Valuing Cultivation: Yield per Sq Ft, COE, Wholesale Trends

Executive Summary (TL;DR)

• Cultivation valuation hinges on 3 levers: yield per square foot (and per canopy year), cost of electricity (COE), and the wholesale price environment. Tight control of these variables compresses payback periods and supports higher multiples.
• Treat valuation as unit economics × probability of execution. Unit economics come from agronomy, facility design, and power/water inputs; execution risk comes from zoning, LUCS/CUP, staffing, compliance, and capital runway.
• Benchmark with formulas, not anecdotes: canopy-normalized yield, COE per pound, and cash conversion cycle tied to harvest cadence.
• Bake DSCR (Debt Service Coverage Ratio) constraints into underwriting; undercapitalize TI (tenant improvements) at your peril—especially for dehumidification, distribution power, and any C1D1-classified areas.
• When you’re ready to transact, start with vetted cultivation & production businesses for sale and filter for assets that disclose power, water rights, HVAC, and recent batch performance.

Table of Contents

• Market context & why valuation is different in cultivation
• Yield per square foot: the metric that organizes everything
• Cost of electricity (COE): from rate to $/lb
• Wholesale trends: price scenarios & sensitivity
• Site and entitlement overlays: LUCS, EFU/Goal 3, CUP, water (OWRD), and C1D1
• TI budgets, DSCR, and deal structures
• Diligence framework: data room essentials and red flags
• Decision aids (tables)
• FAQs
• Call to Action

Market context & why valuation is different in cultivation

Cultivation is a manufacturing business wearing an agricultural jersey. That means cultivation valuation must capture both biological variability (phenotype, IPM, VPD control) and industrial constraints (power distribution, heat rejection, labor, SOPs). Two facilities with identical footprints can produce radically different cash flows due to genetics, environment control, and operating discipline.

Practical implication: value the plant factory you’re buying, not the square footage alone. Focus on:

• Repeatability: batch-to-batch yield and quality consistency.
• Scalability: canopy throughput without choking on power, water, or HVAC latent loads.
• Resilience: redundancy for power and water; SOPs that survive staffing turnover.
• Regulatory fit: clear land-use path (zoning, LUCS, CUP) and license suitability.

Next step: Build a pipeline of quality assets from cultivation opportunities on 420 Property and screen using the frameworks below.

Why it matters. Yield per square foot (and per canopy year) is the anchor of cultivation valuation because revenue equals (yield × price). It also normalizes across indoor, greenhouse, and mixed-light operations.

Core definitions

• Canopy: the state-defined plant production area used to calculate licensing and compliance limits.
• Yield per harvest per sq ft: dried, saleable flower weight ÷ canopy area.
• Harvests per year: dependent on genetics, veg/flower timelines, and changeover efficiency.
• Canopy-year yield (lbs/ft²/yr): (yield per harvest per sq ft) × (harvests per year).
• Sellable mix: flower vs. trim vs. biomass; quality tiers affect realized price.

Practical formula

Canopy-Year Yield (lbs/ft²/yr) = (Dry lbs harvested / Canopy ft²) × Harvests per year Revenue per ft² = Canopy-Year Yield × Realized wholesale price Gross margin per ft² = Revenue per ft² – (COE + nutrients + media + labor + packaging per ft²)

Data you should demand (last 12–18 months)

• Batch logs with wet/dry weights, loss factors, and final COAs.
• Harvest cadence and turnaround time (days from chop to next flip).
• Grade distributions (A/B/small/trim) and actual realized prices by grade.
• Exception reports (mold, equipment downtime, IPM incidents) with resolution times.

Myth vs. Fact

• Myth: “Bigger rooms always yield more per ft².”
• Fact: Yield density often favors right-sized rooms with better microclimate control and fewer points of failure. Execution beats scale when controls are weak.

Cost of electricity (COE): from rate to $/lb

Electricity is typically the largest variable input in indoor/mixed-light cultivation. You’re not underwriting a building; you’re underwriting heat, light, and water movement.

COE calculation stack

1. Rate: know the tariff (time-of-use vs. flat), demand charges, and seasonal modifiers.
2. Load inventory: lighting (LED/watt density), dehumidification tonnage (latent removal), HVAC/chillers, pumps, fans, and process (dry/cure).
3. Operating hours: photoperiod, staged lighting strategies, night setbacks.
4. Conversion to $/lb: divide total kWh cost for a batch by dry pounds produced.

COE ($/lb) = (kWh consumed × Blended $/kWh + Demand charges) / Dry lbs

Why it matters to valuation

• Lower COE stabilizes margins when wholesale prices compress.
• Reliable interconnection and sufficient kVA reduce schedule risk and cost overruns.
• Certain tariffs materially shift economics; rate optimization (e.g., load shaping) can be worth more than a small rent discount.

Evidence to collect

• Utility bills (12–24 months), interval data if available.
• One-line electrical diagram; transformer size; available kVA; submetering.
• HVAC/dehumidification design intent and commissioning reports.
• Any energy-efficiency upgrades (controls, LEDs) with measured results.

Wholesale trends: price scenarios & sensitivity

Wholesale price is the weather of cultivation valuation—you can’t control it, but you must plan around it. Evaluate scenarios using conservative base cases and stress tests.

Approach

• Use recent regional wholesale spot and contract ranges to set base/low/high.
• Adjust for grade mix (top-tier vs. mid) and form (flower vs. biomass).
• Apply a months-on-hand assumption to test inventory risk and cash conversion.

Sensitivity math (illustrative)

• Revenue variance = Canopy-Year Yield × ΔPrice.
• Margin variance = Revenue variance – (variable costs that move with volume).
• Coverage impact = ΔEBITDA / Annual debt service → DSCR movement.

Signals to monitor

• New store openings vs. closures in target markets.
• Cross-border effects (e.g., adjacent restrictive states).
• Regulatory shocks (testing, packaging, tax changes).
• Seasonality around outdoor harvest in mixed markets.

Site and entitlement overlays: LUCS, EFU/Goal 3, CUP, water (OWRD), and C1D1

Great unit economics can be erased by a broken entitlement path or insufficient water/power. Integrate land-use and environmental diligence into your valuation.

• Zoning & LUCS (Land Use Compatibility Statement): confirms your intended cannabis use is allowed on the site.
• EFU & Goal 3 (Agriculture): for farm-designated parcels, production may be allowed but time, place, and manner limits can constrain lighting, odor mitigation, and traffic.
• CUP (Conditional Use Permit): often conditions lighting levels, hours, parking, fencing—impacts TI and operating windows.
• Water rights & OWRD (Oregon Water Resources Department): verify legal water sources (surface, ground, municipal), priority dates (prior appropriation), and adequacy for canopy scale. Keep well logs and transfer history.
• OLCC & ODA: confirm license status, any enforcement history, and agricultural compliance touchpoints.
• Environmental overlays: wetlands delineation, riparian setbacks, and stormwater features can restrict expansions (e.g., new greenhouses, ponds, or roads).
• C1D1 (Class I, Division 1) areas: any solvent-based extraction onsite triggers hazardous location rules—budget for rated equipment, alarms, and restricted access.

Valuation takeaway: Treat clear entitlements and legal water as a premium feature. Discount heavily where LUCS/CUP is uncertain or water rights are junior/contested.

TI budgets, DSCR, and deal structures

Tenant improvements (TI) are not cosmetic; they define yield capacity and compliance. Underwriting that ignores TI creates phantom returns.

Typical TI buckets

• Power distribution (panels, gear, transformers), controls.
• HVAC and dehumidification (latent removal is often undersized).
• Irrigation and fertigation with redundancy and monitoring.
• Dry/cure environments with independent control.
• Security (vaults, access, video) and track-and-trace stationing.
• Any C1D1 buildout and commissioning (if applicable).

Structure options

DSCR discipline

• Target DSCR buffers at base and stressed price cases.
• Tie rent commencement to commissioning milestones (power-on, HVAC, dehu, irrigation, first successful evidence export for compliance).
• Add 10–15% contingency to TI; require contractor quotes and lead-time confirmations.

Diligence framework: data room essentials and red flags

What sellers should have ready

• Last 12–24 months of batch yields, grade mix, realized prices, and COAs.
• Utility data (electric, water), HVAC commissioning, and maintenance logs.
• Land use packet (zoning letter, LUCS, CUP), water rights documentation (priority, transfers, well logs).
• Security plan, inventory controls, and QA/QC SOPs.
• License standing (no outstanding enforcement), track-and-trace reconciliation.

What buyers should verify

• Yield reality: reconcile dry weights to COAs and invoices.
• COE math: convert kWh and demand to $/lb by batch.
• Bottlenecks: dry/cure capacity, dehu limits, power headroom.
• Water sufficiency & legality: rights priority and seasonal reliability.
• Compliance exposure: any OLCC/ODA notices; environmental constraints (wetlands, riparian, stormwater).
• People and SOPs: retention, training, and change-control on recipes and setpoints.

Red flags

• Missing or inconsistent batch logs.
• Intermittent NVR footage or gaps in track-and-trace.
• Utility bills that don’t match purported operating hours.
• Junior water rights or unpermitted wells/withdrawals.
• TI estimates without contractor backing or lead-time plans.

Decision aids (tables)

Unit economics quick sheet

Price sensitivity snapshot (example logic)

(Insert your regional price bands; keep scenarios current with weekly/monthly market indices.)

FAQs

1) What’s the best single metric for cultivation valuation?
There isn’t one—use canopy-year yield paired with COE per pound and your realized price distribution to triangulate value.

2) How should I compare indoor vs. greenhouse?
Normalize by canopy-year yield and adjust COE and labor. Greenhouses often win on COE; indoor can win on grade consistency and realized price—both can underperform without dehu and dry/cure discipline.

3) How much TI contingency should I carry?
Plan 10–15% beyond quoted TI, especially for dehumidification and electrical gear lead times. Tie rent commencement to commissioning.

4) Do water rights really affect valuation?
Yes. Senior rights under prior appropriation and documented well logs reduce supply risk. Junior or uncertain rights lower value or kill the deal.

5) Should I pay for “potential”?
Only if the path is funded and permitted—LUCS/CUP in hand, power upgrades scheduled, water rights verified, and a team that has executed similar ramps.

Call to Action

Put rigor behind cultivation valuation. Demand canopy-normalized yields, true COE per pound, and wholesale scenarios that match your market—then pay for repeatability and speed, not promises.

Disclaimer

This article is for educational purposes only and does not constitute legal, engineering, financial, or tax advice. Always consult qualified professionals and your local Authority Having Jurisdiction before making decisions.

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