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This article is intended for the investor who may be investing in a new cannabis cultivation facility or for the executive team who is in the early stages of design and build out of their new cannabis manufacturing and extraction facility.
For the purposes of this article, the terms cannabis extraction and cannabis manufacturing may be used interchangeably. I acknowledge that extraction and manufacturing are different, however, in most states and countries, the license to extract and manufacture is the same license. In most cases, operators with this license both extract and manufacture products in the same facility, though in mature markets, operators may only extract or manufacture due to scale.
I have a related article titled, “How to select a general contractor to build your cannabis cultivation facility”, and while there is a lot of crossover, there are some key differences, especially regarding which types of contractors are best for each facility.
Cannabis manufacturing is not a standard commercial building to design or build. There are dozens of very specific materials and environmental controls that we must consider well before any demolition or site work is done to start construction on a cannabis manufacturing facility. I’ve served as an owner’s rep for many cultivation facility builds and renovations and I’ve served as the executive operator for renovations, turnarounds, and new builds around the country. Throughout this experience, I’ve found that the relationship that you have with your general contractor is probably the single most important aspect of completing your cannabis manufacturing facility project on time, on budget, and to the specification that you desire to fit your business model. Lastly, unique to cannabis manufacturing, the general contractor’s relationship with your local municipality matters since there’s often a learning curve for the local building and planning department to get comfortable with cannabis extraction or manufacturing. The better the contractor’s relationship, the more likely things are to go smoothly for you.
So if it’s so important to find the right contractor, what should you look for?
It may seem obvious, but the experience of your general contractor is likely the most important aspect of whether they are the right person or team for the job. Direct experience in building a cannabis manufacturing facility is ideal. Though with more states coming online and the volume of cannabis manufacturing projects happening simultaneously around the country and around the world, it is unlikely that you are going to be able to find a general contractor that has built very many cannabis manufacturing facilities in their experience. Ideally, we would find a general contractor who has built at least one or two cannabis manufacturing facilities so that they are not learning on the fly and making mistakes at your expense.
This goes without saying, in an ideal world, they would be willing to tour you around one or multiple ongoing projects or ideally completed projects that they have done in the last few years. I cannot encourage you strongly enough to assume the expense that this may cost to have your team fly or drive to go see the successful projects and to ask for references for the investors and/or the operators who are working in the facility at the current day. In another post, I will highlight some of the questions with which to ask the investor and the operator about working with the general contractor.
So that’s in an ideal world. If you’ve been in cannabis for longer than a few weeks, you’ll already understand that, in cannabis, we rarely live in an ideal world. So what’s the other alternative?
Alternative Complementary Experience
It is far more likely that you will be forced to use a general contractor that has not built a cannabis manufacturing facility before. So then, how else can you ensure you are likely to meet the specifications that you desire for your facility?
As with building a cannabis cultivation facility, let’s look toward the complementary industries from which we can pull experienced contractors. Like cannabis cultivation facilities, contractors who have experience building data centers or hazardous materials labs or human biohazard labs such as blood banks or storage facilities for LabCorp or Quest will transition well to building cannabis manufacturing facilities. Additionally, contractors who have built oil and gas refineries, oil rigs, or power plants will transition easily into cannabis manufacturing facilities – especially if you plan to build a large-scale cannabis extraction facility.
Other complementary industries that facilitate easy transitions would be food and beverage manufacturing, tobacco & vape manufacturing, scaled alcohol / beer / wine manufacturing, cosmetics manufacturing and most other types of consumer packaged goods that have regulations such as over-the-counter drugs, medical devices and products like syringes or catheters, dietary supplements or household cleaners or pesticides. Contractors with experience building facilities that manufacture less-regulated personal care products like essential oils, shampoos, soaps or paper products can also transition well.
Contractors that specialize in building pharmaceutical type facilities can be a good option for your cannabis manufacturing facility. Many of these experienced contractors tend to take things too far though and pretend like we are growing in a cleanroom that is ISO-8 classified. While we cannot understate the importance of manufacturing in a sanitized, very clean room, we are likely not going to be building our manufacturing facility to ISO-8 specifications. When working with general contractors who are most familiar with pharmaceutical facilities, I have seen large cost overruns when building a cannabis manufacturing facility. So, with a word of caution, these contractors are likely qualified but would require a strong project manager or owner’s rep to ensure that the specifications are designed well, but not over designed and subsequently grossly over budget.
You’ll want to ensure that your contractor has experience working with whatever hazardous materials or gasses you plan to be using in your manufacturing facility. Most facilities use some combination of butane, propane, carbon dioxide or ethanol, so GCs with experience working with these substances will make life easier. Ideally, the contractor has experience with Class 1 Division 1 rooms, as defined by the National Fire Protection Association. These rooms are often required by the state or country you’re building in; their intent is to protect the room from a catastrophic event by taking extreme precautions such as regulating the air flow in and out of the room, and requiring a spark-less environment to minimize the risk of fire and explosion inside the room. This is where the relationship with the local municipality comes in; it often takes some education to get the building inspector and fire marshal comfortable with your processes.
Aside from experience, which we have now covered in great detail, the availability of the contractor is crucial. Most contractors only take on a few projects at one time. You can find the perfect contractor, but if they’re backed up by two years, that is not going to help your project get completed next year. No need to spend that much time on availability as this one is more self explanatory. To gauge their availability, ask them what their current pipeline looks like and what their current workload is, how large their staff is, and whether the staff is growing. The way they answer the questions about their current pipeline should give you a reasonable expectation of whether they can fit your project in. By asking specifically about their staff, you are trying to understand if you will have a new project manager and staff on your project, or if you’ll have one of the experienced team members they have been working with for years; all of which will impact communication and timeline.
It’s also great to get an idea of how tightly their projects are stacked. If a piece of equipment comes in a month late due to an unforeseen supply chain issue and puts your project a month behind, will this turn into a 3 month delay because your contractor is now overextended and has to go start a new project while waiting for the equipment which then delays them getting back to your project? Ask about this.
Scale & Automation
It’s important to understand what scale they are used to working with and what scale your project is. If you’re building a 2,000 square foot facility to extract and manufacture cannabis products, that is going to be very different than if you were building a 50,000 square foot cannabis manufacturing facility. Understanding whether you plan to complete most of your manufacturing processes manually, by hand, or by installing semi-automated manufacturing lines will determine what contractor is right. Furthermore, if you are planning to design and build fully automated manufacturing lines for chocolates, gummies, vaporizers or any other cannabis infused product, working with a contractor who understands automation, software and the infrastructure requirements of all is incredibly important.
If you are planning to start with manual processes and eventually upgrade to semi-automated and then fully-automated lines, it’s crucial that the contractor works with you to design for this phased approach. Too often, facilities don’t have the spatial requirements or the power requirements necessary to add in automation. This then limits their ability to scale and compete long-term. If you’re able to add a process engineer onto your design team to assist the general contractor with this portion, you may not have to lean as heavily on the contractor for this portion and your operation is more likely to be designed for long-term success.
Before we get to cost, it is important to understand how the general contractor structures their teams. Do they house a project manager or a team of project managers on site for the entire duration of your project? Or will they be transient and mobile and utilize a different member for each phase of construction? How many members are on their team? Contractor teams that house an overall project manager for the entire duration of the project on site have yielded the best results. This has been most successful because you’re able to hold the head project manager accountable for what is going on on site at all times.
The next best would be to have a single project manager who flies in or travels to the facility on a regular basis, ideally, weekly or bi-weekly at the least – again, to have the accountability fall on one person. The third best, if that is such a thing, would be to have a different person housed on location for the different phases of construction. Though again, this now increases the ability or the lack of accountability so that someone can point fingers to the last person who was on the job, or point to the next person saying that that’s not within their current scope. With all cannabis construction projects, there needs to be someone on site frequently to ensure the specifications that you require are being met and to make sure corners are not being cut and to hold their subcontractors accountable.
As with so many other things, communication is key. It’s important to understand what types of milestones are going to be met, what types of payments will be due when those milestones are met, and who is going to be responsible for managing the day to day updates of the project, the day to day changes to budget and costs, and billing. More importantly, how is all of this going to be communicated? Do they use a specific software to oversee all of this? Do they do everything in Excel spreadsheets? Are they communicating predominantly over cell phone or email or text message or Microsoft Teams?
Whatever the case is, you want to get an understanding of how they communicate and how often before you decide on who you are going to use so that it flows well with your expectations and your communication style. Many groups want to be able to see one another face to face, whether in person or via a video call using teams Zoom or Google meet, so that they establish a better relationship with the project manager or the general contractor. If that is important to you, get those requests written into your contract from the beginning. Try to have them make all reasonable accommodations to accommodate the request of a video call. In addition, how often you will be receiving these periodic updates – whether it be daily, weekly, bi weekly, and so on. Have these items added to the contract as well, if possible.
If you have an owner’s rep who is working directly for you, it is ideal to have them in daily communication with the onsite project manager and for that owner’s rep to visit the site frequently, at least bi-weekly, especially during the construction phase. You may want your owner’s rep on site more often through the intense trades like C1D1 construction, vent hood install, extraction and manufacturing equipment delivery and commissioning, HVAC install, electrical install, and plumbing install. It is very important to have the owner’s rep on site for a good majority of those activities to make sure the quality and specification that you desire is being met. This is not to say that the general contractor is trying to skirt their responsibilities, but rather the owner’s rep is working hand-in-hand with the general contractor and the project manager on site to ensure that all of the subcontractors are meeting the vision that you require. This is a team effort and with many trades operating all at once, it’s easy for the general contractor to inadvertently miss something.
Finally we get to the cost of the project. To better gauge your expectations, ask yourself, are you building a Rolls Royce type of facility that needs to be public facing or investor facing? Or are you building a Ford F150 type facility that just needs to get the job done?
There will be a different contractor for each level and type of build. There may be some contractors who are comfortable working between the two extremes. It’s important to understand at the outset, based on your business model, what type of facility you are designing and building so that you can find the right contractor team and so that they can find the appropriate subcontractors to deliver on your vision. This decision will affect the overall layout and design of your facility, the materials you choose, the equipment you install and all of the subcontractors that they hire to make your vision a reality.
Often quotes and ballpark estimates come in using certain dollar per square foot metric, so that we are comparing apples to apples. This is oversimplifying the process, however. The cost per square foot to build the Rolls Royce is going to differ substantially from the F150, though they’ll both likely provide a space to extract and manufacture cannabis products. Ideally, you’ll have someone with experience to audit those numbers and ascertain whether they’re realistic, and what you may be getting for that number per square foot. In every quote and contract that you receive from your general contractor, there will be a lot of details that need to be considered. Someone with cannabis manufacturing construction experience, an experienced owner’s rep or an experienced project manager is invaluable throughout this phase of the process.
Choosing the right general contractor for your cannabis manufacturing facility will take time. Expect to vet at least 5 different vendors before making a decision. Expect to have to reach outside your state or country to neighboring states or countries. Each state/country will likely have its own regulations and licensing surrounding general contractors, so choosing one in a neighboring locale is more likely to be dually licensed. You can always find a contractor outside of your state and ask them to obtain their licensure in your area; it may take some time, but finding the right contractor is difficult enough and waiting a couple of weeks is a small hurdle. You won’t lose much time because you can work on the engineering pieces while waiting for the contractor’s license to be approved.
Brian Staffa is a seasoned Executive Cannabis Operator specializing in solving for operational underperformance, maximizing profitability, and foundational planning & structuring. Connect about your project below.