1. How has the federal legalization of hemp changed the extraction industry?
The number of new-entrant processors is growing rapidly. Prior to the 2018 Farm Bill, hemp extraction was a state-level business, with no legal crossing of state lines. Now, hemp’s primary monetized compound, CBD, is a national and international commodity. Hence, without the geographic limitations, the scope of extraction operations has considerably increased.
While marijuana/THC operations are generally limited to a few thousand pounds a day processing, Precision is building extraction plants with an excess of 10,000 lbs/day processing capacity.
2. What is the most important step for someone considering the extraction business?
A well thought out business concept is vital to developing a successful extraction operation. What is your niche and product? Who is your customer? What is your material source? How much material do you intend to process per month? These are questions we often ask new customers, and they should be addressed prior to making a substantial investment. Most need guidance; we are happy to help with that.
Your plan will dictate the extraction lab size, equipment selection, the lab size and layout, from primary extraction to post processing and packaging rooms.
3. How much will it cost and how long will it take to get extraction startup operational?
A small extraction lab, about 2,000 sq. ft. or less, can launch for less than $800,000. This cost includes: securing a lease and licensing; a professional team, including a designer, architect, mechanical engineer; equipment supplier and consultant; construction and buildout; equipment and training; and municipal inspections and approvals.
A large industrial hemp extraction plant operation can cost tens of millions, however.
4. What is the prospective ROI from an extraction operation?
ROI can vary drastically. For example, in the hemp/CBD space, the math (at the time of publication) breaks down like this:
The wholesale price of CBD isolate is between $4,000 and $6,000 per kilo. The cost of hemp input biomass with 14-percent CBD content is approximately $50/pound. With such CBD content, and assuming a 10-percent CBD yield in the extraction process, it takes 22 lbs. of input material to make a kilo of isolate, hence $1,100 in input material returns thousands in gross profits.
Other considerations include input material and wholesale price changes, operational costs, including labor, utilities solvent and general fixed costs.
It’s crucial to consider equipment engineered and designed to have low operational expenses when considering building an extraction facility.
5. What is the No. 1 mistake people make when entering the extraction business?
The biggest mistake people make when starting any business is not looking ahead. For example, with the federal legalization of the manufacture and sale of CBD, the Food & Drug Administration is investigating implementing Good Manufacturing Practices (GMP) compliance. While GMP is not currently required on a federal level, many of the facilities that Precision is designing and equipping are GMP compliant in anticipation of forthcoming regulations.