The Wave of the Future: Large-Scale Cannabis Cultivation

March 4, 2019

Ken Villazor, President and CEO of Flower One Holdings, recently spoke to us about the large-scale cultivation and production facility they’ve begun operating in Las Vegas.

Cannabis cultivation has come a long way from the days of secret garage growing. As the industry quickly advances and continues to become legalized across the United States, key players are finding ways to expand their cultivation and production to even larger commercial scale operations. Ken Villazor, President and CEO of Flower One Holdings, recently spoke to us about the large-scale cultivation and production facility they’ve begun operating in Las Vegas. Villazor discusses some of the major goals and challenges of operating such a large-scale facility, along with some advice for other growers.

Can you tell us a little about the history of Flower One?Ken Villazor: Since the very early days of the company, Flower One has been focused on a single state market: Nevada. With 55 million tourists travelling to the state every year, it represented a unique and compelling opportunity for us to create a tangible impact on the local cannabis market, its brands and its dispensaries. It also supported our overall strategy of working with established, reputable cannabis brands that were looking to accelerate their national market expansion through Nevada. The scale and flow of tourists into Nevada, largely centered on Las Vegas, offers an ideal opportunity for cannabis brands looking to broaden their exposure. As a company, we knew we wanted to work with brands across the value chain in a capital efficient way to build a consistent and reliable presence for them on retail shelves in Nevada.

To that end, Flower One acquired the largest commercial-scale greenhouse in the state, as well as North Las Vegas Organics (NLVO), an established luxury cannabis cultivator and manufacturer with a presence in over half of Nevada’s dispensaries. NLVO is now home to our research and development wing and provided us with immediate access to a genetic library of over 50 unique cannabis strains and the large volume of plant material we will require to rapidly scale up our greenhouse.

Leveraging the industry’s largest cannabis facility at 455,000 square feet, along with leading greenhouse technologies and innovative growing and sustainability practices, Flower One’s goal is now to cultivate high-quality hydroponic cannabis and processing at scale for independent, well established cannabis brands. We will provide local seed-to-retail-ready products (dry flower, pre-rolls, cannabis oils, distillates, concentrates, edibles, topicals and infused products) that are custom packaged and reliably delivered to dispensaries.

This past January, we announced the first of our Brand Partners including California brand favorite, Old Pal, and welcomed the first batch of plant matter to the greenhouse. We expect to be fully canopied and ready for harvest by June 2019.

This year you are set to open the largest cannabis greenhouse in Nevada at 455,000 square feet. How did that goal come about? How will this facility set Flower One apart from other cultivators?Villazor: We began the conversion of, what was originally, 430,000 square feet of greenhouse space in May 2018. Once completed, we will have 400,000 square feet of actual cannabis cultivation as well as a 55,000-square-foot production, processing and custom packaging facility. It will be the largest cultivation facility and largest production facility in Nevada, capable of producing 140,000 lbs. (or 62,500 kg) of dry flower per year and will house over 80,000 plants per crop cycle. That combination of scale in both cultivation and production is truly what sets us apart in the market.

Scale in cultivation and production is also critically important to brands in, and looking to enter, Nevada and all of its dispensaries (which are set to double to 130 by the end of 2019). To establish a brand presence in a new market that will stand the test of time, you need to be certain you can meet the demands of the state’s retail channels with precision and consistency. In Nevada the demand-side of the market will be a significant volume, especially for a brand new to the Nevada and Las Vegas markets. To successfully scale, brands will need to have a fulfillment partner that can cultivate, process, and package their products, and do so with scale. If not, you risk being on retail shelves one week and not the next – a scenario no brand can afford.

This consistent ability to supply the retail market also benefits dispensary operators as Flower One can provide just-in-time inventory. Often, we see dispensaries stockpile product stock keeping units (SKUs) because they want certainty that they will have product. Our retail fulfillment strategy allows dispensaries to order only what they require and allows them to free up a lot of working capital which they can then deploy more effectively. It is a major consideration for these dispensaries as many are in the midst of operationalizing the additional retail licenses granted by the state in December 2018.

What is the biggest challenge in running a large-scale cannabis agricultural business?Villazor: I am glad you used the word “agriculture” in describing our business because that is precisely what the cultivation component to our business is. Growing cannabis successfully in a large-scale greenhouse is high tech, high density agriculture and requires an enormous amount of talent, and experience to operate.

I cannot overstate the level of precision, technology and science required to grow any crop in a greenhouse-at scale. And cannabis is no exception. It is complex on every level and requires any operator to precisely manage the climate regime of the greenhouse 24/7. Any dramatic change in temperature, humidity, or air flow can damage a crop within hours. This is why Flower One will have invested $60M into our greenhouse and production facility when it is completed in June of this year. In addition, we are perpetually testing new cannabis strains and growing techniques out of NLVO, our 25,000 square foot R&D facility.

What kind of methods do you use to prevent contamination in the greenhouse?Villazor: Flower One’s cultivation and growing systems are supported by a broad range of proprietary technologies and methods that allow us to avoid the use of pesticides and fungicides to manage our cannabis canopy. We have an integrated pest management team that will be applying their in-depth knowledge of entomology and biologics to manage our cannabis crop without the use of chemicals wherever possible.

Do you have any plans to expand the business to other states in the country?Villazor: While our focus is Nevada, without question, Flower One will have a multi-state presence eventually. The market is moving swiftly with more and more states working towards the full legalization of cannabis, so opportunities are abundant. We are approached often about exploring other states and working with other companies. We really like California. Its size and strategic proximity to Nevada makes it an attractive market for Flower One to consider. But, for now, we are committed to serving Nevada’s rapidly growing cannabis market. First you get good, then you get big.

You also handle your own processing and production. Is that side of the business run separately from the cultivation side? Did you have to get separate licenses from the state of Nevada?Villazor: Our processing and production is all managed and operated by the same business operators. Our facilities, both the large-scale greenhouse and R&D wing, are designed such that the process flow allows for a seamless integration to move harvested flower and trim to the production area for efficient processing and packaging.

In Nevada, you need to have separate licenses to cultivate and to process cannabis as well as separate licenses for both the medical and recreational segments of the market. Both of Flower One’s facilities are fully licensed.

How do you handle testing for quality control and quality assurance?Villazor: We have our own proprietary standard operating procedures for quality control and quality assurance. It is an important part of our business because in Nevada, the State requires every five pounds of dry flower to be tested. The test is rigorous and evaluates nearly 50 pesticides and microbials to ensure all cannabis products sold in Nevada offer consumers a trusted, safe and positive experience.

Do you have any advice for other people looking to set-up large-scale cultivation operations?Villazor: Large-scale cultivation is a highly complex and capital-intensive business. Having the right people, with the right knowledge and with the right track record of success is a must before contemplating entering this space.