SciPhy Systems set out to manufacture the largest automated hydrocarbon extractor on the market. While saving operators up to 80% on costs
During the early boom of legal cannabis, dozens, if not hundreds, of extraction equipment manufacturers arrived on the scene with the promise of big yields, easy profits and relatively cheap machinery.
The problem was that most of these equipment manufacturers — and many operators — failed to recognize how free-falling wholesale prices would require emphasis not just on the capital expense, but on the operating efficiency of their extraction systems.
In most U.S. markets, the wholesale value of cannabis extracts has fallen by 90% or more from the peak prices when each state began allowing adult-use cannabis.
SciPhy Systems CEO Emmett McGregor realized early on how price compression would impact the industry, so he made efficiency a core feature of the company’s extraction and purification machines.
SciPhy focuses on the total cost of manufacturing oil, “because what we’ve seen time and time again is that only the processors that can produce high-quality oil at the lowest cost per gram possible will have the long-term ability to compete and survive in this market,” McGregor says.
Minimizing the Cost of Production
Being based in Oregon gives SciPhy a close look into one of the most competitive markets in North America, but the company works with clients throughout the world.
As each state has come online with adult-use cannabis, they’ve gone through a similar economic cycle. When the market opens, there’s under-supply and wholesale prices are high across the board, especially for manufactured products such as concentrates and edibles. As the market normalizes, those prices fall precipitously. And with each new state, that cycle from peak price to crash is happening quicker and quicker.
In the very beginning, wholesale prices were commonly as high as $40,000 per kilo. In more mature markets, those prices have plunged in recent years to $1,000 per kilo, if not less.
“At the price points that we’re starting to hit now and that we’ve hit over the last three years, the margins for profitability have gotten lower and lower to the point that only the most efficient operations can be in the black,” McGregor says.
In addition to the cost of biomass, McGregor has identified three primary cost drivers for oil: labor, the cost of electricity and the cost of solvent and solvent loss.
“If you can control those costs and bring them down, you’ll be successful,” he says. “Oftentimes the lowest possible cost-per-kilo manufactured is dictated by the equipment selection that’s been made. We’ve taken an efficiency-oriented approach where we’ve focused on those costs and tried to build equipment that enables our clients to save across all of those major cost centers.”
SciPhy has focused on hydrocarbon extraction because, McGregor says, it allows for the greatest amount of production with relatively minimal solvent loss and the ability to produce the broadest number of product categories.
“Within that category, we took a very aggressive approach to innovation where we completely rethought the way heat management was being done in the extraction process,” he says, “so we were able to bring the electricity cost down by approximately 80%.”
Energy efficiency is crucial at a time when electricity costs are rising sharply, largely due to increasing demand from the tech industry.
Another area where SciPhy has endeavored to save its customers money is filtration media, where the company has taken an innovative approach of using membranes to replace or reduce the use filtration media for color remediation or dewaxing the oil — which is “essentially a minimum requirement for producing shelf-ready oil from the broadest range of biomass material inputs,” McGregor says.
The use of membranes can reduce costs related to filtration media by around 50%, he says.
“Sometimes that’s the biggest cost in their entire operation. It can be the difference between being profitable and being unprofitable.”
Rebate Programs
While most cannabis growers are familiar with programs that provide rebates or incentives for equipment upgrades such as LED lighting, many manufacturers don’t realize those same programs can be utilized for energy-efficient extraction systems.
Power companies and energy utilities offer these incentives to minimize the stress on the power grid. It’s a double impact for cannabis manufacturers who purchase energy-efficient equipment, improving bottom-line profitability while subsidizing the equipment cost through government programs.
McGregor believes SciPhy was the first equipment manufacturer to successfully qualify for one of these energy-efficiency programs.
According to McGregor, energy efficiency gains for LED upgrades typically max out at about 50%, while extraction upgrades can provide an 80% savings — meaning potentially hundreds of thousands of dollars in tax credits, cash grants or other incentives.
“That money either goes up front toward the cost of equipment or will be paid out to the buyer over time as the savings are accrued,” he says. “Every operation buying new equipment should at least be aware of what programs are available in their region.”
Full-Service Approach
SciPhy Systems is more than just an equipment company. It’s not just about selling a piece of machinery, but helping build a business that can thrive in an industry where wholesale prices are falling rapidly, where new operators continue to enter the market and where a wide range of challenges abound.
“We really want to be working hand in hand with our clients to build long-term success because it is the most competitive the industry has ever been and, at the same time, the opportunity is starting to grow as we get to be an international industry,” McGregor says.
When SciPhy works with a client, the company starts by looking at some of the basic information: How much production do they need? How much oil are they going to produce? How much biomass are they going to process?
“Let’s look over a two-year and five-year timeline and see the expected expenses that go into producing that oil,” McGregor says. “And how is that going to make you competitive in the market as we see the prices hit projected lows.”