Small, Sustainable…and Profitable?
Editor’s note: This week (June 19, 2017), Leafly launches a four-part series on California cannabis farming by Paul Roberts, author of “The End of Food.” Roberts examines the choices California cannabis growers face as the state enters the legal era: Scale up, build a craft brand, join a cooperative, or go deeper underground. Today: Can independent farmers survive by building craft-scale brands?
On a small outdoor cannabis farm on the Sonoma coast, a few hours west of Jai Malloy’s mega greenhouse
, Sam Edwards is nurturing a business model that all but mocks the current trend toward factory volumes, low prices, and optimized shelf-readiness.
Take, for example, the climate around his farm. The high humidity and frequent sun-blocking fog yield a product that most industrial producers would scorn as a failure—a loose, “airy” cannabis bud that even Edwards admits has little value in the mass-market flower sector.
But, says Edwards proudly, “it’s absolutely great for extracts.”
More precisely, the Sonoma coast climate yields a terpene profile “that is much more fragrant” than most factory-farmed cannabis. When that aromatic bud is crushed and run through Edwards’ small-batch, low-temperature extraction process, it results in a vape cartridge that draws a very high-end customer. Marketed under the brand Aya, Edward’s half-gram cartridge retails for around $50, a premium price above the typical $25-$40 cartridge range. “It’s hard to get on shelves at that price,” Edward says. “But once we’re there, we stay there.”
And stay in business: The premium that Edwards can charge is one of the reasons his company, Sonoma Cannabis, is thriving in a cannabis market increasingly dominated by large-scale producers. Indeed, his products—everything from high-end cannabis nectars to multi-course meals with cannabis-infused entrees—are about as far from Walmart-style factory farm output as it’s possible to get.
Small is Beautiful
Edwards, a 30-year-old Sonoma native, isn’t alone in thinking small is beautiful. Across northern California especially, thousands of smaller cannabis farmers are experimenting with small-batch cultivation methods that target discerning, higher-end consumers with what Humboldt Chrystal growers Crystal Ortiz-Beck and Noah Beck call “connoisseur cannabis.”
The motivation behind this strategy isn’t a mystery: as industrial efficiencies drive down wholesale prices for conventional bud, smaller players that can’t compete on quantity are fighting back with quality—or, more precisely, with strains and production methods that benefit from a smaller scale and slower time frame.
It’s a strategy straight out of the craft food and beverage space. In fact, Edwards himself used to work in the wine industry, and it was there that he saw how niche wineries have survived the onslaught of mass-produced wine by developing high-end specialty products that emphasize local character.
That boutique model, Edwards realized, offered a viable pathway for small-scale cannabis producers—not least because it demonstrated how small-scale production could actually be an advantage. Where mass-production grape farmers sought to maximize their tonnage, Edwards says, estate wineries instead used their small-batch skills to maximize the quality of their grapes, which then allowed them to command “the highest price per bottle.” It was a strategy with obvious applications among smaller cannabis farmers, many of whom had spent years laboriously cultivating unique strains.
Location as a Premium Brand
The boutique wine business also demonstrated the value of location. Where large-scale cannabis producers wanted the flexibility to grow cannabis anywhere, the boutique model goes the other way, exploiting the complex links between product and place. “Every valley and micro-climate has cannabis farmers who have learned what works best in their areas and what doesn’t,” says Edwards. Ultimately, he says, California could see a cannabis variant of terroir
, the French concept that links specific agricultural specialties to specific locations.
And, indeed, California legislators are helping that idea become reality. Early this year, lawmakers proposed a so-called appellation law will protect the brand value of geographic locations by prohibiting cannabis producers from using place names in their marketing unless the products actually come from those locations. That’s key in an industry whose iconic place names, like “Humboldt” and “Mendocino”, are at risk of brand “dilution” by less-than-accurate labeling. Or as Edwards puts it, “It’s fraud to say a product is from Mendo if it’s not from Mendo.”
Although the craft-scale business model is still quite new in the cannabis world, it seems to be gaining momentum. Marketing experts and dispensary owners now routinely refer to “craft cannabis”. Even flinty-eyed industry analysts see the niche as potentially promising, especially as the consuming public becomes aware of the growing role of factory farms. Tom Adams, editor in chief of Arcview Research, thinks California’s small farmers can capitalize on, among other things, consumer anxiety over the state’s rich cannabis heritage being displaced by cannabis monoculture. Adams envisions a boutique California cannabis sector that specializes in unique, high-end strains that play up the state’s pre-industrial cannabis culture and geography—a purebred Hindu Kush grown in Humboldt County, maybe, or Acapulco Gold grown in Big Sur from imported seeds.
It Pays to Diversify
Success in this niche market will require more than cleverly named brands. Operations like Sonoma Cannabis thrive in large part because they’re just as disciplined, methodical, and strategic as their mega-rivals. For example, rather than relying on a single line of business, such as extracts, Sonoma Cannabis has diversified. They operate a crush facility where other cannabis farmers can grind their own plants for processing. Their consulting arm offers agricultural expertise.
More fundamentally, successful small-scale cannabis farmers understand exactly what value they are bringing consumers, and how to deliver that value as efficiently as possible. Developing a classy terpene profile that can justify a top price doesn’t happen by accident. Companies like Sonoma Cannabis spend many hours and dollars testing cannabis strains in numerous microclimates and soils. They carefully monitor how terpene profiles change with everything from location to fog cover to frequency of sun breaks. “It all comes back to using the scientific method,” says Edwards, who studied systems engineering in college. “And being really diligent in your data collection, which I think the cannabis industry has not been good enough at so far.”
Edwards advises small-scale farmers to adopt a big-picture strategy, and balance quick, near-term successes with longer-term opportunity. Case in point: where some small-scale farmers rely on pesticides to ensure a super-attractive flower that can win retail shelf space, Sonoma Cannabis has made the opposite bet and sought out varieties that could be grown without pesticides. Edwards’ logic? Pesticide-free cannabis would appeal to high-end consumers and give the company a huge advantage when the state’s strict new testing requirements came online.
The wisdom of that bet was confirmed recently after the Steep Hill testing lab found pesticide on 41 of 44 commercial cannabis products
. Demand for Sonoma Cannabis’s products has been so strong, Edward says, that the company had to temporarily stop taking orders until it could ramp up supplies. “People talk about market share and shelf space,” he says, “but really, at the end of the day, unless you can pass all your tests, you’re not going to be on anyone’s shelf.”
Attractive as craft-farm model is, it also has prerequisites, in terms of capital and expertise, that may be hard for some smaller cannabis farmers to tackle—at least, on their own. For these would-be crafters, yet another business model exists—one that uses the power of collective action to give even smaller players enough market muscle to survive into today’s rapidly industrializing cannabis sector.
Background image by James Tensuan
Next in the series: Cooperatives allow independent cannabis farmers to band together for economies of scale.