Lack of Vertical Integration Will Kill the Basement Grower

[Bud Spleefman]

Initially, I was excited when I heard the Retail Sales Model won't require vertical integration. The shops will be allowed to buy from outside sources, maybe that could be me?! Yes! Unlimited plants, no patients, only a few thousand in licensing fees, wooooopeeeeee!

Wait..... why are millions of dollars being spent on Lobbyists, who don't even live in Colorado, to convince our State Legislature to allow retail outlets to buy weed on the open market? Hmmmmmm?

Then, I heard, today, about $40 million in start-up money waiting for approval to pull the trigger on two 80,000 sq ft warehouses, each featuring 2,000 lights. I heard about a complex of greenhouses, down by Pueblo, materials lists being comiled, permits being evaluated, water rights being secured, everyone waiting with baited breath for the approval to "GO FOR IT!"

$500 a lb...... shoot me now......... that's the number the big boys are talking about! This isn't going to help ANY OF US WHO DO THIS FOR LIVING.

You think you see the light at the end of the tunnel, oh wait, FUCK, THAT IS A TRAIN!

 

[squiggly]

This was always going to happen. Stuff that grows out of the ground can't be super duper expensive forever.

"Recreational" legislation is the death knell for this type of economical situation for growers. When we're talking mass production in a perfectly competetive market whoever controls overhead and optimizes is the winner.

The consumer is ultimately the winner in this model. This model grows organically from the consumer in a capitalistic economy, because as we all know the customer is king. Quality is important, but price is no slouch.

Perfectly competitive markets (which anything plant based falls into, especially primary plant goods requiring no processing) have extremely thin profit margins by the time all is said and done--so you're absolutely right this will price basement growers out of the market. For the same reason factory farms are the norm in our country versus our old-timey conceptions of farmers.

However, growing your own supply will still be worth it.


The question is a simple one, which is better?

A. Having the freedom to decide what goes in your body, and removing a totally harmless drug from the black market (a place inhabited by some pretty seedy folks--and a market which helps to fuel mass murder and terror south of our border).

OR

B. Being able to make money in a sole proprietorship that grows marijuana.


You can't have them both. It's a catch-22. Bootleggers and moonshiners had to deal with the same economic situation when prohibition ended. They were utterly crushed by big business.

The same thing will happen here, but the truth is that you've only been able to make money doing this in a sole proprietorship up to this point because the wrong thing was done a long time (i.e. marijuana was made illegal). Is it more wrong to keep that wrong thing the same, or to put the proponents of overturning it at an immediate economic disadvantage once it's righted? It's a sad tale because many of the cultivators are the guys who pushed this legislation and these viewpoints through--not realizing they were putting the nail in their own coffin in so doing.

 

[ftwendy]

economies of scale....

 

[squiggly]

economies of scale....

Precisely.

Believing big business won't ultimately take over cannabis production = not having taken an econ 101 class.

You might stave this off for awhile, but it's coming.

 

[Mr Dank]

better hoard your prized genetics!

wait, nevermind.....too late

 

[Bud Spleefman]

Precisely.

Believing big business won't ultimately take over cannabis production = not having taken an econ 101 class.

You might stave this off for awhile, but it's coming.

That only applies in Colorado. How's the price in Illinois, Squiggly? Still $4,800 a lb, I am pretty sure.......... what does your Econ class say about that?

 

[Bud Spleefman]

better hoard your prized genetics!

wait, nevermind.....too late

Hey, I am learning how "not to share" with the best of them! At least you got a Dispensary named after one of your strains, although the Golden Goat sells some of the crappiest weed in town, at least it's something......

 

[squiggly]

That only applies in Colorado. How's the price in Illinois, Squiggly? Still $4,800 a lb, I am pretty sure.......... what does your Econ class say about that?

A bit less than that, but yeah somewhere near it.

The econ class is pretty clear on it actually. It's a black market price of a good for which there is almost perfectly inelastic demand. If we "recreationalized" like Colorado, exactly the same thing would happen here as is going to happen there.

The price could be $6,000 and people would pay it (so long as no one had it for cheaper). It operates in much the same way as does a perfectly competetive market, it's just there is the added element of risk which becomes a component of the price in any black market. There is also a lack of competetition in these markets which is why the profit margins can stay so big.

I can make you a graph and write you up some formulae if you want in order to put all of this strictly in terms economic science.

To be clear, I'm not disagreeing with you that this sucks for you. I'm just telling you that within a recreational framework (i.e. full legalization) you don't stand a chance in hell of profiting out of a basement in the long run. It's hard enough to do that already. If they take the legal cap off of supply it's game over for the small time grower.

In the end I don't think that's necessarily wrong. Like I said it's only been possible for that type of grower to exist because an exceedingly wrong policy (prohibition) has been in place. Does it suck ass for guys like you? Shit yes, but would I rather see prohibition continue ad nauseum? No, it's wrong.

I live in Illinois, as you noted. This would be like me starting a corn garden in my basement and trying to bring that shit to the farmer's market--it ain't gonna work.

For awhile you'll do okay until these big factories get established, but in they end they're going to squash their competition. That's sort of why the markets are called "perfectly competetive". They profit by controlling margins, not on quality or what-have-you.

 

[fadetoblack1]

you guys think the feds will allow 2k watt grows?

some days i think they will, other days i laugh at the idea. Only time will tell.

 

[Green Mopho]

1) It will take years for the entire country to go legal, so until then, there will always be black market demand, and therefore supply.

2) $500 per pound is already a common number for cost of production. Most dispensaries are around $1.00 to $1.20 per gram cost right now. Maybe its time to cut out all the useless but fancy Canna and AN supplements and just get to business growing good pot barebones. Now the difference is just that those guys can afford to sell pounds at only $100 mark up, but why would they when a psuedo legal market will let them get away with much more.

3) If we take a lesson from Cali, there are already massive outdoor grows and large greenhouses, however the demand in LA dispensaries is explicitly for top quality indoor. Economies of scale also dictates that jobs will have to be compartamentalized and immigrant laborers will be the only option. It will take years for a single massive agricultural undertaking to attain serious quality control that most small guys already have, let alone an entire industry.

$40 million dollar facility = a whole bunch of Bud Lite weed

 

[squiggly]

$40 million dollar facility = a whole bunch of Bud Lite weed

That's totally true and that's why there will still be a niche for basement growers depending on how the legislation drops. People are always going to want Westvleteren XII and other shit like that. It's just that these will likely be fewer and further between than we even see in the beer and wine industry--because it's easier to grow 20 strains than it is to brew 20 different beers for instance.

End of the day though, fast forward to a time where there's full on federal legalization--and it's game over for the little guy basically. Even the "little guy" will be a relatively big guy.

 

[fadetoblack1]

1) It will take years for the entire country to go legal, so until then, there will always be black market demand, and therefore supply.

2) $500 per pound is already a common number for cost of production. Most dispensaries are around $1.00 to $1.20 per gram cost right now. Maybe its time to cut out all the useless but fancy Canna and AN supplements and just get to business growing good pot barebones. Now the difference is just that those guys can afford to sell pounds at only $100 mark up, but why would they when a psuedo legal market will let them get away with much more.

3) If we take a lesson from Cali, there are already massive outdoor grows and large greenhouses, however the demand in LA dispensaries is explicitly for top quality indoor. Economies of scale also dictates that jobs will have to be compartamentalized and immigrant laborers will be the only option. It will take years for a single massive agricultural undertaking to attain serious quality control that most small guys already have, let alone an entire industry.

$40 million dollar facility = a whole bunch of Bud Lite weed

Great points. I have always liked Cali's model. Room for the little guys to make money and room for the big boys to make big bucks. All while the consumer gets a fair price. Seems like the consumer is getting the same price in Colo but the growers arnt getting much.

If the price keeps falling don't you think that guys will start hanging up their lights? Think about how many thousands of people there prolly are in Colo that have 4 to 8 lights that are paying their bills growing. If they all hang it up because they cant make a living anymore, boom price goes back up....right?

It all really comes down to the fed. What do you think they are going to do?

They just busted 60 dispensaries in cali today. Why wouldn't they come in on Colo?

 

[ttystikk]

So I guess a guy who can help people grow their dank for less and less money will do pretty well in such an environment, correct?

If this is how the market is going to go, then selling growing gear to them is going to be a profitable niche.

 

[fadetoblack1]

That's totally true and that's why there will still be a niche for basement growers depending on how the legislation drops. People are always going to want Westlevren XII and other shit like that. It's just that these will likely be fewer and further between than we even seen in the beer and wine industry--because it's easier to grow 20 strains than it is to brew 20 different beers for instance.

End of the day though, fast forward to a time where there's full on federal legalization--and it's game over for the little guy basically. Even the "little guy" will be a relatively big guy.

I read an article where they interviewed an ex CEO for a big pharma company. He said that if weed was legalized federally no pharma company would want anything to do with it. They have looked into it and manufacturing marijuana has too long of a turn around time and they wouldn't be able to make enough money.

So for whatever that is worth..

 

[green punk]

Think Beasters. This game has been played in Canada for going on atleast 20 years and still goes on today. Even w an influx of that stuff from BC, well produced product always had a market. It could potentially drive up the price for real deal AAA.

 

[squiggly]

I read an article where they interviewed an ex CEO for a big pharma company. He said that if weed was legalized federally no pharma company would want anything to do with it. They have looked into it and manufacturing marijuana has too long of a turn around time and they wouldn't be able to make enough money.

So for whatever that is worth..

No one said anything about big pharma getting involved. This isn't their niche (recreation).

Another Anheuser-Busch will be born, not another Abbott. Hell, if anything big pharma has done what it can to keep the shit from being legalized as it's going to dig into their profits considerably.

 

[fadetoblack1]

No one said anything about big pharma getting involved. This isn't their niche (recreation).

Another Anheuser-Busch will be born, not another Abbott. Hell, if anything big pharma has done what it can to keep the shit from being legalized as it's going to dig into their profits considerably.

All this "big business" talk only works if it is made federally legal, fully.

I am very well read on marijuana policy and I have never once seen an article where anyone in control has even suggested anything close to federal legalization. Obama just released the budget for this 2nd term, and there is 100's of millions available for the DEA.

So what are we talking about here? lol

 

[Bud Spleefman]

Well, there are some big grows in Denver, at least 800 lights at one I know of, and you can probably see the heat signature from some satellite in space. The DEA must have offices somewhere in Denver, they drive right by 100's of grows and Dispos everyday, and I never hear about any of them getting busted unless they are doing some "other" shit, like shipping out of state, or other illegal drug sales. If they wanted to take down grows, they'd be busy for years........

 

[fadetoblack1]

Well, there are some big grows in Denver, at least 800 lights at one I know of, and you can probably see the heat signature from some satellite in space. The DEA must have offices somewhere in Denver, they drive right by 100's of grows and Dispos everyday, and I never hear about any of them getting busted unless they are doing some "other" shit, like shipping out of state, or other illegal drug sales. If they wanted to take down grows, they'd be busy for years........

A bunch got busted in cali today. I dunno what it is they have against cali..

 

[green punk]

@ Bud SMan thats some funny shit right there

Good thread!