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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 cultivation facility.
I have a related article titled, “How to select a general contractor to build your cannabis extraction & manufacturing 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.
A cannabis cultivation facility 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. I’ve served as an owner’s rep for many cultivation facility builds and renovations and I’ve also 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 cultivation facility project on time, on budget, and to the specification that you desire to fit your business model.
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 cultivation facility is ideal. Though with more states coming online and the volume of cannabis cultivation projects happening simultaneously around the country and around the world, it is unlikely that everyone is going to be able to find a general contractor that has very many cannabis cultivation facilities in their portfolio. Ideally, we would find a general contractor who has built at least one or two cannabis cultivation facilities so that they are not learning on the fly and making mistakes at your expense.
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 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 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 cultivation facility before. So then, how else can you ensure you are likely to meet the specifications that you desire for your facility? I strongly suggest looking at contractors who have specialized in building other facilities that are very similar to cannabis, whether it be controlled environmental agriculture (CEA), for leafy greens, vegetables or flowers. Whether it be in a greenhouse or in an indoor facility, both can work well and transition easily. You can also look to those contractors who have built large greenhouses or other production facilities for ornamental flowers, vegetables, or fruit even if it’s not in a controlled environment. I’ve found that these contractors can easily make the transition into CEA with some additional education that your experienced engineers, vendors, or owner’s rep can provide.
Again, it’s unlikely you’ll find contractors who have built a number of these types of facilities; especially if you’re in a state or country that has little, if any, agricultural industry. So what other industries make the transition well?
Other leverageable options would be:
GCs with experience in other highly controlled and/or highly regulated environments, such as the design and construction of data centers, supermarkets or supermarket warehouses which contain a tremendous number of foodstuffs and other products that spoil and need to be controlled at very tight specifications.
GCs with experience in storing hazardous materials or bio hazardous materials like a blood bank or other specific type of lab storage, again, where environmental controls and regulations are very intense.
Contractors with experience building for the oil and gas industry have been great to work with. They’re used to tons of regulations and detailed parameters. They often see the entire building as one large machine that needs to be engineered well to work properly, so those building refineries, oil rigs, and power plants have transitioned well to cannabis. I have also seen some general contractors make the transition from building hospitals to making the switch into cannabis, but those are few. You would have the most success vetting ones mentioned above.
One other note: Contractors that specialize in building pharmaceutical type facilities are better suited for a manufacturing facility than a cultivation facility. Many of these experienced contractors tend to take things too far and pretend like we are growing in a cleanroom that is ISO-8 classified. While we cannot understate the importance of growing in a sanitized, very clean room, we are not going to be building our cultivation 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 cultivation facility. So, with a word of caution, these contractors are likely qualified and 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.
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.
It’s important to understand what scale they are used to working with and what scale your project is. If you’re building a 10,000 square foot facility to cultivate cannabis, that is going to be very different than if you were building a 300,000 square foot cultivation cannabis facility. Try to understand how large or small the projects are that they have completed, because with scale comes additional complexity, and you want to ensure they have the experience dealing with this, whether it be directly in cannabis or in an ancillary complementary industry.
In my experience, handfuls of GCs may eagerly overpromise even if they haven’t taken on a project as large as yours before, which is understandable since everyone wants the opportunity to grow and nobody wants to doubt their abilities. But know that this confidence should be questioned since there are undoubtedly obstacles that will become apparent as they venture into the unknown, which leads to self-consciousness and temptation to obscure oh-shit moments that happen in the blindspots, since they don’t want to out themselves for overpromising.
Additionally, the larger the project, the larger the insurance coverage required and the larger the surety bond that’s required by the state and/or municipality. If the contractor does not normally take on projects as large as yours, they are likely to have to purchase more insurance and larger bonds, whose costs are likely to be passed directly on to you.
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 happening on site at all times and you don’t end up in pass-the-buck situations where any current obstacles are always someone else’s fault from the past.
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 lack of accountability so that someone can point fingers to the last person that was on the job or point to the next person saying that that’s not within their current scope. With all construction projects, there needs to be someone on site frequently to ensure the specifications that you require are being met, 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 will you 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 HVAC install, electrical install, lighting install, racking 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 produce cannabis. 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 cultivation 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 cultivation 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.