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ACKRELL
CAPITAL
CHAPTER III Cannabis Industry Segmentation

Compared to indoor cultivation facilities that use electrical lighting, greenhouse and outdoor facilities are generally less expensive to operate and more appropriate for large-scale projects, but provide less control over growing conditions. The use of natural sunlight provides substantial savings on lighting equipment and energy costs, but may limit the number of grow cycles per year. Outdoor and greenhouse environments are more exposed to environmental risks that may negatively affect crops, such as pests, contaminants and adverse weather. Outdoor and greenhouse cultivation facilities are prevalent in Oregon, California and certain Latin American countries, which have climates conducive to outdoor growing.

[Image: Landscape view of outdoor greenhouses]
[Image: Interior view of a greenhouse with a worker]

Outdoor Greenhouses

The Business of Cannabis Cultivation
Cultivation businesses must navigate a host of operational challenges, including state and local licensing requirements, facility design and construction, research and acquisition of cannabis strains, intellectual property protection, cultivation process engineering, supply-chain management, yield optimization, facility management and security. Many cultivation businesses retain outside consultants to advise on one or more of these issues, although some businesses manage their entire cultivation operations internally. A cultivator may wholesale cannabis flower and other plant material to cannabis concentrate manufacturers or retail dispensaries, or it may be part of a vertically integrated production and retail business that sells its flower and other internally manufactured products through its own dispensaries.

Certain U.S. laws, foreign laws and international treaties currently restrict interstate and some international movement of cannabis products. A cultivation business that wishes to scale its operations into a new jurisdiction often must invest significant capital in a new cultivation facility located within the new jurisdiction. As laws change to allow more interstate and international transportation of cannabis products, cultivators who are operating redundant facilities or expensive indoor facilities will face increased margin pressure. As the cannabis industry matures and becomes more commoditized, we expect the most successful cultivators will be those with strong consumer brands or scalable low-cost operations in regions where the climate is conducive to agricultural production.

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