It’s Not Easy Growing Green

They call it weed because it can grow anywhere but it requires rigorous effort.


Making a legitimate business out of marijuana requires high labor costs and extreme costly maintenance. Hundreds of Medicinal Marijuana Entrepreneurs have gone under because of competition or cost. The CEO of Pink House Blooms, Elliot Klug (pictured above) explains, “In order to survive in any business, you’ve got to be cost effective, so that was one of our drivers.”

Pink house and other commercial growers are required to document the life of each plant from the time it’s a cutting to the time its flowers are sold and the state of Colorado requires cameras in every room that has plants to prevent marijuana from entering the black market. These extra requirement are not comparable to any other industry or cheap either.

The Marijuana flower is trimmed by hand because the machine would damage their Trichomes, the part of the plant that is rich in the high-inducing THC. This results in high labor costs.  Payroll can make up more than a third of production costs. Retaining employees who learned their trade by growing clandestinely, is also a challenge because “they aren’t used to being part of a regular society”, says Jason Katz, chief operating officer of Local Product of Colorado.

Growing space can cost $100 or more per square foot and Pink House Blooms has a 6000 square foot warehouse. To have operation costs as inexpensive as possible they use every inch of their warehouse. To save on air conditioning costs, Pink house developed a system that uses water to cool the powerful lights that make marijuana grow.  Those lights, causing a $14,000-a-month electric bill, are on 24/7 making their electricity bill a huge portion of their expenses and preventing the company from paying back the borrowed money.

The employees may have gauges and there are Pink Floyd posters covering the walls but it is not as mellow as one would think, It is a tough business. They have supplier issues because many companies do not want to be associated with a pot-growing business.

Is this still a touchy subject or is there something  operations managers do to convince suppliers to work with them?

Operations Management for this industry is not typical at all. They have to create new equipment specialized for their product because it cannot be found on the shelf. This business could have high costs because it is relatively new.

Is it possible that over time, operation managers will find better ways to lower their costs? Any specific ideas?

Colorado and Washington has approved the use of Marijuana for Medicinal use and recreational use effect by next year. Will a higher demand leading to higher profits  make it possible for these companies to increase production efficiency?

What methods might this industry use to forecast. Why might the naive approach lead to too much forecasting error?


9 thoughts on “It’s Not Easy Growing Green

  1. This article was very interesting and provoking to read being that the medicinal marijuana business is still a touchy subject for many people in society today, especially the United States, and for this reason I do agree that it would be hard for people in this business to get others to work with them and or supply to them. Furthermore, business owners in this industry may not only have a hard time getting workers who work well not only in society, but probably have a hard time finding workers who will not try and take advantage of them and their product. In regards to high costs of rent for this type of business, the rent may be so high for these growers because people are still weary about endorsing the medicinal marijuana business being that it might cast a shadow over their good reputation. As to your question whether over time there may be a possibility that these operations managers will find better ways to lower costs, it is my opinion that if more states legalize medicinal marijuana there may come a time when these places don’t have to deal with as many regulations and restrictions like the cameras in every room. Overall I really enjoyed reading this post and am now curious to learn more as to what the profits will look like for these types of businesses over the next several years.

  2. Wow, another interesting read on ‘edublogs’ that I would have not read had I been apart of this online community! It did dawn on me that cost allocation and potential cutting is a dilemma that needed to be attended to even in this industry, though I had no idea that they like all other companies truly have a main focus on cutting their costs. It was incredible to notice from this article that this industry too shifted with the recent downturn in the economy and thus a stricter more competitive environment is absolutely necessary. Operationally, it seems next to impossible to document the life of each plant from the time it is cut to the time its flowers are sold. Thus, making sense that payroll can make up to more than a third of the production costs for these companies!

    In reflection on some of the ending questions that were asked, specifically the idea generation on future ways to lower costs I found unique. Demand always will help lower costs in some cases, though in my opinion it seems like this industry is at its peak stage for innovation and that potentially mass-production could be the way to best lower costs. This is obviously though a sticky situation as you/the article mentioned and I feel that it will be a long time until something like that could go into effect.

    Great article!

  3. Many people think legalizing medicinal marijuana is a crucial step for society; however, after reading your blog post about how labor intensive and the amount of expenses that CEO Elliot Klug incurs, it makes you wonder why people go into this business. I agree with the previous bloggers comment about this being a sticky situation because it is tough to think of solutions to lower their costs in producing the weed. Unfortunately, I disagree with the previous comment about the industry being at its peak stage because there is always room for improvement, especially since legalizing the weed has been recently a growing concern.

  4. This article was eye-opening simply because I did not think there were so many compliance requirements a business of this sort would have to adhere to. Additionally, the required effort to sustain such a unique business is intense and certainly requires the use of a trained operations manager.

    As previously mentioned, since the legalization of marijuana for medical purposes is not a highly accepted practice by society at this moment, there is not much support from the government, potential suppliers or the general public. Perhaps if more states legalize this plant it will become more respected. I think a good idea for a business that deals with marijuana would be to educate the public on how this plant is used to treat various medical conditions. By doing this, operation managers will have an easier time finding suppliers that will do business with them. I believe that technological advances in equipment for this potentially growing business will help cut down costs in the long run. However, regardless of the public’s acceptance in the near future to this type of business, operation managers will have to deal with the growing ethical concerns and how to best manage such a unique business. Perhaps one day this organization may create more plants and will be exporting their products elsewhere.

  5. I think some actions the marijuana growers might take to increase efficiency might me to develop/use a bulb that may reduce their electricity bills. Since a majority of its expenses are from the bulbs and electricity. Also, they might want to experiment growing marijuana in different types of soil, and comparing what types of nutrients make the marijuana grow a little faster. If the marijuana is able to reach its maturity by one or two days earlier, its still that much more efficient. The growers might also have to keep on insects and pests that might hinder the growth of the marijuana. I enjoyed reading this article because this is a new type of business in the market. There is still a lot of room for improvement, and I wonder what actions the growers will actually take to increase employee productivity and efficiency in their operations.

  6. This article is really interesting because most people argue that legalizing marijuana would benefit the economy because it can be taxed, etc. In all of the debates I have heard over the support of the legalization of marijuana I have never been informed about the extremely high costs associated with growing the plant and maintaining the facilities. I do agree, however, that since this is a relatively new concept, there is plenty of room for improvement which can hopefully lead to lower costs.

  7. Very interesting article, because you would never think that it would be so difficult to grow marijuana. However with so many regulations out there there expenses keep on getting higher. The big issue here seems to be the light bill, the fact that they have to keep it on 24/7 is definitely an issue when it comes to cost. They need to find an alternative energy source that is less expensive than the one they are using. That would make it more lucrative.

  8. This was an awesome article. I believe people like Elliot Klug are at the forefront of a new innovative and certainly interesting business. Medical marijuana allows people like Elliot Klug to apply a business model to a product that many of Americans consider taboo, but that is slowly changing, as medicinal marijuana is getting approved state by state. Eventually, I believe in the future, with laws easing up on marijuana, people will look back and apply the business models used by entrepreneurs in the medical marijuana business. It will be interesting to see in a few years if the medical marijuana industry keeps booming and compare how quality or efficiency will have improved from all the people trying to make it now.

  9. I really like this article and I never knew what actually went into the process. I did not know that is was that tough of an industry and I give credit to Elliot Klug in being a innovator in a market that is very controversial. It has to be very stressful in trying to figure out ways to cut cost. I cannot see the government helping that much, and finding suppliers has to be tough also. $14,000 a month for electricity is crazy but that is the main source for growing and maybe they can look into solar panels.

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