We all know the cannabis industry is changing at a rapid pace. But so are the industries surrounding cannabis that have a direct impact on costs, compliance, and quality control. Most people who jump into the cannabis industry are shortsighted and focus too much on immediate rewards and profits – including MSOs. But if you want to succeed long-term, then you need to future-proof your business.

That starts with controlling your overhead costs, of which one of the biggest is rising energy costs. In this episode, we interview Anders Peterson of PIPP Racking Systems, Justin Miller of High Life Solar, and Sam Milton of Climate Resources Group to answer your questions on how you can future-proof your business and proactively protect your grow against rising energy costs.

Transcript

Adam Kulbach 0:10
Hello and welcome to the higher enlightenment podcast brought to you by higher yields cannabis consulting your seed to sale Business Solutions team. My name is Adam part of the creative team here at higher yields. And today is episode number 45 is part of our sustainable cannabis business series. It’s about energy efficiency and future proofing your cultivation. We all know that the cannabis industry is changing at a rapid pace. But so are the industries surrounding cannabis that have a direct impact on costs, compliance and quality control. Most people who jump into the cannabis industry are short sighted, and focus too much on immediate rewards and profits, including MSOs. But if you want to succeed long term, then you need to future proof your business. That starts with controlling your overhead costs, of which one of the biggest is rising energy costs. In this episode, we interview Anders Peterson of PIP racking systems, Justin Miller of Highlife solar and Sam Milton of climate Resources Group, to answer your questions on how you can future proof your business and proactively protect your grow against rising energy costs. So, let’s get on with the show. Let’s get started with the introductions. Let’s start with you. Justin, could you give us a little background on yourself and tell us what you do? And yeah, for sure. Etc.

Justin Miller 1:47
I’m Justin Miller. I’m the CEO and founder of Highlife solar. We’re a commercial solar company specifically designed for cannabis cultivators. And so what we do really our main goal is just to lower cultivators monthly overhead on their utility expense, also get them eligible for tax credit incentives. We do that a few different ways, but I can dive into that a little bit later.

Adam Kulbach 2:10
Okay, well, thanks for being aboard. How about you, Anders, could you introduce yourself? Give a little background?

Anders Peterson 2:16
Sure, everyone. I’m Andrew Peterson with PIP horticulture. I’m a molecular biologist and a cultivator for little over the past decade. growing cannabis indoors. So I’ve run large facilities, small facilities and done just about everything. And now I work on product development, to help with sales and facility designs.

Adam Kulbach 2:38
Okay, well, thank you, Sam, how about you just a little background on yourself?

Sam Milton 2:43
Yeah. Hey, Adam. Hey, guys. Yep, my name is Sam Milton. I own an operate climate resources group. And what we do is we help growers grow more for less we really work primarily kind of with the indoor horticulture clients and help them to reduce their operating costs, while increasing their yields, I mean, be more profitable. So yeah, we look at all different ways that can they can do that. And energy efficiency is the biggest way that we do that. And we help bring, you know free dollars to our clients for upgrading to their equipment, more energy efficient equipment, and so being more be more efficient. That’s kind of that’s where we are.

Adam Kulbach 3:19
Okay, for the first question, I guess anybody can jump in as they wish. How are rising costs affecting grows?

Anders Peterson 3:31
I can jump in there. I speak with a lot of growers on the day to day and know a lot of operators here in the space across the country. And I think what 2022 has taught all of us is the days of high price per pounds, and big margins in cannabis are over. And the wholesale price per pound has been dropping, the markets are much more competitive. And growers are taking in the cannabis space a lot closer look at their operating costs and their cost to produce a single pound of dry flour. It is a necessity now, you know, it used to be somewhat of a luxury to know those numbers many years ago. In fact, many of the facilities I toured in the last night went about 120 facilities in the last two to three years. And I would say a fraction of them actually knew the hard, hard costs of what it took to produce a pound and very little knew the metrics around their energy consumption. And so nowadays, we have to get more lean. We have to know our numbers. And if not, you know this industry will chew you up and spit you out. And so there’s been a lot of focus on it, which is good because a lot of people have been preaching these efficiency conversations for years, somewhat to deaf ears for a long time, because we just had such a high value crop. And you know, it’s interesting to hear but right now I’m in Las Vegas at indoor ag con with PIPP horticulture. And you know these are different crops, these are basil, leafy greens, strawberries. And these operators are the complete opposite. They know an insane amount about their cost to produce a unit. But they’re still learning some of the technical aspects of indoor cultivation and vertical farming that the cannabis operators have somewhat mastered over the past 10 years or so. And so there’s a kind of an exchange of information, the business acumen with some of the technical crop production skills are crossing over. And it’s a really interesting time, you know, to be a cultivator and operator in the space.

Sam Milton 5:36
Yeah, for sure. Yeah. And I think we’re nodding their heads, and you’re going along with, with what you’re saying? And absolutely, yeah, I think for a long time, there’s been this at least where I come from, I mean, I my energy background is because my thing is, I’m always been preaching to to folks about, hey, it’s important to be able to reduce your, your operating costs. So you can actually be a better winning company. But, you know, to your point I missed, but it’s fallen on deaf ears in the cannabis space for a long time, just because I think there’s a mentality of being you know, go big or go home, right. And also it’s can you grow fast, you know, or just wither on the vine. So as a really, traditionally has been has been focused on just hey, just like, you know, getting getting your facilities built up, get plants in the ground, start making money, and then maybe deal with energy efficiency and operational efficiency at No, later date. And then now we’re seeing that time come, where it’s, you can no longer just rest on your laurels that you’re going to be, you know, to your point, Anders, you know, can you make a few $1,000 A pound in the wholesale market? Because it’s just, it’s not really happening anymore? Anywhere? At least not for very much longer. And yeah, so I think you’re, you know, a lot of a lot of folks out there are really suffering. But I think, you know, we’ll have a discussion about some of the ways that folks can actually, you know, make choices moving ahead to kind of reduce their operational costs and, and be profitable online.

Justin Miller 6:59
Yeah, I mean, it’s just to kind of sound off on what you guys were talking about. I mean, most cultivators that I meet with their largest overhead expense is their utility bill. And kind of the wild thing about it, I mean, just just to speak here in Colorado, Excel this past year increased their utility rate by 9%. And regardless of your business model, regardless of what industry you’re in, if your largest overhead expense goes up 9% annually, it’s really, really hard to have a sustainable business. And so really, I mean, for us going into these facilities, it’s finding ways for them to reduce their usage, but future proof their business in a way to help them produce power on site. So they’re not subject to those things. But yeah, I mean, it’s times are changing, for sure, in the cannabis space.

Adam Kulbach 7:49
Okay, I guess that leads to next question. How can energy efficiency solve these problems of rising cost?

Sam Milton 7:57
Yeah, I can jump in quick on that. And I want to hear what Justin Andrews have to say also, but, you know, at its most fundamental, your energy efficiency or inefficiency, generally, it’s kind of getting more, you know, out of your unit of input, whatever that might be. So As Justin mentioned, in energy is definitely kind of one of the one of the large expenses that a grower will have, next to labor perhaps, is also going up to, you know, keep in mind, but yeah, the, the more you can get out per unit of your your energy input, you know, the better, I mean, you can look at different ways, right, you could actually, you know, reduce your energy costs to get the same amount of production, or you can get more production, you know, out of the same amount of input, you know, that you’re that you’re using. So people can go go out of the in different ways, I think part of the work that we do is work with our chemical division clients to help them nab some of those interviews, utility efficiency incentives, and those are basically predicated on on the assumption that you’re going to be getting no more production necessarily, but you gonna be dropping your your, your power consumption, these programs are they exist for the sole purpose of relieving some of that pressure, you know, off the power grid, in different states have different motivations for why they create these programs. But the idea is that, hey, if you can install your second widget or make an upgrade, that can reduce your power consumption by 50% or so, or even 20% or even 10%, you know, they’ll pay you to make that make that move. It’s a little harder case, you know, when folks are swapping out 1000 Watt each, you know, HPs fixtures and putting in 1500 watt LEDs. But we’re trying to see some, you know, some some really creative work around there to look at, alright, if you are getting more production, you know, there’s, there could be a case to be made for if you’re looking to the same level production using HPs. You want that look like so not every utility kind of you can well we’ll allow us to make that case. But we’re seeing some creative ways that folks are thinking about efficiency, not just in terms of energy cost reduction thing but also patients getting more you know, per your units. And so yeah, it’s essential.

Adam Kulbach 10:05
I’m gonna just interrupt somebody

Anders Peterson 10:10
that yeah, here, I’ll jump in there too. It’s really interesting talking about the utilities as well is the indoor agriculture rebate and incentive programs are so new, that it’s taking a lot of industry involvement to really shape those programs so that these growers can realize those, that money that’s out there for them by operating efficiently. And it’s something that I advocate, anyone who will listen is get involved with these industry organizations who are doing good work on, you know, utility incentive rebate programs, we’re into agriculture, there’s a lot of them out there. I mean, I was involved working with, you know, I’ve worked with ASHRAE resource Innovation Institute, a number of other even ASTM not doing as much on the efficiency side, but it’s amazing how involvement and speaking up, if you don’t talk about these issues, and help them better understand the metrics and numbers with the equipment you’re using, and how you operate these facilities, these programs will be shaped in a way that won’t benefit you. And so the money’s out there, you know, get involved and speak up. And you can realize sometimes hundreds of 1000s of dollars back by making the right capex decisions when building your facility and choosing efficient equipment. And it’s blown my mind, you know, coming from the black market, I didn’t even know those things are out there, I was used, I was used to stealing power, you know, and so we’re, you know, trying to fly under the radar with the power I was using, and the utilities I was using, and now it’s like I’m reaching out to PG and E and SoCal Edison and speaking with consumers electric and these different utilities across the country, because, you know, it’s, it’s money on the table that will help your bottom line is a cultivation business. And it will help you afford more efficient technologies. And what I found too, is oftentimes the more efficient technologies, they may cost more upfront when you’re building your facility, but they often come with a lot of performance gains to from a cultivation perspective. So you’re not just getting a more efficient technology to lower your utility costs. Oftentimes, you’re getting better plant performance out of these systems, for example, HVAC and humidification, the newer, you know, hot gas, reheat integrated, modulating hot gas reheat systems, where you don’t have standalone dehumidifiers anymore, you have a fully packaged unit that can handle heating, cooling, you know, dehumidification, all in one very efficient package, you also get better environmental control in these rooms, which leads to more production. So it’s an example you were talking about Sam, where you’re now dropping your energy input, but you’re also increasing your output, at the same time with tighter VPD control and better grams per square foot. And that extra cost of these higher performing environmental control systems or mechanical systems can be offset by utility incentives. But a lot of because there’s no federal regulatory regulation on all of these privately owned utilities, you kind of have to fight the battle in each region, and make sure that there’s a model for these utilities to understand this application, you know, why is there such a large latent load and such large dehumidification load? You know, it draws a lot of power, you know, why are there so many lights in these facilities, you know, and, and helping them understand how to baseline and compare against inefficient technologies, as AI is a really big challenge right now to me, but because it’s hard to understand how these operate in a plant growth facility, just so many engineers and aren’t familiar with growing plants indoors. And so it’s up to cultivators and people who are knowledgeable in this industry to help educate, you know, these regulators and utilities and you can see the benefit from that. So the end of the day, all of these things will help just reduce your operating costs to be more competitive, to stay alive and this hyper competitive and consolidating industry. Forgive my little rant there, but

Sam Milton 14:16
no, I hear you and I’ll jump in and Justin, I don’t I don’t even take the time to call your time. But But yeah, I mean, you’re absolutely right I’m it’s important to engage these programs. And you know, it’s as if you’re, you know, someone who’s, who’s an operator, your grow or you’re not going to really know how to do that. But there are representatives out there through organizations like ASHRAE, the Association for standard for heating and air conditioning. I think

Anders Peterson 14:42
that’s American Society of Heating and Air Conditioning engineers.

Sam Milton 14:45
There we go. I was close. But the resource Innovation Institute is definitely a good organization. Shout out to them that’s worked with them in the past and you know, there there are definitely some some really curious and engaged utilities out there who are trying to do current your work To figure this stuff out, you mentioned consumers electric, they’re, you know, energy, they’re really great up in Michigan and Michigan utilities are really pushing on this. California has been common in the odd case for a long time. But I think, you know, there’s definitely a push and pull happening there. But I think there’s the longer that this industry, you know, has been existing and is kind of working to, you know, to get some of the operators going out in front of these programs, you know, the more you’re getting the hang of it. But yeah, you’re right, there’s, there’s a, there’s a long way to go before these programs truly, I think are able to respond to the needs of the operators. That’s what I do almost every day, as I had conversations with utilities and explain to them, you know, why am I clients project, you know, should be worth, you know, 10 times, you know, what the kind of the, you know, the their initial offer is? Because, yeah, you look at the interactive effects, you know, of installing LEDs and what that means in terms of reducing the cooling load in the facility. And there are lots of just lots of different ways that these, these grow operations, can experience interactive effects from making some really smart decisions, you know, controls is a big part of it, for sure, yeah. And something that’s not interested in really at all at the utility level right now.

Justin Miller 16:18
And I mean, just to jump in on that, I mean, just from an education piece, I think it’s two sided. I think utility companies need to be educated as far as what these cultivations need and what they require, and the best way to help them. But at the same time, I think cultivators need to be educated on what incentives are really are out there from utility companies, and even statewide, and then even just speaking, for me personally benefits to offsetting their power from producing their power locally. A lot of these I mean, particularly in the southwest part of the country, these states and utility companies will incentivize these cannabis cultivators to produce their own power. A lot of cultivators aren’t aware of that. And so really just, at least from my angle, when I come and meet with people a lot of its education and just showing them options, and then advocating for them to the utility company and bridging that gap.

Sam Milton 17:12
Yeah, there’s definitely a need out there for for advocates, you know, like, like, you guys, that can, they will kind of speak on behalf of the customer. Because, yeah, I mean, you know, most of the folks out there who I’ve met who are, you know, growers or operators, I mean, they’ve got 1000 things to do, right. Like, you know, the last thing they want to do is sit on hold with the utility representative and trying to explain their project to them. And they’re not gonna do it. Right. I mean, you know, most I’ve had so many stories of a growers, I use that that term to reflect the entire organization. But yeah, I dropped the ball on these incentive programs, because they didn’t have the bandwidth to deal with it. Even if they knew about it, they’re like, I don’t know what to do. And it’s like, easy just to get things going and, you know, out of out of the gate. So you see folks coming in making some some mistakes by not putting in the time and energy to do that. So that’s great. Yeah, there are people like like us up there who can really kind of help take the ball for them, and, you know, come up and navigate the bureaucracies that are kind of foreign to a lot of folks who, like, I can understand that you grew up in the black market, right? You would never, you would never think to call your utility for help.

Justin Miller 18:29
Yeah, Anders, did you ever use solar when you were growing in the black market to try to hide some of your use it?

Anders Peterson 18:37
Not me, I grew up in a dense urban area in Berkeley Oakland area, for most of my life. But I will say a number of my friends and colleagues up in, you know, the humble, or the Emerald, triangle area, use solar all the time just to run, you know, they used very minimal power compared to what we were using indoors and Berkeley, but they would use solar to run their irrigation pumps and help run all their motors and their greenhouses. And, yeah, it was definitely it was used. For sure. You know, one of the things too, I think, is, it’s pretty close, I will one thing I think growers can do to help with this thing. To help further this conversation. And to provide value to the people who are fighting this fight with the utilities is go on to the resource Innovation Institute website and enter your facility statistics into their power score database. It’s free, and you can see how your facility stacks up and compares against other facilities of the same type. So it’s a great way you can be anonymous and I sound like I work for resource Innovation Institute. But you know, I don’t I just really believe in their mission. And I think a lot of what they’re doing is really valuable. Derek Smith over there is a good guy, great team. And the power score database is basically a way to collect all of your utility bill information and metrics and KPIs about your facility. And, you know, resource Innovation Institute and all the people working with them can use that information and leverage it to then go to your utility and share with them this information. It can be anonymous, so you don’t you won’t be named named, you know, but it’s it’s really valuable tools. You know. And in fact, with PIPP horticulture, we do vertical farming vertical mobile racks. And we do a lot of the two three tier flower rooms, multitier veg spaces, even vertical dry cure spaces, primarily for indoor cannabis cultivation. And one thing I’m very curious about is how does the effect of going vertical in an indoor cultivation facility affect overall facility efficiency, because having increased canopy and a smaller footprint means a lot of your motors and equipment running that room scale up and get inherently more efficient. And so I’ve seen preliminary why, like, you know, kind of anecdotally some data that suggests that just going vertical alone is a decision in your design process that can further the efficiency, not only space efficiency and volume efficiency of your building, but also impacts the energy and utility efficiency of your building as well. Plus increases your output because you’re producing so much more in a smaller space. So it’s a really interesting kind of thing that we’re currently working on right now to kind of quantify, but I’m, I’m interested in pursuing with utilities rebates, for vertical racking as a design element that influences overall, you know, utility, you know, that the power pulling from the grid. So there’s, there’s precedent for incentivizing hard goods, things that don’t pull from the grid and as just a design element that influences efficiency. So we’ll, we’ll see how that goes. But that’s a really exciting thing that I’m interested in right now. Another shout out to consumers, by the way, as they they’re currently working on a research project where they have put Power Monitoring relays and power mounting devices on a number of indoor facilities in Michigan, with different types of cooling, heating, humidification, systems, lighting systems, single tier multi tier, and they’re collecting a ton of data and will hopefully be releasing report, I think sometime in April may be May, where they’ll Delve show the results of this power monitoring, and really show it’ll be the basis for baselining these different technologies against each other, and then assigning dollar values to those technologies that you choose for these rebates. And so that’s going to be a really interesting report to keep an eye out for, they’re a great utility really diving in, like headfirst into this indoor agriculture conversation. I know that SMUD has done a number of great reports to and I think Excel has as well out in Denver, smads in Sacramento. So some utilities are really leading the charge. And you know, the cultivators in those areas are truly benefiting from it.

Sam Milton 23:03
Yeah, and and just to piggyback on what you mentioned earlier, about the importance of benchmarking your data and putting putting going through the results Image Institute and putting information. I mean, that’s just the best the first the first step, you know, along the way of becoming a savvy or energy user, as a cultivator. But yeah, definitely have to be able to, to, you know, to, you know, make the commitment to understanding how you know, what your operation looks like, right? You know, where, you know, where are you, you know, you know, in the spectrum of operations, you know, in your area. So, you have a sense, like, hey, you know, are you just killing it, you know, in terms of your production, you know, visa vie your inputs, when you know, or you do have a little, little ways to go, like, and once you have that insight, then you can begin to think about, you know, what, you know, what sort of changes do I need to make in my operation, we’re working with the organization, that election coming into energy audit, you know, for operations like that, that kind of that I have that curiosity around, you know, how can they be a better performing operation? And so, so, we’ll come in and do a whole energy audit, you know, the facility, kind of look at, you look at the data at a granular level level to see aren’t, you know, what are the opportunities to make improvements, and typically, we can find 10 to 30% energy savings, just doing that energy audit and kind of, you know, and calling out some of the, some of the red flags that we’ve seen, and not just not and that’s a predicator to you know, doing a deeper deeper coming energy retrofit project. You know, recalling adjusted and getting going and going for on the on site generation opportunity. But yeah, it’s, it’s definitely it’s a journey, you know, that, that these that it’s got to be on, and it’s no easy fix is really, you can make some, you know, you can you can swap out some LEDs for HPs. But you have to learn how to, you know, work, you know, when that new LED environment, I would say it’s not worth it. It definitely is. But, yeah, but there’s there’s There’s no silver bullet, I don’t think out there. But there’s a lot of support and resources for folks who, who want to be able to you need to be growing more for less. And it’s, it’s really it’s imperative right now given them the market, you know, you know, for for product out there and for cost going up. I mean, it’s definitely something that I think, you know, serious printers have to do if they want to compete and survive.

Anders Peterson 25:22
Yep, couldn’t agree more. Couldn’t agree more. I think the adaption to LEDs has been a really interesting thing to watch. That whole, you know, there’s a lot of hesitation to move to LED fixtures from cultivators. And now I think more and more if you’re not considering LED fixtures, and some sort of vertical approach to farming indoors, you know, you’re, it’s almost every project is considering at least those type of design elements in their facility. And they make so many more implications than just going from HPs to led as a cultivator. There’s so many other efficiency gains going into LEDs that I’ve enjoyed, one being I can run my rooms warmer, to achieve the same leaf temperature or VPD in my spaces. And so running these rooms warmer under LEDs to get the same results under HPs means my my HVAC or cooling equipment is working less. And that’s awesome, right, so I’m using less cooling power to achieve the same plant conditions, while reducing hopefully my input wattage accepted for using these super high PPFD or, you know, 1500 watt LED fixtures, I don’t think everyone is using those there’s a there’s a trend towards high PPFD cultivation, we’ll see if that sticks or not, but currently, most are using something around 700 Watts give or take, you know, so you’re in, you’re decreasing your input wattage, and you’re also reducing how much your cooling equipment has to work. And so it’s kind of twofold making some of these, you know, efficient technology decisions. Okay,

Adam Kulbach 27:06
um, what are some of the common mistakes that you see in building facilities?

Sam Milton 27:14
Yeah, I can jump in quick on that on that one. And, you know, I think, as I mentioned a little earlier, the biggest, the biggest mistake really is not not doing due diligence around facility design. And, you know, it’s assuming if you’ve done a project, and, you know, if you’ve done a grow operation, you know, in a given space, you can scale it up, you know, tenfold, just by multiplying everything that you did before it by 10. And hoping for the same result. That’s definitely not gonna work. And, and also, there’s really just, I think, you know, an aside assumption that you can just go, you know, go go with whatever optical technology, you know, that you see, like, Okay, here’s lights, we’ll put lights in, we need some cooling. So cooling and dehumidification will put unification and not thinking about kind of how they all work together, I think is kind of one of the biggest problems because these facilities do work holistically. I mean, they’re they are a system, they comprise a system, especially on the energy side, it’s it’s fairly complex, you know, kind of how the energy flows through an indoor grow facility. You’ve got the light coming down into the plants and the humidity from, from the root zone, you know, transpires through the leaves. And then again, you know, it all kind of has a fascinating effect in terms of the of the energy consumption, you know, that’s based at dimension, the plant health too, of course, I mean, that has to be first and foremost. But yeah, I think I think this is kind of their rush to get it to get something something, you know, and done. And then the ground. I think that’s probably been the biggest problem that we’ve seen a lot, a lot of poorly, poorly built out facilities just because corners were cut, and there was a focus on urgency instead of doing it right.

Anders Peterson 29:01
Yeah, couldn’t agree more. That was well said, Sam. You know, I think some of the biggest mistakes I see in facilities are undersized mechanical systems or poorly installed mechanical systems. So you know, even if you have the, you know, basically undersized HVAC and dehumidification capabilities, that’s often what I see. And that really negatively impacts you know, your yield your plant health and you end up using more power to put band aids on solving that problem. It’s a very difficult system to retrofit. So I always recommend cultivators get that right up front and put a lot of their, you know, their budget towards the mechanical system, and the overall construction and fixtures within the room. You can always upgrade fertigation and lighting at a later date. It’s relatively easier to retrofit but mechanical systems and the overall benching and layout of your facility. You know, it’s fixed once you once you get up and running. So pay really close attention to that. But you know, I think overall, growers want to have the right capacity, they want to bounce these systems to your point, Sam. First of all, that was beautiful eye energy balance is not only important from an efficiency standpoint, and right sizing all of these systems to work synergistically together. But energy balance is also an important tool for cultivators to understand. And so I run my grow rooms using control systems, like you’re talking about Sam off energy balance principles, because energy and energy out and that plant is just a mechanism for converting different forms of energy in there. And so many greenhouse greenhouse growers in the Netherlands, they run greenhouses based off energy balance principles, you know, total radiation or lighting in transpiration out daily average temperature, you can balance all of these cultivation parameters with the systems in your indoor cultivation facility, right input of cooling amount of heat generated space, and you balance all of these systems and what’s going on with the plant. And you get a very fast growing high yielding healthy crop. And so it’s not just an efficiency conversation, it comes back to benefiting growers directly with quality and quantity as well as understanding how energy flows through these facilities. But, you know, growers want to do it, right. I think the eat and the owners too. And investors, the problem with cannabis right now is access to capital, traditional access to funding that a lot of other industries have that it’s like, not even, they didn’t think about it, they don’t even understand how lucky they are able to raise capital the way they can. Cannabis is they’ve got a lot of chips stacked against them in that process, it’s very different, difficult to go get a construction loan, that’s very difficult to get financing on equipment at a fair rate. It is egregious, I think what some of these financing deals look like and, you know, I get it, there’s a lot of risk involved when you’re trying to financially support a project like this when it’s still federally illegal. And so again, going back to advocacy, and what can you do banking reform at a federal level, get involved with more industry organizations and speak up because once that to at E tax law, that federal tax law that prohibits us from doing a lot of these things is removed from the equation, I think, you know, not only will these businesses be more profitable from a day to day standpoint, but they’ll also build better facilities that will be more efficient. And so if the United States wants more efficient cannabis industry, that baking reform is not just about security, and public safety. It’s also about conserving our natural resources. And it’s impacting it way deeper than they can see right now. But it, it will result in a more efficient industry, a safer industry, more profitable industry for everyone involved. So yeah, that Baker form needs to go, it’ll help people afford the right capacity in terms of mechanical systems, afford more efficient technologies in other areas of the grow. And, you know, be able to make these decisions easier without feeling like they’re going bankrupt in the process. So yeah, I don’t know that I’ll get off my soapbox there. But

Justin Miller 33:27
no, I mean, you said that beautifully. It’s 90% of the cultivators I meet with their biggest inhibiting factor to upgrading their facility, or purchasing a solar array is capital, they can’t get conventional financing and the financing they do get the monthly payment for the solar would be higher than what they’re already paying for their utility bill. So it leaves people to want to pay cash and they can’t get tax incentives, because they’re not federally legal. It’s, it really is a giant roadblock for a lot of people to enable them to do what they want to do. It’s, it needs to change them.

Sam Milton 34:03
Just have a question for you, if you don’t mind. Are you guys are you seeing much you know, may 3 parties coming in and trying to integrate and owning that solar asset, you know, and then basically, you know, selling that power, you know, to the to the customer. That’s that’s on site, or maybe you need, you know, if you can parcels or even the county or two away. Are you seeing much innovation kind of in that financial, you know, allocated space.

Justin Miller 34:32
So, I mean, that’s a great question. So, there are a lot of private equity groups that are reluctant to just give money to a cannabis cultivator. But they are willing to do is purchase the solar array, leased land from the cultivation and then sell that energy to the cultivation at a cheaper rate. And what we’ve been seeing and there are some cultivators with capital who, you know, we can monetize their tax credits. They want to own the system. It just adds equity to The establishment as a whole. But for people who are constrained on capital, it’s called a PPA. It’s just a power purchase agreement. That is hands down the fastest way to lower your monthly overhead as a cultivator because there’s nothing out of pocket, an investor owns the system, an investor gets the tax credits, but instead of getting energy from the utility company, you’re buying power from the solar array that’s right next to your facility for a cheaper rate. And that way, it really is the barrier to entry as far as clean energy and cheaper energy is pretty much eliminated. So yeah, that’s great question that really is kind of the trend moving forward. Because investors are willing to do it, and it really benefits cultivators.

Sam Milton 35:45
Yeah, I’ve I found that, you know, where the financial community yeah has a stake in solving a problem. You know, they’ll they’ll be big, get creative, and make it make it happen. And thankfully, I think on the on the solar side, you are kind of seeing a bit of that. But again, it’s taking a while, because at some point, you know, the cash flow to the owner of that system has to come from, you know, an operation and that and somewhere along the line has to be identified as like, yeah, these guys are growing cannabis, which is not federally legal. Exactly. And that kind of trips things up. But yeah, I, you know, they’re there. I’m glad to hear you’re saying, Justin, there are some opportunities out there for folks, you know, who they can’t get the capital to borrow for a system or they don’t want to pay cash upfront, then they can work on third party. It’s kind of to help them to go solar and reduce their operating costs.

Justin Miller 36:38
Yeah, energy. Yeah, well, and I really feel like as this progresses, or as utility costs become more of a pain point for the industry, or as people start to see benefits of renewable energy, even just from like a lower, lower overhead. From the financing sector, they’ll see more opportunities there because the models have been proven to work. And so I think from both sides, they’ll be able to benefit just because there’s getting traction.

Anders Peterson 37:09
Are you seeing a greater interest in solar these days for cannabis cultivators in the past? Because I have personally, I hear it getting brought up in conversations more and more frequently than I have in previous years. And it does seem like operators are getting more keen to what you’re saying here is the financial benefits and the offsetting and or the reliance on the local utility. I see more and more renewable energy discussions occurring, and definitely solar is at the forefront. What’s the trend you’re seeing on that front?

Justin Miller 37:42
Yeah, I mean, people are definitely interested in it. And of the, I mean, the two limiting factors we ever really see, because most people we talk to have a pretty big genuine interest, one of it is just space available. People are operating, you know, in an urban area, and all they have is their rooftop, typically, we’re not going to be able to offset all of their power. And so that’s not necessarily going to work as far as really benefiting them financially. But if they have land, and they have capital, and they can own the system, it’s really a no brainer. But even if they have land and they don’t have capital, we can find an investor that’s willing to own that system and sell them energy. And so it’s definitely more of an interest. And I think the interest is I mean, the carbon emissions from the cannabis industry is a relatively big talking point if like people are talking about it more or less from cultivators, and more like from consumers, I think. But cultivators, their their primary, you know, pain point is just the utility costs. I mean, we’re working with a cultivation here in Colorado, who was paying on average, like 35 grand last year for their utilities, and it’s up to 42. This year. And so it’s just hard to make a business model when your largest overhead expense is kind of out of your control.

Anders Peterson 39:01
Yeah, I think I think reducing the reliance on a utility is also a I guess it’s sort of a safety factor. I guess for these cultivators, I’ve seen it firsthand in Oakland where a lot of the utility infrastructure is outdated, frankly, and you know, I’m not going to name names but there’s a cultivator I’m aware of and a facility in Oakland that was, you know, an old building old cannery type building on the train tracks and they have very old you know, power infrastructure. And you know, they blew this transformer that like one guy in the world knew how to fix you know, and so they there was, it was going to take I think six months to a year to even try and get that back up and running. So what did they do they they bring in 18 Wheeler generators, diesel generators into their parking lot three of them I think it was like, I forget exactly like it’s like a megawatt or more of Patagonia is an insane amount of power. They brought in all these trucks and their monthly The utility bill went from $150,000 a month to $250,000 a month. And they had to absorb that for over six months. And so it was it was the death to the business, unfortunately, like it was something that it was very hard to recover from. And at the same time, they got killed by a lower price per pound and wholesale price dropping in California. And unfortunately, that that business just didn’t survive. And so it was very sad to see because there were really good people and really responsible operators, they were doing the best they could with situation, but a lot of their, you know, a lot of that had to do with their reliance on the utility, I guess. But, you know, which isn’t a bad thing. But I have seen a lot of a lot of freedom I guess gained by generating your own power. CO Gen, for example, is another thing that I’ve seen so much more these facilities scale up having a cogent plant, and using a four pipe system, like you know, the chiller boiler, and working them all into and using heat capture, it’s a hyper efficient system, that you are also generating your own power and being able to sell it back to the grid. And it’s I see them a lot more popular on the east coast down in New York and New Jersey jobs. But I’ve seen one here in central California 400,000 square foot indoor has its own power plant, you know, and you don’t need to be that big to justify that cost by any means. But there’s a lot smaller, cogent plants out there and engines out there. But it’s a really interesting concept to me, I was blown away, the first time I heard about that, like, what you can build your own power plant, and you know, at a relatively small scale, and run my grow off of it. And you know, like I was I was loving that stuff that is so cool.

Sam Milton 41:45
Yeah, and many you say good, no, go ahead. No, I was gonna say, Yeah, many utilities, actually, they’ll, they’ll pay for those systems to, you know, coat, you know, coding facility is a really good way to reduce the power load, that that, you know, that that site has, and that’s worth a lot of mine to utilities. So they can, you know, they’ll, they’ll pay for most of those costs. In some cases, for an operator that wants to, you know, install, it’s all system like that. So I mean, that’s the thing, these, these utility programs, just get back to that real quick is that, you know, you can submit almost any idea that you have that, you know, is viable. And, you know, say hey, you know, we want to we want to make this upgrade, or we want to design this facility to do have these components, you know, this is what we think is gonna, it’s gonna be saving you in terms of power, and, you know, and pay us. And if you can make that case, which if you’re creative, you know, how the system works, you can often make that case, and like you said, I mean, Bucha, getting, you know, half a million dollars, a million dollars into objects, you know, for these facilities that they’re building out, which is astonishing. And so yeah, it’s all about coming to having, having that vision and that patience, I think, to be able to think a little bit outside of the box. And, you know, unfortunately, it tends to be those that are more capitalized, the larger, larger operations, and it’s tough for folks who don’t have a lot of, you know, time or money to pursue kind of these, you know, these hyper efficient, more advanced facilities. But yeah, I think as, as the safe Banking Act, hopefully, you know, evolves and gets gets passed, that access capital will be less than problem and you’ll see folks across the board, you know, being more willing and able to, you know, to step up and say, hey, yeah, you know, it’s important for me, for me to have a facility that is more sustainable, that is, you know, cost me less to operate, and, you know, actually helps me to stay in business longer. So, I think they are very interconnected, you know, situation here, but I think we’ll get there, you know, I thought to myself, I’m an eternal optimist. And I think that you know, if there’s enough if there’s, you know, a concerted, you know, a collection of voices that are informed that are engaging at the right levels, that we can move move the needle, but yes, it’s gonna it’s gonna take a while and yeah, kind of enjoying your diminished your associations, joining your different boards and speaking up and and representing kind of the the industry and kind of in kind of your experiences is essential because the lobbies spokesman make these programs who are in the bureaucracy, they don’t, they don’t know the first thing about cannabis cultivation. And I think it’s just another industry but but it’s not so. Yeah, it’s um, yeah, it’s it’s a battle but we’ll get there I think.

Justin Miller 44:43
Um, I mean, it just kind of echo what you guys were saying. I think there’s especially cultivators who plan on being around for a while. The the idea I talk about with them a lot is future proofing their business and and whether it’s your If you’re in a high density area where there’s rolling blackouts often, and you are depending on the grid that really inhibits you from getting the best product that you can. On another scale, it’s, you know, just increased utility rates. And part of it is, you know, utility companies aren’t evil, it’s the grid is only so big, more people are moving in and using it, it costs money to build infrastructure, so utility costs go up. But I think a lot of cultivators just aren’t aware that there are ways that they can get around that. And the really cool thing is with renewable energy, or whether you have your own power plant at your site, electricity is an asset. And so we were working with a cultivation that has over 100 acres of free land, we’re going to build a solar array there that’s going to power their facility, and then that’s going to be a cash flowing asset for them, because they’re going to sell their excess power to the grid. And so it really future proof their business from not being dependent on the grid for their own power. But now they have cashflow, regardless of how you know what price per pound. And so really, it’s a great option to like hedge their bets, but also just have a lot of peace of mind as far as the operation of their facility.

Adam Kulbach 46:13
How has the solar technology advanced in recent years?

Justin Miller 46:18
Yeah, I mean, for honestly, in recent years, it hasn’t changed a ton. I mean, a lot of it is just the efficiency of the panels, the size of the panels they’re building. Really what we’ve seen a lot of growth in these past years is actually the storage capacity for this power. There’s a lot of cultivators in really, really rural areas that the grids actually can’t handle the power that this law arrays provide. So something that’s kind of come out in recent years is something called a micro grid. And so it’s essentially a really big battery. But think about the grid infrastructure in a city, essentially compacted into a few storage units, and put that on site. And kind of like you were talking about, you now have your own power grid that’s on your site that you can sell, you can distribute, but that you can store. And so really the technology increase over the past years has just been the storage of power and the consolidation of the asset that is energy.

Sam Milton 47:19
Justin, are you finding those are those are cost competitive? I mean, I know they’re not cheap. But you know, are those penciling out for folks to install system

Justin Miller 47:25
like that? It totally depends on their situation. If people are have a cultivation that is attached to a grid that has the infrastructure for a solar array, I never recommend storage, mostly because those larger grids, they’re going to have something called net metering where any excess power that you produce, they’ll essentially distribute to people around you, you’ll get credits for that power. So there’s not necessarily a purpose for the storage. But if you’re in, you know, areas that you’re pretty isolated from, from a cost perspective, they’re relatively competitive. I mean, I’d be lying if I said they weren’t expensive. But as far as peace of mind and being able to save that asset, which is the energy it always pencils out to work. Yeah.

Adam Kulbach 48:14
I well had some other questions, but I think you guys already answered them. You got cool. Is there anything else you guys want to expand on? Or something you want to talk about?

Sam Milton 48:30
I mean, I would just say that sustainability for the cannabis industry is it’s kind of a buzzword, but it’s becoming more and more meaningful, you know, especially as consumers, you know, are becoming more motivated to, to shop with their pocketbooks in terms of getting, you know, what sort of business do they want to support, they want to, you know, give money to a business that they feel actually reflects their values as somebody who doesn’t want to trash the planet, whether it’s going for the cheapest thing possible, I think, you know, as are more options for folks, you know, across the country, for cannabis consumers to participate in the market, they believe I want to be able to, to show that, you know, that they care, I think for those smart businesses, they always kind of see those those signals that hey, you know, it’s it’s worth it for us to not only do this, because then we just start our operating costs. But, you know, we can get some, you know, really legitimate credibility, you know, for being more seen cooperation. And then you’re also seeing a little bit I think another driving factor is on the compliance side. So a number of states that kind of roll up the programs, you know, are requiring some operators, or, you know, depends on operator type business by requiring at least a focus to some extent on energy conservation, energy efficiency, renewable energy, and Massachusetts down the road where I am, you know, requires all applicants for the use of nerve medical cultivation facility to check a box and say, hey, yeah, you know, we’ve thought about solar, you know, it didn’t work out or it did work out, but This is what we’ve thought about, we’ve engaged in utility programs, we’re thinking about ways to reduce our overall energy demand. During kind of those, those peak times in the day, I think you’re kind of just seeing, you know, you know, more of that New York, New York State is going to be pushing a lot on sustainability piece. And I think it’s gonna be a balance of kind of the, you know, the carrots and sticks out there. But I think they can work in tandem, even if you’re in a state that does have those regulations. A lot of times, if you’re doing stuff, right, you know, it’s not going to be a hard lift, you know, to check those boxes. But I think we’re gonna see more people who are, who are gonna be driven to, you know, to consider, you know, solar and driven to consider you have a more holistically integrated facility, you know, by virtue of those, those regulatory income, you know, and consumer signals.

Justin Miller 50:47
And that was actually going to ask you that as a thought I’ve had even before I started Highlife solar, I mean, you can go into the grocery store, you can see when things have been grown ethically, or when something’s organic, or when it’s free range chickens, or you’re very informed about the food you purchase and the process that was involved in that food. Um, have you guys seen any? Or do you think it would be a good idea? When I go into a dispensary? There’s like, whether it’s similar to like an organic logo or something, but some kind of marking, that shows this weed was grown in an energy efficient facility, or this weed was grown in a facility that has zero carbon footprint, or in a way to conform inform consumers on what they’re purchasing because the consumers I talk with, they really care about those things. But unless they do deep dives on whatever companies or cultivations they’re buying stuff from they don’t really know that. Have you guys heard anything about anything like that? Or do you think it’s a good idea?

Anders Peterson 51:45
I’ve heard some people discuss a sort of certification program around energy efficiency. I know there’s a couple being brought up right now, in different industry organizations. The way I’ve heard it discussed is the ENERGY STAR for cannabis, essentially, right? Like, you know, by having this logo on my package, I have been, you know, I’ve been verified that my facility and my practices, my SOPs are adhering to the certain standards that dictate ima an efficient, sustainable business. There’s a lot of other beyond energy efficiency, there’s a lot of other sustainable like dragonfly Earth medicine is a legacy cultivator who does a lot for organic cultivation, they created a certification and have their own logo you can put on your package if you meet their standards. And it is way more stringent than USDA organic certification. And you know, things like that. And so we’re really leading the charge with policing our own industry and making keeping everyone honest, and operating efficiently. I think it’s a great idea, though. And I think it’s, I think as time goes on right now, I think everyone’s trying to survive, right? That’s, I think, I think everyone kind of differentiate to survive. And these type of things are what can help you differentiate on the shelf, retail shelf space is few and far between. There, it’s very hard to get shelf space. In California, for example, it’s almost a pay to play type scenario. And if you have, so first and foremost, you got to have good product, you got to have good, wheat good we’d always sells so have a good facility that can produce good weed. And if you can do it efficiently, and mark it to your consumer that you’re doing it responsibly. That’s a good strategy to being successful.

Sam Milton 53:34
We’ll see. Yeah. No, so it’s pretty interesting that you mentioned that the labeling piece because I’m involved in the the, the Michigan cannabis regulatory agencies, sustainability workgroup, I chair, that energy group, and one of the ideas that we have that came from one of our operators was that yeah, labeling program, you know, it’s a certification program for energy would be great. There’s one right now for kind of the first social equity, leaving Michigan, but there’s definitely a coming, you know, desire for those operators that are going above and beyond to be able to demonstrate that to the, to the customers. And, yeah, you know, although, you know, you know, a picture of a plant or a rainbow, I don’t know what it would be, you know, can provide that for cultivators. But I know we have to be careful again, about like, you know, you don’t want to give her about everybody, you know, sort of certification for energy efficiency, you know, just because they may have, you know, made you picture, you know, one day so there’s gonna be some, some some homework to do in order to kind of get those certification programs coming up and running. But your answers as you mentioned, there are there are a few out there already. I think like the recent innovation institute, kind of one of the earlier organizations. I know they got the start touting kind of wanting to create a LEED for weed certification. Yeah. So I’m not sure if they got there yet with that, but yeah, they’re folks trying to do the right stuff. Just a matter of harnessing all that and all the energy and in agreeing on what are the standards, you know, they can everybody can you know, can get behind? Yeah.

Anders Peterson 55:10
Yeah. I guess I would just like to leave it off like you know being a cultivator myself, I always like to speak or at least wrap things up directly to my cultivator, friends, you know, and like the people that I surround myself with. And while a lot of this may seem foreign to you, these conversations about energy efficiency or new, there are people out there that can help you. And oftentimes, even if they cost a little bit of money to help you navigate these programs, you end up getting more money, at the end of the day, if you were to try to do it yourself. And so don’t be don’t let your ego get in the way or hubris, you know, type nature, get in the way, go out and ask for help and engage the professionals and experts, people like Sam, people like Justin, and they will help you navigate all of this in a way that will, it will be worth it. And to your bottom line. I mean really quick, I can wrap up with some stats here, there’s, in indoor cultivation, the average cost of produce a pound is somewhere around 402. That’s a big range for under $2,000. But let’s just say the average is about four or $500. To produce a pound indoors, depending on where you are 30% of that cost is roughly your utility costs. It varies depending on what technologies you have. But that 25 ish 30% range is with the kind of legacies type installs of less efficient technologies, standalone dehumidifiers, all these different things that draw a lot of power. Now I’ve seen firsthand and I have the data to show it is when you start choosing more efficient things like mechanical systems, I see a facility that went from single tear HPs, standalone D Hughes inefficient air conditioning systems, they switched over to multitier led with a water cooled DX system, and water water runaround coils, energy recovery, you know, components in their facility, they dropped it from 30% to 11.8% of their total cost of production, right, then a similar scale and type of business, took that number even further down using a four pipe hydronic system, you know, in a very efficient mechanical system there with LEDs multitier, to only 8% of their cost of production. And so then once you get that number down below that 10% range, now you’re now when your competitors across the street are producing at six $700 a pound, maybe $1,000 a pound, and you’re closer to 300 $250 a pound. You’re now not competing with your other indoor competitors. You’re competing with the greenhouses in your area. And that should be your goal. Right? You should be competing with the greenhouse folks. And it really means a lot to your business and being able to survive these ups and downs of this wild cannabis. Right. So it’s it’s real money that you’re saving here. It’s not in the margins. It’s significant.

Sam Milton 58:04
Well said, yeah,

Justin Miller 58:06
well said. Thank you.

Adam Kulbach 58:11
Okay. Well, thank you very much, guys. It’s been really great. You guys are very informative. And I don’t think there’s any editing.

Sam Milton 58:23
Yeah. Thanks, Anna, for organizing this. Appreciate it. Yeah. Thank you. Yeah, guys. Nice to meet you both. Yeah, I’d love to have calls with what’s up with you and adjusted. We tried it we tried a few weeks ago. Just try again. Yeah, and and it was definitely going to Conan and Travis is going to be good.

Justin Miller 58:37
Would love to pick your brain? Cool. Likewise, guys,

Anders Peterson 58:40
let’s stay in touch. And Sam, you said you’re out there in the East Coast.

Sam Milton 58:43
I’m in I’m in Maine, I’m basically male, if you can see the you know, but there’s no back there. But you want to be in I don’t think I’m unique. And I was

Anders Peterson 58:51
just gonna ask you the same thing. I’ll be in Boston a few weeks. So we have a booth there at PIP and I’ll be speaking there with a colleague of mine at PIP so yeah, we’d love to connect in Boston in a few weeks.

Sam Milton 59:00
Absolutely. I’ll be speaking on Friday morning, I think. Okay, um, Saturday morning, so let’s check it out on Friday. And then for sure, I’m not gonna be beat on Saturday as well. But yeah, I’ll go for it. Well, that’s in front of time in chat. Cool. Awesome. All right. Thanks, Justin.

Justin Miller 59:15
Yeah, you guys.

Sam Milton 59:16
Thank you. examinees as

Adam Kulbach 59:24
well, thank you for listening, everybody. For more information about our podcasts, or to add suggestions. Or if you want to be a guest on our show, check out the description below. Or please call us at 844 High yield, that’s 8448 Chai y i e LD. And also check out our website at higher yields consulting.com. There you’ll find all sorts of great information and all of our previous podcast episodes. We hope that you’ll join us for our next podcast coming up Very soon so until then thank you very much and have a great day.