Properly Vetting Companies Is Crucial When Venturing Into Cannabis Market Segment
Ensuring companies are legitimate is essential before starting work on grow rooms
The legality of marijuana use, both medically and recreationally, continues to increase across the U.S. Ballot initiatives are popping up in new states seemingly every year, which means the marketplace is burgeoning and spreading around the country.
As it pertains to the HVAC industry, this can be a bit of a double-edged sword.
It is undoubtedly great to have a new segment of the marketplace, cannabis grow rooms, in high demand. The problem comes from the fact that the quick development of the marketplace has allowed less-than legitimate entrepreneurs to try and get into the industry to make a quick buck.
It is absolutely critical for HVAC contractors to thoroughly vet out potential customers and clients before doing any type of work for them.
“It's imperative to proceed with extreme caution,” said Zac Venegas, CEO, Helix TCS Inc. “Seemingly legitimate purveyors in this space can still be riddled with red flags and hazards that they themselves may or may not be aware of, which are often not apparent to an outsider without proper due diligence. No profit-minded professional would prudently ignore such a market, but one must be mindful that this unique sector is rife with complex legal and regulatory risks.”
THE WARNING SIGNS
For contractors who have already been working with cannabis-related clientele for years in states like Colorado and Washington, there are some clear giveaways that can signal a potential client doesn’t actually understand the cost and time associated with creating a functioning cannabis grow room.
“Well, when they come in with hand-drawn sketches on paper, that’s one of the biggest red flags we see, and we have seen it a few times,” said Robert Dixon, project manager, R&R Heating, Spokane, Washington. "You ask them how many lights they are going to have or other really basic information, and they don't even know that.”
Dixon added one misnomer in the marijuana industry is the look of a person. While there are certainly plenty of stereotypes of “stoners” living and growing in a basement, he said it’s important to give everyone a chance to present their proposals.
“We have some guys that look like stoners, and they're actually pretty good guys and a pleasure to work with,” he said. “What matters is how much information they provide up front. When the first thing they say is ‘We need the cost to be cheap. We are on a limited budget but want all the bells and whistles,’ then the red flags definitely go up.”
For Nadia Sabeh, president, Dr. Greenhouse, Sacramento, California, the three biggest red flags she has seen in her nearly 20 years in this segment of the market are an unrealistic schedule, unrealistic budget, and not having an experienced grower on the team from the outset.
“I had a project a couple of years ago where this client had budgeted $25,000 for sensors and controls and only $5,000 for the whole a/c system,” she said. “And I was just like, so what exactly are you planning to control with your 25 sensors? That's an extreme example, but it’s one where you can tell someone clearly has no idea what they are getting into in this space.”
Shawn Blair is the president of Blair Heating & Air in Palm Springs, California. He said as the market became legal in his state, his team started to do designs with a team of contractors, engineers, and architects they work with.
“Normally, this team would be working on multimillion-dollar estates and light commercial projects, including museums and hospitals,” he said. “It was almost overnight we were working on many cultivation projects with what seemed to be gangsters. As time has moved on, the clients have been more professional.”
Blair believes some of the biggest difficulties come from the fact that it is common to work in the early stages with a grower or a representative and not even meet the actual owner until late in the bidding process, if at all.
“Commonly, it is a group of investors with a new corporation put together just for the project,” he said. “There are commonly no banks, so some of the early ones were done not really knowing if we would get paid ... sometimes we didn’t.”
Blair added that one of the biggest occurances he can caution against is getting a handshake rather than a contract in writing.
“There are a lot of smooth talkers in this business — people wanting jobs up front and getting paid after their ‘first harvest,’” he said.
This point was further emphasized by Sabeh. She tells every engineer and contractor that is getting into this business that whatever the client is telling them needs to be in writing.
“Make them fill out all the specifications and send an email. Say ‘these are the conditions I want. These are the number of lights in the room, size, and this is the location, etc.’ Make them put all of that design criteria in writing so that when you specify a piece of equipment, or sell a piece of equipment, and later down the road they say it doesn't work, you are covered. Most of the consultants and contractor's reps that I talk to are really grateful for that advice.”
The projections are certainly high for the marijuana industry for the foreseeable future.
Per CNN, more than 100,000 people are working around the cannabis plant today, and that number's going to grow. The industry employed 121,000 people in 2017. If marijuana continues its growth trajectory, the number of workers in that field could reach 292,000 by 2021, according to BDS Analytics.
"[The industry is going to continue to grow] as long as not all 50 states have legalized its use,” said Sabeh. “As long as there is an interest in growing what we would call 'craft' product, then there is going to be a growing industry.”
Sabeh compared the market to something like the exploding craft beer marketplace, which supplements more of the mainstream varieties, or niche wineries.
“There are going to be small, local growers that continue to pop up,” she said.”
In Washington, where marijuana has been legal since 2012, Dixon has already seen the marketplace sort-of plateau, as those who truly intend to stay in the market segment long-term have emerged, and those more questionable clients looking to make a quick dollar have moved on.
“We just don't really see a whole lot of newcomers right now,” he said. “I think it's kind of settled down, so everybody that’s been committed to it has been super busy. Honestly, sometimes on some of the growth projects, if it's not an existing client, we might have to turn a job down because we are just so busy. And again, some of the new projects we've been burnt on, and we didn't get paid, which is why vetting is important.”
“I think there's a lot of opportunities for mechanical engineers and contractors and manufacturers to get involved in this market now and stay involved for five or 10 years or longer,” added Sabeh.
Publication date: 4/23/2018