Who would have thought the cannabis market would turn out to be one of the fastest-growing industries in the United States today?
The demand for recreational and medical marijuana has stirred a lot of business-minded cannabis enthusiasts to start their cannabis grow operation. But just like any other business, cannabis production takes a lot of specific knowledge, time, motivation, and capital.
So if you can’t even take care of a house plant, don’t bother growing cannabis!
But if you’re one of those eager and passionate first-time growers who have enough resources to start a legitimate grow operation, check out this ultimate guide.
How to Start a Grow Operation Business in the Cannabis Industry
There is more to becoming a cannabis cultivator than just watering a few plants.
Extensive knowledge and experience with horticulture and botany are a plus. Turning this into a business is a whole other aspect to consider, too.
Knowing the risky nature of a cannabis grow operation and complying with your state’s laws and legislation is necessary.
To get your cannabis grow operation business up and running, we’ve come up with the following steps to ensure it is well-planned, legitimate, and compliant:
STEP 1: Know Your State’s Regulations
Operating a grow op outside of your state’s regulations will subject you to criminal charges. You must do your research before starting your grow operation.
PRO TIP: Only trust websites whose URLs end in “.gov” for updated information.
Regulations for growing cannabis vary per state. For example, it is very likely that the rules that apply to your friend’s grow op in Oregon won’t apply to other states.
In most cases, your location within your state will determine the regulations that apply to you.
Some laws prohibit the number of plants you can grow at once or dictate the allowed location of your grow space.
- California laws only allow you to have up to six plants in your indoor grow.
- In Alaska, you are also limited to six plants, but only three may mature simultaneously.
- In Michigan, you are allowed up to 12 plants at a time.
- In North Dakota, you cannot grow therapeutic crops within 1,000 feet of any school.
- In Nevada, you cannot grow cannabis if you live within 25 miles of a state-licensed dispensary.
STEP 2: Make a Cannabis Business Plan
Much like starting any other business, setting up a Marijuana grow operation business will need a clear plan to be efficient and successful.
How much money needs to be invested to start operating? What systems should be in place? How much should products sell for to make a profit? What will the branding look like?
These are only some of the questions you should be answering when coming up with your business plan.
You have to decide the scope of your business and put into writing a decent business plan which you will need to submit to the state for licensing.
Application fees range from $150 to $20,000, averaging in $5,000. This depends on the scale of your business and the state where you operate.
A mobile grow op is usually done in an indoor space. Whether you rent or purchase a facility, make sure you have proper lighting, ventilation, water, and nutrients.
These are all necessary assets to set up. Recent surveys show it takes an average of $75 per square foot to establish these.
Other start-up costs include the following:
- Initial cannabis seeds and plants
- Building permits and contractor expenses
- Ventilation and climate control systems
- Lighting fixtures
- Plumbing fixtures
- Soil and hydroponic equipment
- Waste management system
- Security system
- Insurance premiums
- Licensing fees
- Employee training
- Packaging and logistics
Continuous operations will cost you a lot more than you think. In addition to higher taxes, you will need to consider the costs of licensing, insurance, payroll, maintenance, security, rent, and other utilities.
Among these utilities, electricity will be hefty. A pound of cannabis product will consume about 2,000 to 3,000 kilowatt hours of energy.
It is integral that you consider these running expenses when coming up with a workable budget and defining your ultimate selling price.
Your target market should be anybody who buys cannabis, whether for recreational or medical purposes. Some grow ops also involve dispensaries in their planning.
Defining your target market will help you determine the scope of your growing and distribution of the product.
Choosing the right name for your business will make you stand out from the rest. Logos, collaterals, and other marketing strategies should deliver the same consistent concept for your business to sell well.
Dispensaries work as your business partner, selling your cannabis to direct consumers. It is important to compute the optimal price for both parties to make a profit.
Because of high initial and ongoing costs, a grow op entrepreneur often invests in money-saving strategies like the use of:
- Energy-efficient facilities
- Solar power
- Closed-circuit desalination
- Reverse osmosis water systems
- Rainwater collection
These efforts help increase your profit margin.
STEP 3: Form a Legal Entity
Establishing a legal business entity is necessary to protect you from personal liability in case your grow operation business gets sued.
The common business structure types are sole proprietorship, partnership, limited liability company (LLC), and corporation.
You can form a legal entity yourself, or you can hire an agent to do it for you for a fee.
STEP 4: Register to Pay Taxes
Before you can operate any business, you will be required to register for state and federal taxes.
Most companies need to collect sales tax for goods and services they provide to customers.
You simply have to apply for an EIN (Employer Identification Number) through the IRS website before collecting and remitting sales tax.
STEP 5: Open a Business Bank Account and Credit Card
Opening business bank accounts and credit cards is key to managing the finances for your marijuana grow operation business.
In accounting and law, it is necessary to separate personal assets from the company’s assets.
This protects your personal property in case your business gets sued. It also makes accounting and filing for taxes much easier.
Business credit cards also help you get better interest rates and can help build a good credit history for future business loans.
STEP 6: Set Up a Business Accounting System
To study the performance of your business, you need to record all your expenses and sources of income. Keeping an accurate and detailed record will simplify your tax filing too.
STEP 7: Apply for the Necessary Permits and Licenses
A legal cannabis growth operation should put its application for permits and licensing fees its top priority. These costs vary from state to state.
Always remember that although you might save money from growing cannabis illegally, it’s not worth being fined, shut down, or considered a criminal.
It is still best to legitimize your operation.
STEP 8: Design and Promote Your Brand
Cannabis products do speak for themselves. But with a growing established market and consistent demand, a strong brand will help your grow op company stand out from your competitors.
Promote your brand by coming up with incentives or promos to satisfy and attract returning customers.
Laws & Regulations to Be Aware of in the Legal Cannabis Industry
The efforts of the federal government in legalizing marijuana are still a work in progress. There are variations in cannabis legalization by state and even by city.
Currently, the law allows people with physician’s recommendations to buy marijuana from licensed dispensaries. They can also grow their cannabis if they live more than 100 miles away from the nearest dispensary.
For those who wish to grow marijuana legally, you will need licenses for your equipment, real estate, and permission to cultivate.
A lot of growers currently producing marijuana are licensed by Health Canada under Access to Cannabis for Medical Purposes Regulations (ACMPR).
WARNING: The exportation and importation of these goods are still illegal.
It is important to keep yourself updated with the federal legalization of cannabis to help you plan for your next move. But for many, keeping the business close to home is still the best way to go.
How Much Does It Cost to Set Up a Grow Op?
It takes a lot of knowledge and investment to build an up-and-running cultivation facility — and a Marijuana grow op is no exemption!
The operating costs involved throughout the cultivation process of marijuana are hefty, costing at least $2,000 and as high as $8,000-10,000+, depending on how big your space is and how many plants you’re planning to grow.
But if many are chasing this green rush, undoubtedly, it is worth all the money and effort.
Cost Considerations When Operating a Medical Cannabis Business
Your cost for setting up a grow op will largely depend on how much cannabis you plan to grow.
For starters, here’s a list of cost considerations for your indoor marijuana grow operation:
Growing cannabis in an indoor grow room will cost you more per square meter than if you were to grow weed outdoors. Renting out space will cost you nearly $20 per square foot!
This is because landlords will charge more than four times for an indoor grow operation because of the risky nature of growing indoors.
However, regardless of whether you grow outdoors or indoors, the ideal environment for your grow operation will not come cheap.
Growing indoors means you won’t be able to rely on the environmental variables of growing outdoors, like sunlight and ventilation. You will need to purchase equipment to compensate for it.
Go for an energy-efficient lighting system to save up on electricity costs. Solar power and LED grow lights are good options. LED lights may come expensive at first, but in the long run, they allow you to save money to allocate more of your budget to other business expenses.
The average cost for these will be around $1,800, given you have minimal plants and without factoring in the cost of electricity.
Grow Room Ventilation
Fans and grow room ventilation are essential for humidity control, attaining the ideal growing environment for your cannabis grow.
The average cost per fan for a commercial grow is $100. If you have a massive commercial grow space, you will need a few of these.
You could spend at least $1,000 on basic equipment to create air circulation to nurture each plant. The more plants you have, the more fans you will need.
Your commercial grow room will need a lot of electricity. The cost for electricity will vary per grow room, depending on the equipment efficiency. But as earlier said, investing in an energy-efficient lighting system may save you a few bucks.
A large grow room that generates good profits will likely incur an electricity bill of $1,500 or more.
Water plays a big role in the cannabis cultivation business. Some even prefer hydroponics over the soil as their growing medium.
However, hydroponics is a thing for master growers. If you are just starting your Marijuana cultivation business, you are most likely using water to nurture your plants or flush out some soil before a harvest.
You will most likely spend the same amount of money on water as you do on electricity. A bill of $1,000 per month on water costs should be expected for a sizable grow op.
You can’t go wrong with organic living soil as your grow medium. This is the medium of choice for those who cultivate premium Marijuana plants.
Organic soil contains all the nutrients your Marijuana plants need that hydroponics simply cannot provide.
However, organic soil is not always the ideal type of medium for a commercial grow operation. Using hydroponics systems or coco coir will cost you less to set up. It has lower ongoing costs too.
The type of medium you choose will affect your ongoing costs. Expect to spend between $15 and $30 per plant.
No matter what medium you use, giving your Marijuana plants the right nutrition is key to getting quality harvests.
Most commercial cannabis fertilizers are premixed blends with nutrients, vitamins, and other chemicals that nurture your plant. These keep them strong and resistant to disease.
In general, indoor cannabis plants require more fertilizer and nutrients throughout their lifespan. The need will also vary throughout its growing phases.
Fertilizer costs will depend on the brand you choose, how many plants you’re cultivating, and the number of times you fertilize your grow. Expect to spend roughly $1,000 on fertilizers per harvest.
Feminized cannabis seeds take away the guesswork of growing marijuana. You will not waste time and resources risking whether you are growing male cannabis plants or not.
Expect to spend $30 to $60 per pack of feminized seeds. This cost will also depend on the strains you plan on growing.
How to Scale and Build a Commercial Grow Operation for Medical Marijuana
For many successful cannabis producers, business growth is top of mind. When you’ve got the hang of the growing process, developing more operations for your marijuana grow could be a good opportunity for more profit.
1. Study State Regulation
The first step to scaling your commercial grow operation is to evaluate the regulatory landscape. As more states opt to legalize marijuana, the potential is massive.
Research on a state’s residency and ownership requirements. Check what you will need to supply to operate a Marijuana business.
Because of the ever-changing regulatory landscape of growing recreational and medical marijuana, hiring an experienced cannabis attorney would be helpful.
2. Invest in an Automated System
Investing in new equipment that allows you to keep more variables constant will result in consistent harvests. This step is often taken by large-scale commercial cannabis growers.
Commercial cannabis cultivation software is also available to help growers analyze data to optimize and manage their grow op business. Incorporating technology into your cannabis cultivation will give you an edge in this increasingly competitive industry.
With this new technology, you can even identify the exact conditions that your plant needs to thrive. With this data, you can replicate the successful parameters for your whole operation and maximize profits.
Marijuana growers can also update the following systems when scaling their cannabis grow:
- Environmental monitoring & climate control
- Team management
- Compliance reporting
Frequently Asked Questions
We’ve got you covered with answers to relevant questions you might have in mind:
How Much Does It Cost to Start a Small Grow Room?
You can start with the most basic of setups at home indoors for under $2,000. You will likely produce about 200 grams that price around $10 a gram. You will enjoy several harvests per year and utilize equipment over and over again.
However, growing cannabis on a larger scale, yet within the limits of the law, is the way to go to see real benefits and profits.
You could spend about $4,000 on your setup and produce approximately 1,000 grams of marijuana in a year. At $4 a gram at least, you’re on for good business.
You can also grow cannabis with the aid of starter kits sold by Canadian companies for under $500 only. The kit includes a 2′ x 2′ grow tent, nutrients, pH drops, a digital timer, a clip fan, adjustable hangers, lighting, and CO2 bags. It’s a good deal!
More complex kits are available on the market too.
How Do You Build a Grow Op?
An ideal indoor grow op setup would be spaces like garages and spare bedrooms. Your space should be big enough to be configured either as a tent or to have your whole bedroom or storage cupboard converted into a grow room.
Your setup should also have good light coverage and should be able to allow air to circulate. Don’t use rooms with carpets, as these could hold moisture and form molds.
Lights, pumps, and fans could be noisy too. So make sure your room location will not distract any neighbors. You don’t want them complaining!
How Much Can You Make From a Grow House?
Depending on the scale of your cannabis production and cannabis sales, factoring in also your location and laws, the average annual salary for a grower would be around $50,000 to $100,000 or more.
One study suggests wholesale flower prices range from $1,000 to $2,000 depending on the cannabis quality and your location. Producers can make an average of $1 million a year, with top producers reaching profits of up to $200 million.
But having a set price for all dispensaries is impossible at the moment. With facilities adhering to a variety of rules, it is difficult to come up with a standard price.
Deciding whether to grow and sell medical or recreational marijuana will also affect the amount of money you could earn from your grow house.
The standards for medical marijuana are much higher than recreational marijuana. Dispensaries require your harvest to be of strict medical quality. Naturally, these will cost more to produce and will sell at a higher price.
Your profits will also depend on the requirements and preferences of your dispensaries. It is good to incorporate your partner dispensaries in your business plan to discuss what specific strains they prefer to buy. This is key so you can focus and position your production to their liking, assuring sales.
Do Grow Ops Smell?
YES, grow rooms can smell very funky. Marijuana plants release a volatile organic compound into the air. Their smell is described as a sweet vegetative smell with a mix of rotting cabbage and a skunk.
You sure don’t want this smell leaving the room or tent. It is important to include odor control in your grow op setup.
Mothballs or fabric softeners can mask the smell but ideally, installing carbon filters and inline fans is the way to go.
These make up the foundation of your ventilation system. They work to expel odors and heat out of your grow room and maintain the ideal growing environment.
The cannabis business is booming. Demands for both recreational and medical cannabis are increasing by the day!
Starting your own grow op is no doubt a great opportunity to make profits. But it is also important to remember that it won’t come easy.
The success of your marijuana grow operation business will largely depend on your knowledge and resources.
It’s not simply a bunch of seeds and soil! You’ll be spending a ton on electricity, water, and other supplies to operate.
But ultimately, if you start on the right foot, are complete with licenses, and produce a good product, you should be thinking of scaling your cannabis business in no time!