Extraction economics, pharmacies, cultivators and edible and filling manufacturers of choice

Over the next few months, I will be writing articles on the options available to licensed mid-cultivators, dispensaries, and edible and infusion manufacturers when processing cut edges to extract a more profitable concentrate.

There are two options available, "vertical integration" or "outsourcing".

Vertical Integration: With this approach, significant start-up costs are incurred. The initial cost of the equipment includes.

The cost of a cbd extraction equipment is approximately $135,000 to $150,000.
Rotary evaporators and centrifuges cost between $20,000 and $35,000.
Additional costs include, but are not limited to, buildings, permits or infrastructure and the hourly wages of the technicians needed to operate the equipment. And, of course, if you do not grow your own product, you must consider raw material (trim) costs that vary from state to state.

Depending on your accountant's interpretation of the 280e tax law, whether you can write off the cost of that equipment.

If your product requires additional post-processing, such as anti-freeze, decarboxylation or reintroduction of terpenes into the concentrate, it may be desirable to integrate them only so that you have the opportunity to protect your product formulation and trade secrets.

Keep in mind that expansion to other regulated countries will require all of the above costs and considerations.

Outsourcing: There are two available options that involve having an extraction company process and extracting the concentrate from the decorations you provide.

Option 1: The most common option on the market today is to provide the decoration you want to process and have an outsourcing partner extract the concentrate for you.

In this case, you can avoid the plant and equipment costs, labor and other infrastructure costs associated with vertical integration and agree on a 50%/50% cost share that typically involves extracting the concentrate.

For example, if you supply 10 pounds of trim and calculate a typical industry yield of 10% concentrate (1 pound), the supplier will receive half a pound of concentrate and the processor will receive half a pound of concentrate.

The cost per gram of concentrate is determined by the market value of the finished product. In this case, the better your material, the more expensive it will be to extract it. The benefit is that you do not have to invest any money to process your material.

Option 2: The second outsourcing option involves paying a fixed fee to process your material and then getting all of the extracted concentrate.

For example, if you pay $200 per pound to process the trim and the concentrate yields 10%, then the cost per gram is $4.41.

If the supplied trim yields 12%, the cost per gram would be $3.68 per gram. Therefore, the better the trim, the cheaper the extraction cost under this option.

It usually makes sense to use the first option for cheaper and lower yielding material and the second option for material that yields higher yields.

Another advantage of outsourcing your extracts is that the outsourcing partner can gain access to other raw materials or wholesale sources of decorative materials or concentrates from other customers.

A good rule of thumb when considering whether to vertically integrate (do it yourself) or outsource is that it will always be more cost effective in the long run to access the material and process it or to process it in-house.

Outsourcing to an extractive company allows you to use the working capital saved at start-up for other priorities.

I hope this information is useful when evaluating vertical integration of extraction into your operation or outsourcing your extraction needs. In future articles, I will discuss the methods and importance of proper storage of materials, the basic extraction process and the differences between CO2 extraction and other forms of extraction.