The large and consistent rise in public demand for legal cannabis along with the growth in cultivation sophistication correlates to the increasing need for cost reduction as the race towards normalized agricultural margins intensifies. High current margins accommodate large investments in agricultural technology that offers scalable margin impact, and current investment trends towards cultivation facilities offer a glimpse into future demand for such technology.
The cannabis industry is perhaps the first to be born in the information age, and advances in agricultural technology are revolutionizing the way cultivators interact with their plants. The plethora of new tools, technology, and amplified growing methodologies can facilitate meaningful yield increases, and those that can have an outsized impact include Aeroponics, Artificial Intelligence and Robotics.
Aeroponics: Aeroponics refers to the process of growing plants in air without the use of soil. Unlike traditional growing methodologies such as hydroponics, aquaponics, and plant tissue culture, Aeroponics utilizes an atomized or sprayed nutrient-rich water solution for the lower stem and root structure.
Benefits include up to a 94% reduction in water usage, exponential yield increases influenced by disease-free cultivation, full access to appropriate CO2 concentrations for photosynthesis, and light efficiency. Pesticide-free plants that experience rapid growth and use less energy while minimizing runoff water waste have spurred claims that 500 heads of lettuce can be grown annually in a single square foot of industrial space.
Artificial Intelligence: Given their potential to interface with plants more efficiently than humans, artificial intelligence, machine learning and neural networks can drive agriculture to the precipice of a revolution. Technology allows us to replace vision with computer enhanced lenses, hearing with neuro-linguistic programming, smell and taste with sensors, and touch with mechanical robots.
Cultivators could benefit greatly from an immediate and comprehensive analysis of seed type, consumer trends, weather expectations, disease patterns, soil category, price forecasts and nutrient costs. Information aggregation and access can help level the playing field for the boutique cultivator, ultimately benefiting the consumer with desirable quality at a reasonable price.
Robotics: Robots are increasingly more dexterous and when driven by artificial intelligence can replicate human function with a high degree of predictive precision. The large labor cost impact coupled with efficiency gains make this an increasingly viable option for cultivators today and perhaps a necessity in the years ahead.
While the main application of robotics today is at the harvesting stage, emerging applications include soil analysis, seed planting, environmental monitoring and weed control. Robots can provide continual surveillance and security, move containers, and use cameras and computer vision to trim away unwanted material during harvest. Labor has the opportunity for exponential productivity increases in a short amount of time.
Cultivators are wise to leverage the power of technology for financial and operational efficiency, and may soon have to leverage the same to maintain margins. An emerging alternative asset class with potential to provide attractive risk-adjusted returns, the cannabis sector offers low correlation and high growth expectations. Portfolio exposure to agricultural technology is not only attractive from a diversification perspective; it adds a level of hedging against what may prove to be a precipitous price decline for this original super-food.