Illicit to Essential
2020 – the year of uncertainty and the unexpected. Among the unexpected, many would argue that the cannabis market's growth is one of them. Daily sales, on average, are ~40% higher than 2019 according to The State of the Cannabis Industry 2020, a report by Flowhub, Leaflink, and Vangst. While COVID-19 has inversely impacted many businesses, adaptations for curbside pick-up and medical/legal marijuana delivery have vastly grown the cannabis industry's operations.
And this overall cannabis market growth is only expected to continue. From 2020 to 2024, the global legal cannabis market is projected to grow by $27.89 billion, with a CAGR of 21%, according to Reportlinker.com's "Global Legal Cannabis Market 2020-2024" report. As one of the few growth areas in the U.S. economy, it's safe to say the Pandemic has done anything but slow this industry down.
This increase in the cannabis market has also led to increased growth in grow and process facilities across the nation. While legislation and legalization continue to be a challenge, many owners are presented with a different problem – how to scale and how to do so more rapidly than initially planned.
One of our cannabis industry clients, Holistic Industries, has been the perfect example of this growth. Named the number one "Fasted Growing Company of 2020” by Washington Business Journal, Holistic Industries is one of the largest and fastest-growing private Multi-State Operators in the country. Along with a revenue increase of over 447%, their real estate portfolio is rapidly expanding from Washington D.C, Maryland, Massachusetts, and Pennsylvania to the Midwest and West Coast. Currently, they have over 200,000 sq. ft. of cultivation, and 350,000 sq. ft. of grow and process facilities planned or under operations.
In the recent article "Privately Held Cannabis Operator Holistic Industries Shifts Into Rapid Growth Mode" New Cannabis Ventures highlights Holistic Industries' $100 million run rate in 2019 and 28% growth quarter-over-quarter for the past five quarters. As they continue to expand in the Midwest and California, an even higher percentage of growth is expecting in the upcoming quarters.
“Our strategic approach to go deep in certain regions and focus on investing in the local communities in which we operate has powered our expansion,” said Josh Genderson, CEO at Holistic industries. “Our approach combined with the strength and experience of our leadership team, allows us to grow quickly and responsibly, maintaining our core values and our promise to be the best place to work, shop and invest in cannabis.”
Cannabis Facilities: Project Management & Owners Representation
With the rapid growth of the Cannabis industry comes the need for specialized owners representation and project management. Unlike other industrial/warehouse facilities, growing and processing facilities require diverse expertise ranging from enhanced security similar to that seen in a mission-critical facility to bio-grade mechanical system requirements similar to those seen within bio-pharma facilities. All-in-all, cannabis projects can include elements of a warehouse, a data center, and a bio-pharma and/or agricultural facility, which means specialized processing equipment, lighting, irrigation, fertigation, BMS systems, enhanced security, and more.
Though many specialize in one of these facility types, very few owners reps and project managers specialize in all. Additionally, there is little precedent set for the cannabis industry, given the limited built history of these facilities, so finding the right architect, engineer, and construction team can be challenging. The project team needs a unique understanding of the technical complexity and how to design with flexibility for expansion in the future.
"The right project team is critical to ensuring an owner gets the facility that aligns with their corporate mission and goals," said Sam Andras, AIA, Senior Principal and Founding Partner of 2WR + Partners and MJ12 Design Studio. “Owners who select owner’s reps with a strong understanding of the complexities of cannabis facility are well on their way to ensuring success. Understanding the industry is key to the proper development of RFQ/RFPs, and thereby evaluation of potential team members.”
Outside of the project and technical requirements, there is also a more profound need to understand the client's unique set of circumstances. Each owner has their own set of requirements based on their preferred method of growing plants, which requires a different set of parameters/equipment and requires the owner's rep to understand and thoroughly listen to the project's unique drivers.
As the owner is dealing with new policies and legislation surrounding the cannabis industry, technology is also advancing rapidly in this area. As advancements continue, so does the owner's need to adapt and potentially expand their facilities. A friendly counterpart to this growth is the attraction, retention, and development of talent to run and manage these facilities – which can be a very time-consuming challenge for any growing business.
"As a business owner, and a previous facility owner/operator, I empathize with our cannabis industry clients given the sheer magnitude of opportunities and challenges they're facing on a day-to-day basis," said John Sadlik, Principal, J2H Partners. "Our goal is to significantly decrease their time spent on managing build-outs and construction so they can focus on running their business and growing their teams."
So, as the cannabis industry continues to grow, what should owners look for in an owner's rep/project manager?
There isn't a cookie-cutter solution to any project for the cannabis industry clients. The lack of historical builds, diverse approaches to growing, rapid acceleration of industry growth, and highly specialized requirements can be a real challenge, as can finding the right project team to build the facilities.
Below are a few questions to ask before hiring an owners rep for your next project(s):
1. Do the owner's rep/project managers have diverse experience with warehouse, retail, data center, bio-pharma, and agricultural projects?
2. How well do they understand the technical requirements unique to cannabis growing and processing facilities? Do they have an engineering/technical background that may assist the project design/build team in new ideas to make the facilities scalable and adaptable?
3. How strong are their relationships with architects, engineers, and construction teams that have experience with cannabis facilities, or the diverse experience of all facility types listed in question 1?
4. Have they been an owner/operator before? Do they fully understand how to minimize CapEx and OpEx in a way that treats your capital as their own?
5. Can they scale with you – wherever you go –and illustrate their experience with fast-paced, high-growth companies?
6. Do they empathize with your limited time available due to business demands and offer a simplified, streamlined process to communicate and enable decisions?
7. Does the owner's rep listen to understand your brand and your business uniquely to ensure that translates down into your facilities?
Ensuring that your owner's representation firm has the right qualifications for the cannabis industry is a significant first step to ensuring your projects are executed well and establishing a long-term partnership for your continued growth.
Have an upcoming cannabis grow and/or processing facility project? Looking for more information on what to consider when looking for the right owner’s rep or project management partner? Get in touch at j2hpartners.com/contact or email us at firstname.lastname@example.org.