Detailed explanation of the increase in service costs (2/4)

by Cannerald
Posted on November 12, 2022 18:00

Dear Cannerald and CannerGrow Community,

in recent months, the service costs per plant per grow have already increased.
Thanks to the reserves of Cannerald's share of the harvest (40%) from previous years and the capital of our group structure Emerald Group AG (click), we have been able to "buffer" the increase in service costs up to now, with the prospect that the service costs will be reduced in the near future as a result of the calming of the current global economy situation to decrease again.

Our wish was that we didn't have to pass the increase in service costs directly on to our customers.
The underlying intention was that we do not have to implement any increase in service costs before GMP certification and cultivation of medicinal THC cannabis.

👉🏻 Here are all the details about the upcoming GMP certification and the cultivation of medical THC cannabis (click)

Due to the current global economic situation, such as rising raw material prices, electricity prices, inflation, etc. and since we have passed on our share of the harvest to our customers since the restart of our production (click), we are no longer able to do this and now had to update the service costs in the purchase contract.
We may increase the service costs without the consent of our customers as soon as they increase by 3% (see purchase contract). The ancillary costs are therefore legally valid, regardless of whether the new purchase contract is accepted or not. With the confirmation in the back office, we have transparently informed everyone of the composition of the new price.
With this associated update we give you a detailed explanation of all details.

Video explanation from CEO Levin Amweg:
Click on the picture to view the Video:

Detailed explanation of the increase in service costs:
Position: Electricity
Increase in costs as the price of electricity has become more expensive.

Position: Water
Increase in costs, since we have to pay increased sewage fees since the building permit was granted, but we were able to strive for a solution that reduces the price by 50% and we can reduce the price here by around one euro.

Position: Fertilizer
Lower costs, a new producer and the increased demand for fertilizer will reduce this position in the future.

Position: Employees
Increase in costs as we previously needed 0.8 employees per thousand plants and now after the introduction of the SOPs (Standard Operating Procedure) for the GACP and GMP area, we need 1.25 employees per thousand plants.
We introduced this several months ago, since the employees act according to the SOPs even before the GMP certification, so that we receive a certification.

Position: Rental costs
Increase in costs because we have rented additional space for technical rooms and storage areas and these are now also charged 1:1.

Position: Rockwool blocks
Increase in costs because the price of raw materials has changed and the company that offers us the best prices has contacted us every month with price increases of 15-25%. These are the effects of the Corona crisis and are now increasing due to the Russia-Ukraine conflict.

Position: Work utensils
Reduced costs because we have a higher purchase.

Position: Cuttings
Increase in costs because we have additional work here with the employees and the entire processes.

All in all, the service costs per plant per grow have increased from 34.61€ to 59.53€. The new water price has not yet been deducted.
All details can be found in the updated purchase contract, in which only the service costs have been adjusted compared to the previous version.
We are doing everything we can to reduce the service costs again in the future through recurring price negotiations. Our main argument is the increased order volume from all suppliers as a result of our further expansion.

Should the service costs fall in the future, we will of course update this immediately in the purchase contract. The service costs are always deducted before the harvest is distributed, i.e. the crop yield of the plants.

You can find the formula here:
Formula for calculating the harvest:
Service costs (EUR) / sales price (EUR per gram) = Deduction of service costs (grams)
Plant harvest (grams) - Deduction of service costs (grams) = Plant harvest after deduction of service costs (grams)
Harvest amount customer (grams): Plant harvest after deduction of service costs (grams) * 0.5

Two more things to finish.
On the one hand we would like to apologize for the late update. In fact, it would have been best to announce it immediately with the increase in service costs in the purchase contract. On the other hand, we ask for your understanding of the current situation.
Both Corona and now the conflict between Russia and Ukraine have brought about many changes that we would like to adapt to.

In the third part we will go into detail about the consequences of the increased service costs.

Your Cannerald & CannerGrow team