25/11/2020
UNPACKING THE COST OF PRODUCTION (COP) FOR MEDICINAL CANABBIS
07:30 pm on 24 November 2020
Uchizi Taiman Nkhata, Independent Social Commentator
Medicinal Canabbis: Licence fees of up to $24k could limit growth of local businesses?
“The heart already knows what it wants. The challenge is to silence the mind.”
It is all over social media trending. Malawi is all set to produce Canabbis for industrial and medicinal use. The majority have become overnight experts in advising potential participants intending to participate in production and marketing of Medicinal Canabbis. Few are able to offer solutions that can put would-be-participants inspired and mentally stimulated for creativity. Possibly, we all need to inspire others to aspire to grow the crop. We need to love change and be patient with mediocrity and all those than can, be inspired, anything is possible then.
Inspiration is contagious. Once inspired, it creates the desire and pressure to action. Hang around with winners. Find your giants. Find your elephant. Be a winner. Those that participate in production or value creation are like a Game of Thrones, you never brink when you intend to win. It may be said that those that participate in this value chain should be patient. It is not for cowards to participate in this value chain. The value chain is both a health and economic issue for Our Country. Therefore, a balance was considered for any participant in the Medicinal Cannabis Industry.
The question is: have most social commentators researched enough to put a stumbling wedge in the future of those willing local cannabis growers and sellers who could miss out on what's predicted to be a multi-billion dollar medicinal cannabis industry in Malawi because of expensive licensing fees?
For starters, a large grower, the cost would be up to $24,300 for an initial licence and $23,300 each year to renew. The cost could get lower if the participant selectively participates in the value chain. As the government of Malawi develops a medicinal Canabbis framework, the Minister of Agriculture, Robin Clarke Lowe has on 19th November, 2020 gazzeted Cannabis Regulation (Fees) Regulations, 2020 in exercise of his powers on the advice of the Authority to see Malawi companies and individuals benefit from the value chain directly and indirectly.
It is unknown as of now how much the industry is expected to generate worth of billions of dollars by a given period. It is however known that the value chain is of high value and rewards only risk takers. But getting set up comes at a price. To apply for a licence, it would cost a small-time cultivator between $7,800 and $24,300 initially depending on participation levels in the value chain, which they would then be required to renew every year at a cost of between $7,300 and $23,300. For a large cultivator that would be up to $24,300 for an initial licence and $23,300 each year to renew.
Restrictions on who could enter the market are deemed necessary and would help avoid a "gold-rush" of medicinal cannabis. I don't think there is going to be such a massive industry that we could expect more major players in the industry. What we have seen happening in Malawi is that a lot of individuals and companies got quite excited about the medical cannabis market and it has not generated a lot of business for them yet. Malawians should not for now throw all their money at medicinal cannabis cultivation just yet. Partial participation in the chain levels would allow them to learn along with the dynamics in the chain rather than throw your money in the drain.
The Cost of Cultivating Cannabis is not licensing alone
For those that have not participated in production of such industrial crop, especially you and me, we are from the outside world that regards the legal cannabis industry appearing to be one big cash machine. Others have already classified themselves as the future Ginimbi of the industry in few years from now. While it is true that a lot of money can be made, the price or cost of doing business can also be so steep, particularly for those that at the pyramid’s foundation-growers.
The value chain analysis is important and very evident from the cost of licensing that the layers are looking beyond direct cultivation costs like utilities, farm inputs (seed, fertilizers and chemicals = nutrients), and labour. Farmers must move their crops from fields to warehouses, distributors, processors, and retailers. And let us not forget other local jurisdictions’ off-the-top cuts in the form of taxes and fees.
Meanwhile, small producers should consider which of the adopted production methodology to determine the cost of production. It has to be known that if one thinks of going solo, then the so-called “green rush” will be tough on smaller-boutique-growers who do small farming in the backyard, but have ready known market. The licensing in Malawi has its focus shifted to large-scale cultivation. In fact, it will require more facilities to maximize on cost of production. There is somehow hope and a number of options. Although expensive, cultivation or at least cultivation licenses can be extremely profitable. One has to think of vertically integrated licenses from seed-to-sale. Such a License can maximize your revenue generated per size of land farmed.
Indoors vs. outdoors Production
Indoor grows typically are more cost-intensive due to further on load of rentals per square foot for greenhouse and combination grows. Indoor operations also pack on the expense because every aspect of the environment must be controlled. That means loading up on equipment like grow lights, systems for temperature and humidity control, and automated water and nutrient technology. A state-of-the-art lighting system, security systems and other necessary equipment will land on increased tangible assets on the balance sheet. A lean operation could have profit before overheads of over 50 percent, depending on the geographical location and size of land.
Outdoor grows, on the other hand, use the light of the sun and let Mother Nature manage the environmental controls. That can be a double-edged sword, though, because Mother Nature can be temperamental. Land rentals in some locations can make the cost go significantly higher. Labour, too, may cost more because automating tasks can be more difficult in this part of third world country.
While sun-grown operations can produce multiple harvests per year in temperate areas like Nkhotakota, Salima, Nkhatabay etc cultivators in such locations with short growing seasons must grow at least some crops indoors if they intend to operate year-round.
Agricultural Cooperatives can hugely reduce costs
Small growers must consider this. Some small and mid-size cultivators should find banding together in collectives or cooperatives beneficial to help them reduce expenses enough to compete with bigger operations. The opportunity should be explored for Medicinal Cannabis Regulation and Safety Act allowing groups of three or more cultivator licensees to farm together as long as each license covers the size of outdoor canopy and the collective incorporates required land size involved.
Cooperatives can allow growers to spread fixed costs like rent, equipment leases, bulk purchasing, insurance, and labour across all members. Members can enter into collective marketing agreements, which allow them to offer customers a steadier and larger supply of uniform products. The economy of scale creates a more competitive market position than growers could attain on their own, while still allowing the time and attention required for producing high-quality appellations and artisanal strains. The cooperative model also eases the pain of licensing and regulatory compliance through group access to consultants, accountants, and attorneys familiar with the group’s operating model.
So, how much does it cost to make money in growing w**d? The answer varies by the choice of your production methodology. I would suggest that people need to be encouraged to participate more, but need to find out by speaking with breeders, cultivators, consultants, and suppliers about fees, challenges, and ways they can manage their expenses and volume of operations
Key things to consider before you participate:
1. The state had one major concern: whether supply would be able to keep up with demand or vice versa. Partially, that can be due to the state’s high taxes and fees;
2. Production Costs will vary depending on type of adopted production and farm sizes. It has to be known that not only must your product look and be amazing, but your facility must also. Upkeep and efforts to remain on the cutting edge cost money, but if you do it smartly you will be successful. Producers must keep improving yield and quality.
3. Those that will wisely focus on building living, organic soil with local natural inputs and organic wastes can grow with regenerative, highly efficient, sustainable practices that produce quality craft cannabis at significantly lower cost. They can strive to avoid expensive technologies, practices, nutrients, vendors, and gimmicks marketed to cannabis growers.
4. Investing in ever-improving technology is essential for managing other costs. The grow’s automated environmental control system, for example, trims costs associated with wasted water and nutrients; LED lights reduce heating and cooling costs.
5. Though fees are high compared to current production, growers should see a future filled with promise. Law makers and Regulators are great partners in business; they are open to suggestions for improvements to make the program work for growers, retailers, and suppliers.
6. Aside from taxes and fees, the biggest costs are packaging, distribution, marketing, and labour.
7. Technology at the farm includes a dissolved oxygen meter to test aerobic compost teas, walkie-talkies to communicate on the sprawling property, and a drone outfitted with a high-powered scope to shoot photos of the grow from above.
8. The cost of doing business increases every time regulators or legislators make changes to the rules, adding outlay for consultants; lawyers; accountants; electrical, carpentry, and plumbing contractors; compliance officers; geologists, foresters, and biologists; designers; and marketing professionals. Most state agencies periodically mandate upgrades to address security concerns and zoning restrictions.
9. Malawi’s over-supply will lower prices, exacerbating profitability concerns. Falling prices mean growers must find ways to reduce average cultivation costs from the current perceived costs to remain competitive. Therefore, I suggest technology and artificial intelligence are keys. “Cultivators need technology that keeps them updated in real time on their cost information at every step of the process to ensure they are identifying ways to reduce costs. Every step of the production process represents an opportunity to reduce costs, but only if you have the information necessary to identify those opportunities. By tracking costs and staying aware of industry performance standards, cultivators will be better equipped to compete in this rapidly changing market.
In conclusion, Malawi cultivators have the opportunity to become experts at cutting costs using green alternatives, including renewable energy, LED lights which can be 60 percent more efficient than other bulbs and water efficiency via reverse osmosis systems that can recycle 75 percent to 97 percent of water used in irrigation or other parts of cultivation.
Regardless, a grow’s type, size, or location, the path to profitability lies in creativity, flexibility, efficiency, and funding. Luck plays a role, as does governmental greed. To mitigate the latter, maintain good communication and friendly relationships with the state and local politicians, regulators, community members, and growers’ associations. Malawians will soon become their own masters. Grab the Kronos and Kairos now. I live you with the close-up by Dr. Strive Masiyiwa who once said that “believe in you. You are braver than you think, more talented than you know and capable of more than you can imagine”. Therefore use your knowledge to cultivate a spring for others. Wishing you all the best as you are making this paradigm shift in your life!
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