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Jun 01, 2023

The Economics of Extraction

Cannabis Business Times’ May 2018 issue reported that vape cartridge sales in

Cannabis Business Times’ May 2018 issue reported that vape cartridge sales in California reached $100 million for the combined months of November and December 2017. The next bestselling concentrate product during that time was wax, with $7.4 million in sales. The stated total of all concentrate revenue in California for that same period was $140.9 million.

Based on those figures, it's clear that vape cartridges dominate sales. But why? The simple answer: user convenience.

With this data, some companies will successfully focus strictly on cartridge sales, but the cartridge industry is destined to become competitive and saturated. Everyone has, or will soon have, their own branded cartridge without a strategic advantage like a rare cultivar, proprietary device, or efficient and/or superior extraction methodologies and practices. I believe many companies will produce a vape cartridge that is no better nor cheaper than the rest, and these companies will suffer due to little or no brand recognition and will struggle to compete with products that possess strategic advantages (such as the ones mentioned). Therefore, extract companies need to find means to efficiently produce a diversified range of concentrates—and not rely strictly on vape cartridge sales.

Consumers will ultimately demand a wide range of products and offerings. Future consumers will be educated on cannabis's nuances and characteristics. In turn, many will prefer to purchase superior- tasting, connoisseur-quality products over artificial or formulated flavors or poor-quality concentrates. If the superior offerings are affordable, that is all the better for the consumer.

In the first part of this special extracts series, we reviewed a wide range of concentrates concocted from different extraction processes. This is where production economics come into play. Extractors need to be mindful not only of a product's strategic market advantages over another, but also the costs associated with extraction equipment as well as the cost of required basic materials (such as solvents) that can accumulate rapidly and increase production overhead.

In Part I of this extract series, we identified the eight main extraction methods and the 12 most common forms of cannabis extracts. Here they are at a glance:

Each extraction apparatus, whether CO2, ethanol, butane or a hand-press, requires labor of some sort. Some are more user-friendly than others. Typically, the more complex an extraction and refinement method is, the more training the technician will require. Therefore, a highly trained technician (or an employee with a Ph.D.) will require a higher wage than a person performing simple tasks, which ultimately impacts a business's cost of production.

The concentrate's final form is most often dictated by the primary extraction method or by the final super refinement. It all depends on what you want the final form to be and how much it costs to produce. CO2 extraction equipment is costly depending on the unit's capabilities and requires a well-trained operator. Rosin, dry-sieve or water hash require more rudimentary equipment, and employees producing these products do not require extensive equipment training. Comparing the material and labor costs of CO2 extraction to that of rosin presses reveals a stark dichotomy: CO2 extraction equipment can cost hundreds of thousands of dollars, while commercial rosin presses might cost a few thousand. Odds are, the person operating the CO2 equipment makes a higher wage than the rosin-manufacturing technician.

What follows is an abbreviated explanation of the idiosyncrasies and strategic advantages of each method and the associated requirements of each regarding ancillary costs. Again, the ability to produce a business plan around one method depends on the concentrate's final form, the overall volume of material you intend to process, the combined equipment cost, labor costs, ancillary cost of each, and the associated legal requirements regarding laboratory requirements and licensing considerations.

Most of these concentrate forms can be refined and manufactured into a multitude of consumer goods and products. The key to efficiency is to determine what final extract form you desire, then decide which method or apparatus suits your requirements, and how that equipment and the resulting ancillary requirements fit within your business plan.

I have seen many interesting things in my years of concentrate consulting. For example, one individual who insisted he could produce a better rosin press went to China, had some sort of press fabricated and shipped it to Oregon where it has sat unused for two years, never to press a speck of cannabis.

Another group called me rand stated that their intent was to take hydrocarbon extract and increase its value via further distillation, which I explained was unlikely unless they were extracting very poor-quality hydrocarbon extracts.

The point from these two misadventures is this: Don't over-complicate your extraction process. Figure out exactly what concentrate form fits your business plan, then figure out exactly which method suits your needs and stick to it.

Kenneth Morrow is an author, consultant; owner of Trichome Technologies™. Facebook: TrichomeTechnologies Instagram: Trichome Technologies [email protected]

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