A deep look at the extracts and concentrates sector of the cannabis industry
When looking at the myriad methods for extracting botanical oils out of the cannabis plant — including supercritical CO2, hydrocarbons like propane and butane, ethanol, mechanical techniques based on heat and pressure, as well as a variety of processes using water — the question is often asked, “What method is best?”
Yet, there’s not really a single, definitive answer to that question. Every operator has their own preferences and reasons for choosing one method over another — or, as is becoming increasingly common, using multiple methods for different purposes. And much of an extractor’s decision on what method to use, both for primary extraction and the multitude of post-processing options, is based on what type of product they want to create. Are they creating oils for vape pens? Dabbable concentrates? Active ingredients for edibles, topicals or tinctures?
The Seattle-based processor Heylo uses supercritical CO2, in part for its tunability and its lack of residual solvents.
Moxie, a multi-state operator that produces a range of concentrate products, uses hydrocarbon extraction almost exclusively (with some water separation methods mixed in, depending on the desired end product).
Many companies also use ethanol, to help with the challenges of scaling an extraction business, and an increasing number are turning to solventless options.
“I like to think of cannabis concentrates and products as very similar to Mexican food, where we’ve got a lot of the same ingredients, and we’re rearranging them in different ways to make a totally different end result,” says Ben Britton, vice president of innovation for Agrify’s extraction division.
But whether you’re making pozole or enchiladas, you need top-quality ingredients to produce a top-quality dish.
“Our saying is ‘fire in, fire out,’” Britton says. “You’ve got to have quality material to make good solid extracts, so we believe that the most successful labs utilize multiple extraction processes, because that allows you to be adaptable with the different types of material that come in and hit different price points in the market so that you’re actually broadening what you’re able to offer to your customers.”
While flower remains king, the extracted products sector continues to grow in revenue and selection, with the now-ubiquitous vape cartridge leading the way.
“Currently, vaporizers continue to be the dominant product for consuming concentrates,” says Jordan Lams, CEO and co-founder of Moxie. “Outside of products for specific consumption preferences, we’re seeing an incremental return to a focus on product quality. Concentrate prices are still a significant influencer of consumer buying behavior, but there is a renewed interest in higher quality products that are driving the category’s growth, particularly as extraction techniques continue to improve.”
According to an analysis of tracking data from 12 adult-use and medical states by cannabis analytics firm BDSA, vape products account for 73% of all revenue generated from concentrates in the first quarter of 2022.
But within vape products, it’s the distillates that dominate, making up 55% of vape dollar sales in BDSA’s markets.
An analysis of data from Headset Insights on total sales by vapor pen extraction type over a three-month period from mid-February to mid-May confirms BDSA’s data.
Pulling data from California, Colorado, Michigan, Nevada, Oregon and Washington, Headset senior data analyst Cooper Ashley looked for the extraction type found in a name’s title and found that 38.1% of sales in that category are labeled “distillate,” the highest percentage. “Live resin” is the second most popular of vape products with listed extraction types with nearly 22% of sales. “CO2” falls in a distant third with 3.7% of sales, followed by rosin with less than 1%. All other listed extraction types combined only account for 0.5% of total sales, including “HTE,” “RSO,” “BHO” and “live flower,” according to an email from Cooper. (Approximately 35% of products did not list an extraction type in the name.)
BDSA’s sales data shows that live resin is now the largest subcategory of dabbable concentrates, accounting for about one-third of sales in that sector through Q1 of this year. The next largest dabbable concentrate subcategory by dollar sales in BDSA-tracked markets was wax, which brought in approximately a 25% share of total dabbable concentrate dollar sales during the time frame.
BDSA’s analysis also shows that products with quality cues like “live resin” and “solventless” command a premium price at retail. According to an email from the company, the trend has been observed across the most mature markets, such as California and Colorado, as well as in new markets. In Illinois, Missouri and Michigan, live resin dabbables had an average retail price that was about 7% higher than for all dabbable concentrates. Across those same markets in Q1 2022, live resin vapes had an average retail price about 40% higher than for all vape products.
Live resin is also showing the strongest sales growth within the category, jumping from just 10% of the market in 2019 to 20% this year. Live resin products make up 12 of the top 20 dabbable concentrates in BDSA’s tracked markets. Wax has also seen its share grow from 20% to 25% over the same time period.
“Concentrates are the fastest growing category in cannabis, especially amongst Gen Z and in more established markets where consumers are becoming more sophisticated and exploring new form factors,” says Brian Witlin, vice president of product development at PAX.
On the consumer side, flavor has become one of the most important factors in influencing purchasing decisions. Although consumers have always claimed flavor and quality are the top reasons they buy particular products, the truth is that potency and price have traditionally far outweighed every other factor.
THC potency, almost always the primary driver of sales when new markets open, is losing some of its relevance in maturing markets where consumers recognize a more nuanced concept of quality and are often willing to pay a little more to get a better product.
This market shift, combined with slow but steady growth in the desire for “natural” products, has led to the precipitous rise in recent years of solventless extracts.
“It seems as though flavor and the niche art of solventless extraction has captivated consumers and experienced significant sales increases since 2018,” says Lo Friesen, founder and CEO of Heylo.
In the old days, a “solventless extract” meant placing a bud between the metal tongs of a hair straightener and squeezing out a few drops of oil.
Fortunately, for today’s consumers — and the businesses looking to give the consumer what they want — there are commercial options that provide a similar result at a far more efficient and consistent level.
According to Britton, another factor driving growth in the solventless category is that these systems don’t require a facility that meets C1D1 specifications, which are required for hydrocarbon extractions and can add a significant expense to the startup budget.
“When done properly, (hydrocarbon extraction) is quite safe, but it does cost more money, because there’s more capital expenditure to execute extraction systems safely,” says Britton, who was the founder and CEO of PurePressure, a solventless extraction equipment manufacturer, prior to its acquisition by Agrify.
While many companies are finding success with mechanical extraction methods, Boulder Creek Technologies is disrupting the market with its vapor-static machines that basically use hot air to extract oils from cannabis.
The result is a highly efficient machine that uses about one-quarter the power of an ethanol system of a similar size, says Jacqueline McGrane, senior vice president of business development at Boulder Creek Technologies.
“When I saw that BCT had the ability to vaporize the cannabinoids, as well as condensed them efficiently, I knew it was a home run,” says McGrane, who studied biology and organic chemistry at MIT prior to getting into the cannabis space about a decade ago.
“We’re just using air, and air is free,” she says. “So we don’t have to worry about all of the costs associated with solvents. Secondarily, it’s extremely safe. We don’t have any flammable components, and we’re not operating under high pressures. In states like Pennsylvania, Virginia and New York that are very focused on safety, our system is completely applicable. Because it’s extremely safe, you don’t have to worry about all the infrastructure that surrounds it — you could put this thing in a Quonset hut next to a hemp farm and run it safely.”
Meanwhile, Heylo and other CO2 proponents are quick to label carbon dioxide as the “solventless solvent” because it evaporates naturally out of the concentrate almost immediately after the extraction process, and because supercritical systems are highly tunable, they can enhance flavor profiles and help capture minor cannabinoids like CBG, CBD and THCV.
“We’ve received very positive feedback from consumers after launching our own CBG-dominant concentrate, both as a standalone product and in combination with other concentrates,” Friesen says.
Although extraction-related explosions have largely become a thing of the past, it wasn’t that many years ago that careless cannabis operators were producing concentrates with propane or butane in poorly ventilated rooms and risking their lives with every batch of oil.
Today, most jurisdictions or state regulatory agencies require hydrocarbon extraction rooms to meet a certain level of safety standards — typically what are known as C1D1 specifications. Rather than building their own extraction room or hiring a general contractor, many businesses are turning to specialized businesses that custom build extraction rooms or deliver prefabbed booths that meet the C1D1 requirements.
The most important factor for a C1D1 facility is that every electrical component must be spark-proof, says Christian Hluz, president of Advanced Extraction Labs, a California-based company that retrofits shipping containers to meet C1D1 specs and also builds custom, modular, in-house units.
While many companies manufacture extraction booths with UL-listed components, only three companies — Advanced Extraction Labs, HAL Extraction Technology and Podtronics — have booths that are fully UL-listed.
Getting that UL seal of approval was an incredibly difficult process, Hluz says.
“I’m still suffering from it,” he jokes. “Basically, it took me a year to do it from scratch. It was a lot of engineering, a lot of expensive components and a lot of hours in the design and testing — and a lot of money.”
But ultimately, he feels it was worthwhile to get that prestigious certification.
“I want to be synonymous with the best and the safest,” he says, “so I’ll do whatever it takes to make that happen.”
Beyond the ventilation and electricity requirements for a C1D1 facility, the room must also be self-contained and protected by sprinklers and fire suppression systems, so if an accident does happen, it can be contained to the extraction room.
Advanced Extraction Labs grew out of a sister company that has been building professional paint booths since 2006. Hluz says the two businesses are surprisingly similar. Decades ago, somebody could roll up their garage door, throw a couple sheets of plastic on the walls and start painting. Now, stricter regulations require painters to have a booth that meets specifications for ventilation, fire safety, etc. — just as cannabis extractors have evolved from the Wild West of open blasting years ago to the modern, highly regulated cannabis industry of today.
Just as the plant-touching side of the cannabis industry has seen a tremendous amount of consolidation in recent years, ancillary businesses and equipment manufacturers have also been completing major mergers and acquisitions, often bringing complementary companies together under one roof.
For example, in the summer of 2019, Gibraltar Industries acquired Apeks Supercritical, a leading manufacturer of CO2 extraction equipment, then added the ethanol extraction company Delta Separations to its growing roster of cannabis-focused brands in early 2020. Today, Gibraltar’s suite of cultivation and extraction subsidiaries operate under the Prospiant brand, introduced in the spring of 2021.
Similarly, in late 2021, Agrify, the Massachusetts-based agtech and cultivation equipment manufacturer, began a series of acquisitions that would immediately make it one of the leading providers of extraction-related equipment.
In October 2021, Agrify acquired Precision Extraction Solutions, one of the largest manufacturers of hydrocarbon and ethanol extraction machines, and Cascade Sciences, a leading manufacturer of vacuum ovens and other post-processing equipment.
About four months later, Agrify completed its acquisition of PurePressure, an up-and-coming maker of solventless extraction equipment. And then in February 2022, Agrify acquired Lab Society, which specializes in distillation technology.
In a press release following the Lab Society deal, Agrify projected its extraction division would generate $65 million in revenue in 2022.
Combined, the four acquisitions give Agrify a towering presence in the cannabis extraction space and the broad ability to offer one-stop shopping solutions to many customers.
“Historically, each one of these businesses had their niche and their little corner of the market that they handled, and so the customer would have to navigate from one vendor to another to really fill their lab with everything they needed,” says Britton, who helps lead the new division. “Now we’re actually turnkey from start to finish, and we can tailor your lab however you want, to make whatever products you want and to use whatever processes you want to do it.”
Federal legalization is at the forefront of the cannabis conversation, but with the Biden administration’s inability — or unwillingness — to pass any reforms to marijuana laws, it appears legalization is still at least a few years away.
But that hasn’t stopped industry participants from looking ahead to major changes at the federal level and preparing for the ability to move brands and products across state lines.
“While the prospect of federal legalization is a long way off, we are hopeful that Congress will consider a more incremental approach — like passage of the SAFE Act — that will help existing state-legal cannabis businesses compete, succeed and innovate in their respective markets,” says Witlin. “One of the unfortunate realities today is that where consumers don’t have access to legal, regulated, safe products, we see the proliferation of the illicit market. This needs to change and I’m heartened by the continued momentum of the green wave as states work to address this.”
Witlin says federal legalization will, eventually, further reduce the stigma of cannabis consumption, and concentrates are a critical category for bringing new and existing customers into the legal cannabis space.
Lams points out that federal legalization would provide millions of new and existing cannabis consumers with legal access to cannabis, but the long-term effects on the industry will be even greater in terms of innovation and the product development that comes with institutional investments.
“A huge barrier to innovation in the cannabis industry is overly burdensome regulations and tax structures that exist at the state levels,” Lams says. “When these tax structures are combined with the large amounts of capital needed for business operations, innovation and R&D usually get the short end of the stick. When and if federal legalization is achieved, we should expect to see significant investment from existing players and scientific organizations that currently don’t operate within the cannabis framework.”
Additional reporting by Brian Beckley.