By Steven M. Schain
They’re legalized marijuana’s “dirty little secrets;” grid-crashing energy demands and glut-producing price drops.
Permitting only energy-intensive, indoor growing facilities, neither Pennsylvania’s Medical Marijuana Act, 35 P.S. Sections 10231.101-10231.2110 and regulations promulgated under (Pennsylvania marijuana law), nor the program’s regulatory agency [Department of Health (DOH)], provide for the increased electricity demand, grid reliability or carbon footprint enlargement issues. Solutions range from restricting a facility’s square footage and marijuana output to curbing electricity use and emissions through taxes, energy use fees and renewable energy incentives.
With marijuana’s average price-per-pound plummeting 38% in 2016, more states legalizing marijuana, and national and international sales around the corner, “stabilizing the market through returning to earlier price points” seems unlikely. Beyond cultivating cannabis and relying on market demand, growers should develop a 360-degree brand, sales and marketing strategy encompassing a range of products and services.
A staggeringly energy-intensive commodity to cultivate indoors, marijuana’s heat-producing-lighting require atmosphere-controlling dehumidification, ventilation and air conditioning. Growing one pound of marijuana uses approximately 2,000 kilowatt-hours (kWh) compared to the seven kWh of energy needed to produce a pound of aluminum; the energy necessary to produce one marijuana plant equals the electricity needed to run seven refrigerators.
Further, this soaring energy use causes grid reliability issues and, where electricity generation depends on fossil fuels like coal, derails state carbon-footprint-lessening goals. In 2014, Colorado’s 1,200 licensed growers consumed about $19.6 million dollars of electricity, and in Denver, where 60 percent of electricity is coal-burning generated, annual electricity usage increased 1.2 percent impeding “power plant emission” and “overall power usage” reduction plans.
Lack of Pennsylvania Regulatory and Utility Solutions
Thirty-six percent of Pennsylvania’s electricity is generated from coal, 36 percent from nuclear power, 24 percent from natural gas and 2 percent from “renewable sources.”
Indoor growers require powering artificial light, grow atmosphere monitoring, recording and regulating systems, and 24-hour electronic security and surveillance. Because of its “coal electricity generation dependency,” this anticipated “grower energy usage surge” will greatly enlarge Pennsylvania’s carbon footprint.
Further, although the DOH divided Pennsylvania into six regions and will issue two grow licenses per region, these territories do not align with utilities electric distribution companies (EDC) existing in 11 service territories. Thus, a given EDC may be servicing multiple grow operations and neither the DOH nor the Pennsylvania marijuana law require notifying it that a grow may be constructed in its area nor restrict a facility’s square footage or number of plants that can been grown. The EDC can get blindsided.
Because not addressed by either the Pennsylvania marijuana law nor the DOH, state and local governments and agencies will be forced to tackle energy consumption and carbon footprint issues. “Electricity use and emission curbing techniques” include taxes, energy use fees (i.e., a 2-cent per kWh charge) or offsetting electricity use with renewable energy. For example, Denver’s Department of Environmental Health’s “Cannabis Sustainability Workgroup” provides grower consumption guidelines including: limiting facility’s peak demand by staggering lighting schedules to avoid overlap; reducing cooling needs by adjusting lighting schedules to coincide with lower evening temperatures; preventing multiple compressors cooling units from running simultaneously; installing real-time energy monitors tracking and controlling specific loads; and, during lower peak demand periods, scheduling sizeable, irregular electric loads like extraction production.
Pennsylvania allows customers to shop for energy generation suppliers (EGS) and, before launching, growers should gauge electrical costs and research energy-efficient equipment and products.
Because electricity may compose 50 percent of its overhead, reducing power source and consumption will provide growers with a competitive advantage. For example, cultivators with 2,000 square feet total grow area with high-energy usage use approximately 400,000 KWh/year whereas low-energy usage for an identical square footage grow area is approximately 40,000 KWh/year. Further, as Pennsylvania issues additional grow licenses, competition will spike and profitability may increasingly hinge on a growers’ ability to manage its energy costs.
EGSs offer substantially discounted rates for large-use customers and products including “time of use” programs, green energy, smart meters and demand response. To “self-generate” renewable energy, growers could obtain or partner with a solar or wind energy generator. Funding exists for renewable energy and energy efficiency projects and a grower could sell “unused generated power” back to its EDC. Further, using renewable energy prevents electricity use fees, grid reliability problems, or additional government regulation.
Oversupply and Resulting Problems
Regardless of the commodity, the law of supply and demand governs every free market; when supply exceeds demand, the price of the product falls.
In 2016, marijuana’s average wholesale price per pound plummeted from $2,106 in January 2016, to $1,306 by the end of December. Beyond withstanding a 38-percent drop in their product’s price tag, Colorado, California, Oregon and Washington growers also have been contending with a surplus of a highly regulated, expensive to dispose of, product. Further, with more states legalizing marijuana, and, eventually, product being shipped coast to coast and internationally, the supply will keep increasing and prevent markets from ever “stabilizing” through returning to earlier price points.
Because the first step in controlling price is controlling supply, the DOH needs to contain the amount of marijuana that is cultivated and sold. The regulations could be amended to restrict a facility’s square footage, the number of plants that can been grown, or the amount of marijuana that is extracted and dispensed.
Second, instead of just cultivating cannabis and relying on market demand, growers should develop a 360 degree brand sales and marketing strategy to encompass a range of products and services. Specifically, growers need to develop a distinctive, demand resistant strain and brand awareness encompassing unique names, easily identifiable packaging and branching out to different products.
Using science to create superior cannabis plants helps keep demand constant. Not just developing genetics for THC content or the flowers’ appearance, but establishing a stable quality crop resistant to powdery mildew or bugs is a critical start.
Leveraging the supply chain, growers need to work with dispensaries to ascertain patients’ needs and preferences to deliver products that most satisfactorily treat the covered medical conditions.