CANNAINVESTOR Magazine January / February 2017 - Page 77

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Every cannabis conference I have been to in the last year has featured content on energy and water efficiency, or sustainability more broadly. It is a growing theme in cannabis, particularly in cultivation where energy accounts for one of the largest costs of production and we are completely reliant on a good, clean, long term water source. I have also noted that these questions remain somewhat of an afterthought, and certainly not an integral aspect of the due diligence process for investors. Energy, water efficiency, and the extent to which they factor into the design/build process, systems and technology purchasing plans, and really the entire philosophy of the company, is one of the leading validators of sustainable competitive advantage moving forward.

Looking ahead, we are about to witness the impact of scale and commoditization of the wholesale price of cannabis. Colorado and Washington are seeing a precipitous decline in cannabis prices, upwards of 17% year-over-year for the last 2 years. This has always been inevitable and there is no reason to anticipate that this trend will reverse in coming years as new entrants to the market seek greater efficiencies through the implementation of cultivation practices imported from big agriculture. Survivability will depend on cultivator’s ability to reduce costs and harvest economies of scale. Those who have learnt to grow cannabis in the shadow of the black market will need to essentially transform their approach and attitude towards key costs such as nutrients, energy, water, labor and soil. Tissue culture and micro-propagation will replace mothers and cloning, and science will replace craft in the process of breeding and developing strains that are suitable for large scale production.

All of these things should be on the radar of anyone looking to invest in cultivation. However, in this article I want to particularly address energy and water because a company’s approach towards these things will be symbolic of their approach towards efficiency and technology in general. Asking questions about energy and water is a great way to ascertain how a business will approach the oncoming challenges of competition, commoditization, and price depreciation.

The following is a set of energy and water efficiency considerations that should be a part of every investor's due diligence in cannabis cultivation: