What are the costs associated with starting & running an indoor marijuana growing operation in Oakland, California?
The marijuana industry in California is booming as Proposition 64 will legalize recreational marijuana use, on top of the already legalized medical marijuana. It is estimated that California's marijuana market will grow into a $10 billion industry within a few years, making it the world's largest marijuana market.
While there is no doubt that the marijuana market will be a lucrative business, it is a fairly prohibitive industry, due to the large startup and operating costs associated with large-scale, indoor marijuana growing operations. The California Department of Food and Agriculture estimates startup costs somewhere in the neighborhood of $400,000 for all the necessary supplies, while another study suggests a startup cost of $75 per square foot for large, indoor operations. The operating costs of these facilities are high as well, with estimated annual expenses of $32.33 per square foot.
All cost information as been added to this spreadsheet, breaking down the costs by start-up, operating, and additional costs.
Commercial marijuana growing operations are a very expensive venture, as the startup costs in many regulated states can top $1 million. However, the growing wholesale market in the states of California, Washington and Colorado has drastically driven the startup costs down. As a result, the average marijuana operation startup cost in California sits around $250,000, while some operations run as much as $500,000.
Due to the fact that operations can vary in size immensely, it may be more pertinent to examine the startup costs per square foot. The average cost of a large-scale indoor marijuana operation is $75 per square foot, due to the indoor cultivation setups. Indoor operations are a lot more expensive than outdoor and greenhouse setups due to the need to control all aspects of the growing environment, including grow lights and temperature and humidity systems. The high-pressure sodium lamps designed for growing the plants indoors run between $40 and $80 for the bulb, while the lighting ballast which regulates current to the bulbs costs between $89 to $120.
The cost to renovate a 15,000 square foot warehouse for the purpose of indoor marijuana growing operations is estimated to run between $1 million and $5 million, indicating a cost range of $66.67 - $333.33 per square foot for renovations. These costs are expected to go down with scale.
Additional costs to factor into the startup cost are all the licensing fees required to get the operation up and running. Some of the permits offered by the City of Oakland and their according application fees are: Medical Cannabis Dispensary ($3,644), Non-Dispensary Medical Cannabis Facility ($2,474), and On-Site Consumption ($2,813). There may also be fire and building inspection fees from the City of Oakland depending on the requirements of the specific building. The average licensing cost for a commercial marijuana cultivation facility in California is roughly $3,348, a one-time expense for the local permit.
A report commissioned by the California Department of Food and Agriculture found that the costs associated with gathering all the necessary supplies (i.e. building supplies, lighting, soil, irrigation systems, security systems and other miscellaneous supplies) may cost around $400,000.
Energy costs are the most prominent operating cost associated with marijuana operations as utility bills often account for 12 — 15% of a company's operating costs. The largest contributor to energy costs for these operations is lighting, as it accounts for 38% of the total energy cost.
Again the size of operations will factor into the energy consumption costs associated with marijuana operations as monthly costs range between $3,000 to $100,000 a month. It is estimated that the utility bills incurred by large scale, indoor marijuana operations can vary from $0.60 — $1.20 per square foot per month.
Rental rates for the warehouse facility required to grow the marijuana represent a significant monthly operating cost as well. As of the end of the 2016 fiscal year, the average rental rate for warehouse space in Oakland was $0.59 per square foot per month. However, these rates are expected to increase due to local restrictions limiting the number of facilities allowed for marijuana related operations.
A study of indoor operations in California determined that facilities of 4,800 square feet average 2.6 full-time employees, while it is estimated that the average employee will receive close to $20/hour. Combining all of this information indicates that an indoor operation will be paying roughly $1.82 per square foot in full-time employee wages every month. However, in busy harvest seasons, many large-scale marijuana operations hire under the table seasonal workers.
The California Department of Food and Agriculture study estimated that a facility of 4869 square feet would face annual expenses of $157,438, based on the sample average production costs. This indicates that the annual expenses per square foot would be roughly $32.33.
Due to the looming legalization of recreational marijuana use thanks to the passing of Proposition 64, there has been a recent influx of marijuana growing facilities in California. However, there are many prohibitive startup and operating costs associated with large-scale, indoor marijuana growing operations. As per a study commissioned by the California Department of Food and Agriculture, startup costs will amount to roughly $400,000 for all the necessary supplies, while another study suggested startup costs of $75 per square foot. Due to the massive energy needs of indoor facilities, the operating costs will be very high as well, with estimates of annual expenses clocking in at $32.33 per square foot. Despite these costs, it will certainly be a lucrative market for those companies that manage to break through, as the California's marijuana market will be worth an estimated $10 billion within a few years.
All cost information has been added to this spreadsheet.