CapEx costs are the capital expenditures required to launch a cultivation business, while OpEx costs are the day-to-day operational expenses of running that business. These figures are substantial and vary widely between indoor, outdoor, and greenhouse operations. Understanding CapEx and OpEx costs are critical for determining the cash requirements needed to launch and operate a cultivation business until it’s profitable.

CapEx costs can include land preparation, well drilling, the installation of electrical infrastructure, and the purchase of cultivation equipment like climate control technology, grow lights, and irrigation systems. Start-up cultivation materials include seeds, pots, hand tools, and testing equipment. The post-harvest area requires employee workstations, trimming equipment, and a climate-controlled drying area.

Ongoing OpEx costs for a cultivation business are much more palatable than the initial capital costs. They include labor, electricity, water, maintenance, and non-reusable grow materials like potting soils, fertilizer, and pest control products.

Let’s compare CapEx and OpEx costs for a 100,000 square foot greenhouse, indoor grow site, and outdoor farm for a point of reference.

100,000 square foot greenhouse

Construction costs will vary depending on the equipment and technology’s sophistication but anticipate paying about $75 per square foot to build a commercial greenhouse. This figure does not include non-cultivation necessities like a post-harvest area, extraction lab, administrative offices, and security systems, so make sure to factor in those costs as well. Greenhouses in sunny and warm regions typically cost less to build and operate than greenhouses in more temperate areas of the country. There is less demand for supplemental lighting and heating, and the structures aren’t required to resist a snow load.

100,000 square foot indoor grow facility

If you choose to grow indoors rather than in a greenhouse, anticipate needing to raise much more capital. Indoor grow operations carry the highest CapEx and OpEx in the industry. Indoor facilities allow growers to create premium quality cannabis, and visual appeal can influence consumer preferences at the retail level. Dispensaries that display lots of varieties behind glass cases can charge more for better-looking flowers.

Besides retail appeal, cultivators interested in exporting their product are often required to grow indoors since their production processes must comply with Good Agricultural and Collection Practices (GACP) and Good Manufacturing Practices (GMP) guidelines to be eligible for export. Control of the growing environment and avoidance of contaminants are fundamental requirements of GACP and GMP approval, so indoor growing is usually required for companies seeking to export their product to other countries.

A 100,000 square foot state-of-the-art indoor grow facility will cost more than $20 million to build, so make sure to have a buffer in excess of this number for ancillary costs and operational expenses. Massive HVAC systems, carbon dioxide supplementation, and throngs of high-tech grow lights can drive construction costs upwards of $250 per square foot.

100,000 square foot farm

Most farms are much larger than 100,000 square feet, but we’ll use this number to make a fair comparison with greenhouse and indoor operations. Open field cultivation requires the least amount of start-up capital of any grow facility—especially if you will be cultivating on land that was previously used to grow crops. The land will have been tilled for years, and there will be an irrigation system in place. If you are breaking ground on land that has never been used for agriculture, be sure to do appropriate soil tests before buying the land. If not, amending the soil to make the land suitable for growing cannabis could prove cost-prohibitive.

Land, soil amendments, seeds, farming equipment, fertilizer, pest control, and lots of manual labor are the basic growing costs for a cannabis farm. Larger operations may automate cultivation tasks with drones for seeding and crop monitoring or specialized tractor equipment for tilling and harvesting. A large area to dry the harvest will also be necessary. If it’s not a climate-controlled space, this area should at least be cool, dark, and dry. For a 100,000 square foot plot, expect a capital expenditure of about $10,000. Unlike indoor or greenhouse production, an economy of scale can be realized with outdoor farming. A tractor is a one-time purchase that can be used to till a 100,000 square foot plot of land or a field of 5,000,000 square feet.

Calculating OpEx as cost per gram

OpEx expenses are typically expressed as a cost per gram in a business plan. Plan on spending less than $3 to produce each gram of dry cannabis flower grown indoors and less than $1.50 to produce a gram of greenhouse-grown cannabis. Open-field cultivation should cost about $0.50 per gram to produce.

Conclusion

A clear understanding of CapEx and OpEx costs will help prevent expensive surprises when launching and operating a new cultivation business. Realizing that you need an extra $500,000 to finish building out your facility will delay your entry to market and negatively affect your credibility in investors’ eyes. Do your homework, raise a bit more money than you’ll need, and you’ll be golden.