of legalization of
the product, " said Barry Saik, CEO
of California-based Greenbits, which
supports retailers in more than a dozen
there will be a stigma around it. A
change in the national law could go a
long way to help convince consumers to
try it for the first time.
" The stigma around marijuana is
Note: Prices based on Caulkins 1,500-foot indoor model. Assumes 10,000 square feet of cul�va�on space producing 4,200 pounds of cannabis per year.
*Labor-intensive processes are es�mated to cost roughly double for a legal grow because of the �me-intensity involved in tagging each plant with RFID tags,
$600
$700
$800

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