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.
Gina Sanders | Adobe Stock
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.
makibestphoto | Adobe Stock
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.
For Michigan's Harbor Farmz, Every Second Counts
Features - Cover Story
Harbor Farmz settles into the Michigan marketplace with a deep bank of genetics, a tissue culture lab and a priority on production efficiencies.
Michael Ward, CEO and founder, Harbor Farmz. All photos by Everett McMillen Cislo
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.
Careful attention is paid to each plant throughout its life cycle at Harbor Farmz.
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.
Harbor Farmz CEO Michael Ward examines plant cuttings in the tissue culture lab.
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.”
Protecting the plant’s roots is a critical component of a successful transplant.
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.
Harbor Farmz employees work methodically to take down a flower room for harvest.
“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.”
He mentions a cut of Triangle Kush that he’d held onto for more than 20 years at this point, and the genetic drift has slowed its growth and stunted its finest qualities; bringing it through the lab and working on its meristem culture, however, that genetic lineage is revived once it returns to soil. “It’s going to grow like it did in 1992,” Teeters says.
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.
Tissue Culture Lab Director Deb Sweeney helps to oversee the early phases of the production cycle.
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.
13 Cultivation Considerations for New Cannabis Companies or Expanding Businesses
Special Report - Cultivation Startup & Expansion Guide
Expert advice on key growing, post-harvest and business practices to help cultivators prepare for success.
To help growers achieve ongoing success, I’ve compiled a list of common cultivation challenges they are likely to face. From breeding to business planning, here are some key tips cultivators should consider to reduce risk and maximize profits in their operations.
Infection Prevention 101
Experienced growers have read or have been told many times over to quarantine clones before introducing them into a pest- and disease-free environment. But I still hear about very large-scale facilities being infected with broad or russet mites due to the introduction of infected clones. Some growers and facility employees also don’t completely decontaminate themselves or change attire after working in a quarantine environment.
TIP 1: The best solution to avoid infecting your facility when introducing new genetics is to use tissue culture for all specimens you introduce to a clean environment. Tissue culture, or meristem culture, is the only way to guarantee you are starting with clean stock.
TIP 2: The next best option is to have an off-site quarantine environment, which allows for compartmentalization so that new specimens are separate from others. Some quarantine those genetics at the same location at which they grow or in close proximity, but that is risky, as they should never be in close proximity unless they are deemed completely pest and disease free.
TIP 3: Lab test any specimens that are pest and disease free for powdery mildew and record them microscopically. Review the video on a large screen so you can more easily detect pests as well as their larvae, eggs or feces. This is a critical step because broad mites or russet mites can be devastating to an operation.
TIP 4: The only sure treatment once an outbreak is confirmed is to destroy all plants, disinfect the entire facility and start from scratch—hopefully after successfully preserving the genetic library via tissue cultured specimens.
TIP 5: Another entry point of infection is typically from the fresh air intake. Greenhouse growers must incorporate and use bug screens as a pre-filter, then at the very least sterilize the air by utilizing UV air sterilizers.
TIP 6: In addition to UV air sterilizers, both greenhouse growers and indoor growers should use HEPA filters on all incoming air whenever possible. Filtering and sterilizing all recycled air can help prevent mold and mildew from proliferating in cultivation areas.
Sustainable Solutions
Sustainable production can help growers reduce costly waste and differentiate themselves in a crowded marketplace. Wastewater recycling is one of several sustainable practices growers can consider in their operations. Unfortunately, some growers may take shortcuts and reuse untreated water because they’re limited on what equipment they can use due to space or financial constraints. But reusing unsterilized water is a recipe for disaster; it can throw off your pH and nutrient levels or spread disease throughout your crop, as it only takes one plant to infect the water supply.
TIP 7: Growers should always properly filter and sterilize their water prior to re-application. They should filter recycled water through reverse osmosis before using it. Then, sterilize the water using UV sterilizers or ozone.
TIP 8: If sustainability is a priority for you, whenever possible, use recycled materials in packaging and irrigation lines.
As demand increases for recycled packaging, we will likely see an increase in the availability of recycled materials across the supply chain.
Drying and Curing Best Practices
Bud density is a major factor in the drying and curing stage. Small buds dry faster than large ones, meaning if you wait for the large buds to completely dry, the small and medium buds will be overdried. Overdried buds have fewer terpenes available, as they evaporate along with the water during the drying process, making the buds less flavorful and aromatic than they could potentially have been, resulting in a lackluster consumer experience.
TIP 9: Sort through large, medium and small buds to gain better control of the drying rate of each. Also, if cultivators separate and dry by bud size and then recombine each batch as it dries over the curing stage, the final result is typically a more homogeneous and uniformly dried product that has maximum terpene preservation (if all other conditions are met).
TIP 10: Make sure the buds are properly stored, as THC degrades rapidly when exposed to oxygen, light and heat, the primary enemies of THC. Even when properly stored, cannabis has a six-month shelf life, after which THC begins to convert to CBN. Not to say this cannabis is necessarily bad, but it has passed its peak THC and terpene content.
Growers who are stocking cannabis for longer than six months should store it in subzero temperatures in oxygen-free containers (where the oxygen is displaced by gaseous C02 or nitrogen).
THC in concentrates also rapidly degrades and converts to CBN. This, in turn, applies to all products manufactured from a distillate, including all edibles. While a gummy is on a shelf, the THC within is in a constant state of degradation/conversion.
Understand Desired Genetics
Is your product destined to be sold as flower? For extraction? To be used in specific product formulations?
TIP 11: Growers should select genetics that suit their specific requirements, meaning if their intent is to produce a specific product, grow a plant that produces elevated levels of that compound, whether it’s a cannabinoid or terpene. If growing for flower, then the so-called “bag appeal” of a given cultivar becomes important, and you should be looking for genetics with “traditional” bud structures.
TIP 12: When breeding, select genetics based on lab results and data. Let lab results be a companion to observations when breeding for desirable traits. When scouting phenotypes, take notes, keep records and document (with photos and/or videos) the prospective cultivars to be bred to accumulate as much data as possible to aid in the selection process.
TIP 13: Breeding takes a lot of time and effort, and the payoff isn’t always what growers hoped it would be. Have a clear objective when selecting which cultivars to cross or when breeding the same cultivar with itself. There is no reason for taking a scattershot approach to breeding without a desirable outcome or at least intended beneficial traits in mind.
This article is the third in a five-part series by Resource Innovation Institute (RII), a nonprofit that works to advance resource efficiency in cannabis cultivation. In Part I of the series (available at bit.ly/CBT_Resource_Guides), we introduced the “LED Lighting for Cannabis Cultivation and Controlled Environment Agriculture Best Practices Guide” and “HVAC for Cannabis Cultivation and Controlled Environment Agriculture Best Practices Guide,” which were examined by 29 peer reviewers. Key terms introduced in the article are italicized and described in more detail in the guides at ResourceInnovation.org/Resources.
The next two series installments will feature snippets from RII’s Best Practices Guides to highlight more important considerations for growers and the supply chains serving them.
Reducing production costs by optimizing resource efficiency and conveying that sustainability story are becoming central factors in the valuation of cannabis cultivation operations.
While the controlled-environment cultivation industry does not yet have enough information to fully understand the energy consumption of grow facilities using various methods and equipment, recent research reveals new insights into the carbon impacts of cultivating cannabis in greenhouse environments.
How Do Greenhouses Operate?
Many consider greenhouses an environmentally superior and less energy-intensive way to grow plants because natural light can be used for a portion of the grower’s target daily light integral (DLI) for their cultivars. However, there are trade-offs with heating energy use, building envelope integrity and quality, and environmental control with greenhouses due to their unique construction.
When greenhouse building envelopes are designed to let in the sun, they incorporate materials and construction methods that make them more sensitive to their location’s ambient conditions than indoor facilities. Their geographic latitude impacts the length and strength of available daylight, and ambient conditions include outdoor air temperature and relative humidity (RH).
“Greenhouses” can take many forms. From ventilated polycarbonate structures with no thermal curtains to tightly sealed and well-insulated, high-performance buildings with large skylights, these facilities can range widely in how they perform in various climates.
Infiltration, when outside air enters a building, is higher in ventilated greenhouses and lower in sealed greenhouses. Higher infiltration in ventilated structures makes them more sensitive to outdoor temperatures and humidity than sealed structures. The primary driver of infiltration is how leaky the construction is. Outdoor temperature plays a role, as does greenhouse size, but those influences can be all but eliminated if the envelope is well sealed.
Infiltration can be measured using the air leakage rate in air changes per hour (ACH); a lower ACH means less infiltration of outdoor air into a building. For example, an ACH under 1 means a half air change per hour. According to RII research and industry data, sealed and ventilated greenhouses may have these infiltration rates:
Sealed greenhouses: 0.3 – 0.5 ACH
Average ventilated greenhouses: 0.5 – 3.0 ACH
Leaky ventilated greenhouses: 3.0 – 6.0+ ACH
Splitting a greenhouse into bays allows for more environmental control, but ensure that you have proper ventilation to avoid temperature variations at the different ends.
Kimberly Delaney | iStock Photo
How Greenhouses Use Energy
Like most cannabis operations, greenhouses in colder climates use energy primarily for horticultural lighting. Energy also is used for heating, ventilation, air conditioning (HVAC), dehumidification and the control systems responsible for maintaining target environmental conditions.
Cultivation processes are generally exothermic, meaning they need to reject excess heat into the outside environment.
Several sensible (dry) loads and latent (wet) heat loads, the amount of heat and moisture, respectively, need to be removed from greenhouse air to attain optimal conditions:
Passive solar heat gain: The sun adds sensible heat regardless of whether facilities are ventilated or sealed.
Building envelope: How leaky or well-insulated a greenhouse is substantially affects sensible heating loads in colder climates where weather conditions are more extreme. In warmer climates, poor building envelope integrity can also impact latent heating loads.
Evapotranspiration: The moisture from both plant transpiration and evaporation from water in cultivation spaces is a large source of latent heat.
Horticultural lighting: Lighting is both an energy end-use and a source of sensible heat.
High-performance sealed greenhouses can utilize much more technology and automation than ventilated greenhouses.
HQUALITY | Adobe Stock
Temperature Controls for Greenhouse Environments
The environments inside both ventilated and sealed greenhouses traditionally are controlled using both hydronic (water-based) and convective (air-based) HVAC systems. Most greenhouse heating systems use fuel, not electricity; typical heating equipment used includes unit heaters, under-bench heating, forced hot air, and radiant heating systems.
Ventilated greenhouses: Traditional ventilated greenhouses use end-wall ventilation fans operated in stages and evaporative cooling wall systems installed on the wall opposite the ventilation fans. These systems pump water onto pads, and as air passes through the media, it is cooled via evaporation. Ventilation equipment and/or roof vents are typically employed to reduce humidity and cool cultivation spaces, and dehumidification equipment is not commonly employed.
It can be a challenge to meet target environmental conditions with coarse controls because many ventilated greenhouses rely on outdoor air and relatively simple fan systems for cooling and dehumidification. Because ventilated greenhouses do not often use mechanical cooling or dehumidification equipment, cultivators are unable to precisely control the conditions to the varying environmental targets for different weeks of flowering.
Field data demonstrates operating conditions regularly vary +/- 10 degrees F from the target temperatures and 10 percentage points from the target relative humidity values. Temperature differences of 7 degrees F have been recorded between the intake and fan (exhaust) ends of the same greenhouse bay, meaning cultivars are experiencing wide temperature variation across cultivation spaces.
Sealed greenhouses: High-performance sealed greenhouses use much different equipment for HVAC and dehumidification due to their sealed nature. While these greenhouses benefit from sunlight (compared to indoor facilities) and improved environmental control (compared to ventilated greenhouses), they must manage solar heat gain using mechanical systems. These tightly built facilities use mechanical cooling systems similar to those used by indoor operations, including commercial-grade hydronic and convective cooling systems. Sealed greenhouses also dehumidify using the same equipment as indoor facilities, such as standalone portable dehumidifiers and integrated HVAC and dehumidification (HVACD) systems. HVACD systems can provide conditioned air to better match the loads of the space, providing greater environmental control. Centralized HVACD systems can leverage sophisticated automation systems, providing precise control of supply air conditions to match the dynamic loads of the space.
Sealed greenhouses are more capable of achieving target environmental conditions because they make use of mechanical cooling and dehumidification equipment, more sophisticated HVACD controls and strategies, and are less sensitive to ambient conditions due to less outdoor air infiltration and better thermal performance than ventilated greenhouses.
Sealed greenhouses can also operate with enriched CO2 atmospheres (because they are sealed), while ventilated greenhouses can only hope to introduce supplemental CO2 during cold weather months, when ventilation is reduced or eliminated as cooling needs are reduced. However, reducing ventilation to either preserve heating energy or operate enriched CO2 can often result in high humidity.
Greenhouses located in cold climates produce more greenhouse gases due to their increased heating needs.
bong | Adobe Stock
The Greenhouse vs. Indoor Energy Mix
A year-long study of cultivation facilities in Boulder, Colo., assessed how greenhouses use energy. The study gathered electricity consumption and demand data of several greenhouses at 15-minute intervals; monthly energy bills and fuel delivery data; and annual production data, along with a complete inventory of facility equipment and modeling.
The study compared Boulder’s facilities to the performance of indoor and greenhouse facilities in RII’s Cannabis PowerScore Ranked Data Set across North America to understand how greenhouses compared to indoor operations when measuring energy and carbon emissions impacts. The researchers found greenhouses in Boulder typically use less electricity and more fossil fuel on average than indoor operations (which should hold true for greenhouses operating in other cold climates).
Figure 1 shows the breakdown of energy use from electricity and all fuels used in different systems in Boulder greenhouse facilities. Natural gas consumed by greenhouses in colder climates for heating loads, on average, can make up 47% of the total MMBtu, with electricity used to power the lighting, HVAC, fans and other production area systems accounting for the other 53%. When looking at greenhouse electricity use only, lighting energy load was found to account for 61% of greenhouse electric energy use, with HVAC energy loads driving 29% of greenhouse electricity consumption.
Figure 2 shows the breakdown of energy use allocated to different systems in Boulder indoor facilities. Natural gas can make up as little as 2% of the total MMBtu consumed by indoor operations in colder climates, with electricity for lighting driving 69% of total energy use, compared to 32% for greenhouses. HVAC energy loads contribute nearly the same amount in indoor and greenhouse facilities.
Source for data: Boulder County Cannabis Cultivator Energy Efficiency Assessments
Because greenhouses use sunlight for plant cultivation, electricity demand can be reduced in the middle of the day as solar radiation increases. The peak electric load from greenhouses in the Boulder study was recorded between 8 a.m. and 9 a.m., when electric lighting is turned on, but the morning sunlight is still intensifying. Once the sun sets, electric load increases again until lights are shut off overnight. Facility electric load is intimately linked to solar radiation, and generally as solar radiation increases, greenhouse electric demand decreases.
Greenhouse gas (GHG) emissions from fuel consumption are higher for greenhouses in colder climates. When greenhouses use fuel-based heating systems, as the Boulder greenhouses do, when heating degree days increase (meaning the facility experiences more hours of colder weather), natural gas consumption increases. The amount of cold weather and fuel used may change depending on where the greenhouse is located, but the relationship between greenhouse fuel use and outdoor conditions will always exist.
Your facility’s location and electricity source are key factors in determining its carbon footprint.
noacommendador | Adobe Stock
How Do We Measure Sustainability?
How do we define and measure cannabis cultivation operations’ sustainability, and determine which operations are the most environmentally friendly? One important step is to verify or challenge past assumptions using data that is available.
To enhance sustainability claims and business valuation, greenhouse operators, like those of all cultivation facilities, should balance electricity and fuel costs with their carbon impacts. The site-specific GHG emissions from any industrial operation are dictated by the regional electric utility generation assets and grid transmission losses, in addition to the carbon content of delivered fuels used for processes. Some fuels, like propane and fuel oil, have higher GHG emissions (measured using equivalent carbon dioxide (CO2e)) than other fuels, like natural gas. Given the large amount of fuel used by greenhouses, the carbon footprint of this consumption is important to understand.
The Boulder study concluded that, on average:
Greenhouse productivity in grams/MMBtu of site energy was 15% better than the indoor facilities. (Note: Highly efficient indoor cultivation is also possible—the study found the productivity of the best-performing indoor facility was 25% better than the best-performing greenhouse); and
Greenhouse grams/lb. CO2e was 71% better than the indoor facilities.
How is it possible that greenhouse site energy productivity is only 15% better, but the emissions are 71% better? It comes down to the energy mix used on-site, and the fuel used to generate the electricity that serves the facility.
If you were to compare the emissions of two greenhouses with identical site energy productivity, one based in Boulder and one based in Massachusetts, the Massachusetts facility would produce nearly 50% less CO2e. This is due to a large portion of Boulder’s electricity generation coming from coal-fired generation facilities, while Massachusetts electricity is generated largely through renewables and natural gas, according to data from the U.S. Environmental Protection Agency.
We see from this sample of projects that the electric savings achieved through leveraging sunlight and outdoor air ventilation in the cultivation process are largely offset by heating needs in cold-climate ventilated greenhouses. However, while greenhouse facilities’ average productivity in grams/MMBtu of site energy was slightly better than that of indoor facilities, greenhouses’ CO2e emissions were substantially lower. For this geographic region with this electric grid, and viewed through the lens of CO2 emissions, greenhouses far outperform indoor facilities.
Regardless of the location of your greenhouse, high-performance sealed greenhouses can maximize your productivity and reduce your CO2 emissions. It is important to understand the role of geography (infiltration, ambient conditions, sunlight) and the source of electricity serving the facility when assessing the performance and emissions of any new greenhouse facility, or when assessing existing facilities for energy, productivity, or emissions improvements.
Gretchen Schimelpfenig, PE, is the technical director of RII and manages the organization’s Technical Advisory Council.
Nick Collins, PE, is a member of RII’s Technical Advisory Committee and a contributor to the “HVAC Best Practices Guide.”
New Principles of Greenhouse Crop Management
Columns - Hort How-To
Divergent climate control methods are being shared by Dutch horticulture industry experts and scientists from Wageningen University.
New principles of greenhouse crop management have emerged from Dutch horticulture industry experts and scientists from Wageningen University, a Netherlands institution recognized for its agricultural science program. Hundreds of Dutch growers have been trained in greenhouse climate control practices called Growing by Plant Empowerment (GPE), fundamentals of which have been outlined in a 2018 book, “Plant Empowerment” and in related online tools at Letsgrow.com.
The methods presented in the book diverge from our understanding of greenhouse climate control. They remind us that plants are physical objects subject to the laws of thermodynamics in addition to being biological organisms. Rather than focus climate control on static air temperature and humidity or vapor pressure deficit (VPD) targets, GPE controls the growth and flowering processes based on three balances: the energy balance, the water balance and the assimilates balance. Assimilates are the sugars made during photosynthesis that are used for growth. The three balances are managed simultaneously and kept in equilibrium by the tiny pores in leaves called stomata that allow water vapor to be evaporated and carbon dioxide to be absorbed. In effect, GPE is about managing the stomata rather than the environment per se, keeping the pores in open position to maximize photosynthesis and evaporation.
Though developed for greenhouse vegetable and flower growers in drier northern climates not found in much of the U.S., some controlled environment ag experts agree that GPE may be well-suited for U.S. cannabis production. Cannabis responds very well to greenhouse tomato temperature and nutrient protocols and can be illuminated similar to roses grown for cut flowers, which have a thick canopy of petals, according to an article in Greenhouse Management magazine (CBT’s sister publication). Routinely, news stories highlight large-scale greenhouses being built or converted for cannabis in North America. A 2019 CBT study found that 43% of cultivators who participated in the research plan to build greenhouses in the next two years. Yet many growers have privately told me they struggle with product uniformity and quality control when comparing their greenhouse operations to their indoor grows.
GPE emphasizes plant health, fruit or flower quality and resistance to stress and disease. This results in predictable yields despite the dynamic nature of greenhouse environments. Energy savings may also be possible but are considered a bonus.
GPE in a Nutshell
Greenhouse control is based on supporting the three plant balances rather than conditioning the air to certain setpoints. Instead of a fixed temperature regime, setpoints are adjusted according to predicted daily light integral (DLI) to create a more constant ratio of temperature to radiation in order to balance growth. The emphasis is placed on growing at warmer temperatures. During sunny periods, rather than increasing ventilation or mechanical cooling, temperature and humidity are allowed to increase in the greenhouse to keep stomata open for CO2 absorption, maximizing photosynthesis. Under high light and enriched CO2, most plants’ optimum temperature is 86 degrees Fahrenheit, according to the white paper “Next Generation Growing: Plant empowerment and plant balances.”
The “Plant Empowerment” book’s authors use the term evaporation to encompass both water transpiring from stomata and evaporating from micropores in the leaves, and the GPE methods seek to avoid interruptions in this flow of water vapor from the plant. Heating pipes or warm air currents are used in the absence of light at night. To keep up with water demand, irrigation is triggered based on all energy flows (light, heat, convection, evaporation) rather than just light. This emphasis on evaporation is to keep water and mobile nutrients such as calcium flowing to the plants’ growing points.
The authors also state that without night ventilation, plant cells can be damaged by root pressure (water turgor) building up, creating sites for possible fungal infection. Diseases seldom occur due to poor climate conditions exclusively, they report, but rather because the sub-optimal conditions combined with disturbances in the plant balances lead to lower resiliency. For example, disease is prevented by avoiding condensation that occurs when leaf temperature drops below dew point. This is accomplished with thermal screens to block radiation of heat energy from the plant to a colder object, such as the greenhouse roof. This method is based on the law of conservation of energy, which states that energy can’t be created or destroyed. It can only be converted into another form of energy.
Assimilates Balance
Maintaining a balance of photosynthetic assimilates in the plant is paramount in the GPE methodology. Photosynthesis increases along with light radiation up to a point called the light saturation point. Cannabis has a light saturation point of 1500 µmol/m2/s, according to multiple reports, but can be as high as 2000. (Even a greenhouse in summer sunlight is unlikely to reach this point, so light stress should not be a concern.) Under these high-light conditions, photosynthesis can be enhanced by increasing humidity to keep stomata open for CO2 absorption. According to GPE, rather than cooling the greenhouse, temperature should be allowed to rise to speed the biochemical reactions of photosynthesis, as long as water stress can be avoided.
But this is only one half of the balance. Now that the plant is maximizing creation of assimilates, the goal is to use these sugars immediately for growth, flowering or root production, rather than convert them to starch for storage. Accumulation of starch in the leaves can slow photosynthesis by regulating enzymes. Some sugars might also be converted to cellulose for heavier stems and leaves, which provide no value.
In essence, GPE calls for the use of light to make sugar and heat to forge that sugar into new material. On the other hand, growers don’t want this high-temperature regimen during dim conditions, as the plant may need more assimilates for “everyday maintenance” of the leaves and cellular apparatus than the plant can make under low light, resulting in cessation of growth and lack of resilience.
Given the dynamic nature of greenhouse environments, how do growers balance the production and usage of assimilates? Cultivators have traditionally observed their crops and lowered light or nitrogen to stop excessive vegetative growth, and lowered temperature for excessive flowering. These reactive measures are a poor way to steer a crop toward a successful yield. GPE provides proactive methods that render more predictable, uniform yields by maintaining a more constant ratio of temperature to radiation. First, environmental control systems with photosynthetically active radiation, or PAR, sensors can track and estimate DLI, and growers can program temperatures to then increase with increasing predicted DLI. Additionally, night temperatures can be adjusted to dial in the proper 24-hour temperature once that day’s DLI has been locked in. Determining the target temperature follows the formula: Target Temperature = 18 + (2 x DLI/10) with 18 being the base temperature in Celsius for a dark day. A more typical DLI of 40 for cannabis would have a temperature of 26 degrees Celsius (78.8 degrees Fahrenheit). The GPE authors give examples of when to adjust this formula for challenging conditions. For example, in very hot climates or seasons, the baseline temperature of 18 degrees Celsius could be shifted upward to 20 degrees Celsius to account for the difficulty of cooling the greenhouse environment and to lessen fluctuations when cooling cycles on and off. (Note: This same formula might prove useful for determining DLI targets as you lower temperatures near harvest.)
It is also important to consider the plant load, which, in the case of cannabis, is defined as the number of plants per square meter and the number of flowers per plant. Can the assimilates the plants are producing actually sustain the number of flowers you hope to yield? Though no recommendations have been devised for cannabis, GPE principles suggest that it is best to use low plant loads with high temperature regimes to maximize quality and produce predictable, uniform yields. Higher plant loads would require lower temperatures, negating the benefits of the higher temperatures described previously. If both plant load (flower canopy) and temperatures are high, growth and flower yield may be diminished due to competition for assimilates for maintenance.
As far as equipment, assimilates production also can be improved by increasing light or light interception, using more lights, intracanopy lighting, light-diffusing roof and wall panels, or light-diffusing shade screens inside the structure. Diffusing light improves penetration into the lower foliage, according to a 2015 research paper published by Frontiers in Plant Science. This prevents lower leaves from turning from sources of photosynthetic assimilates to “sinks” (organs that use them up).
Energy Balance
The “Plant Empowerment” authors also discuss “energy balance,” which refers to the four different types of energy flows: light, heat, convection by air currents and evaporation. These four energy flows can be measured, and their values must add up to zero, according to the law of conservation of energy. Plants can’t make their own light (that we can observe easily) or heat, so these can only be energy inputs toward the plant.
A key insight of GPE is that water evaporation through micropores in the leaf and through stomata themselves occurs at night and should be encouraged. The authors cite data that a full-grown tomato crop evaporates 25 g/m² of water overnight, and American Society of Plant Biologists research shows transpiration via stomata can be up to 30% of daytime rates, though the function of this water loss is still unknown. As much as this nocturnal evaporation challenges conventional wisdom—and as troubling as this sounds for humidity control concerns—that evaporative flow is bringing water and nutrients, particularly calcium, to the tips of the plant. It also relieves root pressure that results in cell damage to the edges of young leaves and guttation droplets—a recipe for possible fungal infection. But it requires energy to perform. Evaporation of water requires 2.3 megajoules (MJ)/kilo of energy, according to data from the Engineering ToolBox. Without light, plants need energy from other sources to evaporate. Convection currents occur from heat rising off heating pipes or tubes or from heated air moving through the greenhouse. If the temperature of this convective air flow is warmer than the plants, that energy can be absorbed and used for evaporation.
Heat emission is when one body radiates infrared radiation to a cooler body until they are both in equilibrium. Plants emit heat toward a cooler greenhouse roof or light deprivation curtain at night, losing energy that could otherwise be used to sustain evaporative flow. Furthermore, heat emission can cause the plant to cool, possibly below the dew point of the greenhouse air, allowing condensation to form on the leaf surfaces. Preventing heat emission involves closing energy curtains to create a barrier between the roof and the plants or the surrounding light deprivation cloth. The book authors cite a study indicating the decisive factor for botrytis infection of greenhouse gerbera daisies was heat emission and lack of movement under the light-deprivation screen, rather than high relative humidity. Could this be the case in flowering cannabis?
Loss by heat emission also can be notable during early morning and evening in a greenhouse when the roof temperature is cool. Growers should open energy curtains long after sunrise and close them long before sunset. Just exactly when to open/close them would require measurements that can’t be made from the typical aspirated sensor box hanging in a greenhouse. The authors recommend a sensor called a pyrgeometer for outdoor weather stations and a net radiation sensor inside, which both measure heat emission. For tall crops, they recommend thermographic cameras that would “heat map” and quantify leaf surface temperatures along the length of the plant. Tops of the plant are often cooler due to heat emission and more likely to stop evaporating and form condensation, something to consider with tall strains. Detailed control advice for curtains and heating is provided in the “Plant Empowerment” book.
Water Balance
Water uptake must be balanced against evaporation to prevent drought stress and linked not only to sunlight but to other energy flows. These flows of light, heat, convection and evaporation can be accumulated in an energy sum to refine irrigation triggering, particularly by accounting for the night environment. Additionally, irrigation can be triggered by gravimetrics, or weight scales. For rockwool production, each day is divided into four periods with different objectives:
Period 1 to refill the rockwool block or slab from overnight decrease
Period 2 to maintain the volumetric water content and electrical conductivity (EC), dependent on the stage of growth
Period 3 to maintain water content and control EC rise especially in bright afternoon light
Period 4 to allow the water content to drop to night target level
Learning More
“Plant Empowerment” and Letsgrow.com have detailed, real-world greenhouse climate graphs, thermographic diagrams of greenhouses to describe energy flows, design advice, plain-language summaries and chapters for getting started in small steps. Free online interactive tools show how changes in indoor or outdoor conditions impact the balances. Experts endorse the work, including a foreword by Gene Giacomelli of the University of Arizona’s Controlled Environment Agriculture Center. I am particularly intrigued by the capability of growing crops at high temperatures, as many cannabis fungal diseases are not infectious above 82 degrees Fahrenheit.
Many GPE concepts are geared toward massive, naturally ventilated greenhouses in The Netherlands, making translating to smaller, mechanically cooled greenhouses challenging and a potential shortcoming, though the authors state the concepts could be used for nearly any greenhouse and even for indoor vertical farms. Whether the principles work in more humid climates will also need to be investigated.
Robert Eddy is director of Ag Projects for Core Cannabis in East Lansing, Mich.
Legislative Map
Cannabis Business Times’ interactive legislative map is another tool to help cultivators quickly navigate state cannabis laws and find news relevant to their markets. View More