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Understanding Cannabis Nursery Businesses

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December 18, 2019

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Cannabis operators seeking to diversify should consider a cannabis nursery; this business model is slightly less involved than a full cultivation operation, but still lets entrepreneurs work with plants and seeds. Here’s our quick guide to learning more about starting a cannabis nursery. 

Cannabis Nursery Business: The Opportunity

Nurseries were originally defined in California as “licensees that produce only clones, immature plants, seeds, and other agricultural products used specifically for the planting, propagation, and cultivation of medical cannabis.” With the legalization of adult-use cannabis, the definition has since expanded beyond medical cannabis to include recreational cannabis as well. 

The opportunity of opening a cannabis nursery is that, as an entrepreneur, you are able to focus on one core aspect of cultivation. As a result, your nursery can deliver consistent genetics. Growers are great growers, but that doesn’t mean they are great breeders. Nurseries have the ability to specialize and hone in on perfecting a specific strain of the cannabis plant. “Growers want superior genetics and strong healthy starter plants – so clone operations need the ability to cull out weak plants,” explains one cannabis blogger

Perhaps more importantly, adding a nursery offers a new revenue stream for your business. If you are a cultivator or manufacturer with additional space, consider adding a nursery to your business. Nurseries have a relatively small footprint and a higher than average revenue per square foot compared to traditional grows. 

Estimated Financials of a Cannabis Nursery Business

How much profit can adding a cannabis nursery business bring to your cannabis operation? Let’s run a few numbers in this sample cannabis nursery scenario. 

Cannabis-Nursery-LayoutWith a room of about 1,000 sqft, you can have anywhere from 20-40 mother plants depending on their size and your use of space.  Each mother plant will give you about 15-30 healthy cannabis clones per month but this can vary greatly depending on how well they are maintained and their ability to regenerate new growth.  This means you will have about 300-1,200 clones per month available for sale.  Note that we are trying to be conservative here in our estimates.  We have seen some groups pull significantly more clones from a room this size.

On the income side of the profit equation, clones can be sold to growers at $3-15 per clone.

Cannabis-Nursery-ClonesThis is a large range because it depends on a few factors: 

  • How many clones are purchased in one order
  • How frequently the grower buys clones
  • How in-demand a certain cultivar is
  • The number of mother plants you have per strain
  • Your reputation

The reputation of your cannabis nursery is the most important part of the income equation. In this highly competitive market, the biggest factor in your success is how consistent and fair you are in your business relationships – NOT how high in THC/CBD your strains are.  Yes, strong THC/CBD content can be helpful and give weight to your reputation, but this volatile market is more relationship-based than most: so invest time, attention, and respect in your growers, and they will invest in you. 

On the expenses side of the profit equation, there are a few costs to consider that will vary based on your location. Real estate, licenses, utilities, labor and marketing are all expenses that will change relative to your location: for instance, LA nurseries will pay more than those in Oklahoma. If you’re already operating a cannabis facility, then real estate is likely already in your current budget, so the bulk of your incremental costs will be labor and utilities.

Taxes are another area where cannabis nurseries must budget carefully. Cannabis cultivation, excise, and sales tax apply differently to immature seeds in California: 

  1. Cultivation: cultivation tax does not apply to the sale of immature plants, seeds, and clones
  2. Excise: nurseries can sell immature plants, seeds or clones to another cannabis licensee. However, distributors must transport cannabis from the nursery to the licensee. When immature plants, seeds, and clones are sold/transported to a retailer, the distributor must collect the 15% cannabis excise tax from the retailer. 
  3. Sales: sales tax applies only when any cannabis item is sold in the retail market – as long as you are selling seeds, clones, and immature plants to cannabis cultivators, sales and use tax don’t apply. Specifically: “Sales and use tax does not apply to a cultivator’s purchase of immature plants, clones, and seeds when the products grown from them will be resold as part of the cultivator’s regular business activities.” 

For specific questions about how cannabis taxes apply to your nursery, get in touch with our cannabis tax experts

Additional Considerations for Opening a Cannabis Nursery

There are some caveats that you should consider before moving forward with a nursery business plan. 

First, you should be prepared to test the genetics of your plants through full bloom in order to verify the quality of your seeds and clones. Document the entire process through writing, photos and video. This gives you material to show off the details of the plant to growers including its size and shape.

Growers are all looking for different things: some want short and wide plants, others want tall and thin plants. Bring a seed to full maturity to show growers the final end product that they can see, smell and test. Provide growers with a certificate of analysis to prove the quality of the end product. 

In the process, it’s possible you will need a different, specifically cultivation license in order to bring plants to maturity. There are different license types for nurseries depending on the size and specifications of your grow space. 

Read the FAQs about different license types here. Learn more about the different license types in this guide from the CDFA. Click here for the Cannabis Cultivation Annual License Application. If you do need a new license and don’t want to get your own, then find a strategic partner or client to work with to help out. Talk to our experts today to learn more.

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Post Tags: Taxes, Business, Finance, Operations

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