Cannabis-Derived Terpenes Versus Botanical Terpenes

Make a Good Product Great: The Difference Between Cannabis-Derived Terpenes and Botanical Terpenes

There is no subset of people who uncork a high-end bottle of wine and speak avidly about how ‘alcoholic’ it is, disregarding its flavors and subtle qualities. There would be no point – winemaking, like so many other creative processes, is an art, and creating cannabis products is no different.

While cannabis has a variety of medical and recreational uses, it’s the underlying flavors and smells known as terpenes and flavonoids that make a good product great. Extracting these volatile compounds from the plant is a delicate process, but well worth the effort in setting your business apart in a highly-competitive market.

Up until recently, adding unnatural terpenes back into a product went largely unnoticed across the United States where legislation around cannabis continues to evolve. News out of Oregon, however, could be the first of many other states to follow suit and cause a wave of disruption for many cannabis extractors. The Oregon Liquor Control Commission wants to stop manufacturers from being able to mix THC oil with any additive such as flavors and thinning agents. For extractors using methods or solvents stripping the plant of its natural terpene content, the potential ruling could mean a costly halt in production for those operating with harsh solvents and methods bound to non-cannabis derived terpenes.

Terpenes make or break your cannabis product

Cannabis producers typically focus on extracting CBD and THC from the plants – and it makes sense, as they are the “useful” parts. However, as research continues to uncover, there is far more to cannabis than THC and CBD. The full spectrum of botanical compounds in cannabis produce effects on the cannabinoid receptors, but the idea that they all work together is called “the entourage effect”. CBD, THC, terpenes, chlorophyll, and the various other parts of the plant all combine their effects to produce a more powerful benefit than if you were to extract them individually.

Terpenes provide flavor and aroma to cannabis and can vary dramatically and help you make a unique product, distinct to your business. They’re responsible for that incredibly fresh and vital smell and taste, especially with cannabis concentrates. With so many products opting to neglect terpene inclusion, finding a good method to extract them can add a brandable uniqueness that your customers can gravitate towards and keep you in the clear when regulations enter the question. Cannabis customers – your customers – want that smell and flavor.

Perfecting Terpene Formulations for Quality Products

The challenge of perfecting formulations using the proper balance of terpenes is what will set apart quality cannabis products in the market, which is why terpenes are in high demand for manufacturers.

Aside from the associated costs based on the extraction method, standardization, efficacy, and scalability are all deciding factors that have motivated manufacturers to source terpenes from other plant sources as additives, often rich in the same molecules of interest that cannabis contains.

Cannabis-Derived Terpenes

  • Cannabis terpenes are ideal for flavoring products intended to smell and taste just like the plant in its natural form
  • Cannabis terpenes allow formulas to remain completely derived from the cannabis plant

Botanical Terpenes

  • Botanical terpenes are readily available in bulk supply at reasonably low costs
  • Botanical terpenes can mimic the cannabis plant’s natural flavors and aromas

Choosing Your Extraction Method based on Terpenes

How quickly and cost-efficiently compounds can be removed from cannabis are often the first questions posed when it comes to deciding on the process, but it’s not that simple. Unfortunately, there are more compounds in cannabis than desirables like terpenes and cannabinoids. Chlorophyll, fats, and waxes are all co-extracted frequently and are ultimately unwanted. These undesirable compounds require additional refinement processes if they are to be removed from the extracted crude oil. Often, this refinement entails significant temperature fluctuations to separate out the undesirables for removal. For example, mixing your oil with ethanol and then placing it into the freezer (winterization) will separate out the fats and waxes for removal. However, the mixture then requires heat to remove the ethanol via evaporation.

Let’s say you used the strongest solvent possible for your cannabis extraction. Congratulations, you extracted (nearly) all the cannabinoids and terpenes! Unfortunately, you also pulled a ton of fat and wax, which is where things get tricky.

If heated excessively, terpenes can be destroyed completely. So, how do you evaporate out the ethanol added during winterization without heating and destroying your terpenes? In comes CO2.

With a low-temperature and -pressure CO2 extraction tuned specifically for terpenes, you can extract the terpenes first and store them safely. This process is called a subcritical CO2 extraction, which uses liquid CO2 below its critical point. The liquid CO2 is pumped through the plant material, dissolving terpenes and some oils. Then the CO2 is decompressed and returns to its gaseous state, allowing the terpenes and oils to precipitate out for collection. After the terpenes are safe, you can extract again, this time at a higher temperature and pressure. In fact, you can fine-tune the pressure and temperature to maximize your extraction efficiency by specifically targeting cannabinoids only and ignoring chlorophyll. Once your cannabinoids have been extracted, you can safely winterize them without worrying about damaging any terpenes. After refinement, the terpenes can be added back to the extract to produce a full-spectrum, natural product.

Your customers want flavor and aroma in their cannabis, so why leave it behind in your plants or use unnatural additives after? Use the best methods for terpene extraction and truly set your cannabis products apart from the competition.

 

With a CO2-based extraction system by Vitalis Extraction Technology, extractions can be customized with the fine-tuning of temperature and pressure to allow for precise extractions of nearly any desired compound. Have a few questions? Reach out to a member of our team.

Hemp Extraction & CBD: A Billion Dollar Industry


While the cannabis industry as a whole is expanding, it is the use of CBD extracted from hemp that is proving to be the perfect entry point into the industry for businesses both small and large. According to
Statista, the U.S. consumer sales of cannabidiol (CBD) are expected to reach $1.8 billion by 2022, while other studies find it is on track to grow to a whopping $2.5 billion by 2023. But the question remains, are there still opportunities available in the hemp industry? Absolutely.  Here’s our take on what the year ahead could mean for those in the hemp extraction business.


New Opportunities for Hemp Growers

At the end of 2018, the U.S. Congress passed the Farm Bill, a somewhat controversial distribution of aid and legal changes for farmers across the country. One of the most significant changes is that it opened the doors to growing a highly desirable cash crop: hemp. The bill removed hemp from the list of controlled substances and left it to states and territories to establish growing requirements or restrictions.

Another enticing change for farmers was new access to federal farm programs. With hemp no longer a federally illegal substance, farmers can grow and sell the plant without hindering their ability to receive federal aid.

The Farm Bill caused a ripple effect across the United States. CBD oil is suddenly in high demand as companies look to add it to a number of products: food, beverages, beauty, skincare products, and more. For growers in North America, this means a greater demand for high-quality hemp plants. 


Increase of Importance on Pure CBD Extraction

The changes caused by the Farm Bill also mean greater opportunity for extraction companies. As long as the CBD oil extracted from hemp contains less than 0.3% THC and meets the standards set by the Food and Drug Administration, it is legal to produce. 

The FDA has strict requirements regarding the purity and potency of hemp CBD oil. As extractors look to add the product to their list, they are also focusing on their methods to maintain the quality and purity regulated by the FDA. Every state is different in their management of purity, but those most concerned with producing the highest quality CBD are choosing CO2 extraction. Considered to be one of the most effective and safe methods of extraction for food, health, and skin products approved by the FDA, CO2 extraction has three major benefits when it comes to producing CBD oil. The solvent is environmentally safe and leaves behind no residue, making the extracted product safe for consumption and application. CO2 allows extractors to select the specific compound they wish to extract, producing CBD with only small traces of THC (if any) and meeting FDA requirements. Finally, CO2 is incredibly versatile, leaving extractors with opportunities in other industries outside of hemp and CBD oil, should the future market take a different shift.

As the desire for CBD products increases in the U.S., the FDA will continue to expand its efforts to clamp down on low-quality CBD oil, which will only reinforce the need to choose methods that deliver pure products.


More CBD Retailers will Join the Market

Once hemp CBD oil was legalized in the U.S., a multitude of products started to appear. CBD donuts, coffee, water, and a number of speciality sports drinks joined the more common products like balms, tinctures, and lotions. Now, consumers are even purchasing CBD biscuits and food for their pets.

Along with the expanding use of CBD oil is the growing list of retailers that are making these products available in their stores. CVS, Kroger, Walgreens, and Rite Aid are among the top brands that have already started offering CBD topicals and other products in many of their stores. Products are also available in over 10,000 gas stations.

As CBD oil products become more widespread and available outside of local pot shops, demand for high-quality CBD will continue to grow, adding to what analysts are predicting to be part of an $80 billion cannabis industry by 2030.


Accessing the Billion Dollar Hemp CBD Industry

What do these 2020 trends in hemp production mean for your extraction business? While the global cannabis industry is growing, the slow legalization of marijuana in the U.S. is contributing to more widespread use and acceptance of CBD. 

Regardless of where the numbers land the trajectory for CBD is headed upward, creating opportunities for growers, extractors, and investors alike. Legalization doesn’t only create consumer demand; it also opens doors for easier financing for those in production. Even the smallest extraction operations will have access to big opportunities in hemp this year.

 

Vitalis helps prepare farmers and extractors in the hemp industry. Our state-of-the-art extraction equipment, services, and financing lead to better partnerships, higher quality products, and cutting-edge opportunities. Contact us.

 


Sources

https://www.cnbc.com/2019/01/08/top-weed-analyst-on-wall-street-raises-sales-forecast-names-top-picks.html

https://www.statista.com/statistics/760498/total-us-cbd-sales/

https://www.fda.gov/news-events/public-health-focus/fda-regulation-cannabis-and-cannabis-derived-products-including-cannabidiol-cbd

https://www.fda.gov/news-events/public-health-focus/fda-regulation-cannabis-and-cannabis-derived-products-including-cannabidiol-cbd

https://www.pbs.org/newshour/science/is-cbd-legal-heres-what-you-need-to-know-according-to-science

https://www.fool.com/investing/2019/07/14/us-cbd-sales-to-grow-an-average-of-107-annually-th.aspx

High-yield CO2 Extraction

Vitalis high-yield c02 extraction

Making it Worth The Squeeze

When life gives you lemons... use them to improve your yield! Successful extraction, while a precise science, can be mastered using a little creative comparison. Forget the intricacies of the equipment and technical terminology associated with it for just a second. Instead, grab a lemon (for visual purposes), and a pen and paper for notes, as we explore three ways to achieve the all-important high-yield extraction you’ve been searching for.

You Can Never Have Too Many Influencers

We’re not talking about social media here. The only influencer that matters is Starting Material, better known as the mass of plant matter that is added to the extraction chamber, and one of the most intuitive variables of the process. Fussy as it seems, the amount of the material mass isn’t the only factor influencing the output; it’s the makeup of the material itself.

Here’s where the lemon, a starting-material mass made of peel, pith, pulp, seeds, and juice, comes in nicely as an example. Joe’s decided to go into the beverage business and set up a lemonade stand at the farmers market. He’s calculated costs for production, projected profits, and created a recipe for pulp-free, unsweetened lemonade that calls for 100 kg of lemons. Where to begin seems simple enough, just grab a bag of lemons, right? The tricky part is that a lemon’s components are more than just juice, and thanks to the mass variety filling the supermarkets today, one lemon to the next is not made equally. For this particular case, let’s assume that from the lemons Joe’s using, that juice is about 80% of the mass (80 kg), leaving 20kg of everything else. While it’s clear a squeeze won’t result in 100% juice, he can’t afford to go about the task blindly.

No matter what material is used for extraction before the process even begins, take a step back and approach it like a scientist. To know if you are achieving a successful amount requires setting a standard, one that takes into consideration all of the variables that matter most. The good news is there’s a formula for that called the percent extraction efficiency (%EE). One variation of it will produce a theoretical yield and the other an actual yield, which when compared against one another will help you gauge the success of your extraction results. Sure, you may not get that 80% yield you anticipated, but so long as the theoretical matches or is near your actual, you can pat yourself on the back.


Yield Hack: Never guesstimate
Don’t guestimate figures, take that formula and make it work for you, keeping in mind the use of correct parameters. It’s important to remember that %EE calculations are carried out with respect to the yield of the component of interest, not as compared to the entire mass of starting material. If you’re in doubt, refer to our zesty example that proves the mass of the lemon isn’t just juice.

Yield Hack: Take intuition out of it
Just because your output might feel heavier, doesn’t mean it’s the right output. Seeds, rinds, and pulp do not belong in a great lemonade, do they? Keep in mind that you have to identify the breakdown of the components of your Starter Material before you know what ratios you’re dealing with.

 

Size Matters

While mass and makeup are essential when considering the effect Starting Materials have on yields, so is size. If you’ve ever tried to fit two weeks’ worth in a carry-on luggage and succeeded, then you likely rolled your clothes so tight not one inch of free space was left. It’s a similar concept that applies to the particle size of material that’s added to the fixed-volume extraction chamber. The finer the texture, the more that can be packed into the tight space efficiently. Doing so also reduces the distance and increases the speed for the solvent to penetrate the centre of the particle. Sports analogies are also great in instances like these, so let’s talk baseball. You have two players running at identical speeds to home plate. One is coming from the edge of the infield (fine-ground particle), and the other is sprinting from the edge of the outfield (course-ground particle). It goes without saying which one arrived first. If that isn’t enough, take a look at how size affects the surface-area-to-volume ratio. The smaller the particle, the more paths of interaction per particle volume. This enables the solvent to interact with the matrix of the feedstock material (CO2) more quickly.

Yield Hack: Pack it in like a pro

To extract efficiently and effectively go for the finer-ground feedstock particles. Trust us when we say, size matters on this one.

 


Work Smarter Not Harder

In an industry where demand is growing, maximizing yields while minimizing costs is at the top of the priority list, but what that means isn’t as obvious as it may seem. Imagine a scenario where reaching 100% extraction efficiency results in a net loss of $8,000 due to the cost of running the equipment and facilities. Does 100% still hold the same value? Not if on the flip-side running three extractions to 70% efficiency turns a profit of $21,000. Seems counter intuitive, but what defines a profitable yield is more than just the extraction figures.

Time is a key factor, but there’s also the element of processing parameters that have a significant effect on extraction yields. System operators have to strike the right balance of temperature, pressure, and solvent to stock ratio in their quest for that sweet spot, while working against the clock. While extraction systems are built to do the work, there’s an invaluable human element that is needed to optimize results. Let’s revisit our lemon example from earlier for a bit of context. If the operator’s goal is to achieve an output of lemon juice and zest, he’ll need to apply the perfect balance of temperature, pressure and solvent. After multiple failed attempts he’s landed on using a low or medium temperature and to halt the extraction before the lemon peel is extracted.

Yield Hack: Ask yourself if it’s worth it

Just because 100% extraction is achievable, doesn’t mean it makes business ‘cents’. Instead, evaluate run-time efficiencies and outputs against operating costs first to determine value. Your 60% yields may be the 100% you’re looking for.

 

There’s no one-size-fits-all approach in the world of extraction, but with a stronger understanding of the key variables, and firmer grasp on the techniques, the path to generating successful yields are within reach. For the full research paper, click here.

Thirsty for more? Contact us to see how our team of experts can help make your yield work for your business.

For the full research paper, click here.

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GMP During Covid-19

Vitalis GMP During COVID-19

 

THE FUTURE OF MANUFACTURING

In the global race to combat the pandemic with medical supplies and vaccines, the role that manufacturing plays has never been more important. While the pace of production is where minds may go first, what’s proving to be an invaluable lesson in times like these regardless of industry, is ensuring operations meet levels of regulatory compliance, quality assurance, and safety.

Governments around the world are leaning heavily on manufacturers who have the capacity or the ability to pivot their operations to produce critical medical supplies from personal protective equipment (PPE) to ventilators and testing kits - and the inevitable pharmaceutical race to produce a vaccine. The common theme in the manufacturing of these items is that they must meet Good Manufacturing Practices (GMP) to ensure the products are safe, effective and of high quality. While the time factor is certainly crucial, deviating from GMP standards and practices could mean the creation of defective products, and unsuccessful attempts to deliver life-saving support.

 

FDA Regulation & GMP Compliance

Even for the most unsuspecting of industries and companies, especially those in the cannabis space, what we are facing today, is a reminder that preparing for the future is not only smart, it’s good business practice. With cannabis classified as an essential service, we’ve seen a knock-on-effect of an increase in the distribution of licenses, including those in the pharmaceutical and consumable spaces. Edibles and topicals are the fastest-growing segment of the cannabis market - U.S. retail sales of cannabis and CBD products reached $14 billion in 2019, and are on pace to increase 18% a year to $33 billion by 2024, according to data published in “Cannabis and CBD: U.S. Retail Market Trends and Opportunities,” by market research firm Packaged Facts. 

The new trend in cannabis production has dictated that when it comes to producing products bound for human consumption, it isn’t about getting there first, it’s about getting it right. The FDA is close to implementing new standards for regulation of cannabis-infused products, especially within the CBD markets to patrol any misleading health claims. What’s important for cannabis producers in the USA to know is that while you can’t get FDA GMP certification currently, there are steps you can take now in structuring your businesses to be FDA compliant in preparation for new regulations coming in the future.

The billion-dollar cannabis industry is growing, even in economic periods of uncertainty like these, which means planning for the future has to start today. Gaining or at the very least preparing for GMP accreditation is not only a step towards accessing new cannabis markets, but it’s just as important to improving brand reputation. When consumers see a GMP-labelled cannabis package, they know the product is safe, high quality, and effective. GMP accreditation also fosters trust with supply chain partners (as can be seen in the recent COVID-19 manufacturing partnerships), which saves time and money in securing deals when new opportunities present themselves.

 

GMP Equipment Qualification

How exactly do you achieve GMP? GMP covers all aspects of a manufacturing operation, so it's important that your suppliers can support your GMP requirements, from raw materials and facility design, to equipment and packaging. And when it comes to your extraction machine - scrutiny for qualification is placed on the way it was fabricated, built, and tested, as well as commissioned. Extraction equipment must be designed and constructed in a way that is streamlined, safe, and reliable, reducing chances of contamination, and be able to withstand repeated use and cleaning.

How a manufacturer meets GMP regulations is entirely up to them as GMP regulations have been structured to allow such flexibility. While it is the responsibility of every cannabis product manufacturer to bring their production facilities into compliance with GMP regulations, it’s definitely not a journey that one should embark on alone. Given the massive scope and highly technical nature of GMP across every area of business operations, it’s vital to get the help of an experienced consultant or expert early to assist with the design, planning, qualification, validation, and manufacturing processes.

As experts on the design and construction of our equipment, our team of GMP experts are there to reassure customers that Vitalis equipment can be qualified within their GMP environment by walking them through a 5-step process towards achieving GMP Qualification.

As an international GMP-compliant equipment supplier to the pharmaceutical and recreational cannabis industries, Vitalis specialists not only have a deep understanding of not only Canada's Good Production Practices (GPP), but GMP regulations around the world and will ensure that the qualification of the Vitalis equipment goes smoothly. To join our list of customers enjoying successful GMP operations, reach out today.

 

 

Vitalis Extraction Technology: How CO2 can help put a “good face” on the cannabis industry

Ancillary-Blue-75

Vitalis Extraction Technology: How CO2 can help put a “good face” on the cannabis industry

Cann Expo - APR 2020

Richard Wordsworth

In 2018, Kostas Ioannou was looking for an opportunity to break into what he saw as a burgeoning market. At the same time, Vitalis Extraction Technology, a manufacturer of CO2 extraction systems, was looking for a representative in Europe.
 

“I was paying close attention to what was going on with cannabis in the States and Canada,” he says. “I knew it was only a matter of time before [medical cannabis] came to Europe. I knew that I wanted to get involved in this new industry somehow, but what I really wanted was to find somebody that was already in the industry in order to properly learn about what the industry is about… I wanted to find what the critical machinery was [behind] the cannabis industry. I reached out to a few companies, did my due diligence, and Vitalis at the time was already scouting Europe. They were touring across Europe, they stopped by Greece, and that’s when I joined the company. They wanted to have a man on the ground: someone to keep a finger on the pulse of the European cannabis industry, meet with existing and potential clients and so on. And that’s how I joined Vitalis.” It is hard to tell whether Ioannou is being literal or figurative when he talks about the cannabis industry’s “critical machinery”. Vitalis fills an important niche for medical cannabis producers: providing the literal machinery to separate cannabis out into its individual compounds. Using CO2 is not the only method of separating THC, CBD, CBG and so on from cannabis plant matter, and at least in terms of up-front costs neither is it the cheapest. But it is, says Ioannou, the method that allows producers the greatest degree of flexibility, which in an increasingly competitive market makes Vitalis’ lines of extraction systems increasingly desirable options. Quoting Vitalis Chairman and co-founder Joel Sherlock, Ioannou sums up the company’s position:
 
“When everyone is looking for gold, it’s a good time to be in the picks and shovels industry.”

“There are several different methods of extraction,” Ioannou says, “and I wouldn’t say that one is better than the other. On the contrary, I [would say] they compliment each other depending on what you need. It is pretty widely known that ethanol [extraction] can process biomass a lot faster and that the equipment is cheaper to buy, [whereas] with CO2 it’s very cheap to run but more expensive to . But one of the biggest advantages of CO2 is its tunability or selectability when it comes to extraction: depending on the parameters you put into the machine, you are able to target specific compounds more efficiently. CO2 basically gives you the ability to be more flexible to meet future demand when that time comes.”

Asked if he sees CO2 as the future of extraction technology for the cannabis industry, Ioannou jokes that he has a personal stake in saying yes. But joking aside, while there is a place in the industry for more than one extraction method, there is an argument to be made for CO2 systems’ efficiency besides profit: as EU legislation moves towards a consensus on production standards, investing in CO2 systems now might work to future-proof businesses against EU strictures down the line.

“Seeing [how] the EU Good Manufacturing Practice requirements in Europe are coming into play [with regard to] compliant machinery, and seeing how those standards affect production costs for the end-products in the European market, I do see CO2 as more flexible,” he says. “Of course , when it comes to building your business plan you have many other things to take into consideration: if you’re looking to make a broad spectrum CBD product, maybe it would be a lot faster to start extracting with ethanol. [But] CO2 is much more efficient and you can extract a lot more of the terpenes and the flavonoids from the biomass. But if I had to choose one - and this is my biased answer - I would choose CO2 because of that ability to target specific compounds.”

That combination of candour and in-house expertise that the company has built up over the years is another service that Vitalis can offer to prospective clients. With experience supplying the local industries in the United States, Canada, Australia and Europe, the team at Vitalis have gained valuable insight into how to build a successful operation and how the still-shifting vagaries of international licensing could affect their clients’ prospects, particularly with the EuGMP requirements of most EU countries. Of course, at the end of the day, Vitalis has multiple lines of high-tech, EuGMP compliant extraction equipment to sell - but it can also act as a guide to companies still finding their feet in a confusing and increasingly global marketplace.

“The cannabis industry globally is [still] fairly new,” Ioannou explains. “There are a few companies that have been around for a few years, but the majority are new [and started by people] who were [in other industries] before. So, when they come to us, they’re like, ‘Okay guys, we want to make extracts. How do we go about this?’ So, we make sure that we go and ask them the right questions about work and business plans. You need to have patience and a commitment and be able to foresee where the industry is going so you can make the right choices. They need a business plan; they need to know what components they need to build a business that’s going to create revenue fast and be able to expand - [but also] meet the demand two years from now. What will the technology be two years from now? Nobody has a crystal ball… [But] that’s why we see CO2 as one of the most [viable] components, if you like.”

A lack of crystal balls notwithstanding, when asked, Ioannou’s view of the industry’s future is practical and laudably big-picture. Vitalis may not produce cannabis itself, but he is cognisant that helping to create better, safer cannabis products is part of the larger battle to win over governments, legislatures and publics who still reflexively parcel medical cannabis in with street drugs. ‘Just Say No’ endures as both a mindset and a policy in so much of the world because of its simplicity and opening the world up to the benefits of medical cannabis is a slow and delicate business. Poor quality control, bad messaging or even the appearance of impropriety could lead to a public and political backlash that hurts not just those who stand to benefit financially, but medically as well.

“People compare it with the dotcom era,” says Ioannou, on balancing the industry’s rapid expansion and the battle for public perception. “In this particular [moment] it might seem that way, but we forget that cannabis has been around for a very long time. I’m not going to list the medical [benefits]; that it can treat a whole bunch of different illnesses. I think that’s for the scientists and the doctors to speak about. But what is really necessary at this point is that the cannabis industry and the people inside are able to put a good face on it: show that their products are good quality, have undergone serious testing, and show the world what the plant can do in our lives. It’s up to us to produce something that we’re going to be proud of, whether it’s the companies or the legislators that will amend legislation and allow [access to] patients all across Europe, or the patient organisations who push for patient access rights and eventually [create] a unified cannabis legislative framework.

“These are things that will take time to get to, but I think there’s been great momentum and the way to maintain that is for everybody involved in the industry to do good. If we do good, good things will come to us. We’re trying to build a sustainable and healthy industry where we can control the quality of the products and circulate them through the European Union through legal channels. If we don’t convince people that these products are going to be beneficial for patients, that’s [critical].”

To view the original post, see Cann Expo

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Financing Alternatives in Complex Markets

 Cannabis-Financing-Alternatives-in-Complex-Markets

 

Cannabis Financing Alternatives in Complex Markets

Finding the right resource for business financing comes with its own set of challenges, but those in the cannabis space, in particular, have an extra set of hurdles (or two) to climb over. Much like the mining and construction industries, cannabis falls into the high-risk category leaving entrepreneurs seeking traditional loans at a dead end. While the successful push in licensing continues, a lack of access to institutional banking has prolonged the process for many and stunted the full potential of growth for the cannabis market. It's a reality most evident in the United States where companies that received the legal go-ahead as early as 2014 are still not open for business. The good news? Alternative cannabis financing options are popping up in unconventional places. It's simply a matter of knowing where to look, and the steps you can take to qualify.


Obstacles in Cannabis Business Financing 

Currently, in the U.S., 11 states (and D.C.) have legalized recreational marijuana, and 33 more states have legalized its use medicinally. Despite this growing trend, the substance is still federally illegal, creating a huge barrier for companies when it comes to financing and banking. As cannabis companies patiently wait for the SAFE Banking Act to pass in the U.S., they continue to struggle to set up institutional bank accounts, let alone access funds to start, operate, or expand their company. 

Risky business is the name of the game, at least from those who hold the cash. Financiers see two types of risk in cannabis business financing: legal ambiguities - especially in the U.S. - and systemic risk in the form of assets that cannot easily transfer in the face of dissolution. In 2018, when the Bank of Montreal invested in several large cannabis companies, the tide toward institutional financing was expected to turn toward the cannabis industry. But it didn't. Instead, the majority of Canadian business owners are still struggling to secure cannabis financing, even in an environment where cannabis is federally legal. 


Alternative Cannabis Financing Solutions

Although one door has closed, several others have opened. Traditional lenders unaccustomed to providing credit lines for assets means there is an appetite for alternative cannabis financing options. Private investors, local credit unions, self-funding, crowd-funding, celebrities, and holding companies are just a few of the choices some start-ups have pursued. 

There's also a more direct level of financial support offered by companies selling cannabis equipment and services. Where other private lenders struggle to negotiate the risks associated with cannabis business financing, equipment manufacturers, in particular, understand the inherent value and potential -- leading to internal financing solutions and in some cases access to extended financial networks.

 

Approach Cannabis Financing with a Plan

Regardless of how you choose to pursue financing for your cannabis business — private lenders, manufacturers, angel investors — the key to securing the money you need is approaching any investor with a well-researched business plan and the data to back it up. 

  1. No Time for Half-baked Ideas | In an age of legitimization, cannabis companies can no longer rely on half-baked ideas. Just like any loan application, seeking cannabis financing requires an understanding of what the money will be used for down to the very last cent. Otherwise, it is challenging for a lender to determine how much financing you actually need. It can be daunting running those numbers and establishing a clear growth plan, but doing so gives a lender the assurance you've done your research, know what you want, and how you're going to use it. From equipment needs, and raw material to personnel, a solid plan includes identifying the costs associated and carefully outlining how every item of your budget will be spent.

    Quick tip: You wouldn’t go back to the bank multiple times changing the loan amount for a home, and you shouldn't do it now. Take time to get those numbers right the first time around.

  2. It is a Team Effort | Investors want to be privy to certain information about your company, including details about your team and their roles. It's always valuable if you can create a way to introduce potential investors to those involved in your company's purchasing decisions and expansion plans. There's nothing worse than reaching the finish line only to be told that silent partner 'Joe', who your lender is unaware of, now has a few changes to the application.

    Quick Tip: Explain who will handle different aspects of the capital and how their role influences the rest of the team, the investment funds, and your future growth.

  3. Deliver a Pitch They Can’t Refuse | Beyond explaining how you plan to use any financing, how do you plan to expand your business, increase revenue, and make money for yourself, your company, and your investors? Cannabis business financing — or any business financing, for that matter — is about more than just acquiring new equipment or expanding building space. Once those goals are accomplished, where will the business go from there, and what do the key milestones look like? Lay everything out on the table, and be transparent in your intentions with a comprehensive pitch deck. Remember, just because you may not be walking into a bank, you are asking for a hefty sum of money that deserves the same professional approach.

    Quick Tip: Build an impressive business plan that leaves nothing to guess, and in turn, an offer investors can't refuse. 

 

Financing through Vitalis

Manufacturing companies like Vitalis even offer internal financing solutions and access to a network of financing partnerships. Where other private lenders struggle to negotiate the risks associated with cannabis business financing, equipment manufacturers like ours understand the inherent value and potential within the cannabis industry.   

Ready to get the funding to grow your business? Contact the team at Vitalis today and learn more about our unique equipment financing solutions.

 

 


Sources

www.forbes.com/sites/kriskrane/2018/06/13/marijuana-banking-constraints-disproportionately-harm-small-businesses/#49181dc054ed

www.esquire.com/lifestyle/a21719186/all-states-that-legalized-weed-in-us/

www.cnbc.com/2019/10/01/underbanked-cannabis-industry-struggles-to-finance-double-digit-growth.html

www.potnetwork.com/news/bmo-invests-big-cannabis-shows-growth-american-banking-sector

www.westerninvestor.com/news/finance/financial-institutions-reluctant-to-bankroll-cannabis-entrepreneurs-1.23962148

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Cracking the Ancillary Code

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Ancillary Services to Enhance Your Extraction Business

In 1976, Steve Jobs and Steve Wozniak launched Apple with a singular goal: create user-friendly computers that were small enough for the home or office. Their original operating system, Apple DOS, was the precursor to something much bigger than anyone could have imagined. The industry evolved, and so did the company's offering. Apple branched out beyond its flagship product, the desktop computer, producing a handful of firsts - iPhone, iPad, iPod, MacBook, Apple Watch...you get the picture. Over the years, the company has undoubtedly led in the tech innovation space. More importantly, however, the storied success of Apple shines a light on what can be done, by design, to improve the experience and use of its products. Today, successful companies in nearly every industry, including cannabis, have taken that very same approach of leveraging ancillary to get to the top and stay there.

Ancillary Enhances Extraction  

Ancillary, while specific from one vertical to the next, proves similar in purpose no matter the context. Take, for example, a world in which your favourite restaurant outsources a critical part of the cooking process. Instead of making your entire meal in-house, they're only taking responsibility for the plating. Your steak gets seared in kitchen A, the spices are ground in kitchen B, kitchen C chops the vegetables, and kitchen D bakes them. The final dish comes together in the end. Still, because the process had steps that fell out of the restaurant's control, there's no guarantee for the customer in areas quality, safety, efficiency or taste, and in turn the success and longevity of the business.

Extraction is just one part of the "cooking" process. It turns raw material into a high-quality product that can be used for edible, topical, and consumable goods. And while extraction systems play a critical role in the outcome of the final product, so do the pre- and post- services within ancillary. How your cannabis flower is ground or milled, for example, determines the efficiency of extraction and the amount of product you yield from each run. Winterization, solvent recovery, decarboxylation, and distillation are all ancillary services that allow you to determine what you create from your crude oil and the quality of the end product that's turned into consumable goods.

Similar to Apple's approach to controlling its product, is how cannabis companies have built their pre-and post-extraction needs into their overarching business model. Unfortunately, there is no plug and play option, which means choosing the right ancillary services and equipment starts with asking the right questions. What do you want to make? How much? How well is your lab set up to accommodate your equipment? And quite possibly, the most important one of them all - how are you building your business today to meet consumer needs and regulation in the future? Bridging extraction with tailored ancillary services and tools could be the secret ingredient to that growth.

Keeping up with Cannabis

There's no doubt the cannabis industry is booming. Global changes in legalisation have suddenly created opportunities for new markets, new products, and in turn, a lot more cannabis oil. It's especially true in Canada, with the recently amended cannabis laws under Legalisation 2.0, which extends beyond the initial recreational cannabis list to include edibles, topicals and concentrates. The shift in legislation expects to see the Canadian cannabis industry grow by 50%, roughly $3.7 billion by the end of 2020.

While these new products bring with them an increased demand for both raw materials and extraction, they also introduce a new phase of compliance. Keeping up with trends and product demand will require equipment that produces the highest grade of oils, cannabidiol (CBD), and tetrahydrocannabinol (THC) extracts, while also meeting strict standards in areas of safety, quality and branding.

Vitalis Ancillary 

The Vitalis ancillary team helps companies bridge their extraction needs with equipment and services to increase opportunities in the cannabis, health and beauty, and food and beverage industries. This includes consultation on lab layout and equipment to vendor relations and providing support in sourcing the supply of consumables. No two companies are alike, which is why we focus on your business and provide the ancillary solutions that will position you for your next phase of growth.

Looking for more on how to achieve pre- and post-extraction success? Watch the replay of the Vitalis' Ancillary 101' webinar or contact one of our Ancillary experts today.

Psychedelic Trip: Let there be Data

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As the world turns an eye to therapeutic alternatives and the reform surrounding them, there's a topic that keeps capturing headlines - psychedelics. While still grouped as an illicit drug by today's standards, psychedelics are slowly, and discretely making their way to research facilities near and far. The mindset is this: If Cannabis can do it, so can psilocybin. But if the diligent systems and bureaucratic intricacies that once surrounded cannabis legalisation (and in some cases depending on geography still do) should serve as an indication: a fledgeling future for medicinal psychedelics will weigh heavily on precise data, process, and compliance.

 

Overcoming a Century-Old Stigma 

Changing the public perception of something embedded with stigmas is no easy feat. Since the Opium Act of 1908, governments around the world have worked to protect citizens from what they categorised as illegal substances. Such was the case with Cannabis when it joined the restricted list in 1923. 

Through legislative processes grounded in research and data, we've seen global strides taken in the face of changing public and government opinion. Efforts by countries, especially Canada, that have led the way in setting a progressive precedent for other nations to follow, and a blueprint for future industries to reference when faced with similar hurdles along the way. Nationwide Cannabis legalisation in 2018 in Canada, opened the doors to better study and understand the benefits of the plant, the seemingly endless types of cannabinoids and how to extract them, isolate them, and utilise them for different applications. In the lead-up to and amid Legalisation 2.0 extraction played a leading role not only in delivering a quality product for Licensed Producers but set a precedent in areas of controlled research. And while it may not have been high on the initial list of reasons, after years of in-depth study on Cannabis has indirectly given the approval of and confidence for emerging industries like medicinal psychedelics to follow. 

 

It's Not about the Trip; It's about the Journey

The success story that Cannabis is basking in today didn't come without obstacles. Remember the restricted list of 1923? Cannabis sat on it for decades, as the government largely overlooked decriminalisation and regulation - and how to merge the two. Positive as the shift was when they approved the production and distribution of medical Cannabis in 2013, it brought to light the grey areas behind the term 'legal'.  

The research of micro-dosing of psilocybin, the primary psychoactive ingredient in mushrooms, and slated to be the next major breakthrough in healthcare, is facing similar obstacles surrounding the contradictory legalities that its predecessor once endured. At present, psilocybin is still considered a drug, illegal on many lists and making research efforts to study the potential benefits, and the restrictions controlling the 'how' an uphill battle. 

Initial efforts have once again raised awareness to the same vital points flagged when Cannabis came into question on the road to legitimacy - compliance, safety, and good manufacturing practices. It has also brought to the forefront those entities and bodies who will once again play a supporting role in enhancing programs behind the research and development of the world's next therapeutic alternative. 

Institutions that have been granted a head start in exploring the ins and outs of the plant are highlighting areas that need more in-depth consideration. Safe manufacturing practices and the right systems required to gather data on the complexities of specific molecules and compounds are cited as the more complicated areas, among others. The University of Toronto recently launched the Psychedelic Studies Research Program (PSRP), dependent on Health Canada's approval of both the clinical trials and manufacturing process. PSRP has cited that without quality standards in place and the regulation that outlines the standards, it is impossible to manage the output of substances that are needed for controlled research. To reach that vital point of discovery will mean putting trust in science and a system with measures in place to support the regulation of those findings.

Have a product you want to be extracted for research purposes? To learn more about our research and development programmes, reach out today.

The Restless Podcast ft. Pete Patterson – The Business Side of Extraction

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The Restless Podcast ft. Pete Patterson - The Business of Extraction

We had the pleasure of speaking with Pete Patterson, Chief Operation Officer and Co-Founder of Vitalis Extraction Technology.

Founded in 2016, Vitalis Extraction Technology produces the most sophisticated high-flowing, industrial-scale, super-critical CO2 extraction systems for the cannabis industry.

In this interview, we talked about cash flow management, the importance of a stable foundation that is built on good policy, process and procedure.

Listen to the episode online

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