ENERGY AWARENESS What to expect from high energy costs in the cannabis industry

wa-legalcornerWith more and more states legalizing adult use and medical cannabis, industry energy efficiency issues are on the rise.

In Colorado in 2014, cannabis cultivation facilities accounted for 200,000 MWH of energy usage—about 0.4 percent of all electricity used in the state. Forecasters in Colorado and Washington expect this energy usage to continue increasing, both in sheer volume and as a percentage of statewide consumption. Energy consumption is driven by several factors, but the vast majority of energy is used by grow lights, HVAC systems and venting/dehumidification systems. These systems are vital to indoor cultivation facilities, while fully or semi-outdoor facilities have significantly lower energy burdens.

“For now, energy efficiency in the cannabis industry will likely be driven less by energy efficiency incentive programs and more by standard risk-reward investment decisions.”

Legally, there are a few different factors to look at when considering the causes and effects of high energy use by cannabis businesses. As always, federal illegality is the primary ingredient to cannabis’ unique position. Because of federal illegality, cannabis cannot cross state lines. States that want to legalize all need to license their own cultivators. This means that states like California and Oregon, which have climates that work for outdoor cannabis cultivation, are not able to supply Nevada, Colorado, Massachusetts or other states that may not be natural fits for outdoor cannabis growing. In those states less hospitable to outdoor growing, virtually all legal cannabis cultivation must be indoors. Compare to the tobacco industry, where 80 percent of the tobacco in the United States is grown in North Carolina, Kentucky and Georgia. The markets that can produce cannabis more efficiently are not able to supply markets that are less efficient.

Even if cannabis is all grown indoors, a more concentrated industry would be more likely to invest in energy efficiency improvements. Someone growing on 2,000 square feet will have a harder time justifying the expense of energy improvements than a company using 10 times that amount. But even for large companies, a mixture of federal illegality, state restrictions, and general industry uncertainty makes it challenging to raise capital for energy efficiency projects.

Federal illegality also makes it challenging for cannabis businesses to benefit from state and federal energy efficiency programs. Private energy companies like Puget Sound Energy have offered large efficiency rebates in the cannabis space, but public utilities, fearful of jeopardizing their relationship with federal energy providers like the Bonneville Power Authority, still tend to shy away from providing incentives to cannabis growers.

For now, energy efficiency in the cannabis industry will likely be driven less by energy efficiency incentive programs and more by standard risk-reward investment decisions. Some communities are looking at negative incentives to the cannabis industry, including excise taxes on excess energy use, but these are not yet widespread. Cannabis companies will need to stay aware of development in energy markets, as utilities continue to increase prices for energy use during peak hours.

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