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Andrew Olley and Tracey Perez, Medicinal Harvest:

Australia: "Profitable cultivation in a challenging environment"

Medicinal Harvest planted its first medicinal cannabis crop in June 2021 in a purpose-built indoor cultivation facility. However, the story began in 2017 when Andrew Olley and Tracey Perez, the owners of Medicinal Harvest, purchased a rural property in South-East Queensland, Australia.

There are long time frames for getting started in medicinal cannabis cultivation in Australia when you consider the regulatory requirements and the planning and construction of the facility. The reality is that would-be cultivators need to spend money for years before the revenue starts flowing.

Medicinal Harvest was able to achieve profitability in its first year of cultivation. This is perhaps surprising as many cultivators are struggling to turn a profit. Medicinal Harvest attributes its success to keeping overheads low, with the two owners actively managing the business without engaging a top-heavy management structure. The company also adopted the strategy of starting small and building on success.

Tracey Perez and Andrew Olley in their new flower room

"Our stage one facility was funded by us and a small bank loan, without investors," explained Tracey, co-founder and Business Director. "We could have continued with our original facility alone as it was generating a tidy profit. But it became clear that our business approach was working, and it just made sense to build our stage two facility."

Medicinal Harvest is a contract grower using the genetics supplied by their customers, or the company's own in-house genetics.

The stage two facility is co-located with the original facility, effectively tripling capacity. Planting of stage two started in late January this year. Medicinal Harvest's cultivation permit allows up to 4,000 kilograms of medicinal cannabis flower buds per year.

"Having an indoor cultivation facility gives us full environmental control, which means we grow consistent flower bud year-round," said Andrew, co-founder and Cultivation Director. "From our discussions with wholesalers, pharmacists and prescribers, consistency is especially important in a medical market where patients expect their medication to be the same each time they fill a script."

"From an efficiency perspective, indoor cultivation allows us to maximize yield as plants are always growing in optimal conditions. Further, we use two tiers in our flower rooms, making the most of our cultivation footprint," added Andrew.

Production costs
Labor and electricity are by far the highest components of Medicinal Harvest's production costs, with labor costs at approximately 40% and electricity costs at approximately 25%.

Andrew said, "We currently have three full-time equivalent employees and expect to add another three people to the team in the coming months. Having said that, we are constantly innovating to minimize our labor requirement per kilogram of production."

"Sustainability is an important part of Medicinal Harvest's strategy," said Tracey. "Seeking sustainable growing solutions is crucial for our bottom line, but also because it is the right thing to do as a responsible business."

"We have been able to keep our energy bills under control by implementing an onsite solar farm. This will be expanded shortly to match the additional power usage from the stage 2 facility."

"An example of another sustainability initiative is the recycling of the water from our growing systems and indoor atmosphere," she adds.

Challenges for local cultivators
Andrew and Tracey explain that data surrounding the Australian medicinal cannabis industry tends to be inconsistent and incomplete. Even so, there is no doubt that medicinal cannabis in Australia is primarily in the form of dried flowers. In addition, the level of medicinal cannabis imports into Australia is significant, and exports are low. According to the Office of Drug Control (ODC) data from 2022, the vast majority of imports come from Canada.

The fierce competition from imports is just one of the challenges facing Australian cultivators. The regulatory burden is also high. Medicinal cannabis was legalized in Australia in 2016, with the ODC responsible for regulating import, export, cultivation and manufacture. A local cultivator must have a license and permit from the ODC.

The ODC website states that the target turnaround for a medicinal cannabis license is 195 working days. "However, there are many examples where it has taken longer, especially if additional information is requested. Following the construction of a cultivation facility, the ODC does an onsite inspection, yet it can take months from the inspection date for a permit to be issued," Tracey says.

If a cultivator wants to change a facility in any way or add a new supply pathway, a permit variation must be applied for.

The licence and permit application and annual fees quickly add up. But the most onerous part from a business perspective are the long and uncertain timeframes for ODC approvals. There is also the added requirement for compliance and record keeping.

"Despite the challenges in the local market, Medicinal Harvest has an established presence and solid reputation," said Tracey. "We are already planning a stage 3 expansion at our existing site, which will double the capacity of the first two stages. The expansion will continue to be funded from profits and possibly bank finance."

For more information:
Medicinal Harvest