It’s the Gold Rush all over again in California, except this time the prize is cannabis. With the passage of Proposition 64, passed by the California state legislature in November 2016, speculators have invaded California at a speed similar to whiteflies on gerberas. Prop. 64 legalizes adult recreational use of marijuana and includes provisions for cultivation, provided local jurisdictions sign off. In passing the law, California joined the ranks of eight states and Washington, D.C. that have legalized recreational marijuana. In total, 29 states, D.C., Puerto Rico and Guam have legalized medical marijuana.
In Colorado, Massachusetts and Oregon, cannabis cultivation has fueled a real estate boom in dilapidated warehouses, unused factories and abandoned self-storage operations, the kinds of properties that easily retrofit to growing facilities. Despite the multimillion dollar renovation price, cannabis growers like these spaces because they’re private, easy to secure and adapt readily to climate control. But flower farmers know that energy costs quickly add up in enclosed production settings, and even with careful retrofits, the original structures weren’t meant for high humidity, which can lead to expensive mold remediation.
That’s where California comes in. Cannabis growers and their investors are eyeing the Golden State’s agriculturally zoned land, including places such as the Salinas Valley.
In a land management effort aimed at breathing fresh life into abandoned flower farms while curtailing the number of new construction permits for cannabis operations, Monterey County passed an ordinance that cannabis cultivation can occur solely in existing greenhouses on existing farmland. Price per acre has doubled over the course of the last year, according to commercial broker Keller Williams Realty. In 2015, a 10-acre parcel with greenhouses listed for $2.5 million; in 2017, the same parcel lists at $5 million.
On the face of it, marijuana could take a bite out of flower production acreage. “Anyone with a structure like a greenhouse is in a good position to sell to a cannabis group,” said Kasey Cronquist, PFCI, CEO of the California Cut Flower Commission. His group collects floral sales reports on a quarterly basis. So far, they haven’t seen significant changes in the numbers.
“California farmers understand crop diversification,” Cronquist said. “We have flower farmers who also raise other crops like hydroponic lettuce, cucumbers and avocados. If the crop stops turning a profit, they’ll get out. For many farmers, cannabis is simply another crop, but it happens to be more tantalizing to talk about than lettuce and tomatoes.”
Over the last two decades, California flower farmers have diversified types of flowers they grow as rose and carnation production shifted to Colombia and Ecuador. Janet Louie, a second-generation owner at Green Valley Floral, is the only greenhouse cut flower grower left in the Salinas Valley.
“There’s a lot of interest in growing marijuana in California, but our plan is to keep growing flowers as long as it is economically feasible,” she said. “Growing flowers is much more than just a business to us, so we would like to see it continue for the foreseeable future.”
Louie’s philosophy is shared by many flower farmers. For others, the opportunity to sell land will prove too good to pass up. Other flower farmers consider growing marijuana a chance to keep their business alive to pass down to future generations. Cannabis brings in the cash that’s needed to cover the expenses that make California flower growing an economic hurdle event. State rules that increased minimum wage and overtime rules have made profit margins that much thinner for flower farmers. Combine that with existing water restrictions, energy costs and pest issues, and it’s easy to see why cash-generating cannabis carries some appeal. A conversion to marijuana can shift margins significantly.
“Marijuana brings a new alternative economic use for flower growing land that’s paying a premium,” said Michael LoBue, CEO of the California Association of Flower Growers & Shippers (CalFlowers). “Some growers, especially those who don’t have a succession plan, will take the windfall on their property. My opinion is that we’ll see cut flowers and marijuana exist side by side.”
As the sole traditional flower farmer remaining in Encinitas, Bob Echter of Dramm & Echter has witnessed what happens to flower farms when land values skyrocket. “That one factor makes it hard to transition a business to the next generation,” he explained, due to the estate taxes in part, but mostly thanks to the easy promise of a purchase price that’s flat-out tough to pass up. A second generation flower farmer himself, Echter is considering his own exit strategy as he watches his father’s health decline. Echter’s father started the business 45 years ago, when Encinitas was known for poinsettias and flowers. Echter’s kids aren’t interested in flower growing, but he’s not ready to call it quits. “I’m passionate about farming,” he said. “I’m invested in seeing agriculture remain in the area and want to do what I can to help ensure that happens.” He’s already sold one 10-acre parcel [for development], which has provided a little security to consider cannabis cultivation.
For the last 18 months, he’s explored marijuana growing by tapping into the cannabis compliance industry, hiring consultants who help navigate regulations, security and laws. “What’s required of cannabis producers is very different from growing flowers. For instance, there are many regulations related to handling the plant’s waste products (stems, leaves),” he said. “It’s a consumable product, so there are health issues you have to deal with. There’s a lot more to it than growing a gerbera daisy.”
Echter believes cannabis cultivation will impact the floral industry. His business has recently picked up a major account because another grower converted some of their property from flowers to cannabis. That’s just one positive impact he sees from marijuana growing. “Margins are thin for everyone in this industry, and one key way to compete is by modernizing and mechanizing,” he said. But doing so requires significant investment. “Rather than go up to my eyeballs in debt, I can convert part of my property to marijuana, get a higher margin and raise capital to put back into the business,” he explained.
At this point Encinitas doesn’t allow cultivation, but if—and when—they do, Echter will be ready. His goal is to grow both medical and adult use marijuana on 0.91 acres of his total 20 acres. “I’m not at all pessimistic about staying in the flower business, but I do think marijuana can be another viable part of our horticultural world,” he said.
As far as challenges that may accompany the cannabis-flowers swap, Echter believes that finding reliable growers could become an issue. “Marijuana offers good money, and flower businesses may have trouble finding qualified growers,” he said. If enough flower growers convert, he’s also concerned that the freight lines will lower their level of service and geographical reach. “We need the volume of flowers to fill those trucks that head to Denver, Chicago and points east.”
Martin Meskers, AAF, president of the Society of American Florists and owner of Oregon Flowers in Aurora, agrees. “We need flower growers. We don’t want wholesalers and supermarkets to think there are no more flowers grown on the West Coast because we’re all growing marijuana.”
The other unspoken concern surrounding marijuana growing is the federal government. Presently, the bulk of the Drug Enforcement Agency’s budget is directed toward the nation’s opioid crisis. But Attorney General Jeff Sessions doesn’t disguise his dislike for marijuana, and in May sent a letter to Congressional leaders asking permission to prosecute medical marijuana. At this point, most cannabis growers operate under a Manifest Destiny type of bravado, assuming that since the people have spoken in vote after vote, the feds will get on board. At the very least, it provides California Governor Jerry Brown something to fight with the Trump Administration about.
That discrepancy between federal and state law is perhaps the greatest unknown in the realm of cannabis cultivation, but there’s one thing everyone agrees on. If the DOJ decides to target marijuana, they’ll look to make an example of California first—and “no one wants to be the unfortunate first grower who’s arrested,” admitted Echter.
“One thing I’ve learned during my 18 months of due diligence on cannabis production is that you have to be ready to shut down at a moment’s notice,” he said.
As the cannabis industry matures, many individuals fear the profits could evaporate overnight. That’s tough to imagine in an industry that, in 2016, earned $4.7 billion for medical marijuana and $1.9 billion for recreational, according to New Frontier Data. As a whole, the cannabis industry is expected to exceed $24 billion by 2025. “We’re seeing a lot of people jumping into marijuana now because the estimated wholesale value of a pound of pot is between $1,000 and $1,500,” LoBue said. “What’s the value of a pound of commercial cut flowers? $30 to $40 at the high end.”
He contends that it will take “three to five years for the marijuana impact on the floral industry to sort out. There’s an estimate that 85 percent of the pot grown in California today will remain illegal. Those growers have figured out how to work in that gray economy where everything is cash. Until the laws at the federal level are clear, it would cost them more to become legal. If 85 percent of the marijuana cultivation potential is accounted for, that leaves 15 percent that will compete with flower growers for land. So I don’t think we’ll see that much of an impact on flower growing.”
Cannabis provides what seems to be an ideal option for local markets. While the federal ban remains, it can’t be legally shipped across state lines. For flower growers weary from battling imports, marijuana could provide a chance to compete on a more level playing field, where labor and tax rates are the same across the board For instance, all California cannabis producers will be required to pay a $15 minimum wage by 2023, while facing equitable tax and regulation requirements. The specter of low-paid labor, which allows a Colombian flower grower to produce flowers at a fraction of a California-grown bloom, will disappear with a cannabis crop that competes solely in a local market.
But whether or not cannabis offers true protection from globalization remains to be seen. PharmaCielo, a Canadian company, is converting open air flower production ranges near Medellin, Colombia to medicinal cannabis. The head of PharmaCielo’s Colombian subsidiary is a former chrysanthemum exporter. Their marijuana product will sell in Colombia and Canada.
Julie Martens Forney is a freelance writer with more than 25 years of experience writing about floriculture, both for consumers as well as the industry.