What does the increase in service costs mean for Cannerald and outlook for the future (3/4)
Dear Cannerald and CannerGrow Community,
as previously announced in the second part of the four-part blog article series (click), we were forced to increase the service costs per grow per plant.
We will describe to you in this blog article what effects this will have on Cannerald.
In this blog article, we will also give you an outlook into the future of Cannerald.
Video from CEO Levin Amweg:
Explanation of the current situation:
If we do not come up with a positive sum for the coming harvests of the active grows, based on the current situation of the plant yield in grams, the current sales price and the current service costs, we will under no circumstances demand additional payment of the additional costs from you as a customer.
As we have spoken to our B2B network, in the long term CBD retail prices will recover and increase again.
The medium-term estimated selling price of our B2B network for CBD prices, which we have been informed, is between 1.40€ to 1.80€ per gram for the quality of our goods.
Furthermore, if you follow our blog articles, email newsletters and videos, you will have noticed that we used GMP CBD cuttings in the grow rooms after restarting our grow facility.
The yield (grams) of the plant is very dependent on the genetics/strain of the plant, in addition to many internal factors.
As you noticed in 2020 and 2021, we previously had the genetic/strain “Limoncello”. With this strain we have received yield values in grams of up to 57.10g per plant.
The highest yield value with the current genetics of the GMP CBD cuttings from Canada was currently 47.65g, although we are using even more intensive SOPs and optimized processes compared to 2020 and 2021. So in 2021 we already had 9.5 grams more harvest per plant.
If, despite the medium-term prospect of an increase in the sales price for our quality, it does not work out that we come to a positive economic bill, we must temporarily stop the production until the bill is at the latest through the GMP certification and sale of GMP CBD or in our intended case, GMP THC becomes positive again. We do not expect a longer production stop here, as the market is recovering and new genetics/strains will be ready from January.
Furthermore, we would continue to grow in a few of our grow rooms in order to advance the optimization of processes, as well as technical adjustments and research of the plants through our soon to be completed and soon to be validated laboratory.
Since we will not use the money from the pre-sale of plants, which is reserved for the construction costs, we will use the money from the built-up reserve buffer, which we have generated from our share of the harvest (40%) through harvest yields since 2019.
If this is not enough, we will raise external capital from companies from our group structure, the Emerald Group AG (click), in order to continue to advance optimization and research through active grow rooms so that we are completely optimized for the medical GMP THC area.
The sales price is the biggest factor here, which we want to show you with an example:
We use the sales price in the calculation formula to determine how many grams of harvest are deducted from the total yield value per plant as service costs.
If you decide to sell the harvest later, your own share of the harvest is multiplied by the selling price in euros per gram.
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
Let's take the example, from a realistic scenario of 2021 with 2.10€ per gram and 1.00€ per gram and the old service costs of 34.61€ per plant, to better illustrate the effect of the selling price:
SC = service costs; SP = selling price; Deduction SC = deduction of service costs
At a sales price of 2.10€ per gram:
34.61€ SC / 2.1€/g SP = 16.48g Deduction SC
57.1g Plant harvest - 16.48g Deduction SC = 40.62g harvest after Deduction SC
Harvest amount customer: 40.62g * 0.5 = 20.31g
If the customer chooses to sell the harvest to Cannerald: 20.31g * 2.1€/g = 42.65€
At a sales price of 1.00€ per gram:
34.61€ SC / 1€/g SP = 34.61g Deduction SC
57.1g Plant harvest - 34.61g Deduction SC = 22.49g harvest after Deduction SC
Harvest amount customer: 22.49g * 0.5 = 11.25g
If the customer chooses to sell the harvest to Cannerald: 11.25g * 1€/g = 11.25€
As you can see, if the customer decides to sell the harvest to Cannerald, the harvest value in euros changes at a little more than half the selling price reduction, not half but almost four times!
For example, if the service costs had halved from 34.61€ to 17.30€ per plant per grow, calculated with a sales price of 2.10€ per gram, the customer would not get twice as much harvest value compared to 34.61€ service costs, but 4.12g harvest, what equals a difference of only 8.65€ in a sale (51.30€ - 42.65€ = 8.65€).
Calculation for this:
17.30€ SC / 2.1€/g SP = 8.24g Deduction SC
57.1g Plant harvest - 8.24g Deduction SC = 48.86g harvest after Deduction SC
Harvest amount customer: 48.86g * 0.5 = 24.43g
If the customer chooses to sell the harvest to Cannerald: 24.43g * 2.1€/g = 51.30€
If the harvest in grams per plant doubled from 57.1g to 114.2g (absolutely unrealistic, just as an example), calculated with a sales price of 2.10€ per gram and the service costs of 34.61€ per plant, the customer would get compared to the harvest value with 42.65€ --> get 102.61€. This would be a factor of 2.4.
34.61€ SC / 2.1€/g SP = 16.48g Deduction SC
114.2g Plant harvest - 16.48g Deduction SC = 97.72g harvest after Deduction SC
Harvest amount customer: 97.72g * 0.5 = 48.86g
If the customer chooses to sell the harvest to Cannerald: 48.86g * 2.1€/g = 102.61€
With these sample calculations, we want to show you that the service costs, even if we can't change them due to the global economic situation, are the least important part of the 3 variables:
1. Sales price per gram in euro
2. Harvest amount per gram per plant
3. Service costs per plant per grow
1. Thus, the most important factor in getting good retail value from selling the harvest to Cannerald is the sales price per grams in euro.
For retail value per gram harvest, we have received minimum offers for the medical GMP THC market of 3.40€ per gram.
2. The second most important factor is the harvest amount in grams per plant.
We will be able to increase the harvest amount in grams per plant through a selection of selected genetics/strains, as well as through our soon to start internal research laboratory.
Here we receive cuttings (in vitro) from a new partner at the end of November, which will most likely significantly increase the harvest amount and sales price. Information on this will follow in further videos.
THC plants are also more potent and give more harvest than CBD plants. We will soon be explaining this in our technical articles.
3. The factor that matters the least are the service costs.
In addition to the sample calculations, we have created three visual illustrations for you.
Those are intended to show that even if there is a possible production stop until the cultivation of medical THC cannabis, this makes almost no difference to the long-term calculation of the crop harvest value for the customer.
Based on the descriptions of the charts, you can recalculate the values in the charts or "hover" over them with the mouse or click on the points (harvests) in the chart on your smartphone.
Each point on the lines in the charts is a harvest. The harvest value of a harvest is added to the harvest value of the previous harvest.
Chart without production stop with four harvests per year:
Chart to September 2023:
Service costs of 35€ (rounded up from 34.61€ due to simplified presentation) until the first GMP THC harvest in September 2023.
Harvest amount in grams per plant: 50g
Sales price per gram of 2.10€ (old selling price)
Chart from September 2023:
Service costs of 60€ (rounded up from currently 59.53€ due to simplified presentation).
Harvest amount in grams per plant of 1st THC harvest: 40g, 2nd THC harvest: 45g, 3rd THC harvest: 50g, 4th THC harvest: 55g, 5th THC harvest: 60g, 6th THC harvest: 65g, 7th THC harvest and all other THC harvests: 70g per plant
Sales price per gram: 3.40€ (minimum offer for GMP THC) until the end of 2024, subsequent sales price from early 2025 of 4.00€ (0.60€ more per gram).
Chart with production stop with four harvests per year:
No harvest distribution until first THC harvest in September 2023.
Chart from September 2023 (same as in chart above):
Service costs of 60€ (rounded up from currently 59.53€ due to simplified presentation).
Harvest amount in grams per plant of 1st THC harvest: 40g, 2nd THC harvest: 45g, 3rd THC harvest: 50g, 4th THC harvest: 55g, 5th THC harvest: 60g, 6th THC harvest: 65g, 7th THC harvest and all other THC harvests: 70g per plant
Sales price per gram: 3.40€ (minimum offer for GMP THC) until the end of 2024, subsequent sales price from early 2025 of 4.00€ (0.60€ more per gram).
Summary and comparison of the two charts:
Even if there would be production stop and no more harvest would be distributed to the customer until the cultivation of the GMP THC in June/July 2023, in the long term this is only a difference of 70€ if you sell the harvest to Cannerald!
In addition, here is a chart with an illustration of production stop without veg. (4 harvests per year) and with veg. (5 harvests per year):
With our upcoming huge vegetative rearing room (Veg. Room) we save 14 days per grow cycle, which the plants don't have to spend in a grow room, this allows us realistically of 5 instead of 4 grows per year depending on the genetic/strain.
In the event of a production stop, the introduction and commissioning of the vegetative room will take place at the same time as the cultivation of GMP THC - from June/July 2023.
Values as above from "Chart with production stop with four harvests per year:"
No harvest distribution until first THC harvest in September 2023.
Chart from September 2023 (same as in chart above):
Service costs of 60€ (rounded up from currently 59.53€ due to simplified presentation).
Harvest amount in grams per plant of 1st THC harvest: 40g, 2nd THC harvest: 45g, 3rd THC harvest: 50g, 4th THC harvest: 55g, 5th THC harvest: 60g, 6th THC harvest: 65g, 7th THC harvest and all other THC harvests: 70g per plant
Sales price per gram: 3.40€ (minimum offer for GMP THC) until the end of 2024, subsequent sales price from early 2025 of 4.00€ (0.60€ more per gram).
As can be clearly seen by the coming Veg. room, an increase in harvest value of 630.5€ is possible. (3186€ with veg. room - 2555.50€ without veg. room = 630.5€).
With these charts and sample calculations, we want to show you what a positive future we are facing together.
While this part was very number-heavy, we hope you can now understand what factors are most important in making a grow profitable for everyone involved.
In the fourth part, CEO Levin Amweg will provide detailed answers to some of the community's most frequently asked questions of late.
#WeGrowForYou
Your Cannerald & CannerGrow team