The American market is undeniably the largest the world has ever seen and is likely to remain so for a very long time. Look at it this way: We can each produce something, then sell it in the same language and using the same currency across a jurisdiction spanning nearly 3,000 miles. In terms of geography, there is no other market like it and never has been. Given that America is a $20-trillion economic powerhouse, we are also unlikely to see any other economy nearly as valuable. The opportunity to sell into that market is why everyone wants to bring their products to the U.S., no matter what market cap their companies currently have.
While an ongoing flood of companies, most notably conglomerates, entering the U.S. market may incite fear, we prefer to look at the opportunities as we perceive them.
Niche products that have gained access to the U.S. market and have prospered include Ben & Jerry’s, Honest (maker of Honest Tea, among others) and Tom’s of Maine. Sierra Nevada used to be a craft beer company, and KIND used to be a niche health food company. Companies like Trillium Brewing Company in Massachusetts and Vermont’s Alchemist are now at craft scale, while Sierra Nevada and KIND have grown to be larger operators.
What each of these current and former niche businesses have in common is an understanding of their existing and potential customers. In the context of the American market, each of these players learned to understand its customers and to deliver what these customers wanted. Each of these success stories features a company that gained the confidence and trust of a large part of its potential market. By the time the larger players in their respective industries became aware of these niche brands, the larger players had to either live with the niche players or try to acquire them. Once the niche players had gained the confidence and trust of American consumers, the large players could do very little about it.
The question for the cannabis industry is whether we can do the same thing in our industry before Big Pharma, Big Alcohol or Big Tobacco figure out how to gain the confidence of our natural market with products similar to our products before we do.
The First-to-Market Advantage
It appears to us that we, as current operators, have the advantage of being first into this market. Our products are not easy to handle, and our market and our customers have their quirks. The big guys will throw their money at the problem by bringing in their marketing experts and focus groups to try to understand our market’s customers. We do not believe the big guys can do this any more quickly or more effectively than current cannabis businesses can. We believe that we can deliver the products, the packaging and the labeling that our customers want better than the big guys can.
We are not saying that this will be easy. Today’s cannabis businesses will have to work to understand their markets better than they do now. Some of this market, in particular some of the larger conventional American consumer market, will be strange to us. That is, some of our potential market will be entirely new to whatever we might call the “cannabis experience.”
Nevertheless, we have a head start. We know our natural customers, and we know the nuances of our products that we will have to explain to new customers. This means that current operators should be able to do the focus groups and the marketing better than the big guys. It seems to us that this is exactly what Ben and Jerry’s, Sierra Nevada and other companies like them have done.
Furthermore, we have an extremely large market to motivate us all. We should be able to exploit market niches within our markets and, indeed, to exploit the entire market before the big guys can.
On the whole, we believe that they have more to fear from us than we have from them. We all know that they could spend an awful lot of money going down rabbit holes in this industry and end up with nothing. The big prizes will mostly go to the companies that learn how to create and serve American customers. Those should be our companies.
Build Trust, Reduce Costs
We have recognized certain significant cost drivers that, within the American market, are unique to the cannabis industry, including one of the biggest thorns in the side of producers: mandatory third-party testing.
Mandatory testing is required of conventional food, beverage and drug producers, but they all do their testing in-house, subject to FDA audit. Even after absorbing the costs of internal testing, bringing that testing in-house would save our company (Connecticut Pharmaceutical Solutions) roughly $400,000 per year in comparison to the costs of independent third-party testing.
To bring testing in-house, we would have to do a lot of work to convince both our regulators and our customers that they could rely implicitly on our in-house testing. Furthermore, our legitimacy in our customers’ (and regulators’) eyes is invaluable and must never be subject to question. Nevertheless, we have several hundred thousand dollars of motivation regarding this issue.
Another area for very large potential cost savings is tax reform, specifically with respect to Section 280E of the Internal Revenue Code. If the big guys get into this industry, we can expect them to talk to politicians through their lobbyists about how many people they employ and about how important their industries are to local economies to persuade them to revise these unfriendly codes.
This perhaps is the biggest advantage larger companies have over current cannabis industry operators: They already work together. They generally do this through large industry organizations. The cost of that unification is that even big guys like Procter & Gamble, Johnson & Johnson or Unilever can’t simply go their own way, no matter how big they are. They have to figure out how to cooperate as to their common industry interests, which tend to overwhelm their competitive interests. No matter how big they may be, they would never fight 280E as individual companies, but rather as an industry. They would present a united front as an industry that contributes a great deal of money to the American economy and that employs a large number of people. They would direct their lobbyists at a common target.
Our industry already has multiple associations and lobbyists, and already employs a lot of people. Presenting ourselves with a unified voice as the source of legitimate product and as significant to local economies, however, remains a challenge. So long as we leave legitimacy and economic significance to the big guys, we will be exposed on that front. We would like to control product legitimacy and economic significance from the high ground. We already know about regulation. We already know about testing. We already know how to hire lobbyists. From our point of view, our industry should be the one to remove Section 280E from the tax code. This will take a unified industry. We will need producers working with dispensaries, dispensaries working with producers, and industry organizations that help us to work together.
With the exception of cooperation, we see those big guys as no better than we are and probably not nearly as good.
The Value of Getting It Right
We argue that the door is open for us to be as sophisticated as any big company or as any big industry in working together politically to do something that benefits all of us, all of our communities, and all of our customers. We can do all of this as a legitimate industry that employs thousands of people, contributes its more-than-fair share of taxes, and supports the growth of the entire economy.
We acknowledge how esoteric this sounds. It sounds like a lot of effort for something other than this month’s revenues and profits. But either we control these matters, or we leave them to someone else to control. As Aristotle said: Nature abhors a vacuum.
Thomas Schultz: President, Connecticut Pharmaceutical Solutions (CPS), CTPharma.com
Rino Ferrarese: COO, Connecticut Pharmaceutical Solutions
When you can’t anticipate a crisis, the only thing left to do is respond honestly and thoughtfully.
That’s what we learned from the outbreak of vaping-related illnesses that, as of press time, Oct. 28, has sickened more than 1,600 people and killed 34. While there are many risks that cannabis cultivators can prepare for, the ramifications for legal, licensed operators of the crisis were not necessarily predictable. However, there are lessons to be learned.
Continuing to be committed to quality and safety—and demonstrating that to the public by publishing third-party test results and ingredients—is something legal operators are already doing, but it is even more important for the highly scrutinized cannabis industry, especially in the midst of a vaping illness crisis, when products from licensed operators upheld to incredibly strict guidelines are compared to those from illicit producers.
Responses from industry stakeholders and state leaders to this devastating and still unexplained spate of lung injuries have varied as much as state laws guiding the consumption of medical and adult-use cannabis. State actions include implementing bans of all vape product sales, despite reports from the Centers for Disease Control and Prevention stating that “products containing THC, particularly those obtained off the street or from other informal sources … are linked to most of the cases and play a major role in the outbreak,” and requiring licensees to disclose all compounds and ingredients, an approach that many cannabis companies took prior to the outbreak. An overview of what we know and how various entities have responded is included in this issue.
The Green Organic Dutchman, the subject of this month’s cover story, has prioritized organic cannabis cultivation, and executives noted that their efforts to communicate their stringent growing practices correspond with consumers’ increasing preference to know where their food, plants and other products come from.
Listing product ingredients is also increasingly important to consumers. Instead of focusing on indica and sativa labels, a panel of experts at the 2019 Cannabis Conference argued that the industry should instead do more research on the nuanced effect that cannabinoids, terpenes and flavonoids have and also spell that out for consumers.
Also in this issue, columnist Kenneth Morrow explores terpene extraction processes and their impact on health and product quality.
The latest Gallup poll, conducted in early October amid the vaping crisis, revealed that two-thirds of Americans favored making cannabis use legal, holding steady with 2018 results. Though the country continues to regulate cannabis on a state and municipal basis, the industry can prepare for the inevitable scrutiny this crisis and federal legalization will bring by doubling down on its quality standards, implementing the highest manufacturing practices and keeping that process as open and transparent as possible.
Demand for extracted cannabis products is quickly gaining traction. For example, edibles companies saw $1.5 billion in sales in major markets in 2017—and cartridge sales last year cleared $610 million in those same markets, according to Brightfield Group. When executed properly, cannabis extracts can be also used to produce other high-quality products such as topicals, transdermal patches, capsules and other concentrates. Yet, cannabis extraction can be a complex process-one that needs careful attention and a skilled workforce to be completed safely and efficiently.
The first part of this special extraction series explored the products that can be derived from cannabis’ essential oils-such as tinctures, transdermal patches, oral tablets, vaporizing and dabbing oils, and many more-and how those extract formulations can be achieved through supercritical carbon dioxide extraction (SCCO2).
The second installment of this series explores hydrocarbon extraction, butane in particular, including its functionality, laboratory requirements and what features should be considered during extractor selection.
Introduction to Butane
Before diving in, a quick review of relevant physical properties of n-butane can be helpful. Butane is a non-polar, Class 2 flammable liquefied gas that the Food and Drug Administration (FDA) has Generally Recognized as Safe (GRAS). It has a low boiling point of 31.1°F (-0.5°C), which is helpful when cold-boiling the residual solvent from the concentrate solution. This process leaves behind the temperature-sensitive terpenes. Many extraction technicians prefer to blend their butane with propane to create a gas mixture that will strip additional terpenes and purge more efficiently than butane alone. (The boiling point of propane is -43.6°F (-42°C).)
So, what features of n-butane (C4H10) make it an effective solvent in cannabis extraction? Hydrocarbons are arguably the most efficient solvent for cannabis extraction. Of the two standard hydrocarbons used for extraction (butane and propane), butane is a low-pressure system where extractions occur between 0 psi and 30 psi (pounds per square inch). One advantage of hydrocarbon extraction is the sheer number of products you can create from a single standard extraction without further refinement. Fresh, frozen extractions are the “fresh-squeezed juice” of the concentrate world. Currently, the preferred method is to separate the crystalline high-cannabinoid extract (HCE) from the aqueous, high-terpene extract (HTE). These fractions can be sold as separate SKUs or recombined at a ratio of the processor’s choosing to create a full-spectrum extract (FSE). Full-spectrum extracts are very popular.
A few shortcomings of butane exist, the primary one being its flammability and the regulatory compliance costs surrounding any hydrocarbon extraction. Hydrocarbons as extraction solvents are currently outlawed in Canada and some U.S. counties have enacted or are considering bans on hydrocarbon extraction. The second shortcoming is the lack of automated options. Unlike CO2 and the new ethanol systems, hydrocarbon extraction is still a very hands-on process, which can make extraction-outcome predictability difficult. (The hands-on nature of hydrocarbon systems puts added reliance on operator skill to achieve product consistency.) Only a few automated extraction machines are currently available to the cannabis industry; however, the price tag and throughput can be a tough pill to swallow for some. Automated hydrocarbon extraction systems will improve in quality and decrease in price as their safety features and internal monitoring systems become more reliable.
The Butane Process
Parent Material Quality
The starting material’s quality has a direct effect on the finished concentrate’s quality, regardless of extraction methodology. Always store plant material in a cool, dark place, and in vacuum-sealed or nitrogen-filled bags. These precautions limit exposure to ultraviolet rays, heat and oxygen, which are the three primary factors contributing to cannabinoid degradation.
Cold butane is released from the solvent tank into the material column, where it slowly washes over the plant material, dissolving the cannabinoids and terpenes from the cannabis. Once the plant material has been washed, the solution can be collected directly, or it can be processed through an in-line de-waxing column.
Butane extractions are not typically winterized and filtered because the low extraction temperatures dissolve almost no chlorophyll and because the low temperature limits the amount of dissolved lipids/waxes. Additionally, many closed-loop hydrocarbon extraction machines come equipped with in-line de-waxing systems. Like winterization, in-line de-waxing requires a minimum -22°F (-30°C) environment, but it is a single-solvent system, where winterization uses a secondary solvent. In-line de-waxing employs the extraction solvent and takes advantage of the surface area created by baffles, stainless beads or other media to retain the undesirable materials as concentrate/extraction-solvent solution pass through.
For winterization, a polar solvent like ethanol is used at a 10:1 ratio, which is chilled until separation occurs. It is then poured over various-sized micron filters to separate out the lipids and waxes from the concentrate solution. While winterization is a more thorough process than in-line de-waxing, the polar ethanol might degrade some terpenes, which could result in a less flavorful product. Note that if the extraction system has in-line de-waxing built into the process, the technician should account for an additional 30 to 90 minutes of processing time.
Once the concentrate solution enters the collection pot, the residual butane is purged off passively by heating the vessel, which pushes the butane out of the concentrate solution back to the colder solvent tank. This process completes the “closed-loop.” Once the majority of the butane has been removed from the solution within the collection pot, the extraction technician collects the concentrate solution and places it on a parchment sheet or into a glass media bottle for separation.
Removing Residual Solvent
Purge methods and durations are dependent on the desired finished product. If the desired end product is wax, the concentrate solution can be whipped for a couple of hours to remove all residual butane. If shatter is the desired product, the concentrate solution is spread thin across Teflon sheets and purged inside a vacuum oven for a minimum of 48 hours.
Hydrocarbon System Considerations
When employing a flammable solvent like butane, it is important to understand that the processing laboratory-not only the extractor-must be in compliance with Occupational Safety and Health Administration (OSHA) and National Fire Protection Association (NFPA) regulations as they apply to flammable solvents and explosive atmospheres. These include implementing a Class 1, Division 1 (C1D1) extraction/manufacturing space that has gas monitoring, zero ignition points, adequate ventilation and a fire-suppression system that can negate catastrophic equipment failure. A well-ventilated space dedicated to temperature regulation where the chillers and heaters are plumbed into the C1D1 extraction space is recommended. There are also important oven, refrigeration and vacuum requirements (see OSHA 29CFR, NFPA 45, 99, 70, etc.).
When it comes to the extraction system, these three variables are of the utmost importance:
- Ensure the machine is approved for use at the processing location. If the closed-loop system has not been peer-reviewed in that jurisdiction, then it will not pass inspection.
- Ensure the extraction system can handle the current throughput as well as the ability to scale.
- Control temperature. The equipment must be able to keep 25 kilograms of butane at -40°F (-40°C), while maintaining sub-cooled injection coils and cooling of the de-wax column. These ancillary chiller and heater expenses, including HVAC to vent the heat generated by these units, can run upwards of $50,000 on top of the closed-loop extraction system (CLS) price.
Below is an example of a production system followed by an identification of the bottleneck(s).
First, it is necessary to lay out the following assumptions:
- Starting material is trim
- Extractor input of 4,500 grams
- Return ratio of 0.15 (meaning the weight of extracts will be 15 percent of the weight of the plant material used)
- Five extractions per shift
- One shift per day/five work days per week
With hydrocarbon extraction, there are two bottlenecks within the process. First is the vacuum oven space required to purge the residual solvent out of the concentrate solution, and the second is packaging the finished product.
Extracting 4,500 grams of biomass every 90 minutes results in 22.5 kilograms (22,500 grams) of biomass per shift being extracted. Based on the average yield from properly grown trim (15 percent), 3,375 grams of concentrate is produced per shift. A 5-cubic-foot oven can hold about 1,200 grams of concentrate. Therefore, three 5-cubic-foot ovens would be required for each production day. Since each purging event requires 48 hours, a manufacturing laboratory would require a minimum of six ovens of that size to meet the weekly production of the extractor.
The packaging and fulfillment bottleneck is the most significant because none of the processes outside of labeling and sealing are automated. Currently, every process except labeling requires staff labor. Packaging will continue to be the most intrusive bottleneck in all successful processing facilities until the industry can figure out a way to automate handling various forms of concentrate and weighing it out to exact amounts.
Editor’s note: To read the first part of this extraction series, look to the March 2018 issue of Cannabis Business Times, or visit bit.ly/supercritical-extraction-guide.
Mark June-Wells, Ph.D. is principal owner of Sativum Consulting Group and a Ph.D. in botany/plant ecology (Rutgers University).
Mitchell Lindback is an extraction specialist for MJardin Group, a highly specialized professional operating company.
“I am pleased that DEA is moving forward with its review of applications for those who seek to grow marijuana legally to support research.”
^ U.S. Attorney General William Barr released a statement Aug. 26 in response to the Drug Enforcement Administration’s announcement that it would begin processing dozens of pending applications for permission to cultivate the plant for scientific research. Source: Drug Enforcement Administration
“We’ve seen in some states the price go as high as $500,000 for a license to sell marijuana. So, we see people willing to pay large amounts of money to get into the industry.”
^ In a Federal Bureau of Investigations (FBI)-sponsored podcast, Supervisory Special Agent Regino Chavez explained why the FBI was taking a closer look at the cannabis industry’s licensing processes as federal officials investigate alleged corruption by state officials responsible for overseeing cannabis licensing. Source: Federal Bureau of Investigation
“Some of these operators [with license applications] have been waiting with leases, paying out of their own pocket for 11 months now. I think it’s really time we see a bit more political ambition towards getting these entrepreneurs into the game.”
^ Tantalus Labs CEO and founder Dan Sutton expressed doubts about the British Columbian government’s contention that a strong illicit cannabis market is the main reason for struggling legal sales in the province. Instead, he points to a lack of political will to lift the legal cannabis market. Source: Global News
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