As more growers enter the cannabis cultivation business in California, businesses are getting ready for a changing market.
OutCo Labs in San Diego's East County is not a typical cannabis business. It grows, manufacturers, and sells cannabis products at its own dispensaries. OutCo also wholesales cannabis products to retailers across Southern California.
"We sell to 60 dispensaries plus," OutCo Labs CEO Lincoln Fish said. "We’ll be in over 200 by the end of the year."
Outco has its own line of products including concentrates and vapes — items that Fish said are growing in demand.
"You aren’t getting a lot of new smokers," Fish said. "As you get new entrances to the market you get they typically go to concentrates — they go to vapes or other concentrated products — that’s where they’re going to go. People who didn’t smoke before aren’t suddenly going to take up smoking because cannabis became legal. And we’re seeing that, we’re seeing the flower a percentage of total sales we’re seeing that drop. So what you’re going to see is a lot of plants that are grown to maximize how they might come out in an extraction for example."
OutCo grows cannabis indoors which allows for a higher quality product, but it is expensive. There is lighting, air circulation, filtering, water, pest and labor considerations. Fish believes as more growers come in, the cannabis growing process will change.
"I really believe that the days of the indoor grow except for very specific niche kind of stuff — they’re kind of numbered," he said. "I think we’re going to see a lot of price compression. To grow indoors and you’ll hear different numbers from different people, but let's call it between $500 - $600 per pound is your cost to grow. To grow in a sophisticated light deprivation, light supplementation greenhouse where you’re using the power of the sun is more like $250 per pound. I think that’s the future of the industry."
Fish said the cannabis industry is not the "cash cow" it is sometimes made out to be.
"It’s far more difficult to make money in cannabis than most people realize and ultimately it’s going to be just like any other business," he said. "In terms of you have to do things efficiently. You have to watch your margins, you have to create to a real business infrastructure."
Then there’s the whole issue of competing with the black market. Illegal grows do not any regulation and are avoiding the tax burden that legal operators face.
"I’m happy to pay those taxes — I’m all for it," Fish said. "But it’s got to be — got to coincide with making it more difficult for the other guys ... . The problem with that whole black market piece is they’re using stuff all over place. They’re making products that they don’t care about how much lead is in a vape cartridge or what pesticides, they just don’t care."
Fish said he has not seen a lot of enforcement from the state on cannabis. Recently California found it received lower tax revenue than originally projected. Fish said to see that revenue grow illegal operators need to be shut down.
