Somewhere in the outskirts of Denver, entrepreneur Christian Hageseth is overseeing a development that he hopes will revolutionize the marijuana industry.
His Green Man Cannabis Ranch and Amphitheater, a $22.5 million project that is slated to open in 2016, will be to marijuana what breweries are to beers and vineyards are to wines. Hageseth calls it a “weedery,” a destination where marijuana is grown, cultivated and then sold to tourists visiting the ranch.
Since moving into the marijuana trade in 2009, Hageseth — whose company also grows medical marijuana, which was legalized in Colorado in 2000 — spent the last six years growing his crop in various warehouses across Denver, renting space at above-market rates. The costs that came with operating in a warehouse were cutting into his bottom line.
“There has always been an inflated cost in everything that we deal with to do it,” says Hageseth in an interview with Blueprint, “and real estate is one of them.”
Tired of the high cost of production, he shifted his operations into greenhouse spaces, a move he believes is the future of his industry.
“If you look at every agricultural product grown for consumption in the U.S., it’s either done outdoors or in a greenhouse,” says Hageseth. “Nobody’s growing anything in an enclosed warehouse for an agricultural purpose,” he adds.
Room for growth
Since becoming the first state in the country to legalize the sale of marijuana to anyone over the age of 21, in 2014, Colorado has become the new frontier for commercial marijuana. Companies like Green Man Cannabis are now legally allowed to grow their plants exclusively for recreational use.
Since becoming the first state in the country to legalize the sale of marijuana to anyone over the age of 21, in 2014, Colorado has become the new frontier for commercial marijuana.
Many businesses have taken to growing their product in warehouse spaces. As a result, there’s been a growing demand for underutilized Class B and Class C industrial space in Denver, with marijuana growers and manufacturers accounting for 3.7 million square feet of that space in 2015, according to CBRE research.
In 2009, Hageseth rented his first warehouse space in Denver for Green Man Cannabis to grow medical marijuana at a time when the market was still feeling the effects of the Great Recession. By then, warehouse space in Denver could be rented for $4 to $6 a square foot, says Hageseth. But given the nature of his trade, he said landlords charged him $12 a square foot, which he likened to a “vig,” a term that’s commonly used to mean the interest paid to a bookie.
“In our business, the ‘vig’ is the price you have to pay because your landlord is willing to rent to you,” says Hageseth. “It’s a risk-adjusted return, because you have landlords that are putting themselves and their assets at risk.”
Those risks included surprise visits from law enforcement officials, the high cost for the considerable amount of electricity required to create artificial sunlight indoors, and the pungent odor that the cannabis crops give off much to the dismay of those who live in the vicinity.
What about going from warehouse renter to owner? The option of buying a warehouse space — or building a new one — would have come with its own set of headaches for Hageseth. And it would also have cost $200 a square foot to build out a warehouse and turn it into a marijuana cultivation facility.
Like a warehouse, a greenhouse requires climate control, heating, cooling and dehumidifying. The average size of these greenhouse spaces can range between 20,000 to 40,000 square feet. It’s the access to actual sunlight (provided through glazed glass or plastic) that can help growers cut down exponentially on energy costs, says Zev Ilovitz, the president of Envirotech Greenhouse, a California-based company that makes and sells greenhouses to pot companies operating throughout the country.
“I think for a long time there’s been this misunderstanding that product grown in a greenhouse is going to be lower quality than products that were grown indoors, so therefore it wouldn’t fulfill the needs of the entire marketplace,” says Ilovitz.
“When I got into this business and I saw the cost of operating in a warehouse, it became really clear to me that there was a financial incentive to do this in a greenhouse,” Hageseth says. He decided to transition his operations to greenhouse space, which he said offered him a more efficient and eco-friendly alternative to grow his product.
For instance, it would cost him $350 a pound to grow marijuana in a greenhouse space. It would cost him $850 to grow that same amount in a warehouse space.
“I can actually retail my product now for less than other companies grow theirs for, and I’m still going to make a margin and they’re not,” he says.
Hageseth believes that while this demand for warehouse space should continue in the short term, in the long term, marijuana companies will consider abandoning warehouse spaces for greenhouses, potentially leaving landlords with inventory on their hands.
“As soon as enough greenhouse space comes online, and then the cost of production goes down, those people who are producing in greenhouses are lowering their costs to the consumer,” he says. “You put such price pressure on the people who are growing in a warehouse that you’re pushing them out of business,” he adds.