How to Save New York Cannabis Farms
The answer is a New York Cannabis Farmers’ Guild.
Before I explain, here is some background.
In 2018 when we set out to start EOS Farms, the conventional wisdom was that indoor cannabis cultivation is less risky and produces a better premium product than outdoor cultivation, especially in the Northeast.
We ignored conventional wisdom and became the 5th licensed outdoor Adult Use cultivator in Massachusetts. In December 2022 according to Headset, EOS Farms had the number one and number two most-selling pre-rolls in Massachusetts.
This is what I learned starting EOS Farms over the last five years:
● One, It is not easy, but it is possible to grow outdoor cannabis in the Northeast that rivals the quality of indoor cannabis in the Northeast.
● Two, It is possible to grow high-quality outdoor cannabis in the Northeast for less than $200 per pound.
● Three, 100,000 square feet (the limit in NY and MA) of outdoor canopy is insufficient to support all the processing, packaging, marketing, sales, administrative, and compliance costs necessary to bring a branded product to market successfully. Without these functions in the volatile market of cannabis cultivation, growers are forced to grow at significant risk and sell for low prices. Many inevitably fail, and quality suffers.
The natural outgrowth from these dynamics is toll processing and packaging businesses and cooperatives. The economics surrounding scale, efficiencies, and volume in agriculture is not new. Look at Ocean Spray, for example.
This is becoming increasingly obvious in cannabis too.
Flow Kana tried to become the largest provider of these services to California outdoor growers. In New York, a few of the Conditional Adult-Use Processor Licensees are vying for this position.
In simple economic and financial terms, the path to success for this business model is to continually improve efficiencies and increase volume.
But efficiencies only come with substantial capital investment. Big CAPEX means BIG RISK.
A company doesn’t need Flow Kana level excesses to spend a lot of money quickly. Then the challenge facing these tolling businesses is attracting and preserving enough relationships with growers to reach and maintain the volume to support the investment.
Offering these tolling services to growers at competitive prices is only part of the answer. A tolling business must ensure that it can sell the volume of products necessary to support economies of scale. This requires additional, large investments in branding, marketing, and sales. More capital, MORE RISK.
Enter the battle of the brands.
In a highly competitive market for an essentially fungible consumer product, we expect many brands to compete for relatively small slices of market share, with brands cycling through a basic Pareto distribution. The recent history and landscape of craft beer provide some valuable insights. Consumers are fickle. Brands come and go, and it is anybody’s guess which brands win.
To state the obvious principle underlying this conversation, consumer demand is driven by price, quality, and branding.
This is where the Cannabis Farmers’ Guild comes in. The Guild would coordinate a low-cost cultivation network, create collective bargaining power, generate efficiencies from economies of scale, and communicate cultivation practices and quality to the consumer.
The problem, of course, is that the Guild faces the same challenges as any tolling house business — attracting the critical mass of growers necessary for the volume it needs. This is no easy task, and it may be what keeps the Guild from becoming reality.
But people are starving for the values the Guild embodies, and it can save cannabis farms in New York (and Massachusetts, but I’ll set that aside for now).
High-quality, low-cost, sun-grown food-farm-grown cannabis products.
The indoor versus outdoor quality debate is heated in the cannabis industry. However, this is a subjective argument that may never fully settle. Indoors, a grower can probably squeeze more THC out of the same genetics. However, evidence suggests outdoor cannabis produces more complex profiles of terpenes and minor cannabinoids.
And the energy consumption between cannabis grown indoors and outdoors isn’t even close. The “sustainability” argument aside, less energy use means less cost to grow outdoors.
In short, we can grow premium quality outdoor, sun-grown cannabis with substantially fewer costs than indoor cannabis.
The economic engine of the Guild concept is a sufficiently large network of food farmers who have built low CAPEX infrastructures to grow cannabis at under $200 per pound and operate a business that KEEPS OFF THE FARM all storage, processing, packaging, extraction, distribution, general administration, lobbying, consumer education, PR, marketing, and sales.
Food farmers with experience and understanding of basic agricultural economics are best suited for this.
And food farms play a central role in our health and future.
On May 12, 2019, I argued that “the legal marijuana industry has the potential to save local farms and repair a broken food system.” In that article, I quoted Ryan Stoa’s, “Craft Weed: Family Farming and the Future of the Marijuana Industry.”
Stoa writes (pp189–190):
[M]arijuana agriculture may present a once-in-a-lifetime opportunity to spark the rebirth of the American family farm.
Stoa goes on to ask,
What if billions of dollars of consumer spending is channeled to small-scale, diversified, local organic family farms? The marijuana industry has more than enough capital to lead an agrarian renaissance, so why not take advantage?
Through continuous development and preservation of best practices, genetic selection, and infrastructure, outdoor marijuana cultivation in the Northeast is possible and can produce a clean, organic, sustainable, premium product at a very low cost.
It is also conceivable that, as with the history of organic foods, consumers' aesthetic preferences change to favor the beautiful imperfections and complexity of sun and soil-grown organic products. Terroir matters. More and more sophisticated consumers across industries care about where and how their goods are produced. This is proving true in more mature cannabis markets like California.
To be clear, the cannabis industry alone is not sufficient to save family farms. However, all the capital, revenues, and cultural magnetism connected to cannabis would be a good start.
Transparency & Equity.
One year after publishing his book, “Craft Weed,” Ryan Stoa laments in a subsequent 2020 Boston University Law Review article,
As the first step in the supply chain, the cultivation of cannabis sets the tone for the industry as a whole. A well-regulated, equitable, and sustainable cannabis agriculture industry has significant catalytic potential for downstream market participants. Unfortunately, however, the cannabis agriculture industry suffers from many equity shortfalls.
The economic philosophy called Distributism holds that the solution to the dual evils of Communism — where the state owns everything — and Industrial (or “Proletariat”) Capitalism — where a small number of individuals own everything — is an economy with property distributed widely to as many people as possible. The Distributists argue this is the way to a balanced economy and a just society.
In Distributist theory, the Guild is the administrative body that solves coordination problems and achieves economies of scale within capital-intensive industries.
In the context of cannabis farms in New York (and Massachusetts), the Guild would develop and preserve a library of best practices and genetics, provide training and information to farmers, manage a certification to communicate with consumers, and operate the farmer tolling house and brand marketing and sales agency.
The core value to the growers is that the Guild provides the services necessary to keep on-farm CAPEX and OPEX low and, through collective bargaining power, public-facing communication, and outreach, maintains a stable and predictable market for farm-grown cannabis so that outdoor cannabis farms can operate profitably in the long run.
As an essential corollary, explicit in the formation of the enterprise is a road map for the business to transition from a more traditional capital investment model into an employee-owned business.
Here is some of my modeling for this business.
Unique historical support from New York.
The Adult Use laws in New York incentivize distributed ownership with the Economic Equity Plan written in the New York Marihuana Regulation and Taxation Act (“MRTA”) and the regulations. The Chief Equity Officer of the NY Office of Cannabis Management (“OCM”) is faithfully driving this plan.
New York presents a unique opportunity for developing a cultivator Guild to become a reality and a significant source of positive economic and cultural change.
Struggling small, family farms may be part of the solution to a long-term human health crisis and environmental degradation caused by industrial agriculture. Cannabis legalization signals an end to a racist criminal justice system and drug policy that destroyed populations of people. Cannabis grown outdoors on farms is at the center of the conversation around regenerative growing practices, agriculture, and food sovereignty. And the same populations that have been devastated by cannabis prohibition also tend to lack access to healthy food, good jobs, and capital ownership.
New York is at the precipice of a historically significant opportunity. But we are at a precarious stage in this unique, untested, and risky framework. New York could likely go the direction of the other legal states — limited licenses dominated by unscrupulous, established monied interests.
Criticisms aside about the slow rollout of Adult-Use Cannabis in New York, it is fitting and poetic that the home of the Rockefeller Drug Laws could be the model for the US to leverage cannabis as a catalyst for a cultural renaissance, distributed equity, and the re-invigoration the Northeast American Family Farm.
