Scaling Your Business

SCALING YOUR BUSINESS

Bryan Verpoort

So, as a student you grew weed at the back of the garden. Now as a young professional you’ve continued your passion for cultivation and are a well-known and respected member of your local cannabis club.

After a social evening at your club, one of your mates suggests to the group that it would be a good idea to commercialise your passion. A few weeks later you are meeting after work, sharing emails and scouring the internet. One of your mates has access to a family plot and another has seed capital – sounds familiar?
Stop and take a breather. It might be a good idea to self-impose a cooling off period!

The step from social grower to commercial grower is gigantic!

While it is well known that the commercial industry is lucrative, the dynamics of your relationships change from mates to co-workers, from social engagement to regulation, compliance and accountability.

While the thought of commercialising your hobby is indeed attractive, it is critically important to consider your potential business partners, access to finance and how you would exit from the business.

A small, licensed grow facility is certainly appealing, however do your homework first and remember that the license issued is specific to the location. So, if you have been offered a piece of land, check out the land-ownership rights, terms of the lease agreement, available of water and access to power.

The wrong site will significantly hamper your likelihood of success. Just because the land is “free” does not mean it is suitable.

Once you have identified suitable land and have secured right of tenure, you will need to decide who your customer is. Simply growing in the hope that you will find a suitable off-taker could be a high-risk bet. Offtakers know exactly what they want and why they want a specific product. Unless you meet that specific requirement (e.g. GMP certified) you may have unsold sock and may be forced to sell at very-low prices.

It is advisable to minimise your production overheads. Indoor growing will always be more expensive than greenhouse growing although this cost might be offset with a higher quality product and year-round production (but only if you are growing to GMP specifications).

Remember power is a critical input and with the power utility being unreliable, you will require back-up power supply. Similarly, water supply and water storage are critical, both consume vast amounts of power – water pumping, purification and processing are power hungry inputs, fortunately gravity and wind power can offset some of the costs.

Remote sites are not necessarily expensive. There are many small towns across South Africa offering ideal climatic conditions. Input costs may be significantly cheaper, and your business can be a significant contributor to the local community.

Also consider access to aircraft landing strips and municipal airstrips, this could significantly reduce your travel time and transportation risk in delivering finished product to the agreed offtake point.

Try to identify your key operational risks. Is your site a higher-than-average security risk due to its location? Or, is your humidity excessively high, which would impact directly on your de-humidification costs and … power? Is your site prone to extreme weather, for example, high winds or excessive cold or snow? Your site selection will have a direct impact on your choice of grow facility.

Should you consider scaling your business, ensure that your license application aligns with your future operational ambitions. Modern indoor and greenhouse farming is efficient, so space can be optimised. However you will require space for ancillary infrastructure, water storage and power generation. The benefit of scaling, is that a 2nd or 3rd grow facility can use the same supporting infrastructure saving on the costs of dedicated cutting, trimming, drying, curing facilities.

Scaling your business will certainly impact on power consumption, heating in winter, cooling in summer and de-humidification. Also, larger grow area footprints have a direct impact on drainage, runoff area, culverts – the water must go somewhere!

So, expect significantly increased costs for civils and earthworks and don’t cut corners, otherwise your entire site and fortunes could be washed away!

Bryan Verpoort
Managing Director
Berkley Risk (Pty) Ltd.

The Berkley Risk team provides Insurance advisory services to licensed growers, producers, manufacturers and distributors throughout South Africa and Lesotho.

Berkley Risk is a registered FSP #43194 and has registered offices in Johannesburg and Maseru. They can assist you with all your insurance requirements and work closely with start-ups in the management of their operational risks.

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