On March 30, 2020, the U.S. Treasury Inspector General for Tax Administration (TIGTA) released a report that noted the federal government missed out on $48.5 million in tax revenue from cannabis businesses in California, Oregon and Washington that were not in compliance with Section 280E of the tax code in tax year 2016. Projected over five years, that amount came out to $242.6 million in those three states alone.

As a result, TIGTA recommended the Internal Revenue Service (IRS) “leverage publically [sic] available information at the State level and expand the use of existing Fed/State agreements to identify nonfilers and unreported income in the marijuana industry.” As Rachel Gillette, partner and chair of Greenspoon Marder’s Cannabis Law Practice, told Cannabis Business Times in April 2020, “the industry should plan for more audits—not fewer audits—in the future.”

Thankfully, there are a few ways that plant-touching cannabis companies might be able to legally reduce their tax liabilities while remaining in compliance with Section 280E, including leveraging IRC Section 471(c) and the Research and Development Tax Credit.

IRC Section 471(c)

The Tax Cuts and Jobs Act of 2017 modified parts of the tax code, including a section called 471(c), which allows cannabis companies to change their accounting method from accrual to cash. (For more on the difference between accrual and cash accounting, see sidebar below.) The IRS normally would need to approve a change in accounting method. But with the update, which was effective in 2018, the change is “automatically accepted as long as your books and records reflect this change of accounting,” Mike Goral, partner at Armanino, a national accounting and consulting firm, tells CBT. “471(c) provides some leeway [on how] to do your accounting for your books and records.”

The change was a technicality, but it offers a chance for small businesses, defined by statute as a company earning less than $25 million/year, to reduce their tax burden by only paying taxes on money that has been officially transacted and exclude outstanding receipts and bills from their tax filings.

For example, if a grower sends an invoice to a retail company for $50,000 worth of flower products delivered, “normally you’d have to put that $50,000 on your books and … for tax purposes, it looks as if you already got the $50,000,” Goral explains. “Under the cash method, you have to wait until you get the actual cash in order to be able to put it on your books,” at which point the business can be taxed on it.

Goral stresses that while businesses can defer declaring revenue to the next tax year by using Section 471(c), 280E still applies. He also notes that if a holding company operates different licenses, then the holding company’s total revenue cannot exceed $25 million for it to qualify for 471(c). For example, if a holding company operates three licenses under the parent company’s umbrella, and each license reports revenues of $10 million, $12 million, and $5 million, the company does not qualify for a change in accounting method.

R&D Tax Credit

The R&D Tax Credit is another credit that appears to be available for plant-touching cannabis businesses—but careful planning, corporate structuring and bookkeeping are required.

The R&D credit is designed to reward innovation, according to Daren Shaver, an attorney with California-based Hanson Bridgett. “Any business that is eliminating technical uncertainty in the development of products or experimenting and relying on science to really develop a product [is] a very good candidate for an R&D credit,” he told CBT in December.

That doesn’t mean that simply adding an extra dose of nutrients and noting the effect allows growers to claim those costs as an R&D credit. Rather, expenses relating to breeding programs for the development of therapeutically valuable genetics, equipment modification and/or design that facilitates or improves a manufacturing process, and/or developing novel or innovative consumer products (such as a faster uptake method to increase the bioavailability of cannabinoids) can all be used to apply for an R&D tax credit.

Plant-touching cannabis businesses should structure their corporation thoughtfully, Shaver says. Separating R&D activities from plant-touching activities is crucial to obtaining the R&D credit. For example, if a cultivation company has an employee whose sole job is to oversee and conduct research and analysis, that employee’s salary could be used in applying for an R&D tax credit, Shaver explains. If that employee is a part-time researcher, then the company should keep track of how much of that employee’s time is spent on R&D and only use that portion of the employee’s salary when applying for the credit.

Costs for supplies and equipment also can be eligible as long as the research being done is science-based. Additionally, if the research has applications outside the cannabis industry, that could also increase the chances of getting the R&D credit, according to Shaver.

Be on the Lookout

Federal prohibition continues to be a major hindrance for cannabis companies in a multitude of ways, but that doesn’t mean the industry is without lifelines. Goral advises cannabis companies to be on the lookout for potential opportunities to take advantage of to help reduce their tax burdens while they remain under the onerous requirements of 280E. For example, while cannabis companies are not eligible for the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Securities (CARES) Act, he says they are able to apply for the employee retention credit.

Being aware of the options “could be the difference between staying in business and not making it until next year,” Goral says.

Brian MacIver is managing editor of Cannabis Business Times.

Everyone in the industry told Michael Ward he was crazy.

While his cultivation team at Harbor Farmz planned their first harvest last fall, Ward, the CEO and founder of the cannabis business in Kalamazoo, Mich., heard over and over again that it would take a week to take down a three-tier, vertical-grow flower room. But he was determined to do it faster. Even his own head grower, Chris Teeters, told him it was a leap. The night before the big day, Teeters didn’t sleep.

On Nov. 30, however, the team finished its harvest in six hours: Purple Urkle plants were cut and hung, and the organic living soil was brought out back for composting. The room was ready to clean. The mood was celebratory and, in a way, paradigm-shifting. The possibilities became clearer.

As everyone in the industry knows, time moves fast around here. Harbor Farmz is out to prove something in Michigan’s rapidly expanding marketplace—that craft cannabis can be produced at a scale and a speed that lifts the bottom line and surprises even the most probing connoisseurs.

“As we get better at our efficiencies in planting, transplanting, taking down a room, cleaning a room—every time we can get a day back, it adds up quick,” Ward says. “And you extrapolate the time gained over this many rooms. It adds up quickly.”

Ward walks through the Harbor Farmz facility, training his hazel eyes—framed by shocks of salt-and-pepper hair—to the plants and scanning from floor to ceiling, stopping to talk with staffers about air flow or moisture measurements, doing his best to be heard through the requisite face mask that obscures his mouth and closely cropped beard. The building, all 36,000 square feet of it, includes 11 flower rooms—each one 480 square feet (and one dedicated to research and development). The first harvest was a big step, but now Harbor Farmz is enmeshed in a perpetual harvest cycle. The hurdles keep coming. As goals are achieved, time moves even faster.

Walking through the facility in the team’s distinct, bright blue uniform, it seems like Ward relishes the pace of it all. There’s a certain centripetal force at Harbor Farmz: The team of 35 employees hews to Ward’s vision for what is possible in the cannabis industry. Assembled from their own diverse backgrounds, the team has gathered in Kalamazoo to test hypotheses and deliver a unique suite of genetics to the Michigan marketplace. There are things in this building, Ward promises, that Michigan hasn’t seen yet.

“I’m not just hiring cannabis-specific people,” he says. “By using other people’s skill sets and bringing their skill sets to cannabis, it really changes the game. I’m the redheaded stepchild of cannabis. I haven’t been a grower for 20 years, but I understand how to grow.” The double meaning of “grow” is not lost on the staff, which has tripled in size since late last summer.

In one flower room, Ward draws close to a Crunch Berries plant and inhales its sweet, gassy scent. Around him, a mix of Lemon Breath, Kimbo Kush and Purple Urkle stand tall and mighty. They’re about 10 days from harvest. Until then—and long after each plant has come down—every second counts.

Every week, Ward drives nearly three hours into Kalamazoo on Monday morning and leaves for home and family in Chicago Friday afternoon. He begins his weekdays by scanning the facility’s internal system on his computer over a hot cup of coffee. He and his team can monitor the entire Harbor Farmz building from anywhere. “I review the data history from the night before to make sure we do not have any temperature or humidity spikes,” he says. Then, it’s time to head to the office and get closer to the details.

The Harbor Farmz facility is located in Kalamazoo’s Davis Creek Business Park, a former brownfield refinery site that sat dormant and methane-ridden for more than a decade. It’s another reminder that cannabis can galvanize local economic development.

Before all of this came to be, Ward spent the past 21 years working with his father and brother at the family’s fourth-generation precision metal stamping business in Evanston, Ill. He says that the lessons he learned there—how to integrate economies of scale and granular workflow management into sweeping business models—are the same tenets around which Harbor Farmz orbits.

“I really understand manufacturing and production and movement,” he says. “Every time somebody touches something, it costs money. Every time you move that pot, I’m adding cost to this room. So, if you look at it in that approach, it’s always: How can I eliminate those costs and create better profit margins?”

A good example of this is the auto-potting machines that his team uses when transplanting crops.

“I asked myself, ‘How do we fill 324 pots?’” Ward says, referencing the three rows of three-tiered shelves in each of Harbor Farmz’s flower rooms. “I mean, imagine you’re going out back and you’re going to fill 324 pots for your patio or something like that. How are you going to do it?”

The answer was simple: twin auto-potting machines fill veg- and bloom-sized pots with the right amount of soil—with only the push of a pedal. There’s no human sloppiness to the process, and the soil is sent off for composting after harvest. The pots themselves are cleaned in an industrial-grade pot washing machine for sterilization and reused. This was one decision that ultimately removed hours and hours of labor.

But it took a long time to get to the point of charting transplant workflows. First, Ward needed to get into the industry.

Illinois clearly was shifting toward some sort of progressive cannabis policy in the mid- to late-2010s, but it was the long-running legacy of Michigan’s caregiver system and the impending switch to a regulated adult-use marketplace that seemed like a more attractive play. Ward and his longtime friend Mike Insco, now the director of cultivation for Harbor Farmz, began scouting Michigan municipalities that might be inclined to allow cannabis within their borders. In the early days of the state’s regulated medical cannabis market—in late 2016 and early 2017—this was no easy task.

It’s a common motif in new markets, the issue of whether individual local jurisdictions will “opt in” to the industry and allow sales within their borders. In Michigan’s medical landscape, the difference was particularly strident. It took a local ordinance to allow cannabis business activity in a given municipality, and in 2016, shortly after the medical cannabis market took off, opt-ins were few. “Seventy-five percent of the battle is finding someplace to be,” an accountant in the industry told mlive.com in 2017. When the state’s voters approved an adult-use market in 2018, the same local tension reappeared. As of December 2020, some 1,400 municipalities, or more than 75% of the state’s jurisdictions, have kept the door closed to cannabis sales, according to data from the Michigan Marijuana Regulatory Agency.

Kalamazoo, a brewery-friendly college town in the southwestern corner of the state, opted into the medical cannabis program early and arranged a zoning structure for the new industry.

In September 2019, Harbor Farmz broke ground on its cultivation and manufacturing facility. The next year, 2020, had plenty of surprises in store.

It’s not enough to say that the coronavirus pandemic has upended the cannabis business—the crisis and its attendant economic uncertainties have turned the entire world upside-down. But for Harbor Farmz, the timing could have been worse. The team was only just getting started, working with the city of Kalamazoo to convert its medical cultivation licenses to adult-use in the summer of 2020.

As the world was adapting and mostly staying indoors, Ward was able to focus on getting into the building in the first place (which happened in July) and then implementing short- and long-term plans before his products landed on shelves at dispensaries. As always, Ward’s mind was on the ticking clock hovering just out of frame.

“We’re focused on, first of all, eight-week strains,” Ward says after the company’s first successful harvest. “We want to turn these rooms every eight weeks. And every eight weeks puts me at around five and a half turns a year, per room. When I built this business model, I based it on three and a half. So, in a very short period, we’ve been able to ramp up exactly what we want to do by picking the right cultivars for yield, vigor and speed of growth. And for marketability.”

Teeters echoes this carefully calibrated mix of high-grade cultivation and business savvy.

“My biggest goal is to crush yields,” Teeters says. “This is business. [I want to] grow top-tier cannabis and still maximize production and yields. If we harvest the Purple Urkle this month and then we harvest Purple Urkle in two months, my expectation is that I have a better harvest two months from now than I did previously—consistently progressing.”

The team’s second harvest, on Dec. 7, took four hours. Seconds and minutes were already being lopped off the bottom line of these crop cycles. The whole team could feel a sense of accomplishment, a sense of focus.

“After we completed the first harvest, we gathered together to discuss what we can do better and how we can streamline the process,” Ward says. “One thing that really contributed to the reduction in time was doubling up on the hanging ropes for dropping plants down to be weighed. By adding two more lines to drop plants, we essentially tripled productivity.”

Of course, the ramifications of the coronavirus pandemic are felt throughout. Face masks are worn by all staffers. Visitors are screened for their temperature. It’s one thing to air-five a fellow employee, but it’s another thing to want an outlet for all the good news and accomplishments.

“We can’t celebrate anything for the most part,” Mark Milliman, Harbor Farmz’s president and longtime friend of Ward, says. “And we will celebrate success in the new year. Success is coming at a big level. We can feel it. … Unfortunately, we can’t do anything. I mean, we can’t even—it’s too cold to even assemble outside, nor would we be that foolish. But when this is all over and done, I certainly want to make sure that the culture of the company understands that we will celebrate success.”

For Teeters, success is a process of blending inventory management acumen with his decades of growing cannabis in California and elsewhere. He cut his teeth in the West Coast scene long before moving to Michigan and running a medical provisioning center. Sales started sliding in the early days of the coronavirus lockdown before owners sold the business. His path brought him to Harbor Farmz on the cultivation side.

It’s pattern recognition on Ward’s part, too: You need the business acumen and the cultivation expertise to match up culturally and financially.

As a CEO settling into a new industry, Ward is not the kind of guy who sits behind his desk. He doesn’t stop for a midday break. (“Lunch is a distraction that just slows my day down,” he says.) He enjoys walking room to room, inspecting the plants and fine-tuning air flow numbers.

“I am sure the grow team loves this, but I can assure you I find everything,” he says. “With 20-plus years of working in a manufacturing facility making millions of parts being held to a millionth-of-an-inch tolerance, I can most likely find a flaw in almost anything. From a mishandled branch, a broken branch, PM, IPM issues ... not much gets by me anymore.”

A lot of this comes from the work that Ward put in before ever approaching the state for licensing. He spent four years criss-crossing North America and touring facilities of all stripes. “I took the best and left the rest,” he says, thinking back to the conversations with growers and industry stakeholders that led him to the present.

Arranged on shelves in the brightly lit tissue culture lab at the heart of the facility are minuscule cuts of Crunch Berries, Stardawg, Lemon Breath, ChemDawg, Cookies, Mythical Blueberry #3 and Hana Mama, an elusive Korean cultivar Ward says his friend’s mother grew for decades in Maui. The diminutive scale of these cuts belies the importance of the lab: It is here where the long-term vitality of Harbor Farmz takes root.

Deb Sweeney, tissue culture lab director, says that cannabis has provided a natural outlet for her microbiology background and years of experience in the pharmaceutical industry. She uses a gel-based media unique to each cultivar, tending to meristems and nodes, monitoring their growth to ensure consistent development without unwanted genetic surprises. It can take months to stabilize an individual cultivar.

The meristem is a type of tissue found in plants, where undifferentiated cells divide and grow. These small cuts of plants are held in clean containers and used for micropropagation. It’s an efficient and expedient way to generate a good understanding of a particular cultivar, all the better to hone its genetic advantages for plant health and for the broader consumer market. With that process humming along within the facility, an in-house tissue culture lab is an asset that can provide tremendous returns down the line.

“You really want to have the cleanest, most audacious, most optimal way to grow,” Sweeney says. “You can take one teeny tiny meristem and grow it all the way to a mother plant. So, instead of taking clones from all different mother plants, you can actually take clones from one meristematic mother plant, and, ultimately, they’re going to be the cleanest, best-looking plants.” That goal is on the horizon—only because of the initial investment in Harbor Farmz’s tissue culture lab.

It also serves as a genetic bank, where Harbor Farmz can clean and house its own library of exclusive phenotypes and lease shelf space to other Michigan businesses interested in cleaning and storing cuts for posterity.

Because these are immature plants, too, they exist outside the scope of METRC’s track-and-trace system. “The amount of money you save on energy and labor keeping 700 plants in a Petri dish as opposed to 700 plants in 15 mom rooms—the expenditures on that alone are astronomical,” Teeters says. “When they come through these meristems, one, we’re certain that they have no systemic issues, and, again, it’s going to be a much more vigorous plant than it was when it came in as a clone.”

The genetic bank gives the company some serious room to stretch. What the Harbor Farmz team is preparing in its arsenal is a wide-ranging library of genetics that simply aren’t seen in the Michigan market. And they won’t show up on shelves until they’re just right.

In the company’s R&D flower room, dubbed “F11,” Kyle Russell, Harbor Farmz’s director of breeding and genetics who was once a registered caregiver in Michigan’s medical program, scans more than 60 cultivars presently blooming. He’s pheno-hunting, watching for different characteristics to sprout from different seeds. The best phenotypes will make it to the mother room. It’s a meticulous process that guides downstream cultivation plans.

“You bring them in F11, you see and understand how they’re going to grow during the full cycle,” Ward says. “And you can see some showstoppers right out of the gate.” He points to Rainbow Runtz plants of different sizes—one coming in a little on the short side, but another coming in with striking color and full-bodied flowers.

It’s this process, soup to nuts, that will help Harbor Farmz stake its claim in Michigan. To use the insights gleaned from tissue culture to produce high-quality cannabis products at scale—that will demonstrate the core of Ward’s business model.

Sweeney says her goal from the beginning has been simple: “From meristem to mother.”

In mid-December, Ward reported that meristem mothers were now growing in Mother Room 2. “Mission accomplished!”

On Dec. 9, nine days after that first Purple Urkle crop was cut, the Harbor Farmz team is back at it for their third harvest. It’s a sunny morning in Kalamazoo, and the staff starts cutting plants at 8:30 a.m. As the day progresses, the scissor lifts go up and the plants come down.

By 11 a.m., they’re done. Two and a half hours.

“We’ll be back and running in this room by Friday,” Ward says, walking among the team and scouting the cleared-out flower room. It’s Wednesday.

Celebrations will come, as Milliman described, but this rapid-fire improvement—an almost exponential difference in the time spent on harvest—is a testament to Ward’s early projections. If this is how things are going in late 2020, pandemic and all, Ward says, can you imagine what comes next?

“I just think that we are not even close to scratching the surface of where we are with the full potential of this team,” Ward says. “They’ve been so nervous, and because they’ve been dealing with the unknowns, because they’ve been working out the kinks with facility issues in a brand new building, we haven’t really allowed them to let the reins out.”

There’s a clear excitement in the air about the flower coming out of Harbor Farmz. And then there’s the processing lab.

Shelves of non-infused gummies lay in experimental phases, the products of ongoing tests and recipe adjustments to perfect the products that will also shuttle out of this facility and into the Michigan market. Each harvest brings this side of the building closer to its inevitable buzz of activity.

Nick Wallace, lab director, says that the key to this high-demand segment of the business is extraction efficiency. He is a chemistry graduate of Michigan State University, and he spent time in the early medical days working with caregivers to dial in their concentrates for patients. Now, at Harbor Farmz, the same experience applies: It’s just at a whole new scale.

“That is what pushes you to the next level—to be able to really maintain your efficiency, have no waste and to really get your full value out of the product,” he says, describing the techniques involved in stripping every last bit of THC, whether 2% THC or 20%, off a batch of plant material.

He and Ward pull a sheet of diamond-riddled live resin out of a chiller, another product of the team’s hydrocarbon process. “We really take the time to grow all the crystals as slow as possible to preserve all the flavors,” Wallace says.

In another room, the Harbor Farmz ethanol extraction equipment is set up for gummies and vape carts. Here, a one-man operation could rip through 1,200 lbs. of plant material each month. That’s just the start of it. And, already, as Ward scans the room and plots his projections further in the future, he begins thinking of the best way to get from the present moment to the point where concentrates are flying out of the building. The shortest distance between two points is a straight line, of course, but that’s rarely the most efficient route.

“Honing in on the most efficient way of doings things—that’s the bread and butter for me,” Ward says—and although the mask is on, his eyes communicate a smile.

Eric Sandy is digital editor of Cannabis Business Times, Cannabis Dispensary and Hemp Grower.

Growers have a lot of choices to consider when selecting lighting systems to produce plants, including efficiency and productivity. Cultivation approach (indoor or greenhouse), technique (single-tier or vertical racking), and cultivar are important factors and can influence which equipment can do the job effectively.

Horticultural lighting is a fast-growing segment of the electric load for many U.S. utility companies, and lighting for indoor cannabis cultivation accounts for much of this growth. The “2018 Cannabis Energy Report,” published by New Frontier Data and co-authored by Resource Innovation Institute (RII) and Scale Microgrid Solutions, estimated that legal cannabis cultivation in the U.S. consumes approximately 1.1 million megawatt hours of electricity annually—enough to power 92,500 homes—and recommended that the industry “evaluate energy-efficient and renewable energy technologies” to rein in its carbon footprint.

The U.S. Department of Energy recommends that growers transition their lighting to light-emitting diode (LED) technology, a move the agency says could reduce electricity usage by at least 40% and save operators approximately $240 million. The industry is poised for the transition; a 2019 Strategies Unlimited report forecasted that the LED market for cannabis will grow more than 300% in the next five years.

Evaluating LED Solutions

Growers who are interested in researching LED technology and looking for unbiased information may want to start with the DesignLights Consortium (DLC), a nonprofit organization with a board of directors that includes leadership from energy and utility companies. The DLC instituted a first-of-its-kind performance standard for horticultural lighting in 2018. The result of two years of stakeholder engagement, the DLC’s Technical Requirements for Horticultural Lighting set standards for efficacy, safety, durability and other criteria that manufacturers must meet to get their LED products included on the DLC’s Horticultural Lighting Qualified Products List (QPL). Currently, listed products are at least 10% more energy efficient than the most efficient legacy grow lights (i.e., double-ended high-pressure sodium (HPS)). The DLC third-party verification process for horticultural lighting does not exist for non-LED lighting solutions like High Intensity Discharge technology (e.g., HPS, metal halide).

The QPL is a searchable, filterable online resource that gives grow light shoppers a map through what can be a confusing landscape of options. With 226 products listed and more reviewed and added regularly, the QPL offers cannabis growers transparent performance data that allows apples-to-apples comparisons of LED fixtures and the ability to verify manufacturers’ marketing claims.

An increasing number of efficiency programs rely on the DLC’s Horticultural QPL for designing energy efficiency (EE) programs for commercial cultivators. Nearly 60 EE programs serving growers in 31 states and four EE programs in Canada require use of QPL-listed products as a prerequisite for EE incentives, and many others have incorporated the DLC Technical Requirements into their programs while not yet requiring listed products. Massachusetts and Illinois, which have cannabis-specific EE regulations, offer use of the DLC Horticultural Lighting QPL as one route for compliance. (The QPL website includes a filter to facilitate cultivators’ search for regulatory-compliant products in these states.)

In addition to efficiency, manufacturers’ longevity and safety claims must be verified for LED fixtures to get listed on the Hort Lighting QPL. Notably:

• Products must be tested at the worst-case electrical scenario. This conservative assessment means that growers who use a listed product at a different voltage may experience better performance than the fixture’s listed performance.
• LEDs must produce a maintained photon output of at least 90% of initial output for at least 36,000 hours—ensuring longer life and lower maintenance costs compared with HPS fixtures.
• Drivers and fans must have a lifetime of at least 50,000 hours, increasing reliability.
• Fixtures must have a warranty of five years.
• Fixtures must be certified by an Occupational Safety and Health Administration (OSHA) Nationally Recognized Testing Laboratory, or Standards Council of Canada (SCC)-recognized body, to meet specific safety benchmarks deemed applicable to horticultural lighting products by that safety organization.

Eighteen months after rolling out its horticultural lighting Technical Requirements, the DLC announced the policy’s first major update in September 2020, scheduled to take effect March 31. This update maintains the current efficacy threshold but adds new optional reporting requirements that extend the performance information to include additional UV and far-red wavelengths, so that in the future the QPL can offer products with more diverse ranges of light recipes. The update also includes use of the ANSI/CAN/UL8800:2019 Safety Standard for Horticultural Lighting Equipment And Systems, which has specific rating requirements for environmental factors such as damp locations, ingress protection codes, photobiological safety ratings, and UV material protection.

The DLC is considering further updates this summer under Version 2.1 that would add three new categories of fixtures to the Horticultural Lighting QPL: DC-powered fixtures, liquid-cooled fixtures, and LED replacement lamps. Look for updates on the DLC’s Horticultural Lighting Program website.

Bright Questions for Manufacturers

Before growers consider replacing their light fixtures, they should consider creating a baseline of their operation in RII’s benchmarking tool, Cannabis PowerScore, to record their current Key Performance Indicators (KPIs) for energy efficiency, productivity and lighting performance so they know how their operation is performing with their current lighting technology. As they upgrade their lighting systems and potentially transition to LED solutions, they should continue to benchmark their facility periodically to quantify the benefits with PowerScore, verifying the improvements in their KPIs to measure their success.

RII’s analysis of aggregate PowerScore data shows that indoor cannabis cultivation operations growing with LED for flowering achieve 34% better average electric facility efficiencies and 80% better average electric production efficiencies than indoor facilities using double-ended (DE) HPS lighting for the flowering growth stage.

Growers who are ready to evaluate lighting solutions and the manufacturers serving their market should ask suppliers:

1. What is the warranty of your product?
2. What is the rated fixture life and control equipment life? What tests were performed to validate the claim?
3. Has your product been tested on my cultivar(s)?
4. What is the spectral quantum distribution (SQD) of your product, and does it align with my desired light recipe?
5. Can you provide Photosynthetic Photon Intensity Distributions (PPID) to show the photosynthetic light emitted at different angles so I can plan lighting layouts? (The PPID allows you to create your own lighting plans rather than relying on the manufacturer.)
6. What technical assistance is available during the design phase for lighting plans?
7. What help can you provide if I encounter problems during production?
8. Is there a cost for technical support or limitations on when/how to access it?

When growers ask suppliers about LED lighting solutions, they should verify whether the products are DLC-listed. Growers can note that SQD and PPID images are provided for LED products on DLC’s Horticultural Lighting QPL. If a product is DLC-listed, cultivators can ask the manufacturer about their experience getting help from utilities with rebates to buy down the first cost. In 2018, the average cost of flowering LED fixtures was around $1,500 compared to conventional HID lighting solutions like HPS, which cost around $500 on average in 2018 and have continued to decrease in price faster than LED products, according to market research completed by RII member Energy and Resource Solutions. First cost of LED products can be a barrier to adopting this emerging technology.

Measuring LEDs Effect on Plant Expression

A challenge of using LED horticultural lighting can be understanding how it stimulates plant responses like photosynthetic action and secondary metabolite production. Predictive metrics like PPF or photosynthetic photon efficacy (PPE) are, as the names indicate, based on light-stimulating photosynthesis.

The metrics used by RII, DLC, fixture manufacturers and others are standardized by the American Society of Agricultural and Biological Engineers (ASABE). These metrics do not predict light’s ability to produce other responses, like the production of specific secondary metabolites such as CBD, THC and terpenes.

In the U.S., research organizations are studying hemp production, sometimes with collaboration with lighting manufacturers, and publishing results for different spectral combinations and light amounts. At this time, no metrics considering the interactive effects of spectrum and dose on specific secondary metabolites have been proposed.

RII and DLC hope that additional metrics will begin to be considered and developed, so that cultivators can better predict which lighting system is going to help them optimize the biological results. In the meantime, the industry continues to use photosynthetic metrics and empirical data to inform additional desired outcomes.

Improved facility efficiency and productivity are possible with LED horticultural lighting solutions, as they save energy, while more non-energy benefits are yet to be researched and quantified. Tested and certified LED products on the DLC QPL can be relied upon for cultivation, so growers should consider the variety of trustworthy options on the DLC QPL when they make their next lighting purchase.

Anticipating and Overcoming the LED Learning Curve

Another challenge of using LED horticultural lighting can be navigating the learning curve of LED technology and modifying Standard Operating Procedures (SOPs) when necessary. There are a few considerations during design and construction that can optimize grow environments to be adaptable and successful as growers use their new equipment, and peer-reviewed guidance is available to help them maintain productivity as they grow with LEDs for the first time. RII’s LED lighting best practices guide offers tips for successful installation and operation of LED products. RII’s Massachusetts best practices guide offers tailored recommendations for a market that is adopting LED lighting technology to comply with environmental regulations. Download both guides here.

Authors’ Note: This article is the final in a five-part series of guest columns by Resource Innovation Institute (RII). Key terms introduced above are italicized and described in more detail in the guides at ResourceInnovation.org/Resources.

Gretchen Schimelpfenig, PE, is the Resource Innovation Institute’s (RII) Technical Director and manages the organization’s Technical Advisory Council. She is a licensed Civil Professional Engineer in California and Vermont.

Leora Radetsky, MS, LC is Senior Lighting Scientist at DesignLights Consortium (DLC), where she develops lighting solutions that promote energy optimization, quality and more in horticultural and architectural settings.

In the ornamental and produce industries, we refer to genetic starting material as “young plants.” This includes seed, clone, and tissue culture. Each type of young plant has its purpose and place for use. For plants with seed lines that contain high heterozygosity (lots of genetic variability) or do not produce seed at all, clonal production is the only way to produce a consistent crop. For plants which are homozygous with consistent genetics, seed is an easy, inexpensive choice. Tissue culture is a method of reproducing plants clonally in sterile culture. In cannabis production, all three options are commonly used, all for different reasons.

Seed

Seed is a great choice for cannabis propagation. Seeds are readily available, inexpensive, and come with a low risk of carrying pest or disease. That said, for most cannabis growers, plants grown from seed are not consistent enough to grow vegetatively and flower. Consumers expect consistency in product, so variation is avoided.

Starting from seed usually means cannabis growers must go through a “pheno-hunt” prior to incorporating the seed into commercial production. A pheno-hunt is a technique of germinating seedlings, taking matched clones from each seedling, flowering each seedling and then choosing the phenotype with the most desirable traits, from chemical composition to pest and disease resistance and physical attributes. From here, the seedling becomes a clonal plant, which can then go into commercial production or into tissue culture. This is a great process to find a unique phenotype for an operation but can take a significant amount of time to determine the right selection.

Seed can carry diseases such as Fusarium spp. and tobacco mosaic virus internally and on the coat, so it’s important to surface sterilize them to prevent spread.

Also important to remember is that cannabis is monoecious (male and female flowers grow on separate plants). This means if regular seed (non-feminized) is purchased for cannabinoid production, about half of those seeds will be male and useless (unless the grower is conducting breeding work). To save time and space, seedlings can be genetically tested when leaves are about the size of a quarter. Depending on volume, this can cost $5 to $15 per test but can save a lot of wasted space in the long run.

The other option is to buy feminized seed. These yield self-pollinating plants produce all female seed, but many times true males or hermaphrodites will appear. This is a risk, as males or hermaphrodites could spread pollen in the room, pollinating female flowers and forcing those plants to direct energy to seed production instead of cannabinoid production.

Clone

Many cannabis growers start their crops from clones. Clones provide a true replication of the desired phenotype and yield a consistent crop. Compared to many other plant species, cannabis is easy and fast to propagate.

Clones originate from internally pheno-hunted seed or are bought from a cannabis nursery. Many growers do not have space to conduct a scaled pheno-hunt, so buying from a nursery can be a fast way to incorporate a phenotype that has already undergone a rigorous selection process. This saves time, space and money. Ordinarily, pheno-hunting can take at least three months to select a specific phenotype and ramp up numbers for production. If clones are bought, they can be incorporated into production after quarantining. Additionally, the flowering space required to pheno-hunt could equate to lost revenue if the seed lineage produces poor quality flower or males/hermaphrodites.

There is risk of bringing in diseases or pests on clones. Always ask the nursery about their integrated pest management (IPM) protocols and how often they send in their stock for pathogen testing. Having a quarantine area for new incoming genetics also is crucial. Plant health issues, especially those caused by insects, that may not be immediately obvious could manifest during the quarantine period and before infecting the crop.

Tissue Culture

The origins of plant tissue culture can be traced to Austrian botanist Gottlieb Haberlandt, who studied tissue culture at the beginning of the 20th century. The 1940s to 1960s were an exciting time in understanding plant behavior and technique in cell culture, but it was not until the 1990s that it truly found a place in commercial horticulture. Tissue culture provided a way for commercialization of certain plant species, such as orchids, that otherwise could not occur. Tissue culture of the root tips at that time was the only way to produce a virus-free plant.

Tissue culture is becoming more widely used in the cannabis industry. (Home kits are even sold at hydroponics shops.) However, before implementing this technology in a cultivation operation, it is imperative to understand the science. The industry is weeding out the businesses looking to take advantage of customers with false product claims. But there is still misleading information out there of which growers and businesses considering purchasing tissue cultured plants for their facility, refining their genetics, or looking for a genetic banking option need to be aware.

Understanding the Basics of Tissue Culture

Tissue culture is the culture of plant cells (tissues or organs) in an aseptic (sterile) and environmentally controlled vessel. Light is provided for photosynthesis, and the plants also are provided with carbohydrates (sugars). Within the umbrella definition of tissue culture is micropropagation (MP). Micropropagation is the tissue culture technique of vegetative plant multiplication. Put simply, micropropagation can be thought of as sterile cloning in a small, controlled vessel.

So why would someone go to this length when cloning cannabis can be so easy? Because having clean plants is imperative! Pesticide use in cannabis is highly regulated, so choices for control are minimal. The ability to start with a clean slate will save time, money, prevent loss, and yield higher quality product. This is a great way for breeders to move their germplasm repository out of the growing facility and “bank” plants in a safe, secure, and sterile area, which can be used later. There are many other benefits to MP, especially for growers who do not have an in-house laboratory.

Screening and Ensuring Quality

There are four stages to micropropagation (see sidebar above). In Stage I, the growing points are harvested as explants to disinfect and stabilize. The first step is surface sterilization, which, in-house, is usually done by an explant dip into a bleach or alcohol mixture. This eliminates insects and surface pathogens.

One tissue cultured sample can cost five to 10 times more than seed, so growers must be certain they are getting what they pay for. A proper tissue culture facility should be screening for eight or more viruses and viroids, and a list of well over 10 fungi and bacteria in Stage I. If proper screening is not done within Stage I, the service is no more valuable than an in-house dip.

To ensure MP is more valuable than an in-house dip, it’s important for growers to ask labs: What are the steps used to ensure any systemic pathogen is removed? Some tissue culture companies prefer to use antibiotics and fungicides to ensure a clean explant, but potential drawbacks to this procedure include chemical resistance, lingering pesticide in the plant material, and pollution from excess chemical use in the laboratory. Other labs will grow and transfer plant material to new vessels until the pathogen no longer expresses itself on the medium. The latter option can take longer, for obvious reasons.

Regardless of the cleaning method, the cutting is not 100% guaranteed to be clean until the plantlet is sent to a pathology clinic and screened. Growers should ask the laboratory not only if it screens, but again for how many pathogens. If it only can provide two or three, with one of those being botrytis, growers should dig deeper to find out why. If the lab claims it cannot screen in-house, growers can suggest a pathology clinic the lab can work with to guarantee clean material.

One pathogen that is commonly present and should be screened for is Fusarium spp. This fungal disease is a silent killer that only shows itself in the highest of stress conditions and usually late into flower. Traditionally, the symptoms were associated with poor growing techniques or improper fertilization, but now, with testing, growers can manage this disease properly.

Micropropagation Stages

Understanding the stage and type of plant growers are receiving back from the laboratory also is important to know when making a tissue culture lab selection. Just because a company is marketing MP liners does not mean the liner itself was in tissue culture; the liner could be a clone from a plant that was in tissue culture months ago. Many companies will produce mother stock from such MP plants that are used for a clonal propagation program. This can be a great practice, especially when in-house stock is exchanged at regular intervals. That said, once a plant enters a greenhouse, it is no longer sterile. Without proper IPM, this once-clean plant can become infected, making the MP step useless.

Labs that provide Stage III plants have two plant options they can deliver: plants that have been rooted within or outside the sterile container. In most cases, both scenarios are safe, yet growers should still ask for details. For example, if roots are established outside the sterile container in a greenhouse under mist, this could be a source of new disease inoculation.

Banking

Genetic banking via tissue culture is an option to store and preserve germplasm for long periods of time for clonal plants. There are many reasons a grower may want to enter genetics into in vitro banking. Square footage in a permitted grow facility is expensive, and vegetative space can be limited. This method allows growers to store genetics they may wish to breed or simply reintroduce into commercial rotation later. This also allows a company to hold on to valuable genetics without needing space for a mother plant.

Genetic banking also can serve as clean stock back up. For example, imagine a grower’s three top-selling genetics that are always in rotation suddenly become diseased and must be destroyed. If there are already clean plants in MP, that grower is a step ahead. On the flip side, if that grower waits to undergo MP until they realize their plants are diseased, getting a plant to a point of reintroduction can take upwards of six months if there is low disease pressure. Also, note that reintroducing an MP plant from long-term banking can take a couple months.

In cannabis, everything starts from seed, but it is up to each grower to decide the best business decision for what happens after that seed has popped.

Allison Justice, Ph.D. owns and operates The Hemp Mine, a South Carolina-based, vertically integrated hemp company.