Wednesday, May 26, 2010

Huge, Legal Cannabis Farm Study Surprises Industry, Officials

By David Downs
Wed, May 26, 2010 at 11:47 AM

The groundbreaking study showing how the City of Oakland could make $2 million per year licensing a medical cannabis growing warehouse caught many locals by surprise this week. Even though city officials and the cannabis industry are looking toward licensing large-scale grows allowed under state law SB 420, the hard numbers appear to be the first of their kind. Economist Joanne Brion of Brion and Associates, who did the six-month, $16,000 report said she was surprised at how potent an economic force cannabis is.

“My gut instinct said that this would be a great revenue and job generator for the city,” she said. "But after running the numbers, “I went, ‘Wow, that’s really a job generator.'"

Brion’s report found that licensing a seven-acre cannabis growing facility near I-880 at the Embarcadero would create up to 371 union jobs, paying an average salary of $53,700 a year. The site could produce an average of 58 pounds of cannabis per day, and generate gross revenues of around $59 million per year. The site would grow an estimated quarter of one percent of the estimated 8.6 million pounds of cannabis cultivated annually in California.

Jeff Wilcox, founder of AgraMed — a non-profit mutual benefit company set up in Oakland specifically to cultivate medical cannabis — commissioned the study. Wilcox, a retired construction company owner, wants to redevelop a seven-acre parcel he owns near I-880 and the Embarcadero. His four-building parcel abuts the Harborside Health Center, which is the West Coast’s most prestigious medical cannabis dispensary.

With largely vacant commercial real estate and a large power capacity, the entrepreneur in him looked at the growing medical cannabis industry and, after consulting with Harborside founder Stephen DeAngelo, concluded a large-scale indoor cannabis farm was an opportunity.

California grows an estimated 8.6 million pounds of cannabis a year. None of it is taxed.
  • David Downs
  • California grows an estimated 8.6 million pounds of cannabis a year. None of it is taxed.

But Wilcox has three teenaged children in Lafayette, CA. Morally, he said he was concerned about getting into medical cannabis, but after talking to his kids — who can get pot easier than alcohol due to its lack of regulation — and activists like retired Orange County Judge James Gray, Wilcox said taxing and regulating the widely used drug poses less risk to his kids than the current de facto legalization Californians enjoy.

“My kids came home from the mall one day. They were upset. They said that in the first five minutes they were there, someone asked them if they wanted to buy pot,” says the middle-aged singe dad, who also grew up with pot more readily available than alcohol. “Legally, we have to do something. I think Oakland and the state needs to tax the shit out of this and legitimize it.”

Wilcox — who is also now on the TaxCannabis 2010 steering committee — went to the City of Oakland last year and asked if they were interested in licensing large-scale grows. When they said yes, he sought economists willing to run the numbers on what would be among the first large-scale, licensed medical cannabis farms in the country, then publish the findings. It wasn’t easy. Three turned down the work before he found Brion and Associates, a fifteen year-veteran of urban economics.

“Funny, some of my friends didn’t want to do the work,” Brion said. “I guess it’s still controversial. My interest is public policy. And you can only make good public policy if you have good information.”

Brion set upon the task of quantifying the construction and operation costs, as well as the margins of a large-scale growing operation — taking into account special factors like security, the price of cannabis, and potential yields.

“We had to do a lot of research,” she said. “These aren’t like standard studies. It is the first analysis on large-scale medical cannabis growing.”

Nailing down yield rates for plants became a challenge, but after talking with growers, she concluded the best way to measure yields is “quantity per light.” Once she had a good quantity-per-light metric and knew the amount of lights the facility could support, she determined the site could produce an average of 58 pounds per day.

The biggest caveats in the study are now the wholesale price of medical cannabis and how much the city might tax it. “The price, of course, will vary,” she says. “The other big caveat is the potential production tax the city might charge.”

Brion estimates the average wholesale price per pound of medical grade cannabis at $2,800. The city could tax it anywhere from the current retail tax rate of 1.8 percent to up to five percent in her analysis, generating anywhere from $1.1 million to $2.9 million in taxes off gross annual revenues. It would be among the most labor-intensive work in the Bay Area, she said.

An existing wholesale warehouse might have one employee per 500, 600, or even 1,200 square feet. But AgraMed’s site, if permitted, would need one employee for every 270 square-feet of working space.

Oakland city official Arturo Sanchez said the city council is looking at issuing a moratorium on medical cannabis cultivation as a prelude to a Public Safety Committee meeting that will examine what large-scale growing license regulations would look like. “Sometime over the summer the council will make up its mind whether to regulate it, allow it, or not,” Sanchez said.


Licensing large-scale grows would be a win-win-win, Wilcox said. Such grows would increase public safety, increase medicine quality, and raise funds and create jobs for the city.

Growers often steal power from the electrical grid with dangerous wiring schemes that have burned down residences. Robbers routinely target the lightly guarded plants and money of indoor pot farms. Both issues could be mitigated by a regularly inspected facility with up to thirty security personnel, cameras, and gates. In addition, multiple similar facilities could drive down local pot’s cost, increase its quality, and put dangerous, local home growers out of business. Long-term, a fully licensed supply of cannabis in California could curb the environmental destruction from cartels growing in national forests, and render home-growing a quaint hobby, on par with growing seasonal vegetables.

Furthermore, dispensaries currently buy their product from complete strangers, regulars or their own growers. Unlike federally regulated drugs and foods, pot’s largely an open-loop system subject to pesticide and pathogenic mold contamination. AgraMed’s supply chain would be closed and controlled like few others, sending pristine product to local dispensaries like Harborside.

The medical cannabis cultivation moratorium is scheduled to appear before the Oakland City Council June 1, and the Public Safety Committee meeting on growing regulation is scheduled for June 8.

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