The marijuana grow-light story sits at the intersection of semiconductor cost curves, cutting-edge indoor botany, utility efficiency incentives, outlaw pot growers, and the slow societal acceptance of a newly legal intoxicant.
And it's a very big business.
A 2012 study from Berkeley Lab found that indoor marijuana production could account for as much as 1 percent of U.S. electricity use, about half the amount consumed by data centers. As GTM's Katie Tweed reported, within the city of Denver, marijuana grow operations are using more than 2 percent of electricity. By 2035, the state of Washington expects marijuana-related energy use to exceed the energy draw of electric vehicles.
It's become an enormous load on the grid -- and an enormous cash crop.
A $28 billion business?
The overall LED grow-light module market is expected to grow from $395 million in 2013 to $3.6 billion by 2020, according to WinterGreen Research. That ridiculous rate of growth will in large part be driven by medical marijuana legislation and indoor grow rooms.
We spoke with Randy Mortensen, who heads up a division of the LED firm Lighting Science that's specifically focused on cannabis and indoor agriculture.
GTM: How big is the indoor agricultural industry, and what role do LEDs play in it?
Mortensen: I've seen it range anywhere from $20 billion to $28 billion dollars over the next two to three years as a national industry. I think we're seeing the expansion of LEDs into indoor horticulture. LEDs can emulate high-noon sun 24 hours a day if the photosynthetic properties of a plant could stand that. And I think that the science of LED lighting has been missing -- as people have attempted to simply take a traditional commercial or industrial light and transfer that into a growth facility and expected it to work with any level of energy efficiency or any degree of success. Part of the initiatives that we have underway are actually developing lighting recipes that will match the photosynthetic properties of those plants as they go through the various stages of growth.
GTM: So you're talking about a plant needing one set of spectral profiles in its growth stage and a different set in a flowering stage?
Mortensen: Yeah. And that's the interesting part as LEDs have emerged. When you go from the blues on the low end of the color spectrum to the far reds on the high end of the spectrum, there's varying opinions even in the grower communities as to the value of specific spectral qualities or output in the veg stage versus the bud stage. It's a bit of a craft, and nobody's really figured out the secret sauce. That's why we're working hard to develop specific recipes to match the light quantity and quality in the output with the photosynthetic properties of the plant in the various stages of growth.
GTM: So how is that done? Are there different LED chips that are putting out more power in certain reds or blues, or are you actually able to use current to vary wavelength?
Mortensen: Well, there's actually two methods that are used. There's tighter binning requirements that gives you a better quality of LEDs and then, dynamic tuning, where you can shift the spectrum with the drivers to actually drive a specific color in or out. So that's the tunability of the chips in the system that makes that possible.
GTM: And that's something that you wouldn't have with a metal halide or a fluorescent light bulb?
Mortensen: Right. There you would have a fixed spectrum, so in a fluorescent you would have coorelated color temperature measured in degrees Kelvin, whether it would be 3,000 K, 4,000 K or 5,000 K that are fixed spectrum. In a high pressure sodium or metal halide, you would also have just a single spectrum with potential degradation of light that is more rapid because the amount of heat that those technologies actually throw off.
GTM: I didn't hear a dollar value in that "micromoles per square meter per second."
Mortensen: That's been the challenge. In reality this has been a financial sale justified by the technology. So much of what we do is driven by the ROI. A typical 1,000-watt high pressure sodium fixture puts out about 2,000 BTUs of heat. Our 588-watt fixture, by comparison, has performance that is the same from a plant behavior standpoint, but instead of 2,000 BTUs it puts out 1,000 BTUs of heat. Particularly in the warmer temperatures maintaining ambient temperature is very important. The savings on the heat or the HVAC is very substantial with half the heat output and significant electrical savings.
GTM: It has taken decades longer than people expected to supplant incandescents and HID lamps in residential and commercial markets. How is that changeover happening in indoor agriculture?
Mortensen: So it's really within the last two to three years, I would say, and you can see that the price points are dropping very rapidly in multiple LED lighting fields. I would say in North America, we're five to seven years behind what I've witnessed in Asia. In Japan and Taiwan, you're seeing plant factories with artificial lights (PDF), that are becoming very much the normative in that part of the world. They're five to seven years ahead of anything I've witnessed here in North America.
GTM: And the crops are?
Mortensen: Vegetables. So you're seeing multiple types of lettuce, green leafy lettuce, you're seeing herbs, you're seeing basil and habanero peppers, and so on, that are being stacked on shelves that are about a foot apart. The example I use very often is a former Fujitsu semiconductor manufacturing facility in Japan that is 25,000 square feet was retrofitted. A year ago, the proprietors were producing 21,000 to 22,000 heads of lettuce per day. I just saw a press release within the last couple of weeks where they're now peaking out at 30,000 heads of lettuce per day, growing those with artificial lights indoors. We have nothing of that magnitude here in North America at this point, which is why I say we're many years behind from a technological development standpoint, at well as market acceptance.
GTM: Lettuce just seems like a low-value crop -- it's not going for hundreds of dollars an ounce, right?
Mortensen: Right, but you see that's where you get the opportunity to stack the lettuce, so when they go seven, eight, 10 levels high, then you're able to maximize the yield per-square-foot. You won't achieve the same dollars per square foot that you would in cannabis, but it's just a completely different thought process, because now you're eliminating pesticides, you're eliminating herbicides, you're now using somewhere around 90 percent less water. So, from an overall energy-efficiency standpoint, it's really a solution that we in North America haven't embraced yet.
GTM: Talk a little bit about dollars and the metrics that are used. I'm an old-timer, but it was lumens per dollar at one point.
Mortensen: What we say in the LED world is, "lumens are for humans," basically. It has really no applicability to the indoor horticulture world. Instead, what's measured is PAR or micromoles per square meter per second. [PAR is photosynthetically active radiation in the 400-nanometer to 700-nanometer range.]
GTM: I didn't hear a dollar value in that "micromoles per square meter per second."
Mortensen: That's been the challenge. In reality, this has been a financial sale justified by the technology. So much of what we do is driven by the ROI, and here are the factors for consideration: A typical 1,000-watt high-pressure sodium fixture puts out about 6,000 Btu (British thermal units) of heat. Our 588-watt fixture, by comparison, has performance that is the same from a plant behavior standpoint, but instead of 6,000 Btu, it puts out 2,000 Btu of heat. Particularly in the warmer [climates], maintaining ambient temperature is very important. The savings on the heat or the HVAC is very substantial with two-thirds less heat output.
GTM: You're saying that the ballast will raise the temperature of the room and it might have to be cooled down -- although most plants do well in high heat, right?
Mortensen: No, it depends who you ask. Most of the growers that we deal with are looking for an ambient temperature of around 78 degrees -- so think about that in Las Vegas, right? So there's expense from an HVAC standpoint that when you move to LEDs you have significant savings there. Normally on a build-out, the HVAC equipment, when you look at tons of cooling required, it's about 50 percent of upfront capital cost when using LEDs compared to other HID technologies. Then you have the ongoing operating expense, in order to get maximum performance out of a high-pressure sodium or a metal halide, many of these growers are changing out the lamps every two to three months. So you have the operating maintenance savings because the LEDs are warrantied for five years or 50,000 hours, and you see no degradation with LEDs in quantity and quality of light output when compared to the HID technologies.
GTM: Are there utility incentives for growers to switch to LEDs?
Mortensen: Yes, we're seeing very significant incentives from utilities that are looking to bring equilibrium to the pricing difference when compared to a traditional 1,000-watt high-pressure sodium that's somewhere around $450 to $500, when compared to an LED fixture that could be anywhere from $1,100 to $1,500. So we're seeing some rebates in the $500 to $600 range per fixture.
GTM: What else would you like to add?
Mortensen: I think the growth in the market is really going to center around the overall health and welfare of humans. There's such a stigma against medical marijuana, when in reality, there's proven value in cannabidiol (CBD) oil without the THC. We're just battling regulatory challenges, and we're battling this stigma. That's one challenge that all of us deal with on a regular basis. I think the other is food production -- we're going to need to be more environmentally conscious, and also be more focused on the true organics, which is the elimination of pesticides and herbicides and other chemicals. We're seeing just huge percentages of crops that are ending up in the dumpsters -- lettuce being trucked from central California to the East Coast, 50 percent of that actually ends up in the dumpster here on the East Coast, because of the short shelf life and the usability aspect of it. We need to be more conscientious as Americans on those two fronts.
Marijuana industry still in a legal gray area
As GTM's Katie Tweed has reported, indoor marijuana energy use is mostly "driven by lighting, venting and dehumidifiers. But unlike data centers, which are a focus of energy-efficiency efforts worldwide, the marijuana industry exists in a legal gray area, which creates a barrier to these businesses taking part in state and utility-run efficiency programs." And while LEDs may offer superior performance in terms of efficiency and controllability, many growers simply aren’t familiar with them and prefer to go with the technology they are most comfortable with -- like HID lamps. As Tweed wrote, "That means utilities need to engage growers early on, ideally during the planning phase of their operation, about options for more efficient equipment and what rebates may be available to them."
Our favorite recently fired mission-driven energy company executive, David Crane, now a senior operating executive at Pegasus Capital Advisors and a member of the board of directors at Lighting Science, tells GTM, "Not only can Lighting Science lights promote individual health, [its]...product has the potential of enabling year-round agricultural consumption in a huge way in temperate climates. If everyone consumes only what is produced within 50 miles of where they live, it will have a meaningful impact on our collective carbon footprint."
However, as a recent Lawrence Berkeley National Lab report states, "Current indoor cannabis production and distribution practices result in prodigious energy use, costs, and greenhouse-gas pollution. The hidden growth of electricity demand in this sector confounds energy forecasts and obscures savings from energy efficiency programs and policies. More in-depth analysis and greater transparency in the energy impacts of this practice could improve decision-making by policymakers and consumers alike."