Lack of Vertical Integration Will Kill the Basement Grower

[altitudefarmer]

Its been 1400 here since the 90's. Anyone swinging that shit is smoking some AAA. And hauling it to IL, WI, MN etc.

AAA... you got that right :-)

I can't say where it goes after patients get it.

 

[green punk]

No.

i personally havent seen beaster since 06, have you seen any since?

In nor cal prices are around >1g during harvest for things that are truly fire! its astonishing watching this go down, and while i am like many of you and trying to figure out how/where i fit in, i am still thankful for this new day!

Not first hand. Im sure its making its way through as it always has. Heres an example of the production levels coming out of Cananda. It was 2003, I was in Nassau. Partying with some folks from Houston. We discussed weed and the local market price of where we came from. They said they could get Beasters for 26. In Houston. I was surprised that it was that low, called bullshit. The guy says why do I need to lie to you? I asked is marked on the package?, A-yup M-39. A bro in FL, same time frame, shit was 32 and same mark.

Where do you think all the Coasters being produced in CO are going? yeah I said Coasters.

 

[pRiMo303]

2 things..

1) I didn't vote. Medical was good enough. I'm from the south, where a half zip is a felony.
2) Growing 20 strains no more difficult than brewing 20 styles..I'm sure Homebrew420 can back me up ;)

 

[pRiMo303]

No.

Not first hand. Im sure its making its way through as it always has. Heres an example of the production levels coming out of Cananda. It was 2003, I was in Nassau. Partying with some folks from Houston. We discussed weed and the local market price of where we came from. They said they could get Beasters for 26. In Houston. I was surprised that it was that low, called bullshit. The guy says why do I need to lie to you? I asked is marked on the package?, A-yup M-39. A bro in FL, same time frame, shit was 32 and same mark.

Where do you think all the Coasters being produced in CO are going? yeah I said Coasters.

Seen beast as high as 48 in SC.

 

[squiggly]

2 things..

1) I didn't vote. Medical was good enough. I'm from the south, where a half zip is a felony.
2) Growing 20 strains no more difficult than brewing 20 styles..I'm sure Homebrew420 can back me up ;)

Brewing 20 beers in bulk for commercial sale is 10 kajillion times more difficult in terms of overhead and maintaining ROI. If you think otherwise you're dreaming. Just buying the vats and equipment you need for this alone nevermind real estate or any of the other costs.

 

[altitudefarmer]

Where do you think all the Coasters being produced in CO are going? yeah I said Coasters.

Haha! Coasters.. No kidding. I've seen some pathetic attempts out here. I think they ship 'em back across the Rio; gives a whole new meaning to Mexi-schwag.

 

[Dorje]

I'm sure people have discussed the price of mj a lot on here. The cheapest I have heard it grown for, by a guy that employes 140+ people, was $600/lb. They sell for 115-185/oz.

I can do it for 1/3 of that at residential electricity prices, not including paying myself for my labor.

It's ridiculous how much some people spend growing a plant. In a greenhouse the cost is going to be really, really low. I'd imagine lbs going for way under $500 wholesale for medium quality stuff.

I do agree there will always be a market for high quality, and it will eventually be priced a lot higher than medium quality. Problem is most people can't actually produce really good quality especially in larger quantities, which means supply of truly top grade will be limited. I'm not really worried about it, and those that grow top grade shouldn't be too worried either. We will be fine.

 

[DowNwithDirT]

I'm not really worried about it, and those that grow top grade shouldn't be too worried either. We will be fine.

Truth.

 

[squiggly]

I just want to give everyone a huge amount of props for making this a great discussion. In the past this has become an exceedingly touchy issue on this board and people have made it super personal--it's good to see everyone making cogent arguments and keeping shit on track.

I've learned a lot in just 3 pages!

 

[pRiMo303]

Brewing 20 beers in bulk for commercial sale is 10 kajillion times more difficult in terms of overhead and maintaining ROI. If you think otherwise you're dreaming. Just buying the vats and equipment you need for this alone nevermind real estate or any of the other costs.

Wasn't trying to be a smart ass. I guess the topic was commercial growing/brewing.. I was speaking of homebrewing and growing, as thats what Im familar w. Never done either commercially. But I kill at both in my house ;)

 

[mayonnaise]

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.

the other Anheuser-Busch is called Phillip-Morris. They have already bought up tracts of cheap (relatively speaking) land in norcal. and would looove to meet everyones smoking needs.

 

[squiggly]

I can do it for 1/3 of that at residential electricity prices, not including paying myself for my labor.

As ftwendy said earlier it's about economies of scale.

It can be cheaper to scale up until you reach the tipping point. If you go over it though, you are reaching into increasing costs for less return. When you're in a perfectly competetive market what's important is not being the biggest but instead being the most optimized.

To simplify it we can think of two elements of production. Cost per unit production and revenue per unit production. Often people think these are competeting or correlated measures. In fact they're entirely unconnected for most purposes. I promise this will be as brief as possible unlike most of my explanations :)

So let's say it costs 10$ per unit to produce something at a production level of 100 units for a total cost of $1000.

Let's say it costs $8 at production level 200 for a total cost of $1600. It's plain to see that we've saved quite a bit of money there, right? Wrong.

Unfortunately supply/demand evens out this gain for us a bit (in a perfectly competetive market) because at 100 units we sell for $20/unit and at 200 units we sell for $18/unit (this is typical--we "pass the savings" to the consumer to gain an edge and they also "demand" less at this level of supply, both basically mean the same thing).

Let's say that all things being equal:

Dude A goes with production level 100

Dude B goes with production level 200

It costs Dude A $1000 to produce.
He sells at $20/unit for a total revenue of $2000
His profit is $1000

It costs Dude B $1600 to produce
He sells at 18$/unit for a total revenue of $3600
His profit is $2000

*scratches head* Wait a second. He made twice as many as the other guy, and it cost him less to make them--but somehow he only doubled the profit (which correlates ONLY to the increase in production, not the drop in cost to produce).
But what he did was bring the product to the consumer at reduced cost and so his turnover is going to be much higher--and his volume of sale/total revenue is going to ultimately be higher as well.

Now, this is where the important part comes in:
When you have 140+ people working for you, it is possible to hire one or two too many people and actually increase your cost of production rather than drop it by scaling up. That looks something like this:

100 units @ $10
200 units @ $8
300 units @ $7
400 units @ $6.50 (notice the diminishing returns)
500 units @ $6.25
600 units @ $6.50 <---------------------- Hold the fuckin phone!!!!

This is where, in a perfectly competetive market, you can bury yourself.

As the first argument demonstrated the overal profit/unit is the same no matter your production level and this leads to a business model which seeks to make money on the margins. IE, bringing down production cost, and optimizing production cost versus volume of sale in order to maximize profit.

So, you see, sometimes it's not about being the biggest guy and scaling up and up and up but also knowing when diminishing returns kick in and having the forethought not to overinvest.


The ultimate take away is that eventually revenue tops off, no matter the market--this is always true in the short term (and since bills come due in the short term this matters if you're running a business--the long term is much more about being optimized so it doesn't change much in that consideration).

While the revenue tops off the price of production after a certain point goes up and up and up. If revenue doesn't come up with it--you sink your business. The 3rd and 4th graph below illustrate this well


Here are some graphs which can bring all of this home:

 

[mr duder]

You know what I find funny is I have friends in states where you can end up in the news paper if you get caught with a few plants and they don't want the mid-grade stuff. If given a choice they will pay for quality. In 4-5-6 years I could see the inevitable price slide reaching everywhere in the USA but honestly not anytime soon. Plus people still pay insane prices everywhere else. So I don't see an overnight 75 percent price reduction happening.

 

[squiggly]

You know what I find funny is I have friends in states where you can end up in the news paper if you get caught with a few plants and they don't want the mid-grade stuff. If given a choice they will pay for quality. In 4-5-6 years I could see the inevitable price slide reaching everywhere in the USA but honestly not anytime soon. Plus people still pay insane prices everywhere else. So I don't see an overnight 75 percent price reduction happening.

The assumption everyone is making when it comes to this is that large production facilities won't be able to figure out how to produce dank.

That's a goofy ass assumption if you ask me. If it's legal for them to do it, I'd argue that they have a better chance of doing this than any of us. They have millions of dollars to spend on R&D (and botanists) to figure it out.

Don't count big business out when it comes to producing connoisseur quality weed.

I totally agree with you about people being willing to pay big bucks for the good shit. I live in a "newspaper" state and know full well that while the average cost of an 8th out here is $60--for the really good shit you can get people to pay $75, and they'll do it happily for that increased quality. These are insane prices for what it costs to produce.

The problem is assuming that dudes in basements have some kind of monopoly on dank. You don't. If the profit margins are there to be abused (as you've just said they are) then big business will spend the capital to meet demand (IE, indoor greenhouses, research, and the like).

While I admit that for now you are better than them at growing pot--what you are, generally, not better at is running a profitable business and having shitloads of money to throw at roadblocks in your path (and knowing how to throw that money wisely for maximum effect--this is where they will really fuck your ass in the long run, the economic sense will win out if its applied properly. And it will be).

If Phillip Morris gets into weed and realizes they need to grow dank (they will) motherfuckers have problems.

 

[mr duder]

The assumption everyone is making when it comes to this is that large production facilities won't be able to figure out how to produce dank.

That's a goofy ass assumption if you ask me. If it's legal for them to do it, I'd argue that they have a better chance of doing this than any of us. They have millions of dollars to spend on R&D (and botanists) to figure it out.

Don't count big business out when it comes to producing connoisseur quality weed.

I totally agree with you about people being willing to pay big bucks for the good shit. I live in a "newspaper" state and know full well that while the average cost of an 8th out here is $60--for the really good shit you can get people to pay $75, and they'll do it happily for that increased quality.

The problem is assuming that dudes in basements have some kind of monopoly on dank. You don't. If the profit margins are there to be abused (as you've just said they are) then big business will spend the capital to meet demand (IE, indoor greenhouses, research, and the like).

While I admit that for now you are better than them at growing pot--what you are, generally, not better than is running a profitable business and having shitloads of money to throw at roadblocks in your path (and knowing how to throw that money wisely for maximum effect--this is where they will really fuck your ass in the long run, the economic sense will win out if its applied properly. And it will be).

If Phillip Morris gets into weed and realizes they need to grow dank (they will) motherfuckers have problems.

Then may I ask what's your timetable that you see until the whole country is dominated by mass production? Also when I hear 500 dollar units i see cartel profits getting f'ed up not the high end market.

 

[fadetoblack1]

I live in a more recent medical state, since 2008.

No one wants anything less then frosty/dense/stinky nugs, and are happy to pay over 3k for them. You show them some nice cali outdoor and offer it to them for wayyy less they want nothing to do with it. I know a ton of people in the business in my state and honestly i dont think there is a price point i could get rid of "beasters" for. Dank on the other hand....no one can get enough.

 

[pRiMo303]

As ftwendy said earlier it's about economies of scale.

It can be cheaper to scale up until you reach the tipping point. If you go over it though, you are reaching into increasing costs for less return. When you're in a perfectly competetive market what's important is not being the biggest but instead being the most optimized.

To simplify it we can think of two elements of production. Cost per unit production and revenue per unit production. Often people think these are competeting or correlated measures. In fact they're entirely unconnected for most purposes. I promise this will be as brief as possible unlike most of my explanations :)

So let's say it costs 10$ per unit to produce something at a production level of 100 units for a total cost of $1000.

Let's say it costs $8 at production level 200 for a total cost of $1600. It's plain to see that we've saved quite a bit of money there, right? Wrong.

Unfortunately supply/demand evens out this gain for us a bit (in a perfectly competetive market) because at 100 units we sell for $20/unit and at 200 units we sell for $18/unit (this is typical--we "pass the savings" to the consumer to gain an edge and they also "demand" less at this level of supply, both basically mean the same thing).

Let's say that all things being equal:

Dude A goes with production level 100

Dude B goes with production level 200

It costs Dude A $1000 to produce.
He sells at $20/unit for a total revenue of $2000
His profit is $1000

It costs Dude B $1600 to produce
He sells at 18$/unit for a total revenue of $3600
His profit is $2000

*scratches head* Wait a second. He made twice as many as the other guy, and it cost him less to make them--but somehow he only doubled the profit (which correlates ONLY to the increase in production, not the drop in cost to produce).
But what he did was bring the product to the consumer at reduced cost and so his turnover is going to be much higher--and his volume of sale/total revenue is going to ultimately be higher as well.

Now, this is where the important part comes in:
When you have 140+ people working for you, it is possible to hire one or two too many people and actually increase your cost of production rather than drop it by scaling up. That looks something like this:

100 units @ $10
200 units @ $8
300 units @ $7
400 units @ $6.50 (notice the diminishing returns)
500 units @ $6.25
600 units @ $6.50 <---------------------- Hold the fuckin phone!!!!

This is where, in a perfectly competetive market, you can bury yourself.

As the first argument demonstrated the overal profit/unit is the same no matter your production level and this leads to a business model which seeks to make money on the margins. IE, bringing down production cost, and optimizing production cost versus volume of sale in order to maximize profit.

So, you see, sometimes it's not about being the biggest guy and scaling up and up and up but also knowing when diminishing returns kick in and having the forethought not to overinvest.


The ultimate take away is that eventually revenue tops off, no matter the market--this is always true in the short term (and since bills come due in the short term this matters if you're running a business--the long term is much more about being optimized so it doesn't change much in that consideration).

While the revenue tops off the price of production after a certain point goes up and up and up. If revenue doesn't come up with it--you sink your business. The 3rd and 4th graph below illustrate this well


Here are some graphs which can bring all of this home:

Nice graphs, Bill Nye the Science Guy :D

 

[squiggly]

Then may I ask what's your timetable that you see until the whole country is dominated by mass production? Also when I hear 500 dollar units i see cartel profits getting f'ed up not the high end market.

Won't happen until the federal laws change--but the stage will be setting itself elsewhere as soon as corporate interests believe that the federal government is moving in that direction.

Would need to see how Colorado plays out before making any kind of prediction, and even then it would just be a prediction--not a prophecy.

That's sort of what this whole discussion is about--what is going to happen. I say economic principles will dominate the space like they already do (just black market economics). Economics doesn't and shouldn't make solid or specific predictions about future events--it is meant to describe expectations and trends. It's a guide, not a map.

Economic science, in this respect, has a >95% success rate especially in short run competetive markets which ALL primary plant/produce production falls into [only excluding truffles so far as I'm aware].

Furthermore the 5% failure rate tends to be with complex markets like technology markets. Shit that grows out of the dirt economists have an excellent handle on (this is where economics was born).

 

[squiggly]

Nice graphs, Bill Nye the Science Guy :D

Graphs usually bring shit home pretty well.

During my associates degree I had to give 3 speeches on one topic (one introduction, one against my viewpoint, one for it).

I chose, predictably, drug prohibition--but I did it in a way that my teacher had never seen. She was used to seein pot heads do it and be retarded and not work hard at it at all. Little did she know I'd already written a 25ish page research paper on the economics of drug prohibition as a project in another class.

I still literally have 4 boxes of research (all of which is academic, peer-reviewed, material--and all of which I've read and thoroughly familiarized myself with).

The graphs I presented in my "for" speech dropped jaws. People literally thought I was making shit up and got pissed at me for being disingenuous.

I assured them, this was all widely accepted scientific information they were looking at--and that in fact most of the data came from the DOJ. People seriously were disgusted.

I also approached it as an argument to legalize ALL drugs, not just MJ--and that threw everyone for a loop. The truth is that one of the things holding full legalization back is that its a flawed argument (from the economic and personal liberty angles) to discuss only MJ and leave out harder drugs. It automatically makes you look like someone who simply *likes* weed versus someone making a reasonable conclusion from data.

Sometimes it's all about how you present the data, not just what data you have.

 

[ttystikk]

Squiggly's graphs assume an open market and perfectly elastic pricing, supply and demand. The reality of our market is that it is defined by its prohibition, and not by free market forces.

This fact makes predicting the eventual price and timing more of a political guessing game than an economic exercise. We can certainly see and even track trends, but that will not tell us when/if/how the Feds decide to act- and thus our market that is beholden to it.