What Do Four Pot Plants and 29 Refrigerators Have in Common?

David Fessler By David Fessler, Energy and Infrastructure Strategist, The Oxford Club

Commodities

Think about the riddle above.

Figure it out yet? You’ll have to read on to find out if you’re right…

About two years ago, I started replacing all of our incandescent and fluorescent bulbs with LED versions.

I decided recently to compare the last 12 months of electric use to our use in the time before the switch. I was shocked.

We are now saving $840 a year. This is real savings any homeowner or investor can appreciate.

If you want to start the LED switch, identify your low-hanging fruit first. High-use areas like kitchens, family rooms and children’s bedrooms are top on the list.

Few kids care about energy efficiency. They leave their lights on most of the time whether they are in their rooms or not.

But having a more energy-efficient house, while an admirable, money-saving goal, isn’t why I’m writing this…

I want to talk about the growing marijuana industry.

The Fastest-Growing Industry in the U.S.

As I write, more than half the states have passed some form of marijuana legalization. And that means marijuana production is on the rise.

In 2014, national sales were $4.6 billion. Last year, they grew to $5.7 billion.

And this year, sales could hit $7.1 billion. That’s about a 26% jump over last year’s total.

By 2020, legal sales of pot could surpass $22 billion. That’s more than three times what they are today.

Growing all that pot consumes huge amounts of energy. Much of it goes toward lighting.

Five years ago, the Lawrence Berkeley National Laboratory conducted a study on pot growing energy use. It concluded that as much as 1% of U.S. electricity was then used for growing pot.

At the time, that was equal to about $6 billion. Two years ago, the Northwest Power and Conservation Council estimated Washington state pot operations could increase electric demand by 60 to 160 megawatts over the next 20 years.

Regional demand, which included Washington and a few surrounding states (Oregon, Idaho and Montana), could hit 250 MW by 2035. That’s a lot of power going to pot.

Which brings us to the answer to my riddle…

The amount of power required to grow four pot plants is identical to the amount used by 29 refrigerators during the same time frame.

Electricity accounts for about 14% of expenses for growers who use traditional sodium vapor lighting. The problem with sodium vapor lights is they generate a tremendous amount of heat and therefore aren’t very efficient.

Switching to LED lighting cuts power use in half. But electric savings are even greater, since cooling bills are much lower with LED lighting. LEDs generate almost no heat.

World’s Sixth-Largest Economy Legalizes Pot

So why is this such a big deal?

Because California, the world’s sixth-largest economy, has just legalized marijuana for recreational use. And California’s efficiency standards have a habit of driving their way into the rest of the country.

Most commercial growers raise their pot plants indoors, even though raising them outdoors takes energy costs close to zero.

Of course, pot is no ordinary crop. Security is a major concern. Theft is a very real possibility.

A few months ago, our nightly news showed a midnight raid by thieves on a legal outdoor grower out west. He lost dozens of plants worth thousands of dollars.

Outdoor growers have to spend tens of thousands of dollars on security cameras and guards to monitor them.

But growing indoors means plants are secure. It also means everything else associated with growing pot can be controlled.

I’m talking about air temperature, moisture requirements and, most of all, the amount of sunlight plants get. In the beginning, grow lights must be on for longer periods of time to accelerate plant growth.

When plants reach maturity, switching to a 12-hour day stimulates bud growth, which is what growers are after. So lighting ends up being an important aspect of successfully growing pot.

Commercial growers have facilities that vary in size. The larger ones approach 100,000 square feet, the size of big-box retailers.

Energy use for big commercial operations can hit $50,000 to $100,000 per month. Saving 20% to 30% of that by using LED lighting is something growers readily embrace.

Right now, investors wishing to cash in on LED lighting for greenhouse applications have few choices. Koninklijke Philips N.V. (NYSE: PHG) offers LED greenhouse lighting, but it’s a small percentage of this international conglomerate’s revenue.

Cree Inc. (Nasdaq: CREE), a pure LED lighting play, doesn’t yet offer LED greenhouse lamps. But I’ll bet my next month’s paycheck it’s working on them.

LED grow lamps are an interesting pick-and-shovel play on the exploding marijuana industry. I’ll be following this closely in the months ahead.

Good investing,

Dave

P.S. My colleague Sean Brodrick is high on the pot industry. (Just kidding… kind of.) He writes about it regularly. If you missed his recent article, you can read it here.