Published on 02/12/2024
Surprising similarities
“What many people are not aware of is that the cannabis and hydroponic lettuce industry share some interesting similarities.” The degree of vertical integration is the first similarity between the businesses (see the figure below). Sonny Moerenhout, Managing Partner at Cultivators, added; “Cannabis companies have to deal with some unique challenges, from the importance of humidity control to being in charge of a vertically integrated company.”
Compared to other crops, cannabis growers are distinctively different, as the majority need to handle all the processes themselves. “Because of cannabis regulations, vertical integration is sometimes obligatory, and it allows for the required juridical oversight of the seed-to-sale process. As a result, one company will be doing everything in-house; breeding, motherstock, propagation, growing, post-harvest practices, and packaging,” said Sonny.
The difficulties with cannabis, however, might not be as unique as is commonly believed. According to Sonny, the hydro leafy green businesses are fairly comparable. “Hydroponic leafy green growers are also vertically integrated companies, doing often the germination and propagation, growing, and post-harvest (including packaging) at the same location as well.”
Visualization of the vertically integrated approach applied in leafy greens and cannabis, compared to other crops, such as tomato
The second similarity is the relatively high initial investment (Capex) for a growing facility for these crops. This can easily go above €600/m2 for cannabis and lettuce, whereas the costs of the average tomato greenhouse are generally substantially less. The advantage is that, despite the relatively high start-up costs, the returns can be substantial as well. Many investors have entered the cannabis and hydro leaf industries. These investors focus on the financial returns of the business and outsource the choice and development of the greenhouse and growing systems to experienced consultancies.
Cannabis Cultivation Challenges and Potentials in Europe
Apart from costly initial investment, consistency in cannabis production is one of the top challenges. Every batch must contain the same quantity of cannabinoids throughout the year. As a result, maintaining a steady amount of light and managing the climate are crucial. With high amounts of light come high amounts of transpiration, so humidity control is essential to prevent diseases like botrytis. Unlike tomato cultivation, where growers have a grace period of six weeks, it only takes three to four days for botrytis to show in the cannabis flower, so it is necessary to keep a close eye on your crop.
In Europe, consumer-wise, Germany and France are seen as markets with high potential. Yet Cultivators focus on the countries where there is the most potential for cultivation. “At the moment, those countries are Switzerland, Portugal, and Denmark. Those countries are certainly the most advanced when it comes to high-quality facilities.” Being a Dutch company, Cultivators is, of course, also active in The Netherlands. For example, Cultivators supports companies that are part of the government coffee shop experiment, which has not come without its challenges. “One of the biggest challenges is the complex regulatory landscape and delays in the start of cultivation and sales. For the participating companies and their investors, it is therefore a challenge to fully grasp the business opportunity.”
Leafy Cultivation Challenges and Potentials in Europe
Cultivating leafy green indoors holds great opportunities. In recent years, a great number of high-tech hydroponic greenhouses have been built not only in Europe but also globally. Compared to well-established indoor crops like high-wire (tomato, cucumber, etc.), leafy green is not a mature industry within the international CEA sector. Therefore, knowledge, data, and cultivation practices for growing these crops are still limited.
During this time, multiple substrates, systems, and irrigation flows are introduced to the market. Although it might offer many options for growing leafy green, it would be tricky to choose the right system if the experience and knowledge are not available. Many growers of other crops or investors come to lettuce cultivation and find themselves struggling with the leafy cultivation. Tim van Hissenhoven, a managing partner and the leafy greens cultivation expert in Cultivators, shared; “When a company is missing knowledge and experience with these crops, unexpected and challenging surprises with cultivation are most likely to happen. It is all about balance, product quality, yield, and cycle planning. Everything has to go exactly according to the plan, otherwise losses would accrue”.
It is important to keep in mind the high investment required for a leafy greens facility; which can go up to an investment of 500-750 euros/m2 for a CEA lettuce facility. Nevertheless, the company still has to offer a competitive selling price for the produce. That is where it gets complicated, as the margin for mistakes before it is reflected on the turnover is very small. Therefore, it is crucial to have the expertise to be able to make informed decisions, from suitable greenhouses to the right cultivation system, to crop plans, all to ensure a high sustainable yield.
All in all, Cultivators is very active in both cannabis and hydro leafy greens sectors. We are not only focused on our clients, but also on the industry as a whole, and are involved with events, research, trainings, and more, all to be a constant leader in the industry and supply our clients with the best, most recent information there is.
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