Michigan Cultivator Sees More Demand For Outdoor Grows

October 5, 2023 · Green Market Report

Amid 120 acres of decaying cornstalks and scarecrows along County Road 665 north of Paw Paw, rows and rows of lush green trees rise into the sky. Expensive trees. Trees that make up the next crop of marijuana growing at Grasshopper Farms.

October, otherwise known in the cannabis industry as “Croptober,” is the annual harvesting of the state’s outdoor marijuana plants, and an estimated record 100,000 plants will be reaped this season. Croptober also means a product surplus that invades the market resulting in depressed prices for the industry and good deals for consumers. This lasts from late October through February the following year.

However, the industry is maturing and companies are deploying strategies to not only combat pricing but thrive from the annual outdoor harvest, preventing spooky season from being so commercially scary.

“Growing outdoors is really hard,” said Will Bowden, a retired Lieutenant Commander in the U.S. Coast Guard, former Florida cop and now CEO of Grasshopper Farms. “People want to do something in a more controlled environment, without the pressures of weather. That’s why when you go into retail, you’ll find only one grade of outdoor flower. That is the discount shelf space.”

Outdoor plants tend to be viewed as being lower quality; indoor operations can simulate optimal conditions 24/7 compared to, well, nature. And cannabis grown outdoors generally fetches a smaller price on the market. Much of it ends up as biomass used to make distillate or edibles where the highest-quality flower isn’t as appreciated.

For Bowden, growing outdoors offers an opportunity to set his product apart.

“Growers generally put less care into their outdoor farms,” he said. “We don’t believe that and are trying to change that perception.”

Sun-grown flower

Whereas indoor marijuana grows can feel sterile and controlled like a pharmaceutical plant, outdoor grows look and feel like farming.

At Grasshopper Farms, 20 miles west of Kalamazoo, migrant laborers spent the first week of Croptober busily preparing and picking product. Spanish fills the air as the workers clip branches from the marijuana plants — which grow much larger outdoors than indoors and resemble Christmas trees at a distance — and load them into tubs 20 pounds at a time.

A farm foreman tells a line of workers hauling the marijuana-filled tubs to load them onto the trailer behind an aging Ram truck. The truck’s lights are covered in green tape, so when harvesting extends into the night, the lights don’t disturb the plants’ “sleep” cycle.

Outdoor grows are cheaper to operate, relying on the sun for photosynthesis as opposed to thousands of overhead lights that generate massive utility bills. Bowden said the farm required a total startup investment of $6.5 million for build out and operations. By contrast, the highly-automated Canapa Valley Farms in Vassar spent $40 million to build out its 60,000-square-foot indoor grow operation.

For Grasshopper, outdoor weed can overcome its quality stigma with better marketing and better smokable product, Bowden said.

Each of Grasshopper’s 6,181 total plants on the property are broken into thirds. The top third of the plant is used to sell as flower to consumers, the middle third for pre-rolls and the bottom third is used for biomass to sell off to processors.

Bowden markets Grasshopper Farms as “premium sun-grown flower” and sells the marijuana buds to dispensaries and even sells packs of pre-rolls under the farm’s name.

The plants, despite being outside in rows like a traditional farm, are not planted in the ground. They sit atop landscape fabric in massive pots filled with a proprietary soil blend, all connected to each other through plant netting and an elaborate irrigation network.

The 40-employee company flexes up to 140 workers during harvest, with most of the workers being migrant farm hands.

The truck will haul 18 tubs from the fields at a time to the farm’s drying rooms in a facility on the property. Grasshopper’s five drying rooms will hold 9,000 pounds of marijuana branches, resulting in 1,000 pounds of dried marijuana flower, that go through five cycles over the next 25 days to meet the harvest goal of approximately 25,000 pounds of total dried marijuana flower.

Benefits to a bountiful harvest

Since outdoor grows only go to market once a year, Croptober deeply impacts the market price of marijuana.

Marijuana prices had been on the decline since 2020, but Croptober sank prices at a faster rate than prior declines last year. The average price for an ounce of adult-use recreational marijuana flower in September 2022 was $109.88. By January 2023, it had sunk to $80.16 per ounce. In August of this year, the most recent available data from the Michigan Cannabis Regulatory Agency, the prices had recovered more than 17 percent to $94.16 per ounce.

“There are almost 2 million more plants in pots (indoor and outdoor) at this time this year versus last year,” said Miles Baker, a cannabis attorney at Detroit-based Dickinson Wright. “It’s very possible Croptober shows some price compression like we’ve seen in the past. Historically, people have thought of Croptober as crashing the market. But we’re also seeing a price recovery and it will be interesting to see how much of a price compression happens and whether growers and retailers really absorb the influx.”

Mike Elias, CEO of Marshall-based indoor grower Common Citizen, one of the largest cannabis operations in the state, believes companies are more stable in 2023 and Croptober’s impact will be muted.

“While there are 40% more plants in production compared to last year, the increased demand, which has risen by 66%, has led to a 32% increase in sales,” Elias told Crain’s.”This suggests the market has become more diversified with indoor and greenhouse operations producing year-round. Consequently, Croptober may not have the same massive impact on pricing as before.”

Elias said last year outdoor-grown marijuana would be on the wholesale market for as low as $300. This year, he expects the low end to be between $400- and $500 per pound with some growers seeking as high as $700 per pound.

305 Farms in Lawrence, an indoor grow 14 miles southeast of Grasshopper Farms that produces several licensed vape brands including Rohan Marley’s Lion Order, is hoping for the low prices Croptober generates.

305’s products are typically expensive and categorized in the “top-shelf” market of cannabis. The 25-acre campus can only produce about 40% of the company’s distillate needs, said founder Jan Verleur. The company relies on the oversupply and lower prices Croptober produces.

“If you have brand loyalty around strains and you’re focused on top-shelf cannabis, there’s not a lot of outdoor that competes with you. Less than 10% of what comes out of October will directly compete with top-shelf products,” Verleur said. “We can’t grow enough on our farm to meet our current output needs, so we have to buy in the open market. Because of Croptober, there will be buying opportunities for us in Q4 to lower our cost of goods.”

Verleur, who also owns operations in California, said Michigan consumers are more price-conscious, seeking value more than peers in California.

“This is a bang-for-your-buck type of state,” Verleur said. “The value market is like 60% of the market at least. I can only operate in about 15% of the state’s stores. So it’s beneficial to us to have that outdoor product to supplement and keep our costs contained.”

Stopping seasonality

Grasshopper, however, battles the price seasonality with standard wholesale pricing, allowing it and its customers predictable accounting. Grasshopper wholesales its flower within a range of $500 to $700 per pound, or $31.25 to $43.75 per ounce.

“Our value proposition is that we’re going to have a price all year round,” Bowden said. “We don’t lower our prices due to market supply, but we also don’t raise the prices in the summer. We’re a fair price the whole time.”

Those higher prices, if it can sustain them, allow Grasshopper to reinvest. Bowden said the company analyzes the market and tries to keep its production 5% below what the total market demand is for its products to maintain pricing.

With demand rising, the company is ready to expand on its 160-acre property — it currently allows neighboring farmers to plant and reap corn on its acreage, though this might be the last year it does.

“We think our demand is about 40,000 to 42,000 pounds a year,” Bowden said. “We’re at about 20,000 to 25,000 pounds right now. So either next year or the following planting season, we plan to double to 80 acres.” (Full Story)

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