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Tips on Starting a Cannabis Extraction Business

Extraction is a Booming Business

Typical Extraction Setup | Extractor Exchange

Typical Extraction Setup

The cannabis extraction business is booming, with extracts and extract-infused products anticipated to be 90% of all marijuana sales. Ultimately, that is just 50% of the opportunity for the Extraction Entrepreneur.

Sales of Hemp derived CBD products hit 90 million in 2015, and the Hemp Business Journal estimates that the CBD market will grow to a $2.1 billion market in consumer sales by 2020. That’s a 700% increase from 2016, and in 2018 we are still in the early days of a worldwide trend towards legalization, with new states in the U.S. joining the medical and recreational market every year. 

With this kind of rapid growth, entrepreneurs, investors, and canna-businesses are flocking to be a part of this red-hot market niche.

7 Steps for Starting a Successful Cannabis Extraction Operation

When compared to many other cannabis-based businesses, starting a cannabis extraction operation is an expensive and complex proposition that can quickly become overwhelming. However, with these key steps outlined below, you will learn where and how to start an extraction business.

1. Write A Business Plan

 

Like any other new business, writing a business plan is the first step in starting your extraction business. A well-designed plan lays out your vision of growth and the steps needed to get there. It is also an essential communications tool for attracting financing for your business. There are hosts of online resources for writing your plan, but we like the Score Template, which is a free download from the Small Business Administration. 

Don’t think of a business plan as a necessary evil, but as an opportunity to carefully think through every step of starting your company, so you can prepare for its success. A detailed business plan gives you the chance to discover any weaknesses in your business idea, identify opportunities you may not have considered, and plan how you will deal with challenges that are likely to arise. A well-written business plan can also help convince investors or lenders to finance your business.

2. Raise Capital

If you have 3 million dollars in the bank, then skip this section. For the rest of us, raising the capital for an extraction business is one of the most challenging parts of the whole enterprise. Reach out to family and friends for loans, and network and spread the word about your venture to attract investors. Your background, personality, determination and business plan will ultimately get you the funds. Check out this list of cannabis friendly finance company from Gangapreneur.

3. Location, Location, Location

Location – the mantra of retail business, is just as important to you. Once you have a detailed business plan and capital in place, it’s time to start looking for a legal State and municipality. Pick a locale that has reasonable access to raw material to process and is geographically convenient for properly executing your business plan.  Different states have different extraction laws, licensing processes, and regulations. Also, some municipalities are extraction friendly, while others are not.

Avoid the mistake made by Golden Leaf Holdings, when they bought a property in Aurora Oregon to serve as the company’s extraction and refinement center, before licensing issues were settled, and lost millions of dollars. This happened because Marion County Commissioners “opted out” of allowing cannabis production facilities in the county, where the Aurora Property was located.

Therefore, it is absolutely essential that your property is properly zoned and you have the blessing of your target municipality before financially committing to a property. Whether leasing or buying, consider making your lease or purchase agreement to be contingent upon obtaining licensing.   

4. Find A Facility

Now it’s time to put the bricks and mortar at the top of your to-do list. After you have found a town or county that is legal for you to open in, you need a facility that will meet city planning and building codes. Do your due diligence and ask important questions, such as; Does the facility have enough power, and if not, can more power be brought in without busting your budget? Do you have water and sewer, and are they acceptable to your local jurisdiction for your intended use?  Are neighbors going to be a problem with noise, smell or traffic issues? Never trust anything a city official tells you, and make sure to get everything in writing.  And, even when you have it in writing they may still move the goal posts, so be patient and prepared for a truckload of BS.

By now, you should have researched the type of extraction method you are going to utilize. Cannabis and hemp extraction machines vary in price, size, and throughput, and the best one for you depends on your budget, the amount of space you have to work with, and your solvent of choice. We will discuss these further in other posts, and there are plenty of information on the web outlining the pros and cons of each method.

Make sure your jurisdiction is aware of your choice, and it is acceptable to them. Good equipment manufacturers, such as MRXxtractors, which provide quality industrial strength supercritical CO2 and Ethanol extraction systems will work with you to design your facility.  By the time you are to commence building, you should have a full list of equipment and production processes laid out. Once you have a set of stamped architectural drawings, you will be ready to hire a contractor, obtain final municipal approval and start construction5.

6. Apply for a License

At this point, you have your facility tied up contingent on getting a license, and you have a set of plans. The next step is to send a licensing application to your local jurisdiction. This process can be smooth if your jurisdiction has been doing this for a while, or it can be slow and frustrating, if you are one of the first, and they are as inexperienced as you are. If it is the latter, be patient and help the official you’re dealing with.

In my experience, the most important thing to them is covering their butt. So, often times you can turn a no into a yes by creatively reading a regulation in a way that they have some cover with their boss.  It will seriously move things along if you show up with a set of drawings from an architect and a nicely bound business plan. You may consider retaining an experienced local attorney to help facilitate the licensing process, not only for their experience and legal acumen but for their contacts with the local municipality personnel and the credibility an attorney provides.

7. Start Construction

By this stage, you have assembled some of your team the architect and equipment manufacturer should already be in place. Next, you will need a general contractor – Check References. With the assistance of your equipment supplier, you should know beforehand all of the equipment you’ll need to purchase for your lab. You should start ordering your equipment during the lab’s construction. The company should also be able to help you with the layout of your lab. Inspections will take place as the work progresses, and corrections will be made along the way. The final inspection may involve the fire marshal and city engineer. It is important to keep a friendly demeanor with all inspectors as they can ruin your day.

Finally, Congratulations! You’re now a licensed facility. Go out and celebrate you deserve it!! Tomorrow you start stage two.

Stage Two

You have to hire and train your extraction staff, figure out the best workflow, start thinking about quality control and packaging, and where to sell all that wonderful  oil. 

The outline above is only a fraction of what it takes to get your business off the ground. Our next article covers the planning that should be happening concurrently. 

By the way, the most important component of any business venture is the entrepreneur. There are four qualities you must have to be a successful entrepreneur:  Work Ethic, Smartness, Risk Taker and Determination. These requirements will be delved into in another article, but for now, examine yourself – do you have all of these qualities?

Sources: Debra Borchardt, Forbes, Hemp Business Journal, Ganjapreneur.