WARREN — Rows of cannabis seedlings, 18 inches high and three weeks old, swayed recently in the breeze created by wall fans inside the nursery at Windhill Organics, a medical marijuana growing operation in the midcoast. Overhead, two 1,000-watt metal halide lamps cast a bright, blue-white light over the crop, 18 hours a day. The temperature was around 75 degrees, the humidity 48 percent.

“You’re trying to simulate spring with the seedlings,” said Arleigh Kraus, the owner of the business and a medical marijuana caregiver.

In a nearby room, dozens of flowering cannabis plants were lined up on racks under a blinding yellowish sun radiating from a dozen 1,000-watt high-pressure sodium lamps. A dozen oscillating wall fans, along with two large dehumidifiers and mini-split heat pumps maintain the 500-square-foot flower room at the desired artificial climate year round. Next door, an identical flower room was being cleaned and made ready for the maturing seedlings.

But creating ideal indoor growing conditions for cannabis comes at a high cost. When commercial electric rates peaked last January, Windhill Organics was shocked with a $10,000 monthly electric bill, way above its $4,500 monthly average.

High energy-supply rates this year have hit nearly anyone who pays for power in Maine, and there’s no relief in sight for 2023. But the rate surge has delivered a one-two punch to cannabis growers.

Just as electric rates are shooting up, wholesale cannabis prices are plunging off a cliff. It’s the worst of both worlds: Energy prices have more than doubled, while the value of the commodity has been cut in half.

Because of Maine’s cold winters and other reasons, most of Maine’s commercial cannabis cultivation takes place indoors. But replicating nature takes a huge amount of energy – largely electricity.

A rack system with energy-efficient LED lights at Dan Cellucci’s Yani Cannabis Maine in Warren. Gregory Rec/Staff Photographer

A typical grow operation sucks down as much power as a computer data center, according to Efficiency Maine, or roughly 10 times as much per square foot as a typical home. And at a time when Maine businesses are being prodded by state climate policy to reduce their carbon footprint, the cannabis industry stands out as a prodigious energy hog.

These energy and market realities are especially troubling for Maine’s newest commercial industry, the two-year old adult-use recreational marijuana market.

Maine’s recreational market launched in October 2020. Growers expanded to serve pent-up demand reinforced by the COVID-19 pandemic, when people were at home and many of them had  money to spend. Nearly two years later, runaway inflation, high gasoline prices and a reentry to work have flipped the script. Simply put, there’s a glut of marijuana in Maine.

It’s a national trend. A wholesale price index tracked by Cannabis Benchmarks, an independent reporting agency, has found the price-per-pound for cannabis flower continuing a steep decline since last summer. June prices were the lowest in more than three years.

Cultivators also are being hit by rising material and labor costs, according to a report last month by the EisnerAmper tax and business advisory firm, which follows the market. Russia’s invasion of Ukraine is a factor. The two countries are major exporters of fertilizer and wartime disruptions have caused prices to soar. The need to pay higher wages, driven by inflation and labor shortages, adds to production costs.

These factors coincide with the fledgling industry’s rapid expansion in Maine. At the end of 2020, the state had 14 licensed adult-market grow operations and 42,723 square feet of plant canopy under cultivation, according to the Office of Cannabis Policy. At the end of 2021, those figures rose to 55 operations and 262,058 square feet under cultivation. The 2022 figures won’t be available until year’s end.

Meanwhile, annual electricity supply rates shot up 80 percent in 2022 for homes and small businesses that use the state’s default provider, the so-called standard offer. Rates are expected to remain high next year, largely because of the global energy crunch linked to Russia’s war in Ukraine.

Most sizable grow operations use enough power to be categorized as commercial-class customers. A 2020 review by Central Maine Power identified roughly 670 commercial cannabis accounts and a half-dozen in the industrial class. Supply rates change monthly for these big users, who were shocked last January when standard offer rates hit 22 cents per kilowatt-hour.

Mainers won’t know next year’s rates until November, when the Public Utilities Commission announces the results of its competitive bid process. But one regional market indicator has Maine growers on edge.

Some of them are aware that in New Hampshire, where default winter rates are set six months in advance for utilities, Eversource recently won PUC approval for 22.5 cents for home customers – a 112 percent increase. More on point, its large customer class will be smacked with an unprecedented rate of 48.5 cents per kilowatt-hour in January.

The realization that electric rates aren’t heading down has Maine growers scrambling to lower their usage and seek more-favorable supply contracts.

One Maine company specializing in this endeavor is Climate Resources Group, a sustainability consulting firm with a national, cannabis-growing arm aimed at lowering energy costs and increasing profitability. It’s called Enlighten Your Grow.

Energy costs haven’t been top of mind for growers, according to Sam Milton, the company’s founder. Most have been focused on using proven methods to achieve the characteristics they want in the strains of marijuana they’re cultivating, he said.

“Once growers dial into a recipe, the lights, the temperature, they are loath to change that,” Milton said. “But there’s a new wave of growers popping up.”

Tangerine Haze cannabis buds dry on a rack at Windhill Organics, a medical marijuana grow business in Warren run by Arleigh Kraus. Gregory Rec/Staff Photographer

LEDs AN ALTERNATIVE

Upgrading lighting is the top strategy to cut electricity costs, Milton said, as well as carbon footprint.

To replicate sunlight, the industry standard for growing cannabis indoors has been to use high-intensity discharge lamps, notably metal halide and high-pressure sodium fixtures. Affordable and familiar, they’re tailored to different stages of plant growth, from seedling to flower, to produce the desirable wavelengths on the color spectrum.

Take a typical 1,000-watt, double-ended high-pressure sodium lamp. It’s readily available for $300 or so. But these lamps have downsides. They don’t last long. They use a lot of electricity. And they give off heat that must be tempered at times with air conditioning.

By contrast, a comparable lamp using LED technology can produce the right light spectrums, but use only 600 or so watts. That’s a 40 percent reduction in lighting costs. And because LEDs give off less heat, rooms needs less air conditioning in summer.

But LEDs also have some negatives. The biggest is price: A 600-watt LED fixture can cost $1,000 or more.

In addition to her inside medical marijuana grow business, Arleigh Kraus also grows cannabis in greenhouses at her Warren farm. Gregory Rec/Staff Photographer

These pros and cons are all part of a complicated calculus to find the optimum vapor pressure deficit for particular strains and grow cycles of cannabis. The VPD, as growers say, is a measurement of how much moisture is being sucked out of a plant as it transpires. Growers are always playing with temperature and humidity to find the sweet spot. Because LEDs generate less heat, more humidity builds up. That requires growers to tweak dehumidification and cold-weather heating.

To help growers make the transition, Efficiency Maine started offering a rebate program for the industry in 2020. It’s part of the agency’s commercial and industrial program for agriculture, funded by electric ratepayer surcharges and other sources. Efficiency Maine has issued 30 rebates so far in its so-called custom program, which is for growers large enough to get a minimum $10,000 incentive.

“We’re seeing quite a bit of interest,” said Jesse Remillard, a senior program manager at the agency.

Here’s an example of the money-saving potential.

Consider a flower room with 20 high-pressure sodium lamps rated at 1,000 watts each. They’re on 12 hours a day and cost $14,000 a year to run. Replacing them with 600-watt LEDs would slash the run cost 40 percent, to $8,400 a year.

Arleigh Kraus uses 24 1000-watt metal halide lights in two grow rooms at her medical marijuana businesses at her farm in Warren. The lights and dehumidifiers, which run constantly, are energy intensive, costing her about $4,500 per month. Gregory Rec/Staff Photographer

But buying and installing those 20 LED fixtures would cost $24,000. With no rebate, the simple payback on investment would be 4.3 years. An Efficiency Maine rebate of $10,500 would cut that payback time nearly in half and result in an energy-use reduction of 35,000 kilowatt-hours a year.

Many grow operations, however, can’t take advantage of these incentives.

Raising capital is always a challenge for small businesses, but it’s even more complicated for the cannabis industry. Although 38 states allow marijuana sales in some form, cannabis remains illegal under federal law. That largely precludes conventional lending by banks and makes it hard for growers to come up with the tens of thousands of dollars needed to invest in energy efficiency.

“I’d love to switch over to LEDs,” said Kraus at Windhill Organics.

Kraus, a founding member of the Maine Craft Cannabis Association, said the overall impact of high energy rates and low commodity prices is threatening smaller operations. Some of them, she said, won’t be able to stay in business.

“A lot of folks are on shoestring budgets,” she said. “It’s all tied together. If you can’t get loans when you’re in a time a distress, you’re not going to be able to keep going.”

GROWERS ON THE OFFENSE

For growers who can come up with the money and have long-term business plans, shifting to LEDs is critical.

Two of them, Kalikori Maine in Topsham and Yani Cannabis Maine in Warren, worked with Climate Resources Group to design new lighting systems and get the Efficiency Maine rebates.

“Honestly,” said Randy Wintle, Kalikori’s owner, “our move to efficient lighting during buildout may have saved our company this past year.”

The move wasn’t cheap. The lights cost $60,000, offset by a $30,000 rebate from Efficiency Maine. But they cut the operation’s power bill by roughly 70 percent, or $10,000 a month, compared with high-pressure sodium. Wintle expects the investment to pay for itself in a year.

“In addition to running the LEDs,” Wintle said, “we went with heat pump/mini-split systems for cooling and engineered our cooling and dehumidification loads to be as precise as possible. Our building runs incredibly efficiently when compared to most cannabis grows that often have way more HVAC and lighting than they need.”

Dan Cellucci of Yani Cannabis is nearing completion on a 14,000-square-foot grow operation that will feature 200 LED lights. Gregory Rec/Staff Photographer

Yani Cannabis is nearing the completion of a 14,000-square-foot grow operation that will feature 200 LED lights. The installation cost $250,000, before the Efficiency Maine rebates.

“It’s extremely expensive,” said Dan Cellucci, the company’s owner. “But if you plan to operate for five years or more, it makes sense.”

Cellucci said Yani was able to raise capital from investors and expects the LED lamps to pay for themselves in three years.

Growers are taking other steps to lower energy costs. When they can, they’re cultivating outdoors and in mixed-light greenhouses that use both the natural and artificial lighting, or so-called high tunnel greenhouses that stretch a clear poly film across metal tubes. Cellucci has both.

At Windhill Organics, Kraus has two 30-by-36-foot greenhouses with 25 plants in each. She can grow cannabis for less than half the cost of her inside operation, she said, but the harvest schedule  and economics are much different. An inside grow can produce a crop in 12 weeks, from seed to dried flower, and command top dollar. Her greenhouse crop is planted in early July and will be harvested in November. Power is still needed to run circulating fans and, on late fall nights, a small oil-fired furnace. And the crop isn’t worth as much.

Like other businesses, some cannabis growers are negotiating supply rates with competitive energy providers, rather than sticking to the standard offer.

Kraus recently signed a contract through an energy broker to lock in monthly electric rates at 12.5 cents per kilowatt-hour for 36 months. Now she has some stability. She won’t enjoy low summer rates, which have fallen into the 7-cent per kilowatt-hour range, but she won’t be paying three times as much or more next winter.

“I think everyone felt a pit in their stomachs when they saw 22 cents last winter,” she said.

As winter approaches, Maine’s cannabis cultivators find themselves facing tough decisions around the top three expenses for most operations – energy, labor and rising material costs. Owners are doing what they can about efficiency, said Mark Barnett, who heads the Maine Craft Cannabis Association. They’re growing outdoors when possible and taking on more of the labor themselves. Sometimes that means layoffs.

“It’s just a lose-lose,” said Barnett, who owns the Higher Grounds medical marijuana dispensary and coffee shop in Portland. “I feel a ton of sympathy for folks in the cultivation market.”

The end result, Barnett said, is going to be a smaller, leaner cannabis industry in Maine.

“We’re going to see a lot of people exiting, especially on the medical side,” he said. “It’s the cost of business and the commodity price of the product moving the wrong direction at the same time. It will thin the herd a lot.”