Medical Marijuana Business Begets A Cottage Industry of Indoor Growers
Special to CNBC.com
The manufacture, distribution and retail of hydroponics equipment is a nearly half-billion dollar business, whose explosive growth in recent years corresponds closely with that of legalized medical marijuana in America.
A drip irrigation system for growing hydroponic medical marijuana.
The advent of hydroponics—the indoor cultivation of plants using nutrient solutions in water rather than soil—is primarily responsible for the proliferation of so-called grow stores in states like California and Colorado, where hundreds of thousands of residents have obtained a doctor’s permission to smoke, eat and grow cannabis for medical treatment purposes.
The legalization of medical marijuana has already given birth to a retail dispensary business, whose members contract legally with commercial pot growers. Hydroponics, however, allows an individual or a larger grower to cultivate marijuana discreetly indoors or in inclement conditions year-round.
As dynamic and fast-growing as the industry may be, it is, unsurprisingly, cloaked in secrecy and misinformation. Players in the industry agreed to talk to CNBC.com only if they could remain anonymous.
“Everyone knows what’s really going on, but people don’t want to address the elephant in the room,” says Erik Biksa, hydroponics editor for Rosebud, a trade publication catering to the industry.
George Van Patten, the author of seven books on growing marijuana, agrees.
“This business is largely done with a wink and a nod,” he says. “These guys are afraid. Some live in states where it’s not legal, and they’re right on the edge. They’ll get busted if they advertise anything about cannabis. So they take the high road, saying they sell products, but don’t know what they’re used for.”
Biksa puts the annual take of the hydroponics business at $400 million.
“If you look at just the manufacture and distribution of the equipment, a conservative estimate would be that it’s $150 million-a-year business,” he says. “At the retail level, with markups, I’d say that’s another $250 million a year. It’s tough to put a finger on, but that’s a pretty safe estimate.
That estimate doesn’t include all the nutrients or other products involved. Biksa added. “You may only buy a lighting system once every five years, but nutrients are like milk to this industry, ” adds Biksa. “You need them all the time.”
In California, where residents vote Tuesday on the Proposition-19 ballot measure that would legalize marijuana use and cultivation for adults, hydroponics is beginning to enter the mainstream.
Consider the Oct. 4 grand opening in Oakland of weGrow, (formerly iGrow) a 15,000-square foot hydroponics superstore, which stocks stocks everything an aspiring—and discerning—home cannabis producer needs. And it employs 50 people. It’s already jokingly referred to as “Home De-Pot.”
Local officials, mayoral candidates, even a state senator from New Mexico were on hand to applaud the jobs and tax revenue the store is expected generate. WeGrow’s owners claim they have 75 franchise stores under contract at $25,000 apiece in Colorado, Michigan and Illinois.
A nonprofit weGrow subsidiary plans to apply for one of the permits the Oakland City Council approved in July for large-scale marijuana farms in warehouses.
A permit, to be awarded in January, would allow them to grow about 20,000 pounds of cannabis a year in a 60,000 square foot facility, employing 200 more people, said weGrow’s store’s founder, 26-year-old Dahr Mann.
Northern California’s “Emerald Triangle” has long been infamous for the amount of pot grown in its fertile soil, but the indoor variety has become an economic backbone as well. The Mendocino County Sheriff’s Department counted 22 grow stores—one for about every 4,500 residents and twice as many as supermarkets.
Several hundred houses in the city of Arcata, in adjacent Humboldt County, are used to grow marijuana, says Police Chief Tom Chapman.
But that’s California. In the other 13 states that allow medical marijuana, the hydroponics business operates as quietly as it can.
A large Denver wholesaler of garden and greenhouse products, who asked that his name not be used, says his hydroponics sales have grown “tenfold” in the last year.
“There’s definitely a bubble,” he says, estimating that 90 percent of the growth is due to medical marijuana.
“To an extent, we have been pulled in,” he says. “It’s not where we want to be, but we need to service our longstanding customers. We don’t need controversy. We’re an interstate company, and federal law still prohibits marijuana use.”
The general manager of a large hydroponics and organic garden center near downtown Denver. A sign on the front door reads, “If you mention cannabis or marijuana, you will be asked to leave the store. This is our policy.”
“We have contract agreements with our suppliers—a sort of indemnity clause,” he explains. They don’t want any knowledge of their products being used for anything but food production. They’d cut us off. This is true industry wide.”
“Yes, It’s still against federal law and that’s the trump card,” adds Van Patten. “The multi-million dollar distributors—the key players—have so much financially at stake that they strong-arm storeowners, especially smaller ones, into not acknowledging where their true business is coming from.”
Van Patten explains that to operate a hydroponics system, you need a 1,000-watt bulb for every pound of pot you plan to grow. You need timers, plant containers, circulation fans, a venting system. In a residential area, you may need an odor eliminator.
You also need aerators for the water the plant’s roots sit in. You need a thermometer to regulate temperature and a hydrometer to record room humidity.
The plants need to be kept at temperatures between 50 and 85 degrees with some, but not too much, humidity. The vent fans need to be controlled by rheostats to vary the speed. You need a growing medium other than soil, usually rockwool. And you need a constant stream of nutrients.
Advanced Nutrients is a Canadian company catering to the hydroponics industry. Since it’s much more legal to grow marijuana in Canada, there are fewer law enforcement worries, and the marketing and branding is edgier.
Among the many nutrients they sell: Bud Ignitor, Iguana Juice, Nirvana, Wet Betty, Mother Earth Super Tea. Their logos are wildly colorful, with psychedelic overtones.
The general manager says his store carries Advanced Nutrient products at his stores, because his customers demand them, but says the attention-getting, sometimes risqué graphics on their product logos make him nervous.
“It’s a Canadian company, and that explains a lot about their marketing,” he says “They have less to worry about. But they are focused on an activity that, on a federal level, is not allowed.”
A home hydroponics system easily runs into the thousands of dollar, occasionally topping $20,000, according to industry sources. Commercial growers pay many times that, with a typical expenditure of between $350,000 and $500,000.
“Hydroponics are definitely something that has generated income for us,” says Trela Phelps, general manager of City Floral, a Denver garden center that celebrates its 100th anniversary this year. “It’s been a lifesaver. We sell 120 percent more than we did before. We carry the things people request.”
Phelps estimates that 80-90 percent of the hydroponic sales from her store support medical marijuana growers.
“I don’t have an issue with it,” she says. “As a company, we discussed it. If it’s legal and people want to do it, it’s their business.”
Grow stores are everywhere now, says Van Patten.
“I’ve been watching this for a long time,” he says. “I went to a hydroponics fair last June in San Francisco. There were plenty of people from other industries there, hovering like sharks around the hydro folks—representatives of the straight ornamental plant industry. Given the bad economy, much of their traditional business has been displaced.”
Everywhere, indeed. Need to find a hydroponics store near you? Check out Hydrostorefinder.com, which offers a database of some 1,300 stores in all 50 states. Enter your zip code and you’ll get a list — complete with customer reviews.