Driving up yields is key to greater profit margins in the cannabis space, especially for indoor operators who have to balance the costs of running and maintaining their facility.
While several factors contribute to the end result of any grow cycle, the inputs that lead to good yields are primarily three-fold: environmental control, lighting and watering or fertigation, according to Geoff Brown, the vice president of product and business development at AGronomic IQ, formerly Quest IQ.
“We sort of call it the triangle of good yields,” Brown said. “And investing in a purpose-built, unitary solution removes the HVAC challenge for growers.”
Choosing an all-in-one system to deliver the most precise temperature and humidity control allows indoor operators to take a hands-off approach to HVAC and a hands-on approach to what they entered the business for—growing cannabis.
While some indoor operators walk into a retrofitted facility where they utilize numerous pieces of HVAC equipment in a Frankenstein approach to controlling their environments, the cost and time associated with maintenance to as many as 15 different units results in distracted growers who are the mercy of 15 sources of failure or breakdowns. In addition, those units sometimes work against one another, driving up energy costs that may exceed a facility’s power limit.
Investing in unitary HVAC equipment that is engineered from the ground up and purpose-built for the indoor cannabis space may be an unbudgeted cost for new operators entering the industry, but choosing the right system can help growers maximize their yields and provide a return on investment (ROI) that supports energy efficiency, consistent grow cycles and scalability.
Featured here, Brown shares more about the benefits of unitary environmental control solutions, the short-term and long-term ROIs of an all-in-one system and the importance of removing HVAC challenges from an indoor grow operation.
Editor’s note: This interview was conducted by Tony Lange, associate editor of Cannabis Business Times. It has been edited for style, length and clarity.
Tony Lange: Reliable heating, ventilation and air conditioning (HVAC) equipment can cost upward of $300,000 or more for a 5,000-square-foot growing facility in the cannabis space. What are the key considerations operators need to weigh while making that kind of investment?
Geoff Brown: In my opinion, an operator needs to know what their goal from that facility is and what their lifetime in the business is going to be. So, there are different categories of operators. There are big, multistate operators, guys like Curaleaf and Cresco Labs, that are in it for the long game. And there are lots of operators who are effectively using this as a real-estate investment choice and are in it for relatively short term—get a license, build a facility, sell it, move on.
So, why would you make a large investment? It’s going to depend on the category of customer, but it's also going depend on how they view this market overall. In general terms, everybody who’s building—a vast generalization here—but everybody who’s building a facility that’s bigger than call it 10,000 square feet of total canopy, it’s no longer an owner-operator site. It’s a business. Of course, they’re all businesses, but the smaller facilities tend to be owner-operator. They tend to be a little more DIY and a little more tolerant of just needing to be down in the weeds on everything. Whereas those larger sites really want to focus on stuff that’s not HVAC. And that’s where a large part of the discussion around going into a purpose-built unitary solution happens—do you have a business to run, or do you want to mess with your air conditioning every day? Those are kind of your two options.
TL: Will you talk more about what a unitary solution means in regard to HVAC equipment and environmental control?
GB: The idea is it’s one piece of equipment, or maybe a couple pieces of equipment per room, but they handle everything—cooling, heating, dehumidification during both lights on, lights off. It’s the only thing you need. It’s got an integrated-control system. You put it on the room, and you set a temperature, and you don’t look at it. The goal is, how can we make that equipment control a room very accurately and as efficiently as possible? And part of the efficiency is just by virtue of the fact that you don’t have multiple pieces of equipment fighting each other in the same room.
And then you’ve got a very stable room condition, which means that your grower can do what they’re good at and not worry about the air side of their environment. They can focus on nutrients, watering, growing, lighting and driving up yields.
TL: How does the right environmental control equate to higher cannabis yields?
GB: A big piece of this is most of our sites are seeing well above budgeted yields, and it’s not because the HVAC is stable, but the HVAC being stable means that the grower can focus on driving up yields. We see a lot of operators who have business plans in the 55-gram-a-square-foot range who are achieving more like 70 or 80 or 90 grams or more. And that’s part of that return-on-investment calculation.
TL: Let’s say you have a new operator and he or she is short on cash after investing in a facility, buying lighting equipment, getting the license and everything else associated with starting an indoor cannabis grow. Is that new operator sometimes on the fence about spending an extra few hundred thousand dollars on purpose-built HVAC equipment?
GB: All the time. It is a bit of a hard sell. I guess the reality is, are you going spend the money now or are you going spend it later? Because those are your two options. One of the things that a lot of facilities may do is something like, “Hey, we’re not going do it in all of our rooms today. We’re going do a couple of test rooms with unitary equipment and see how that goes.” Or maybe an operator has a license that allows them to build 25,000 square feet and they start with 10,000 square feet, get some cashflow moving to prove the investment case and then keep going.
The piece that I think lot of people miss is if you’re going from 50 grams a square foot to 52 grams a square foot per cycle, that’s driving an average of like $20,000 per flower cycle in extra revenue in a relatively small room. And we’re not seeing growers go from 50 grams to 52 grams; we’re seeing growers go from 50 grams to 75 or 80 grams. So, you could be on a per-cycle basis, getting an extra hundred grand without trying too hard in yield. That completely changes the equation around equipment value.
TL: Is the main difference between typical HVAC equipment and purpose-built HVAC equipment being that the latter has everything working in unison, where your temperature control isn’t fighting against your dehumidification to create a stable room condition?
GB: Exactly. There are two different issues there. One is control, right? You’ve got an air conditioner on the roof, and you’ve got a dehumidifier in the space. They don’t talk to each other. So, each of them is doing their own little part. But they’re not doing it in any kind of a coordinated way, generally speaking, and that dehumidifier, every time it runs, it actively fights your air conditioner because it’s adding heat into your space that your air conditioner then needs to remove.
With purpose-built equipment, you’ve got a situation where not only do you have integrated controls in a single piece of equipment doing everything, but it’s doing it in a more efficient way.
TL: Are there any specific dollar figures that manufacturers can offer clients when it comes to short-term versus long-term ROI for purpose-built HVAC solutions?
GB: Absolutely. We’ve got a ground-up ROI calculator that can be based either on yield or on energy use, or both, to show what payback would be (To learn more about ROI calculations for purpose-built HVAC equipment, contact AGronomic IQ at https://agronomiciq.com/contact/).
A simple payback on energy use is typically four to five years. And that’s for the entire capitalized cost. So that’s not for the delta between us and an incumbent system, but for the entire capitalized cost. The energy delta is probably more like two or two and a half years for us versus incumbent technologies.
If you add the yield into that, then that number comes down to like four to six months. Again, I can’t guarantee that though. But if you’re going to be in a facility for more than two and a half years, then we can absolutely give hard numbers that prove that unitary is the way to go, with a huge ROI compared to other systems.
TL: What are the short-term implications of putting off a purpose-built HVAC investment until after generating cashflow through a couple harvest cycles?
GB: I think that people underestimate the cost and the time of an HVAC system that’s not running the way they want it to. I think that the biggest feedback has been, “This is easy compared to what I was doing. I’m not changing filters in 15 pieces of equipment in the same room.” You know, 15 pieces of equipment means 15 sources of failure, and mechanical equipment is going to fail—it’s part of the reality. You’re going to see an annualized failure rate of 2% or 3%, but if you’ve got 15 pieces of equipment in a room, your annualized failure rate is going to be dealt with that much more often. You’ve got more P-traps to clean out. You’re going deal with more water leaks.
There are all sorts of little things that nobody thinks about early in the conversation. They see a cheap price and they forget about all of the cycles that goes into dealing with that cheap price—whether that’s a raw cost in terms of maintenance and an ongoing failure-rate issue, or just how often they have to think about something that’s not growing.
I would say that there isn’t a grower out there who got into the space because they loved HVAC.
TL: Why else does efficiency matter so much in controlled cannabis growing environments?
GB: Efficiency matters in a couple of different directions. One, it reduces the overall cost of running your facility. Power costs money. It’s probably the single biggest cost for most growers—that and/or labor. So, reducing the power input into your facility is going to reduce your cost of producing a gram, which is going increase your profit margin or your return on investment.
The other piece is it may allow you to build a bigger facility because the equipment you’re putting on that facility uses less energy, and most facilities are energy-limited, ultimately. So, more efficient equipment uses less power, and using less power means you may be able to get more canopy square footage out the same facility.
TL: Does running a more sustainable operation help operators remain compliant with regulations?
GB: Efficiency overall means that you’re not going to be the target of regulators in the same way. One of the pieces that is coming is everybody’s noticed that indoor grow CEO (controlled environment agriculture) generally has become a pretty significant part of North America’s power budget on an annualized basis.
And it’s going to start attracting the ire of regulators on a go-forward basis. So, being the most efficient solution now means that you are less likely to be forced to change when that regulation comes into effect.
TL: With all the different HVAC systems available to indoor cannabis operators, how do these operators choose a system that has the biggest ROI, or is it more about what best fits their operation?GB: I would argue that more growers are after partners these days and recognize the value in partnership with a manufacturer. When you’re implementing, for instance, a four-pipe, chilled-water system, you’re not partnering with a manufacturer; you’re partnering with a controls contractor who’s applying a bunch of disparate parts. Nobody makes or sells a ready-built, chilled-water system. You’re buying a chiller from somebody. You’re buying a pumps kit from somebody else. You’re buying glycol fill stations from a third party. You’re buying piping from a fourth. You’re buying controls from a fifth. And you’re buying fan coils or air handlers from a sixth. Nobody is integrating all of that stuff into a single platform, which means that you’ve got no single partner that you’re dealing with. And I think that the value of partnership has become pretty apparent in this marketplace.