Marijuana Energy Efficiency

Marijuana energy efficiencyI met last week with someone in the energy efficiency industry who wanted to talk about different service offerings to marijuana companies. According to this person, even in a state like Washington, where energy is relatively cheap, the increased buildout costs of putting together an energy-efficient cultivation facility are quickly made back in reduced energy costs. Not coincidentally, EQ Research, a pro clean energy policy research company tied in with a law firm that works with the clean energy industry, recently released a report discussing just how much energy pot businesses are really using. When reports from interested parties like this come out, you know that the final answer is going to be that private actors should invest in clean energy and government actors should make that easier and incentivize it. This report is no different, but its results are still eye-opening.

In Colorado in 2014, marijuana cultivation facilities accounted for 200,000 MWh of energy usage — about 0.4% of all electricity used in the state. Forecasters in Colorado and Washington expect this energy usage to continue increasing, both in sheer volume and as a percentage of state-wide consumption. Energy consumption is driven by several factors, but the vast majority of energy is used by grow lights, HVAC systems, and venting/dehumidification systems. These systems are vital to indoor cultivation facilities, while fully or semi-outdoor facilities have significantly lower energy burdens.

Legally, there are a few different factors to look at when considering the causes and effects of high energy use by marijuana businesses. As always, federal illegality is the primary ingredient to marijuana’s unique position. Because of federal illegality, marijuana cannot cross state lines. States that want to legalize all need to license their own cultivators. This means that states like California and Oregon, which have climates that work for outdoor cannabis cultivation, are not able to supply Nevada, Colorado, Massachusetts, or other states that may not be natural fits for outdoor marijuana growing. In those states less hospitable to outdoor growing, virtually all legal cannabis cultivation must be indoors. Compare to the tobacco industry, where 80% of the tobacco in the United States is grown in North Carolina, Kentucky, and Georgia. The markets that can produce cannabis more efficiently are not able to supply markets that are less efficient.

Even if cannabis is all grown indoors, a more concentrated industry would be more likely to invest in energy efficiency improvements. Someone growing on 2,000 square feet will have a harder time justifying the expense of energy improvements than a company using ten times that amount. But even for large companies, a mixture of federal illegality, state restrictions, and general industry uncertainty makes it challenging to raise capital for energy efficiency projects.

Federal illegality also makes it challenging for marijuana businesses to benefit from state and federal energy efficiency programs. Private energy companies like Puget Sound Energy have offered large efficiency rebates in the marijuana space, but public utilities, fearful of jeopardizing their relationship with federal energy providers like the Bonneville Power Authority, still tend to shy away from providing incentives to cannabis growers.

For now, energy efficiency in the cannabis industry will likely be driven less by energy efficiency incentive programs and more by standard risk-reward investment decisions. Some communities are looking at negative incentives to the marijuana industry, including excise taxes on excess energy use, but these are not yet widespread. Cannabis companies will need to stay aware of development in energy markets, as utilities continue to increase prices for energy use during peak hours.