Led Lighting Helps Brighten Cultivators’ Financial Statements
Tightening down a business’s expenses and reducing its tax burden is a lot like the correct captaining of a sailboat. Once you’ve got your boat pointed in the direction you want it to go, you must tighten down the sails so that maximum forward momentum is achieved.
One way a cannabis grower can reduce their expenses is by opting for an LED (Light-Emitting Diode) lighting upgrade. Not only will this result in a substantial reduction in electricity costs, but there are significant utility rebates and special government tax deductions available as well.
Reducing the High Cost of Electricity
A typical indoor cannabis facility requires between 2,000 and 3,000 kilowatt-hours (kWh) of energy per pound of flower and accounts for between 20% and 40% of total production costs, according to the Northwest Power and Conservation Council (NPCC).1
By switching to LED lighting from HID lighting (High-Intensity Discharge – traditionally the typical choice for indoor growers), the following advantages can be achieved:
- Power savings: often a 47% drop in electricity.
- Reduced replacement costs over time: although LED lights are 20% to 150% more expensive than HID lights, they typically last 10 years, versus the 18 months longevity of the HID systems. Bulbs and reflectors are replaced every 6-12 months to maintain light levels.
- Reduced cooling costs: LED systems provide a gentler, more even heat, which is easier on plants and which requires less air conditioning costs.2
- Equal to or greater yields than HID systems
Potential Millions of Dollars in Utility Rebates Available
TSRgrow, a leading North American manufacturer of ballast-free LED lighting systems for cannabis cultivators, points out that significant utility rebates are available to those investing in LED lighting. They’ve been able to work with local utilities and have helped many of their growers procure millions of dollars in incentives to offset LED lighting costs. These utility rebates are typically paid 45 days after the installation of the system and can range from 35%-90% of the cost of one’s project.3
Increased Section 179 Deductions for Non-Plant-Touching Companies
For those businesses able to demonstrate a 50% decrease in energy usage, the federal government offers accelerated depreciation deductions through Section 179 for equipment of up to $1.80/square foot of the building. For those companies achieving less than a 50% decrease, the accelerated depreciation deduction is from $0.30-$0.63/square foot.4
However, there is a caveat. Due to Section 280E, the section of the Internal Revenue Code that classifies cannabis as illegal, cannabis-industry businesses seeking to claim the Section 179 deduction must take the deduction through a separate, non-plant-touching entity (which then leases the building in question to the plant-touching business).5
The Bottom Line
The bottom line is that, for those cannabis cultivation businesses willing to invest in high-quality LED lighting, there is a potential to significantly increase their profitability through reduced energy costs, substantial utility rebates, possible increased depreciation deductions, and reduced bulb-replacement costs over the long term. Cutting-edge LED manufacturers like TSRgrow have the tools to help your company intelligently evaluate this important move and make it possible.
References:
- https://blog.tsrgrow.com/the-
cultivators-guide-to- controlling-energy-costs - https://nextbigcrop.com/blog/
hid-lights-vs-led-lights/ - https://www.tsrgrow.com/led-
grow-light-rebates - https://www.irs.gov/pub/irs-
utl/irc-179d-energy-efficient. pdf, pgs. 5, 8-9 - https://capitalreviewgroup.
com/3-key-tax-savings- opportunities-for-cannabis- companies/
About The Author
Abraham Finberg
Managing Partner
Abraham Finberg MBA, CPA, managing partner at AB FinWright, has been a leader in the cannabis sphere since 2009, counseling clients in all phases of business advisory and tax, from start-up through M&A and IPO.
About The Author
Rachel Wright
Managing Partner
Rachel Wright, MST, CPA, managing partner at AB FinWright, specializes in cannabis accounting and taxation for multi-state and multinational entities, advising clients on everything from internal controls to the bottom-line implications of mixed local, state, federal and international statutes of taxation.
For all your taxation challenges in cannabis, feel free to reach out to me or any of the other team members at 420CPA and share with us your business challenges. We have been helping cannabis companies since 2009.
About the Author: HCN News Team
The News Team at Highly Capitalized are some of the most experienced writers in cannabis and psychedelics business & finance. We cover capital markets, finance, branding, marketing and everything important in between. Most of all, we follow the money.
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