Starting a cannabis extract company is a lucrative business idea in the current climate of marijuana legalization in the United States. There are two main business models when it comes to cannabis extraction businesses:
It's also possible to produce both kinds of extracts in a single cannabis extraction facility. However, those who choose to do both generally only do so after they are successful in one approach or the other.
You'll achieve the best results with your cannabis extraction lab or facility by putting in the time to research the necessary licenses, perform market research, and create a detailed business plan before you start to invest any capital. A solid plan with high-quality equipment and raw materials will give you the best chance of growing a successful cannabis extraction business.
There are several reasons it's a great idea to start a cannabis extraction company:
Follow these steps to start a cannabis extract company:
Writing a business plan is the first and most essential step for launching a successful extraction operation. This plan will include:
Company Description
Market Overview
Revenue Plan
Operating Plan
Organizational Structure
Financial Projections & Funding
Assumptions, Sensitivity, and Risks
Cannabis extraction companies need to register with the state just like any other business. Consult with an accountant and a business lawyer, if required, to determine which business entity would be best suited to your business model and financial plan.
At this stage, you will also need to confirm that your business name is available and register your preferred business name with the state. Your business name should be memorable, easy to pronounce, and clearly communicate what your business does.
Finding the right property for a cannabis extraction lab or facility requires more research than finding a property for most other kinds of businesses. The property's location needs to meet the following requirements:
Once you have found a property in an appropriate location, it's a good idea to include a clause in your lease or purchase agreement that makes it conditional on obtaining a license.
There will always be a licensing process required for starting a cannabis extraction facility—whether you use solvents or mechanical means (such as a rosin press) for producing extracts. You may need a license that is specific to:
It's critical to have as much information as you can before applying for the relevant licenses. This will enable you to answer any questions with confidence and prevent delays in the approval process. Read up on the relevant codes and laws, have any required engineering documents on hand, and talk to other extraction companies in your state or municipality that have completed the licensing process successfully. It might help to engage a local attorney to lend more weight and credibility to your application.
Once you have the necessary licenses and space to run your cannabis extraction business, you will need to prepare the buildings before purchasing equipment. You will have already determined your extraction systems and the layout of your facility in your business plan. Your main focus at this stage will be on obtaining stamped architectural drawings, gaining municipal approval, and finding a reliable contractor to take care of the necessary construction work.
Solvent-based extraction operations will require a special C1D1 room, which should be prepared at this stage. Solventless extraction businesses will need to think about thermal insulation and industrial-size cold rooms and freezers to accommodate the handling and storage of frozen cannabis and to ensure maximum terpene retention from harvest to distribution.
Equipment installation can take place once construction is complete. It's generally a good idea to order your equipment while construction is in progress, depending on the lead times and installation times of the relevant equipment manufacturers.
The cannabis extraction equipment you'll need will vary depending on the extraction methods you use. For solventless extraction methods, you will need:
For solvent-based extraction methods (depending on the method chosen), you may need:
Once your equipment has been professionally installed, you will typically need to hire a state licensed engineer to conduct a field verification of your equipment and its installation. Ask your equipment manufacturer about this process and whether they know of any qualified engineers who provide this service in your area.
Solvent-based extraction laboratories usually need to arrange for an Authority Having Jurisdiction (AHJ) inspection to obtain final municipal approval. The AHJ may be a city inspector or your local fire marshal, depending on the rules in your locality. This individual will check the engineer's field verification of your extraction equipment installations to confirm that your laboratory is safe and complies with the relevant regulations. He or she will also conduct a final inspection before giving your lab the final stamp of approval.
Standard operating procedures (SOPs) are critical for ensuring your cannabis extracts are consistently of a high quality and that your operation remains compliant and safe. Draw on resources provided by your equipment manufacturers, your state, your municipality, and national associations to help you create SOPs for the following:
Process
Key Resources for SOPs
The equipment manufacturer
Current Good Manufacturing Practice (cGMP) regulations
The U.S. Food and Drug Administration
Labeling, handling, storage, and transportation of chemicals
The Federal Hazardous Substances Act (FHSA)
The U.S. Environmental Protection Agency
The Occupational Safety and Health Administration (OSHA)
The National Fire Protection Association (NFPA)
Hazardous and non-hazardous cannabis waste disposal
The Resource Conservation and Recovery ACT (RCRA)
The U.S. Environmental Protection Agency
Your state and local waste disposal regulations
Fire safety protocols
The Occupational Safety and Health Administration (OSHA)
The National Fire Protection Association (NFPA)
State and municipal fire codes
Workplace safety protocols
The Occupational Safety and Health Administration (OSHA)
Both solventless and solvent-based extraction labs need to conduct a job hazard analysis (JHA) before commencing operations to identify all potential hazards and implement measures to prevent accidents in the facility.
Setting up your supply chain is another preliminary step before recruiting employees and commencing production. Your supply chain will determine the volume of output and revenue you can reasonably expect to maintain (with sufficient margin for variation) and hence the number of people you can confidently employ.
The supply chain for a cannabis extraction business will contain (at a minimum):
Once it's set up, good supply chain management will help the entire workflow proceed smoothly—avoiding shortages and bottlenecks. You'll also need to track and trace the cannabis material itself from “seed to sale”: from the time the seeds are purchased and planted to the time your extracts are sold to retail customers. There are software programs that can help with this.
Pro tip: Subscriptions—such as our solventless subscriptions make it easy to prevent shortages of cannabis extraction consumables and improve your workflow. It's also a good idea to form relationships with multiple suppliers so you have a backup if one supplier fails.
You'll need a passionate team of people to run your cannabis extraction facility successfully once it's all set up. This will involve management-level team members, in-house employees you select and train yourself, and external professionals including lawyers, accountants, and equipment maintenance technicians (a certified extraction equipment manufacturer can help here).
All of your in-house team members must be thoroughly trained in your SOPs for extraction and safety protocols and provided with adequate supervision and support to ensure they can implement these SOPs with a high level of precision and excellence. It's good practice to conduct several tests with small batches at the start to ensure your SOPs result in top-quality products before you scale production to full capacity.
You've put in all of the capital and hard work required to set up a legal, fully-fledged cannabis extraction company. Now let your target audience know that your doors are open for business! Clear branding, a solid marketing plan, and consistently high production standards ensure your extraction business becomes known for all the right reasons. Ongoing innovation and improvements in response to feedback are also critical for long-term success.
The process required to set up a cannabis extraction business has multiple steps, a relatively large capital investment, and perhaps more red tape than any other industry. It's essential to put in the time to write a detailed business plan at the start and ensure you have the passion and determination to see the project through.
The good news is that all your investment and hard work are likely to pay off in spades. The cannabis extraction industry is doing very well and continues to grow. Join this booming industry now and reap the rewards!
Levi Lanzrath is a cannabis extraction expert and founder of Lowtemp Industries.
