During Tilray 2023 earnings call earlier this month, chairman and CEO Irwin Simon hinted that the company is considering fruit or vegetable production as a temporary solution for sluggish cannabis sales.
Critics point out that Tilray’s strategy of growing and selling cannabis, then beer, and now perhaps vegetables, is less related to the company’s interest in solving food insecurity and more of a desperate attempt to grab onto something—anything—that makes money.
Firing up underutilized greenhouse space to grow fruits or vegetables makes sense.
But temporarily shifting to edible crop production, and then switching back to cannabis does not make good business sense. Here’s why:
In 2023, optimization will be crucial to the survival of every cannabis cultivation business.
One of the keys to optimization is creating ways to increase revenue from existing cultivation infrastructure.
Selling rooted cuttings, offering educational programs, and, yes—growing conventional crops—are all ways that commercial cannabis cultivators can realize additional revenue from their current facilities.
Raising cannabis and conventional crops isn’t a new concept. Village Farms cultivates both cannabis and hydroponic vegetables, albeit in separate facilities. Glass House Farms grows cannabis in a portion of its mega-greenhouse in California and vegetables in a different area of the same facility.
Other conventional greenhouse growers have cautiously ventured into cannabis over the past few years, typically starting with hemp.
It’s not crazy to think that cultivation companies in the cannabis space, who own some of the finest growing facilities in the world, might also try their hand at growing edible crops.
Even vacant indoor facilities could find new life through edible plant production. This could bode well for companies holding expensive indoor assets that can’t find cannabis-growing buyers.
A January 11th news piece from CBC highlighted a vegetable grower in Newfoundland that wants to use Canopy’s former 230,000 sq ft indoor grow site in St. John’s to produce lettuce.
Although overengineered for leafy green production, any lettuce grower would be thrilled to cultivate crops with all the bells and whistles that come with a state-of-the-art indoor cannabis facility. The high-tech accouterment is typically unnecessary and out-of-budget for most edible crop growers, but it can drastically enhance the cultivator’s ability to produce stellar plants.
In Tilray’s case, nay-sayers are right to be skeptical of the company’s potential foray into short-term food production.
It’s a fallacy to believe that transitioning from cannabis to edible crops and back again can help Tilray bridge the revenue gap during challenging economic times.
Fruits and vegetables won’t generate the kind of margins that cannabis does. Today’s hottest CEA crops (controlled environment agriculture) are tomatoes, lettuce, berries, and microgreens. Compared to other produce, these edible crops command a premium, but nowhere near $1,500 a pound wholesale or $10 a gram at retail. Not even close.
In a commercial greenhouse, switching from cannabis to food and back to cannabis isn’t a seamless transition. Although greenhouses can be more easily modified to grow conventional crops than indoor sites, cannabis and vegetables require different growing infrastructures, post-harvest processes, and shipping logistics.
Besides the challenge of learning to grow a new commercial crop quickly, Tilray will likely find it difficult to establish relationships with buyers when the plan is to revert back to cannabis soon.
Tilray, and other cannabis growers considering an expansion into fruit or vegetable production, should cautiously move forward and keep the following in mind:
- Think long-term
If you overbought or overbuilt production capacity, determine what percentage of your cultivation footprint will be fruits, vegetables, or cannabis—and plan to keep it that way. Investments into production or post-harvest retrofits must demonstrate a clear ROI, and switching back and forth between crops is a sure way to keep profits out of reach.
- Set realistic expectations
Research product trends, consumer demand, and competition. Be realistic about the estimated cost of production and your anticipated selling price. Develop a strategy for entering a market that’s already packed with growers. Vegetable margins aren’t cannabis margins, and anyone that believes so should temper their expectations.
- Hire a conventional grower for your conventional crops
Don’t try to save money by insisting that your cannabis grower take on fruit or vegetable production. Commercial-scale transitions can result in commercial-scale learning curves, which can get expensive. If you decide to grow berries, poach a grower from Driscoll’s. If you’re after the leafy greens market, hire a cultivator from Local Bounti. If you’re eyeing tomatoes, you’re in luck! Hydroponic tomato growers are everywhere.
Growing fruits or vegetables won’t save a failing cannabis business, but it could be a smart move for growers interested in diversifying over the long term. Whether or not this will be the case for Tilray remains to be seen.
Originally poste on Benzinga