In the 1980s, American farmers confronted a major economic crisis that changed the landscape of rural America and resulted in a near collapse of small farms in the United States. So-called factory farms began dominating the agricultural industry, driving prices into the ground for corn, soybeans, cattle, and everything else they touched.
The “farming crisis” devastated small towns in the Midwest. As more and more family farmers were driven out of business, so were the rural communities that relied on their revenues. In 1990, small and medium-sized farms accounted for nearly half of all agricultural production in the U.S. These days, they represent less than a quarter.
On the West Coast, a similar dynamic is playing out in rural areas that have relied on income from cannabis cultivation, both legal and underground, for the better part of the past fifty years. Last year, Tim Blake, founder of the annual Emerald Cup competition, estimated 50 percent or more of the small farmers in California’s Emerald Triangle would be out of business by spring 2023. After watching the per-pound wholesale price for outdoor cannabis drop from about $1,500 to $500 over the past few years, Humboldt County even agreed to suspend its county excise tax for two years to give farmers a break. The state also rescinded its cultivation tax.
Nevertheless, the struggles of craft farmers up and down the West Coast now serve as a cautionary tale for small cultivators across the country.
In 2023, the industry is at a saturation point, and there is little or no room for error anymore. And it’s not just small farmers in the crosshairs. Large multistate operators (MSOs) are able to raise funds through investors and the stock market, but they’re also quick to fall when revenues fail to meet expectations and investors lose patience with slumping returns.
Today, commercial cultivators that aren’t employing state-of-the-art grow technologies and running lean operations are not long for the industry. “Cost of production” may be the three most important words for small growers and medium-to-large regional companies to keep in mind moving forward. And there is work to be done on the marketing and branding front to compete with large operations’ economies of scale that, like factory farms, are starting to drive down prices.
As cannabis becomes more commodity crop than boutique experience, can craft growers, regional companies, and MSOs avoid the fate of family farms? Yes, if they’re willing to address the market that currently exists instead of the one that used to be.
Creating a successful cultivation facility in today’s industry is much more complex and expensive than it was ten, or even five, years ago. With major advances in lighting, fertigation, HVAC, data collection, and virtually every other aspect of the process, today’s cultivation scene is a high-tech, high-stakes undertaking from start to finish. As the industry continues to grow and the competition heats up, a new breed of professional cannabis operators is emerging. In order to achieve product quality and consistency, commercial producers must stay lean while also meeting the high, yet often fickle, demands of both medical and adult-use customers in emerging markets across the country.
As the senior director of cultivation at Deep Roots Harvest, Chris O’Ferrell manages one of Nevada’s largest cultivation companies. He also has managed a number of other large operations in a half-dozen states over the years. According to O’Ferrell, Nevada has “lots of craft growers and medium-sized operators and a few very, very large operators as well. Each cultivator produces different levels of quality across the board. Each of our rooms has about 1,500 square feet of flower canopy, so it’s easier to manage than the 60,000-square-foot bays I’ve worked with before.”
He uses a vetting process to determine which strains perform best, looking for plants that are free of diseases and resistant to drought, pests, and pathogens—no easy feat with so many viruses infecting grows from coast to coast. The process of choosing the “right” strains is an ongoing challenge for O’Ferrell and his team. “If they are performing well in clone and flower, we look for unique terpene profiles, strains that smell and taste good and test well. If things aren’t yielding as well as we would like them to, we won’t run as many of them as often, and we’ll ramp those down and bring in other strains to take their place to see how they work out.”
Jason MacDonald operates on the other end of the spectrum. At Native Roots Cannabis, he runs one of the largest grows in Colorado. The company was one of the first licensed cultivators in the state and remains one of the biggest players, with nearly 500 employees on the payroll. As director of cultivation, MacDonald evaluates flower lines at the company’s 60,000-square-foot facility as well as its smaller research-and-development facility, where it grows a Gold Label line.
“Our philosophy is ‘Let’s produce the best-quality flower we can for the cheapest we can,’” he said. “Some of the things we’ve been trying to do recently include reducing the number of plants we’re growing and increasing the amount we make off each plant.
“This industry is a whirlwind, it’s all over the place, so what made sense last year does not make sense this year,” he continued. “It’s a challenge of just always watching the market and being able to turn as quickly as possible without making huge mistakes.”
Craft growers focus on quality
While large regional players like Native Roots continue to scale up, MSOs that are firmly established in many of these areas are starting to exert their market muscle by driving down prices and, in some cases, using loss leaders as bait to lure retailers and consumers to their other offerings. These strategies, already common in the retail food and beverage realms, threaten to weed out many of the smaller and midsize companies that can’t afford to play the long game.
“I would say MSOs definitely use their bigger footprint to their advantage,” said O’Ferrell, who previously served as the director of cultivation for Curaleaf’s Ohio operations. “They grow at much larger scales, which allows them to drive their production costs down. And in a lot of cases, unfortunately, they sacrifice quality in doing so, which a lot of growers don’t like. It’s a different environment there.”
For large commercial growers and MSOs, craft growers represent a particularly difficult challenge. Matching the quality of flower grown in small, tightly controlled environments isn’t easy in 50,000-square-foot mega-facilities. This is especially true in markets on the West Coast, where thousands of craft growers have spent the past few decades honing their skills and producing popular new genetics. O’Ferrell said many of the MSOs simply avoid the competitive markets on the West Coast because they prefer to operate in limited-license states where competition is less fierce.
“There’s a reason why Curaleaf pulled out of all the West Coast states,” he said. “If they were able to compete, they probably would have stayed. Craft growers are focused on bringing unique and novel cultivars to the market, whereas MSOs focus on things like licensing deals or royalty deals, which look good on paper but never really pencil out.”
Like in any other new industry, determining how fast and how far to grow a cultivation business is a tricky equation. Just ask any of the large Canadian companies that have failed over the past several years. For MSOs and large regional companies in the U.S., the business decisions they make over the next year or two could determine their fate.
“To the MSOs, it’s just biomass—and that’s one of my least favorite words, because we’re all honoring a plant here,” said Brady Cobb, founder and former chief executive officer at Bluma Wellness and One Plant Florida, which Cresco Labs acquired in 2021. In 2022, Cobb’s Green Sentry Holdings acquired fourteen Florida dispensaries, a cultivation operation, and a processing facility from MedMen Enterprises. Green Sentry plans to rebrand all the stores to Sunburn Cannabis this year. “For me, the slow-dime [versus fast-buck] approach is one of building a brand’s anchor and authenticity and then leaning in on the product quality—living and dying by your product quality.”
He said high-quality cannabis is hard to come by in just about every state on the East Coast. This gives craft growers an opportunity to stake a claim in these young markets. “If you are actually judged on product quality instead of cool packaging, [the MSOs] lose,” he said. “I think consumers are starting to recognize that, and they’re going to recognize it more and more as the market continues to grow.”
MacDonald believes some MSOs have overextended themselves to the point where they are risking their very survival. “I think right now the MSOs are so overstretched that it might be their downfall,” he said. “I really think one of the things keeping [Native Roots] afloat during this reckoning is that we’re not overextended. We’re still operating off cash flow, and we don’t have major debt inside and outside the state. A lot of the MSOs went around buying a lot for fairly ridiculous prices, which made sense in 2020 and 2021 when everybody was buying weed like it was going out of style. Now they might be a little bit overextended, and it’s going to hurt them.”
Cobb agrees MSOs have a real challenge competing with both craft growers and large regional players like Native Roots and his Sunburn brand. “I compete with these big MSOs—Cresco, Curaleaf, Trulieve—and they’ve got eight or nine other states to go deal with, but I only have to focus on one,” he said.
As large regional companies start to expand their operations into other states, they will have to figure out how to compete with both the MSOs and the smaller craft producers that are setting high standards with their premium flower. One of the ways companies have adapted to a market where top-shelf cannabis fetches the best prices and budget weed sells at high volume is to pick a place somewhere in the middle.
Native Roots currently produces about twenty-five core strains, with an additional forty to fifty strains in the company’s Gold Label line or research-and-development pipeline. With such a broad variety, the company is able to compete at a range of price points from budget weed to high-end exotics. “I’m not sure our marketing department would love to hear me say this, but I feel like we’re kind of like Starbucks,” MacDonald said. “We are not the highest level of coffee you can get, but we’re good and we’re well-priced. I think that’s kind of the model we want to focus on. Now, of course, we do have a high-end line we grow in a smaller facility to try to satisfy that end of the market, but we really would like to just provide a quality product at a competitive price for the everyday consumer.”
Wendy Bronfein is co-founder and chief brand officer at Curio Wellness, one of Maryland’s largest operators. Her company is in the process of branching out to other states, with a franchise in New Jersey’s adult-use program, a license for cultivation and processing in Missouri, and a franchise in Mississippi. Given Maryland’s prime location in the Mid-Atlantic, moving into the state was an easy decision for companies looking to establish themselves in the early days of the medical market, she said. Nearly all the MSOs have a stake there.
Several years ago, Curio decided to divide up its flower offerings into three tiers—exclusive, essential, and everyday—to test different price points and consumer preferences in the medical market. After reviewing the data, the company determined its best move was to focus on just the top and bottom tiers. When adult-use sales started this summer, Curio once again shifted gears.
“It’s interesting how when the audience shifts, it gives you a new perspective on your catalog and who you’re going to talk to,” Bronfein said. “If people want more top-shelf, then we’re happy to be there. I think it’s potentially self-fulfilling because of the quality of our garden. We’ve always had strains that are very high in both cannabinoids and terpenes, and that warrants more value. If our garden continues to excel, I think we’ll just see ourselves naturally in a very strong, exclusive place.”
Branding is as mandatory for cultivators as for product brands and retailers, although the way growers go about defining and promoting their brands varies somewhat depending on their size, resources, and market.
Mendo Don, a military veteran and cultivator in California’s Emerald Triangle, has spent the past twenty years honing his skills in cultivation and other aspects of the cannabis business as a farm manager and crew-runner. He has both urban and rural roots, having grown up in Oakland, California, before migrating to Sonoma and Mendocino counties. He currently leases land from another farmer and aims to build his own brand at a measured pace, using his years of experience and trusted relationships to his advantage.
“There are small farmers who are suffering. I feel like a lot of people are calling it quits,” he said. He called California’s flower market “a raw deal for the farmers because of the way the infrastructure is set up with legalization in the state. It should have been thought out and done a lot better.”
But the state doesn’t bear all the blame, he conceded. “There’s a lot more to farming besides just watering the plants,” he said. “You need personal relationships, and some small farmers don’t have the foresight to weather the storm and figure it out.
“A lot of the stuff I’m doing has nothing to do with cannabis,” he continued. “It’s not just farming, and it’s not just cannabis. There are so many things you have to do to make [a business in this industry] work. You have to think bigger than the plant, and you have to tap into other cultures and have other relationships with those cultures that actually have meaning and weight.”
As an example, he cited a product he developed based on observations about another agrarian industry. After noticing the rose industry is what he called “dirty”—heavily dependent on chemical fertilizers and unnatural methods for keeping flowers colorful long after they’ve been cut—he began growing organic roses to complement his organically grown, full-term, sungrown cannabis. On a whim, he tried wrapping some dried petals around rolling paper and then filling the cone with flower to create an unusual pre-rolled joint. Don calls the product Rosies, and it not only has proved popular with consumers in his area but also diversified his revenue stream. “I’m ex-military, so I like to make one move and have that move make two other things move,” he said.
Cobb’s Sunburn brand operates in a medical-only market, but when he talks about brand-building efforts, the words “patient” and “medicine” rarely come up. Instead, he’s building a lifestyle following for the recreational future by positioning Sunburn like a cross between the Beach Boys and Cheech and Chong. “I’m a big surfer myself, so we’re there on the beach and I’m in the contest,” he said. “I’ve got people handing out Sunburn hats and T-shirts, and we’ve got live music at the afterparty. Those types of interactions do far more to build brand loyalty, to create that authenticity and that emotional connection, than any newspaper ad or Instagram or Twitter ad we could ever do.”
For Bronfein, brand-building has been more of a straightforward, pragmatic process and philosophy. During the pandemic, she said, Curio realized one of the critical things customers relied on was a consistent, quality product they could find on the shelves every time they ventured out of their homes. “We felt like to be successful, you had to have products that were readily and consistently available to the dispensaries, because that’s how they become successful,” she said. “It’s a self-fulfilling kind of ecosystem.”
In addition to consistency and availability, one of the things today’s consumers expect is a wide variety of strains, with new ones dropping frequently. Social media interactions can help generate enthusiasm and, consequently, sales. Looking at the craft-beer market these days, a similar phenomenon is in play: Old-school craft-beer companies like Anchor Steam are folding, while a new generation of smaller brewers is cranking out a revolving cast of heavily hopped India pale ales with elaborate designs and selling them in four-packs for as much as $20.
“That’s where that novelty comes in, the things people are looking for that they hear about from breeders and genetics companies,” said Deep Roots Harvest’s O’Ferrell. “Those guys are always coming up with something new, and they have great marketing behind it, which makes it desirable for everybody that follows them and us on social media channels.”
While Deep Roots doesn’t have a large social media presence, it does benefit from the network of companies with which it works. Some of those have many thousands of followers on Instagram. “It’s been very helpful to have those folks within our network for a number of reasons,” O’Ferrell said. “For one thing, they’re at the forefront of what’s driving a lot of sales in a lot of places, and as they release new things, it’s always good to be on the receiving end of those posts.”
Mendo Don said he believes now is a good time to start building a brand in California, as the industry in the state is entering a new stage of evolution. “I’m at a point now where I’m at capacity, and I can’t scale without some more investment,” he said. “So I’m just going to maintain and get to where I want to go, but it’s going to take me a little bit longer to get there. The investors who saw all the fuckery in the beginning with all the money coming in, it just wasn’t right. It wasn’t really about cannabis. Now I feel like we’re starting to get to a space where it’s more about the plant. So if you’re coming in and investing now after hearing all the horror stories and you’re still wanting to be part of the industry, you either know what’s up or you’re an idiot.”
Like Mendo Don, Cobb is a big believer in the cultural history of the plant and reinforces that in the storytelling and branding for Sunburn. In his case, cannabis played a major role in his family legacy. His dad, Bill Cobb, was a key player in Pablo Escobar’s drug business in Florida in the 1970s and ’80s until the feds’ “Operation Sunburn” led to his conviction for running a $300-million smuggling ring. His father’s experience provided Cobb with a unique perspective on the dynamics between today’s legal and underground markets. He said one of the biggest competitors facing craft and MSO companies alike is the illicit market, which will continue to put pressure on legal products until the price points are similar. One interesting predicament for East Coast flower companies is that illicit products grown in ideal environments on the West Coast often are of higher quality than the products bearing the same brands sold on the legal market in the East.
“The Cookies you buy in Florida right now is a lot different from what you buy in California, and I think that kind of holds true for Jungle Boys too,” he said. “So I think those Cali brands have an interesting paradox to take in. Both know how much product goes east from California, so in a lot of instances they’re competing with their own product that has a California sticker here in Florida on the [illicit] market. And then they’re trying to price their dispensary stuff at higher prices than what people can pay on the [illicit] market. That’s a pretty hard pricing compression to deal with.”