Growth expectations over the long run for the marijuana industry are practically unsurpassed by any other industry in America on a percentage basis. Today, 28 states have legalized medical cannabis, and another eight (along with Washington, D.C.) have legalized recreational adult-use pot. This translates into a $6 billion legal industry right now, according to investment firm Cowen & Co., but it could be a $50 billion industry by 2026. That's a nearly 24% compound annual growth rate over the next decade, for those of you keeping score at home.
Growth rates like this are bound to turn heads, from entrepreneurs and investors looking to get rich to local and state governments aiming to fill gaps in their budgets with extra tax revenue. But the rapid growth of the marijuana industry has had ancillary effects as well, some of which are not so great.
Electricity demand is soaring because of legal weed
Growing pot is itself a very energy-intensive task. A 2012 study from scientist Evan Mills, Ph.D., at the Lawrence Berkeley National Laboratory found that legal indoor marijuana growing facilities accounted for 1% of national electricity use at a cost of $6 billion per year. By comparison, the entire pharmaceutical industry had an energy cost of about $1 billion annually. Keep in mind, this was a 2012 study, and we've seen far more states push forward with marijuana legalization since then.
Further evidence of the strains pot puts on the electric industry can be found in Colorado and Oregon.
Bloomberg reported that of the more than 1,200 licensed growing facilities in Colorado in 2014, those facilities were using the same amount of energy as 35,000 households. Boulder, Colo., resorted in 2014 to charging marijuana growers an extra $0.0216 (2.16 cents) per kWh on all electricity consumed, or about $100 per each kilogram of finished cannabis, as a result of the added strain they were putting on electric grids.
In Oregon, Portland-based Pacific Power traced some neighborhood power outages back to residential customers who'd been legally growing marijuana plants in their household.
The culprits of these strains are twofold.
First, high-pressure sodium (HPS) lights are traditionally used to grow cannabis, and they're anything but energy efficient. Ed Rosenthal, the author of Marijuana Grower's Handbook, suggests that growing eight cannabis sativa plants indoors can require two 1,000-watt lamps. That's a massive amount of energy usage per square foot -- about 66 watts -- which generates a lot of heat. Remember, even though the number of pot-legal states is rapidly expanding, most states still restrict marijuana growth to being out of the public's view, meaning it's done indoors. That, and some growers often prefer to control all aspects of the environment by growing indoors.
The second cost ties into maintaining the environment. As noted, HPS lights generate a lot of heat, which means running fans or an air-conditioning system to keep a room temperate for pot plant growth. There may also be a need for a humidifier or dehumidifier, depending on where a grower lives.
Is it time for marijuana to go green?
With energy demands only likely to increase, perhaps now's the time for marijuana to go green -- in the environmental sense.
One still nascent ploy to reduce energy costs over the long term and make the marijuana industry more environmentally friendly is abandoning the highly energy inefficient HPS lights in favor of LEDs. LEDs run at a lower wattage, produce far less heat than traditional HPS lights, and are designed to last longer and save money over the long run. Thus, they'd not only help lower the electricity burden on transformers and grids, but since they run cooler, they may also reduce air conditioning usage.
However, there are still three possible LED drawbacks. For starters, some growers simply aren't getting the same flower yield with LED lights as they would with HPS lights. Other growers are simply reluctant to back away from a tried-and-true method.
Another problem is the trade-off between current costs and long-term costs. LED lights for marijuana farmers can cost up to $1,600 each, which compares to just around $350 for each HPS light. That's a huge initial difference to overcome. Plus, there are no guarantees that marijuana remains a legal long-term industry as long as the federal government keeps the drug as a Schedule 1 (i.e., illicit) substance. If you aren't guaranteed to recoup your costs over the long run, there's not much incentive to switch.
The final issue ties into marijuana as still being a federal illegal substance, meaning utilities sit in a gray area when it comes to offering rebates. Some industry experts have predicted that if growers in the Pacific Northwest don't switch to LED lights in the coming two decades, they'll be demanding enough electricity to power a small city. But since weed is still illegal federally, rebates have been hard to come by for growers, even though electric utilities would almost assuredly prefer that growers use LEDs or alternative forms of energy. Unless we see a change in how rebates are divvied out to cannabis farmers, LED growth in the pot industry could struggle to catch on.
Enter Tesla, stage left?
Additional possibilities include Tesla Motors' (NASDAQ:TSLA) battery, or perhaps a solar-panel system. Unfortunately, most solar-panel kits are still far too expensive or don't produce enough power to make them financially viable. The Tesla battery, though, could be a possible energy-saving and more environmentally friendly solution.
The Tesla battery essentially has three purposes: to store energy from solar panels; to store energy purchased during cheaper, off-peak hours; and as a backup power source for when the grid goes down. Marijuana growers would find the Tesla battery beneficial from the standpoint of being a backup power source, as marijuana plants struggle after 72 hours without light -- but they may be able to gain additional savings if they purchased electricity during non-peak hours and stored it. In other words, if they're not on a flat-charge setup with their electric company, then purchasing the Tesla battery may make sense. For a scalable grow farm, Tesla's battery could be a cost-saving addition at only around $3,500 for a 10kWh battery.
On the other hand, as Gizmodo points out, for larger scalable operations where the Tesla battery makes sense, the savings are still going to represent only pennies, or fractions of a penny, on the dollar.
While there appear to be numerous opportunities for the marijuana industry to go green, and it would seem likely that the industry will be pushed toward more energy-efficient means in the future, going green is probably far too costly and inefficient for cannabis growers for the time being.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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