Is Cannabis Extraction the Future of a Multi-Billion Dollar Industry? – SFGate (blog)
With one year of legal adult use cannabis sales in Colorado and an additional four states and Washington D.C. voting to legalize the recreational use of marijuana, headlines have prompted increasingly bigger waves of investment in the semi-legal industry. By the presidential election of 2016, Arcview Market Research estimates 11 more states will have legalized adult use cannabis, giving the aboveground national cannabis market a $10 billion value by 2018.
As more states move towards regulating both the medical and recreational cannabis markets, demand has driven a steady move from raw cannabis to extracted cannabis concentrates. These concentrates have not only boomed in popularity—comprising between 30 and 60 percent of legal market sales—they have blasted their way through residential neighborhoods and onto local news headlines across the country. Amateur extractions have been responsible for at least a handful of deaths and a greater number of dangerous explosions in the residential neighborhoods where they extract. While many purist cannabis activists strongly push for the right to grow-your-own in any legislation, most advocates and industry stakeholders agree that extract production must be heavily regulated because the market will thrive regardless.
“The future of the extract market is the future of this industry,” says Brandon Krenzler, marketing director for Sirius Extracts, a Portland, Ore.-based extraction company. “People are stepping away from flower [marijuana buds] and getting more into the purified concentrates. There is room for an immense amount of growth and that is what we are going to see from here on forward.”
Professional extractors in legal states say DIY home-producers are a “black eye” on an industry that is both inherently medical but also wildly popular and lucrative. These legal extractors crave regulation, and try to stay a step ahead of the government in safety procedures.
The Evolution of the Cannabis Market
Cannabis concentrates have grown in popularity because of the wide variety of uses they have. Legally produced concentrates are sold for direct consumption in small lip-balm sized containers and are odorless when sealed. The market is booming more so, however, because cannabis concentrates are used to make edibles, topical ointments, capsules and other packaged products that require a more professional extraction.
When concentrates are purchased for direct consumption, they are named for the different consistencies created by the extraction. These waxes, oils, budders and shatters are formulated for use in portable vaporizers and elaborate vaporizing rigs. Vaporizers work similar to an electronic cigarette by heating the material to a temperature hot enough to convert it into an inhalable water vapor, which has only the briefest and faintest of odors and dissipates immediately in the air, unlike smoke. Vaporizers range in size from large at-home units to small, pen-sized devices that are used discreetly. Rigs, which look and work like bongs, are used in a home setting and require a blowtorch to heat the vaporizing element. The process, called “dabbing”, has aesthetic shock value and, along with the home producers who create home extractions, is extremely controversial.
“Many people consider dab culture a liability to the overall legalization of marijuana, noting how the media have dubbed it ‘the crack’ of pot,” says Ed Rosenthal author of Beyond Buds: Marijuana Extracts—Hash, Vaping, Dabbing, Edibles and Medicines. “The analogy is incorrect. Dabs are more like the espresso or hard liquor of pot.”
According to Rosenthal, the extraction process kills bacteria, mold and fungi present in the vegetable material it is extracted from, making it a safer medical use product than black market bud.
Mature cannabis flowers (buds) are coated with glands (trichomes) that contain medicinal compounds. Traditional marijuana consumption is characterized by the simple smoking of the dried and cured flowers coated with these glands containing the medicines. Extraction processes remove the trichomes from the vegetative matter of the leaf, leaving a concentrated wad, goo, hash or powder of pure active medicinal compound.
Recreational and medical users alike have largely moved from flowers to concentrates for a variety of reasons. Concentrated cannabis offers a larger dose of medicine for patients who need more than is pleasant to smoke. Because vaporized, smoked, or eaten concentrates ideally have no plant matter left, the flavors are cleaner and more pleasant.
Hydrocarbon Solvent Extraction: Dangerous, But Nothing New
The medicinal compounds found on cannabis flowers are hydrophobic, so one of the most efficient extraction methods is using hydrocarbon solvents such as butane, propane and hexane to separate the trichomes from the leaf. Hydrocarbon extracts are most commonly produced using butane and are referred to as butane hash oil (BHO). The basic process to produce BHO is to strip the glands from the leaves using a hydrocarbon solvent, then the solvent is evaporated away from the glands and this finished product is often refined further into other applications.
Hydrocarbon solvent extraction is commonly used in food and cosmetic production. Products such as decaffeinated coffee are produced using this method, as are fragrances, essential oils and food extracts such as vanilla.
Pharmaceutical grade hydrocarbon solvents have low toxicity, which is why the FDA allows a residual solvent level of 5000 parts per million (PPM) on industrial goods produced using this method. Debate rages on within the industry about acceptable levels of residual solvents, although most products in legal markets contain between zero and 300 ppm of residual solvent.
The danger is in the solvent itself. Hydrocarbon solvents are volatile compounds that are heavier than air and, although they cannot be seen, can pool on the floor of a space that isn’t properly ventilated. In an amateur setting the smallest spark causes massive, dangerous explosions.
“Cannabis extracts as a whole—butane extracts in particular—are kinda getting a bad reputation,” says Krenzler. “The professionals are left with a PR mess, they are forced to prove what they do is proper, clean, safe, organized and consistent.”
“You have got an extraction method that is considered very basic in organic chemistry and the cost to set up is minimal to be able to make a consumable product,” says Matthew VanBenschoten of Colorado-based TC Labs. “And so, because of the transportation ease and the consumption ease of concentrates compared to the normal flowers, you are seeing the rise of people trying to make this at home because they don’t have access to a regulated marketplace.”
According to Addison DeMoura, co-founder and chief business development officer at Oakland, Calif.-based Steep Hill Halent, the nation’s first cannabis-specific testing lab, black market extractors often use butane formulations not intended for production in consumable goods, adding additional health risk for black market consumers.
An Industry Demanding Regulation
VanBenschoten and other legal producers agree that home-production of extracts should be banned for public safety and that legalized and regulated production is the only way to properly meet demand. Because many national markets are unregulated, or have been in the recent past, these companies largely engineered personal standards in line with or more stringent than federal extraction standards in order to create a safe work environment that produces quality legal product.
“We try to stay ahead of the curve and lead by example,” says Ryan of Seattle-based extraction company X-Tracted. “This is just commercial business, with the right implementations in place it is more than safe. We push safety through regulation.”
Demand for cannabis extracts has largely grown alongside higher demand for the compound Cannabidiol (CBD). CBD has grown in popularity in recent years as media reports have highlighted its medical potential. Cannabis flowers high in CBD have less appeal for their target demographic because in order to obtain a usable dose of CBD from the flowers it must be smoked in larger quantities. Concentrated CBD extractions allow patients to consume a more medically adequate dose of CBD more efficiently.
In Colorado, VanBenschoten and partner Mike Pesce at TC Labs say although regulation is difficult to comply with, it is necessary for the legal market for concentrates to thrive and push out the bad actors.
“That’s what got me into the industry, the regulation,” says Pesce, a New York native who relocated to Colorado for the business. “To me I enjoy it, I have been through it in other industries like banking. I understand it, I get it, but it really sucks when it’s the beginning of the industry and it costs $100,000 when they change the law—you adapt or go out of business.”
TC Labs is an award-winning licensed extract producer that supplies over 30 medical shops in the state. They share a Boulder-area industrial facility with other licensed cannabis industry businesses and pump out thousands of dollars of concentrates daily. Lab testing alone runs the business an average of $30,000 a month—and that is just for the medical market they currently serve.
All cannabis businesses are still cash based, even in Colorado where it is legal and regulated. Professional extractors use expensive closed-loop systems, meaning the hydrocarbon solvent is not allowed to enter open air and is instead contained within the machinery. The machinery cost, lab testing, safety measures, fluctuating regulations and the cash-only nature of the business present a challenge to keeping the business solvent and adaptable.
VanBenschoten says that initial sales data from recreational consumption of concentrates will be low for the state’s first complete year of adult-use sales because the recreational system is entirely separate from the medical system and there is a shortage of producers on the recreational side. He says the market for adult use concentrates will really take off in early 2015, as more producers are licensed to extract for adult-use consumption.
He points to states like Washington and California, where extraction for the legal medical market is still largely unregulated. He says while a lack of regulation is appealing because there is more money to be made, it also creates unsustainable growth.
“What happens in that grey-black market is still a black eye for us in the legal market because there is typically no distinction in the media,” says VanBenschoten. “A black eye for anyone is a black eye for all of us.”
He says that the uninformed reporting of the market sometimes leads to regulations not crafted with the available scientific understanding of what is actually being produced and its pharmacological effect on humans, but instead the legislation is sometimes designed around fears, feelings and emotions—politics. Nonetheless, they prefer it.
In Washington State, which began legal adult use sales in July, regulation has created shortages on all products throughout the recreational market.
Seattle-based extraction company X-tracted Laboratories, like TC Labs and Sirius Extracts, does not actually cultivate cannabis flowers, but instead converts the raw material to concentrate. They are currently working with Washington medical cannabis growers to supply that market. Ryan says having to work within the legal marijuana guidelines created under I-502 (the ballot initiative that legalized the recreational market in the state in 2012) is difficult. Companies like his can only extract from flowers grown specifically for the recreational market, which limits range and amount of product they can put out.
“There is a big misconception right now that the recreational market has been taking off in Washington and that there are all these neat places for people to go buy product, the reality is there are less than 15 actual retail stores open,” Ryan says. “They have extremely limited access to product right now. There are very few people with processing permits to use equipment and actually even process any type of oil. [Concentrates] are almost non-existent in these recreational stores. Meanwhile, Washington has an estimated 700 medical stores which are thriving and alive and well and stocked to the gills with product.”
Ryan says extract producers want to be completely regulated and operate above ground. X-tracted, like Sirius and TC Labs, has largely self-regulated their processes to be in line with governmental regulatory standards for similar extractions. He believes it is the right thing to do and that better regulation fosters better public safety. Still, he says I-502 is making it difficult to meet legal demand in adult use shops.
“It’s not that regulation isn’t good or appropriate, it’s that regulation under 502 has been stifling,” Ryan says.
X-tracted Laboratories is the parent company that manufactures, develops and distributes well-known cannabis concentrate brands to the medical market in the region, including Refine Seattle and Northwest Concentrates. They will be serving the recreational market as X-Tracted Laboratories 502.
Refine Seattle, X-tracted’s bestselling brand and flagship product, is the highest quality they produce and the finished product must meet a set of criteria to receive the brand label. High quality product that doesn’t meet all the criteria is labeled as their “price point brand” Northwest Concentrates.
Price point branding is not a new concept, although it is relatively new to legal cannabis. It is common in national retail goods markets for name brand products to be rebranded and sold under bargain labels in different stores and regions. While the market demands cannabis concentrates, this approach recognizes the diversity of the market and tailors products to meet more specific price limitations of customers.
In California—the nation’s largest cannabis market—extraction is completely unregulated. In December, a state appellate court ruled cannabis extracts are covered under the state’s vague medical marijuana law, Prop 215, which was passed by voters in 1996. DeMoura says in the absence of formal regulation in the production of legal extracts, the industry must create its own. He is working with California industry stakeholders—extraction labs, testing labs, dispensaries and patients—to create standards and regulations for production. The group, California Extraction Research and Science Association (CERSA), will not just lobby in Sacramento but also certify products that meet CERSA standards to create a safer and more transparent marketplace for business owners and patients.
“CERSA is looking to come to the table and educate legislators and law enforcement about the facts,” DeMoura says. “We want to make sure the voice to control and regulate is going to come from the core of the industry.”
Cannabis extracts are being produced and consumed in all 50 states and the national market promises to grow by billions in the next five years. As medical and adult use legalization continues to foster the development and innovation of legal cannabis brands, national demand will similarly increase, even in places where it isn’t legal. Today’s legal concentrate producers must maintain a delicate balance to meet demand safely, within regulation and operating entirely with cash. Legality and regulation will continue to be a state-by-state patchwork until the issue is taken up nationally.
Products produced in similar fashion are available today and sold cheaply in grocery stores. There is no large-scale movement to produce at-home decaffeinated coffee, however, because the product is widely available, legally, at a price the market will bear. As demand increases, so will home production explosions in states that do not legitimize the market and regulate it in the interest of public safety.