How cannabis cultivators can manage their energy costs

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The high price of energy is a threat to cannabis cultivators everywhere. Unfortunately, energy prices’ steady upward climb is likely here to stay even as wholesale cannabis prices continue to tumble.

For operators on the edge of profitability, energy costs may be the difference between success and failure. The good news is that most cultivators can prepare for the worst and even come out in a better position.

The perfect storm and energy prices

Electricity prices across the United States have been trending upward in recent years. Several factors are driving these increases. These include aging grid infrastructure requiring costly upgrades, geopolitical shocks to energy supplies, and extreme weather events that strain power systems.

Supply chain disruptions have also inflated the costs of power generation equipment and materials. Meanwhile, increased demand from data centers, electric vehicle adoption and industrial growth has outpaced generation capacity in many regions.

States with regulated cannabis markets also tend to suffer from high energy rates. For example, the Northeast consistently has some of the highest energy rates in the nation, often exceeding 20 cents per kilowatt-hour.

California faces similar high costs due to wildfire mitigation expenses, renewable energy mandates and transmission investments. Industry experts predict electricity prices will remain elevated for the foreseeable future — creating challenges for energy-intensive industries.

Why Rising Electricity Costs Matter to Cannabis Cultivators

Indoor cannabis cultivation is among the most electricity-intensive agricultural practices.

Cultivators can consume between 2,000-5,000 kilowatt-hours per pound of finished product. Overall, cannabis growing accounts for as much as 1% of total U.S. electricity use, or $11 billion annually, according to some estimates. This intensive use stems from the need to create optimal growing conditions in controlled environments.

Sophisticated lighting systems typically account for roughly 40% of total electricity consumption. Cannabis plants require intense, full-spectrum illumination for 12-18 hours daily depending on their growth stage. Climate control and air filtration technologies operating continuously throughout cultivation cycles consume another 40% of electricity usage.

In all, electricity costs can represent 25% or more of total production costs. In high-electricity-rate markets like California or the Northeast, energy expenses can reach $300 to $500 per pound of cannabis produced – particularly challenging given the ongoing price compression in many cannabis markets.

The combination of rising electricity costs and falling cannabis prices creates a profit margin squeeze that threatens the viability of many operations. Growers who previously could absorb higher energy costs through premium pricing now find themselves in increasingly competitive markets where operational efficiency directly impacts survival.

This economic pressure is forcing cultivators to scrutinize every aspect of their energy usage and seek innovative solutions to reduce consumption without compromising product quality or yield.

What cannabis businesses can do about it

But energy rate hikes don’t necessarily need to doom your business. Unlike other business threats, electricity price hikes are largely predictable, and operators can take evasive measures to reduce their exposure to price fluctuations.

And even those late to the game can still take meaningful action.

First, businesses in deregulated markets can negotiate energy rates.

In much of the Northeast, the Mid-Atlantic, and parts of the Midwest, businesses can solicit bids from multiple energy suppliers rather than accepting the utility’s default rate. This competitive marketplace often yields lower rates, more predictable billing structures, and opportunities to source renewable energy.

National energy brokers such as OnPoint Power, based in Dallas, also work directly with operators to analyze their consumption patterns, take into account their priorities – be it cost reduction, price stability, renewable content, or some combination – and request proposals from competitive suppliers.

Cultivatiors have successfully reduced their electricity costs by 10-20% through this approach. Others have been able to lock in fixed rates that provide crucial budget certainty during periods of market volatility.

All operators should understand their energy usage patterns.

Cultivators should pay attention to when and how their facility draws the most power. The local utility should be able to provide granular 15-minute power usage data that will show this. The next step is to identify equipment that can be turned down or off during peak system times.

According to Michael Gillespie of Gillie Consulting, one Massachusetts cultivation facility implemented targeted light-dimming strategies during peak power demand periods and reduced its power bills by over $500,000 per year.

Operators must also interrogate their facility’s technical performance.

If a cultivation facility is older than six months, there is a good chance that it is already experiencing some technical challenges. Most facilities three years or older suffer serious problems. As a result, many growers spend far too much time playing Whac-A-Mole with their facility, chasing symptoms of failure rather than pursuing their craft.

Helpfully, a comprehensive cannabis cultivation facility evaluation doesn’t need to be disruptive or costly.

According to CannaDiligence, a service offered jointly by Climate Resources Group and Gillie Consulting, the return on investment of a technical evaluation can be staggering. Many of the interventions they recommend are cost-effective to implement and can increase the facility’s revenue-generating capacity while reducing energy consumption.

Growers must also replace or upgrade equipment.

All grow room equipment will eventually fail and need to be replaced. In some cases, an operator may want to replace equipment that is underperforming. Thankfully, utilities in most U.S. states and Canadian provinces offer generous energy efficiency incentives to help pay down the cost of upgrading to more energy-efficient HVAC and lighting equipment.

We at Climate Resources Group routinely see utilities giving six-figure incentives to growers, sometimes representing 50% or more of their total upgrade costs.

The Takeaway

The cultivators best positioned for the next decade are those who understand how their energy systems work, closely monitor performance, and make data-backed decisions.

Rising power prices may be inevitable, but their impact doesn’t have to be.

Sam Milton is the founder of Climate Resources Group, a consultancy that provides energy and sustainability services to the CEA industry through its Enlighten Your Grow program.

Jim Kordoban is founder and CEO of OnPoint Power, an energy broker who delivers expert energy consulting backed by years of market experience and deep industry knowledge.