Estimated Cost of Production for Legalized Cannabis – Free PDF download

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A Carnegie Mellon Heinz student under our supervision generated a cost estimate for a hypothetical hydroponic set-up in a 5’ x 5’ space that is allowed under section 3.ii of The Regulate, Control, and Tax Cannabis Act of 2010.3  He concluded the consumables (growing medium and nutrients) totaled on the order of $300 per harvest. Electricity at 40 watts per square foot and $0.14 per kwH added another $200 per harvest.4 Durable items (fan, lights, air stone, pump, tubing, sheers, etc., apart from light bulbs) totaled $1,250 – $1,500, but if they could be amortized over four harvests per year for five years shrank to $60 – $75 per  harvest.5 Interesting, light bulbs (with an assumed life time of one year)
were a non-trivial cost item, at $27.50 per harvest. Altogether, the student estimated
costs per harvest in the vicinity of $600.

Yield estimates are grounded in Toonen et al.’s (2006) study of 77 illegal, indoor
growing operations in the Netherlands. They found a median planting density of 15
plants per square meter, or 1.4 plants per square foot, and an average yield of 1.2 ounces
of saleable material per plant per harvest.6 That translates to 0.105 pounds per square
foot per harvest or 2.625 pounds per 25 square feet per harvest. Combining this with the
$600 figure derived above, the materials and consumables cost per pound is about $225
per pound.

That is, a well-run 5’ x 5’ hydroponic grow producing 4 harvests per year might yield
10.5 pounds per year with tangible costs of $225 per pound–$75 per pound for electricity
and the remaining $150 per pound for other factors.

These costs work out to be quite consistent with those described in a Dutch case study
described by Cervantes (2006, p.148). That case study described three harvests: (1) a
modest 8.4 pounds grown on 128.6 square feet at a cost of $5,647, (2) a subsequent
investment of $8,220 that doubled the area cultivated and improved methods, yielding
27.6 pounds, and (2) a third harvest in the full space of 30.2 pounds whose incremental
cost was only $1,882. That works out to ($5,647 + $8,220 + $1,882) / (8.4 + 27.6 + 30.2)
= $238 per pound.

Of course the costs per pound in Cervantes’ case study decline if the first two harvests are
effectively investments to get the operation running. The cost per pound during the third
harvest was only $62 per pound, lower even than just the cost of electricity estimated for  the 5’ x 5’ grow. The longer the operational life over which the initial investment could
be amortized, the lower the total cost, but within two years of four harvests per year (i.e.,
the three harvests described by Cervantes plus a hypothetical five additional harvests like
the third), the cost could be $116 per pound.

 

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Continue at: https://www.rand.org/content/dam/rand/pubs/working_papers/2010/RAND_WR764.pdf

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