Innovation Ideas to Reduce Capital
INNOVATION WAYS TO REDUCE CAPITAL EXPENDITURE (CAPEX); MICRO CULTIVATION LICENSE, OUTDOOR, GREENHOUSE & INDOOR)
Important to note: The Cannabis Regulations and Health Canada’s policies now require the applicant to submit an evidence package comprising a video walk through and other evidence to Health Canada to prove that the facility is built out with the security and HVAC equipment commissioned and working within 10 working days after documentation filed with Health Canada.
BUDGETS: THE CHOICE BETWEEN THE CANNABIS STANDARD VS MICRO LICENSES
The first choice between a Cannabis Standard Cultivation Cultivation and Micro Cultivation cannabis license is the extent of the leaf canopy. The standard license has NO restriction: the micro is limited to 200 sq meters or 2150 sq ft. of leaf canopy.
At first glance this appears to be the hot button issue. However, the deciding issue really is CAPEX (capital expenditure) and other associated costs such as security of premises. Please see below for a comparison:
INDOOR FACILITY
Assumption: for the purposes of this comparison model the standard license is estimated at a minimum of 6,500 Sq Ft., vs 3,500 Sq Ft for the micro license.
For the micro cannabis license there is an obvious saving of $1,000,000. BUT the micro still required a budget of approx. $1,500,000.
THERE ARE SCARCE FUNDING SOURCES 2021 FOR CANNABIS BUILD OUTS
At the present time, the banks and institutions are not funding Cannabis startups—this includes credit unions and community futures. Our clients who have received licenses with unencumbered fixed assets for security find it impossible to find funding from these sources. The situation will change but cannabis applicants should realise that the biggest barrier to entry to the Canadian cannabis industry is the supply of capital.
“Important note: Canadian banks and other financial institutions could lend funds to cannabis businesses that are operating and can show positive earnings over a period of time.”
SUGGESTIONS IN REMOVING FUNDING CONSTRAINTS
Health Canada have endorsed a policy known as the phased build out.
This allows for the applicant to build a small portion of the intended premises or facility. According to the cannabis regulations the applicant is still required, whether indoor or outdoor, to provide areas of necessary functions such as for example trimming, drying, and packaging and labeling rooms in addition to the growing areas.
HOW TO REDUCE CAPEX FOR BUILD OUT
One of the most obvious ways to save on Capex is to grow outdoors and use a food safe fabricated containers to conduct the necessary activities described above. A chain link fence will be required to surround the growing area for flower.
A further reduction in CAPEX can also be found if the applicant works with an ice water bubble hash processing company
which will allow the applicant to freeze the flower obviating wasted costs for trimming and drying. There will still have to be provision for a temporary storage structure to provide for the possibility that they may be a delay in the flower pick up by the processor.
For the internal build out, that is no outdoor grow, the plan would be to complete only one of the three or four grow rooms and also possibly use a customized food safe container for the activities described above.
Other suggestions to help with cash flow and funding constraints or to pre sell the crop two other cannabis licencees or processes which will reduce the 60 day wait time for the issue of the selling license after the cultivation license has been issued by Health Canada.
Growth West will help with your CapEx Plan, savings and other expenses including innovative floor plans and equipment substitutes and equipment leasing finance.
Contact Nigel Boast President and CEO of Growth West Finance Ltd.