Labor is a unique input in cultivation. Harder to pin down, replicate mastery and control quality, it can be both a winning ingredient or the downfall for cultivators.
Cannabis cultivation has been up against some major hurdles in recent years. Price compression in markets like California have caused some operators to close their doors. In Michigan, the number of licensed cultivators increased 300% in two years, putting more downward pressure on prices. And while it’s tempting to consider these pressures unique to their markets, this kind of compression is likely on the rise as cultivators scale their canopies and illicit operators thrive under high legal market tax rates. Trends seem to indicate that even the highest quality product will see some compression.
To make matters worse, American cannabis producers continue to suffer under 280e tax challenges, making operating expenses significantly more expensive and further crunching margins.
These pressures mean operators have to stay focused on P&L, requiring higher yields, improved quality and minimal (or no) added costs. Even for top producers, cost efficiency is key to scaling.
Recently, we conducted a study to uncover cultivator’s largest expenses and determine which categories are most ripe for efficiency. We found there are a number of large expenses, but in this article, we’re looking specifically at labor and how you can get more out of your existing labor staff.
The Labor Issue
Labor is expensive. Our research shows it can be more than 25% of cultivation operating expenses, making it challenging to scale an operation without blowing up budgets.
Labor is also complex. While it may show up as a line item on a P&L alongside inputs like energy, nutrients and water, seasoned operators know that it’s a unique contributor to the success of a cultivation. It runs the gamut from highly impactful to a true detriment to success, depending on training time, turnover and gaps in experience levels.
Fortunately, the complexity of labor also offers operators opportunities to improve efficiencies. For many dimensions of cultivation, there is no replacement for human capital, which is why the focus of this article is on cost efficiencies and not cost reductions (this would be much shorter if the solution was just to “fire everyone”). Instead, we’re taking a lean cultivation approach where the goal is to better monitor, utilize and scale labor in order to improve the cost to profit ratio. [learn more about lean cannabis cultivation here]
In this article, we’re diving into some best practices and tools which can boost the efficiency of labor so operators can get more from their existing staff.
1. Know what you actually need from your staff & enhance their capabilities
Too often, managers see underperformance as a problem of the employee. And we can’t say this isn’t sometimes the case. But before throwing the baby out with the bathwater, it’s worth analyzing how tasks and standards impact output.
The introduction of computer vision into cannabis has brought an ability to capture, and make sense of, thousands to millions, of data points. These systems analyze each plant across every stage of development, taking genetics into account, to identify stressed plants and tie key growth metrics to final yield. The insights it gleams help to paint a picture of how specific tasks can affect the overall product across diverse strains. Instead of waiting until harvest, computer vision uses historical information to intercept issues and crop inconsistencies early, providing recommendations on deleafing, trellising, and other activities. This automated analysis helps operators to quantify optimal standards and tasks at each stage of growth in order to maximize yield.
2. Communicate expectations clearly and immediately
This information isn’t actually useful without a way to objectively communicate insights and tasks — both to and from cultivation staff. With so much nuance, verbal explanations and white boards leave a lot of room for error.
Operators who want to ensure consistency can instead use app-based systems to deliver demo videos and notifications, provide quick feedback or observations and communicate SOPs to employees in a mobile format. These meet growers where they’re at (in the canopy), eliminating guesswork and leveling the playing field.
These same systems also enable interaction and buy-in from staff members. Simple, mobile tech provides a cost-effective way for those actively working in the canopy to make observations, give feedback and gain a level of visibility often reserved for management. In a fast-changing environment, implementing channels to collect information from those on the front-lines can make a real difference. By effectively communicating proven techniques and giving employees more voice and visibility, operators not only increase chances of better yields, but also establish greater employee buy-in. This is critical for scaling operations because, when team members on the front-lines have the right support and feel heard, they stick around. And in an industry plagued by high turnover, it can have a real impact on the bottom line.
3. Accurately monitor productivity — without wasting labor energy
Clear communication is great, but achieving cost effective labor also means ensuring expectations and standards are being met.
As an operation scales, keeping close tabs on employees is time-consuming. Many managers rely on subjective visual review or blind faith that tasks were completed. And even if they were completed accurately, not understanding the time it took to complete means managers don’t know the true productivity of their staff.
For those already using mobile software to communicate SOPs, adding labor tracking systems can be relatively simple. In fact, many of these systems already include tracking features that can be turned on to show managers which grower performed which task on which plant and for how long. This data is key in measuring productivity and adherence to standards — which are the cornerstones of cost effective labor.
4. Identify top performers
In its simplest form, cost effective labor boils down to retaining top talent, boosting productivity and intervening as needed with underperforming employees. If only it was as easy as it sounds…
In some industries and verticals, it’s easy to track employee performance. Within cultivation, the diverse duties employees perform and the myriad of outside factors (environment, inputs, etc) mean that tying the final product of a crop to individuals is difficult. But is that the only real way to measure performance?
Better, and more realistic, indicators are how consistently a task is performed and how that impacts incremental growth metrics of each plant — the factors most tied to final yield and quality.
Labor tracking software tools serve as the first half of this effort. Knowing who worked on which plant to perform which task is great. But, measuring how consistently employees performed tasks like deleafing, lollipopping, branching, trellising, etc. — and how that impacted the growth metrics of the specific plants — provides a more complete view of performance.
If, for example, data and crop-steering show that deleafing by 20% is optimal, then it’s important for employees to hit those targets. Those who do so consistently are likely the kind of employee an operation should work to retain or even promote.
To monitor this manually would require superhuman attention and time. But it’s a simple task for a well-built computer vision. Capable of collecting and analyzing this level of detail, systems like this continually & intelligently track individual plants throughout their life cycle, tying growth metrics of each plant to an individual’s efforts. From this data, the right metric can help grade the quality of task execution and create a continual improvement feedback loop, such as whether a canopy was de-leafed evenly across plants or the vertical profile. Suddenly, managers have what they need to identify top-performers.
5. Scale top performers with incentivizes
Having visibility into top performers is great. But what of staff members who are underperforming? In a vertical already contending with high turnover, firing and rehiring is the antithesis of cost effective labor. Instead, managers should ponder how they can get more out of existing staff.
The reality is that most humans respond to incentives. In fact, studies show that incentive programs have the potential to boost performance on average of 22%. To properly design and implement an incentive program, managers need two things: To accurately monitor employee activities and understand what motivates them.
The tools for monitoring and measuring performance which we explained above again add value here. But identifying motivations requires something much less technological — conversations. It’s clear that we believe in the power of technology, but there is truly no substitute for human capabilities. Taking the time to get to know and understand your employees is important for so many reasons — figuring out how to motivate them is just one.
Conclusion
Labor may account for a large percentage of overall operational costs. And it does present complexities in reaching maximum productivity. But unlike other static inputs, employee efficiency can be stretched. Through technology, operators can enhance human capital and get more from their team. Tools that aid in determining best practices, easily communicating expectations and monitoring performance help retain and scale top talent. This is how cultivators reach cost efficiency in labor, strengthen P&Ls and scale operations.