4 Key Challenges to Scaling Cannabis Cultivation
Editor’s Note: This article has been adapted from Chapter 2: Grow Rooms Today: A New Dawn from Getting Grow Rooms Right, written by Geoff Brown, Quest’s VP of Technical Solutions, and Dan Dettmers, Quest’s Applications Engineer.
Just as the cannabis industry has grown at a rapid rate over the past five years, the grow room environment has also experienced significant evolution.
Growers have gone from amateur to pro, seemingly overnight. As they seek to produce massive harvests and secure a place in the market, they’re coming up against several major challenges associated with producing at scale. This is a new frontier for many and a new field that requires different ways of thinking — novel solutions, many of which are unfamiliar to both long-time growers and the new entrants into the industry like engineers and equipment vendors.
The four key challenges of scaling up in this landscape are:
- Lack of experience across multiple domains,
- market and regulatory pressures,
- lack of standards,
- misapplication of traditional equipment.
These four challenges have combined to put tremendous strain on the new, modern-day cannabis companies. However, before we can hope to solve these problems, we need to first understand what the problems and challenges are and how they came to be.
1. Lack of Experience Across Multiple Domains
There are severe knowledge gaps in this industry that need to be closed before it can truly progress and mature.
The issue is not necessarily knowledge related to cultivation. As noted, master growers are experts when it comes to growing cannabis. Some of them were once amateur growers operating out of their basement or small-footprint operations, others have a Ph.D. in related fields — now they’re bringing their world-class knowledge to a newly legitimized market as employees, shareholders, executives or even founders, of new cannabis companies. Naturally, any industry that started in a basement is bound to experience some growing pains.
We want to talk about the knowledge that is missing or has serious inconsistency as it relates to how best to scale up the production environment. The ideas that applied well to basement grow-ops are not applying well to commercial indoor grow facilities — something the industry is discovering through great pain and expense.
Lack of understanding also persists among those who are ancillary to the industry, such as third-party equipment suppliers. Manufacturers are paying serious attention to the grow industry these days, as they hope to provide some much-needed solutions to many of the challenges growers are facing. Doing so successfully means big profits and the possibility of significant repeat business.
But getting traditional suppliers involved with the cannabis industry has its risks. It’s a mixed bag — you could benefit, or you could lose. They don’t all necessarily understand the growing environment. On top of that, growers — who do understand — are now dealing with products and services they never had to before, or at a scale they never dealt with before. The result is confusion, poor communication and poor implementation of proposed solutions, which often don’t hit the mark.
« It’s important to select and work with manufacturers who know the industry and offer products that are purpose-built for it. »
The inconsistency of knowledge has led to major harm, especially to growers in new markets who are scaling up to meet the demands of the market and investors looking for outsized returns on investment before commoditization at massive volume. Facilities of a million or more square feet are under construction, and huge amounts of money are being poured into these developments. But with technology and knowledge in its infancy, it’s an open question whether those dollars are being invested intelligently and put toward a facility that will work and deliver value.
2. Market and Regulatory Pressures
Pressures related to the market or regulations are a very modern challenge facing growers. Obviously, under the illicit market, someone growing cannabis at home didn’t have to worry about following any government regulations. Additionally, there were very few market pressures for them to worry about, as they most often had a captive customer base — as long as their prices were reasonable, clients were not likely to seek out another supplier.
The legal market has brought about a new landscape that changes that game dramatically.
For one, many growers are now large publicly traded companies with regulated facilities. This brings some transparency requirements, including quarterly releases of financial results. Producers are also typically expected to publish in their quarterly reports the grow yields they are achieving. There is pressure to improve financial results on a quarter-to-quarter basis, and investors want to see that production is being maximized at all facilities as quickly as possible.
The public nature of these companies means more diversity in the types of investors who hold stocks in them. Many of the new investors on the scene have less patience than the early venture capitalists or angel investors. There is now an expectation among many investors that there will be a certain level of market maturity in the cannabis industry, but that market maturity is still evolving. The industry is simply too new to expect anything else. However, with many growers relying on investors to supply the capital needed to take on the market and build up, falling short of expectations is not an option.
Cannabis markets are unpredictable and rapidly evolving. Any new markets under development are experiencing major supply shortages, as few were prepared to meet the tremendous demand among people in areas where cannabis has become legal for adult and medical use. It drives the pace of facility development to dizzying levels as growers, seeing an opportunity to grab market share early on, scale up to fill the demand. By having a large supply and brand recognition in markets where there is little product available, growers improve their chances of gaining large market share at an early stage – which has huge business and strategic value. But the execution must be done properly. For one, they need to be able to consistently produce — so avoiding mistakes that could lose crop or create inconsistent product is necessary. They also need to ensure quality and consistency even as they attempt to grow lots of crop very quickly.
Therefore, it is critical that growers scale up the right way. This is no area for a “rush job.” The idiom “buy once, cry once” applies well here — while it is slower and more expensive at first to take time to do things right, you’ll save more in the long run by way of avoiding headaches and unnecessary ownership costs.
Adding to this pressure, the varying regulatory environments also challenge growers a lot.
Some regulatory set-ups may make business less flexible and require different approaches. For example, some may require a full grow to be evaluated before the producer can receive a production permit. To minimize their capital exposure early on, this may motivate the grower to build a small first stage of their facility simply to satisfy this licensing requirement. After they go through the required harvests and receive the permit, the facility can be expanded to accommodate full production. This is a good example of how local regulations can have an impact on all aspects of growing, because it impacts the HVAC system type and design. Some types of HVAC systems are not conducive to incremental expansion. The ideal HVAC solution is one that can cost-effectively scale with additional rooms or square footage.
Another example of regulatory pressures relates to the economics of growing in a given market. Some markets that have low barrier of entry for growers and don’t limit the number of licenses are having the opposite of a supply shortage – they have an enormous glut. These markets are at or near saturation, causing the market price per gram to drop. This results in even more pressure for growers to cut costs so they can offer cheaper products. In a saturated market, one of the drivers of success for a producer is lower cost.
The economics of growing is discussed more in the next chapter, but the key takeaway is that your choice of HVAC equipment can vary significantly depending on variables like what kind of company you are, where you’re located and what the regulatory landscape looks like. These factors further contribute to challenges in the new frontier of growing at-scale.
3. Lack of Standards
One of the main reasons there is lack of consistent knowledge in the grow industry is because there are no standards in place regarding buildings and their systems. It’s seriously hurting the industry right now by contributing to the information vacuum.
« Standards are important for any industry because they help ensure the right solutions are applied, because those involved in the sector already discussed and agreed on them. The cannabis industry does not yet have any standards for buildings and systems, which makes the design process more challenging. »
In the mainstream, engineers rely on proven and documented standards in order to properly handle buildings they are not familiar with. An example are codes published by the American Society of Heating, Refrigeration and Air Conditioning Engineers — or ASHRAE. ASHRAE’s codes are used as well-defined standards relating to built environments and are applied in all kinds of buildings across North America, as well as implemented as the basis for countless local building codes. ASHRAE’s handbook has been published for many years with continual updating, with the earliest version dating to the 1920s.
However, ASHRAE’s codes are geared toward residential and commercial buildings that are primarily designed for humans. There currently are no ASHRAE standards that relate directly to indoor plant environments and few of their standards are sufficient to address the unique needs and demands of these spaces.
Of particular note in the hyper-competitive grow industry: even the folks who think they have found the answers to these challenges are not inclined to share information or insights. This “secret sauce” mentality has exacerbated the challenges by ensuring no research or data-sharing occurs in the industry. If this secrecy continues, there can be no hope for developing industry standards and best practices.
As a result, engineers are without guidance as they get involved in the design and construction of modern grow rooms. It forces them to improvise and feel their way along. They wind up inventing solutions based largely on guesswork and the application of best practices from other environments or industries. The result is a bit like trying to put a square peg in a round hole. It doesn’t quite fit.
Benefits of Standards
Standards in any industry are critical. Countless industries before have faced a similar challenge and wound up developing their own sets of standards. It’s the mark of a maturing industry and has served many useful purposes.
One key benefit of having standards is that it reduces risk for businesses. As companies in the grow industry navigate their way to market, they need a clear set of guidelines to streamline the process and minimize false moves. Investments can be made with more confidence by knowing there is a body of work that backs up any decisions that have been made. This provides a clear sense of direction for executives and investors, as well as people directly involved in projects, like engineers. It would help all parties involved to learn strategies to repeat success and create consistent and sustainable outcomes — something that’s good for everyone!
By seeking out the best standards, the grow industry can benefit from improved business economics, better efficiency, better ROI and a reduced environmental footprint.
Standards also provide a framework for innovation. As the British Standards Institution notes, agreed-upon guidelines establish “rules of the game” by “defining common vocabularies, establishing the essential characteristics of a product or service, and by identifying the best practice within the ecosystems that will ensure successful outcomes.” Most relevant for the grow business is that standards allow everyone to identify what the main issues are and then work together to find solutions. This is especially critical in the early stages of a new business ecosystem, which is exactly where this industry is in the present day.
While innovation exists to a great degree, the industry would benefit from the kind of scope and direction that comes from having a set of standards in place. That could signal to ancillary manufacturers exactly what the market needs and remove the guesswork involved in providing it by breaking down communication barriers.
You may think some standards would have been created in the 25 years of medical cannabis. While it’s certainly true that some things have changed since that industry got started, it isn’t necessarily true that the experience of the industry has translated into formalized guidelines. Nor would those standards reflect the extraordinary advancements made in industry technologies just in the past couple of years. The main standards borne out of medical grows are governmental regulations relating to quality of crop and specific chemical contents, such as level of CBD vs. THC, for example. But these are of little help to someone building a new operation today with questions relating to facility design and operation. The medical grows of before are not necessarily similar to what is being built today, especially for adult use grows — which, as a reminder, are expected to be the fastest-growing market segment in cannabis for the next few years.
The game is different now. A lot of medical cannabis operations from before were at a lower scale than what growers want to accomplish today with adult use crops and medical crops. While the plant is similar, and the facility operates in much the same ways, we know the scale is a lot bigger and that presents its own challenges.
As well, the nature of medical grows is quite different than adult-use grows. It’s important to recognize this difference, because it can have consequences in the cost of designing and operating a grow room. For example, medical cannabis operations and products are typically regulated very tightly by both the grower and government. There are a different set of regulatory requirements to follow, and there may potentially be more stringent testing required. Medical crops must be very consistent, because successful patient outcomes depend on it. People usually choose their medical product based on trial and error. Once a good solution is found, they stick with it and expect that it will be regularly available and provide the same results every time. This is obviously important for both the patient’s health and consistency of medicinal benefits as well as the grower’s business success.
Adult-use cannabis grown at scale similarly must be consistent, but its needs are driven more by the brand and its target market rather than certain regulations. A facility for adult-use grows may have different requirements in terms of its design than one intended for medical cultivation. What works for medical may not be the best or most cost-effective solution for adult use.
Standards In Progress
Clearly, the grow industry is missing out on a lot by not having building standards in place. So, what kind of work is underway now to create them?
The American Society of Agricultural and Biological Engineers (ASABE) has taken notice of the vacuum that exists today and has partnered with ASHRAE to create a new guideline for indoor growing environments: ASABE X653 guideline “Heating, Ventilating, and Air Conditioning (HVAC) for Indoor Plant Environments without Sunlight.” The author of this book is a contributing member on the developing committee. This guideline is intended to provide clarity for engineers regarding the design and operation of isolated indoor plant environments — in other words, warehouses that do not have windows and totally rely on high-performance HVAC systems to control the environment.
Certainly, one reason engineers may be prone to make mistakes in this context is because grow rooms are so different from other indoor environments. For example, unlike most other types of facilities, grow room HVAC systems normally don’t introduce any outdoor air. They are typically 100% recirculation with CO2 added, to the tune of about three times the normal ambient concentration. This is just one of many examples, all of which contribute to significantly different requirements for the design of grow room HVAC systems that engineers who are unfamiliar with this space may not realize. Not having any standards certainly does not help.
4. Misapplication of Traditional Equipment
In many cases with new grow rooms, certain solutions have been used simply because they’ve worked before in other applications. As noted, the unique nature of the cannabis growing environment means different approaches need to be taken. Many of the solutions proposed in the recent past for grow rooms are simply not sufficient and deliver poor value for growers.
There are potentially many approaches to HVAC that could be applied to this space. But some of them would be a misapplication of technology. One example is standard commercial air conditioners. These types of air conditioners been a typical choice because they’re cheap and are often used in similar large facilities. The setup is quite simple, and many engineers are familiar with how they work, so they feel comfortable applying them here.
But ordinary air conditioners are not necessarily well-suited to the grow space. This is because they have some technical limitations that may cause them to be poor performers on the metrics that growers care about, like control of humidity and ability to cool the indoor space when it’s cold outside, not to mention energy efficiency and optimal room control.
This has led to some growers to spend a lot of money on new projects that involved equipment that doesn’t work for what they need. This results in underperforming grows that cost even more money in terms of reduced yield to the company and higher operating expenses.
As a result, the predominant technologies applied are actually band-aid solutions meant to mitigate the limitations of existing equipment that was already installed. For example, supplemental dehumidification has exploded as of late. These only have a moisture removal capacity in the hundreds of pints and typically include no outdoor heat rejection device because they’re so small. This means they have no capacity to do air conditioning — only dehumidification, and any heat generated by the compressor goes back into the space. It solves the biggest challenge with air conditioners — lack of latent capacity — but this comes at the cost of adding more sensible heat to the space and thus requiring more air conditioning, which reduces efficiency.
This may not always be the best solution and is often used as a quick fix for the grower in a jam. In the long-term, more growers need to look at unitary HVAC solutions instead, particularly for large-scale operations where installing a large number of separate, low-capacity dehumidification units, paired with traditional air conditioners, is likely to represent a larger installation and maintenance cost than fewer high-capacity unitary systems. It would require hanging multiple small units inside a space, all with separate electrical and condensate lines, along with related maintenance costs due to filter changes and repairs.
Fundamentally, the misapplication of technology is largely due to lack of knowledge and understanding of the products available on the part of many different stakeholders in the industry. This goes back to engineers, but also contributing to this information vacuum are traditional HVAC suppliers and contractors.
On the side of manufacturers, one issue has been the lack of purpose-built HVAC equipment for grow rooms. Traditional large-scale manufacturers have been reluctant to invest R&D capital into producing a dedicated product for this marketplace for potentially many reasons: Indecision over how to approach the design, questions about liability due to legal uncertainties and uncertainty over whether the market opportunity was worth the required investment to make a new type of product. The cannabis market has had an arguably questionable trajectory until late 2018, with federal adult-use legalization in Canada, so the potential market size for HVAC manufacturers up until that point had been unclear.
Few manufacturers are offering purpose-built HVAC systems specifically for cannabis growing, due to reluctance to invest in R&D for a new market that was quite small until relatively recently.
The Limitations of Repurposing
For those who have entered the market, most are repurposing existing products designed for a different application. It’s not necessarily that the solution has to be designed from scratch — there are some applications that bear similarity to grow rooms that can provide a starting point. For example, indoor swimming pools have similar latent loads and operating conditions in terms of temperature and relative humidity levels. This has meant manufacturers of indoor pool dehumidifiers have been well-positioned to provide for the cannabis market — but only to a certain degree. There is still a requirement to further develop their product line specifically for grow rooms and not all have been willing to invest significantly in doing this.
Then there are applications that are not as compatible with grow rooms. One example is data center air conditioning. At face value, it would appear data centers are quite like grow rooms — they’re both isolated indoor spaces with significant heat loads that originate from equipment that require active air conditioning year-round. For data centers, the heat comes from servers while, for grow rooms, it comes from lamps. But data centers have no need to dehumidify the air — in fact, most add humidity to help reduce static electricity. Meanwhile, grow rooms have a large humidity load due to plant transpiration and evaporation from the watering system. That makes a huge difference from a science and technology application perspective. Therefore, the air conditioning equipment that works well in data centers does not usually apply well to grow rooms.
Air conditioners for data centers are great for cooling the air but are not usually designed to effectively remove moisture — that’s because data centers typically want slightly humid air to control static electricity, but grow rooms want to control humidity in fine detail to protect the plants.
Related to misapplication of technology is the poor implementation of it. For example, not all growers are familiar with the modern and high-tech building control systems of today. After all, they have never needed to use these systems before. Some growers are still sorting out their approach to building and equipment controls and not everybody understands how to properly implement them. This requires more involvement from equipment manufacturers and start-up contractors to solve. Building control systems, or specific equipment controls, may require software engineering to tailor their logic to the grower’s needs.