As consumer demand for CBD accelerated, hemp farmers followed suit with a massive increase of production. But the kink in the supply chain was the need for large-scale extraction equipment, capable of efficiently processing plant material from thousand-acre farms.
While attending a marijuana industry trade show a few years back, Stephen Mueller, the chief technology officer and founder of Mile High Labs, realized nobody was making that type of industrial-scale equipment.
“We needed to invent it, design it and build our own technology to allow this industry to grow and be able to supply some of the biggest brands in the world with CBD,” says Mueller, an engineer by trade with a background in physics.
Mile High Lab’s founder and chief technology officer Stephen Mueller.
Mile High Labs went about developing that technology, which ultimately helped the company close a $35 million Series A in 2018, believed to be the largest capital raise of its kind in the history of cannabis.
Through this process, the Mile High Monster was born.
The Monster is a high-throughput, ethanol extraction factory that can be installed directly on a farm and can also service neighboring farms. The patent-pending machinery can process 50 acres of hemp per day into full-spectrum CBD oil, which is then transported back to the Mile High Labs headquarters in Loveland, Colorado, for further processing and distribution.
Mile High Labs works exclusively in the CBD category and does not touch marijuana. The company also does not own any hemp farms or grow its own hemp.
“I try to stick to what we do best,” Mueller says. “There’s plenty of opportunity in this industry, and I don’t feel the need to do everything. I know very little about farming and growing stuff, so it’s not my expertise and not what we wanted to focus on.”
Compared to the batch-style extraction machines used in the marijuana industry, the Monster’s continuous feed system allows it to be far more scalable, Mueller says. The crop still needs to be harvested and dried by conventional means, but the Monster solves the logistical challenges of moving semi-trucks full of hemp back and forth across the state.
“This allows us to form a closer relationship with our farming partners in that they feel confident that they can plant large acreage and have the facility there to process it,” Mueller says. “We can’t get bigger if they don’t get bigger.”
The first two units are being deployed at hemp farms in eastern and southern Colorado and will increase Mile High Labs’ production capacity by 1,000%. The Monster can be moved reinstalled on a new farm periodically, but it was designed to stay on one farm long-term.
In April, the company announced it had closed a $65 million term loan to buy up a gigantic quantity of plant materials.
“Following the signing of the Farm Bill in late 2018, we started seeing speculators take out significant portions of the available hemp supply, so we acted decisively to secure the single largest source of high-quality biomass available,” says Jon Hilley, chief financial officer of Mile High Labs. “It is quite literally a mountain of hemp — millions of pounds — and this funding guarantees we can continue to meet the increasing demand for CBD from our customers.”
Mile High Labs has been successful as a middle-man in the CBD market, having produced about 500 million doses of CBD in 2018. The company buys hemp material from farms, then extracts and refines CBD to be sold as full-spectrum oil or isolate to businesses that manufacture consumer CBD products.
Mueller says Mile High Labs currently supplies about 25% of the wholesale CBD market from its plant in Loveland.
“You won’t see our name or brand on products on the shelves, but most of those brands are buying our ingredients,” he says.
The company has invested heavily in quality and compliance, including a certification for good manufacturing practices, in advance of Food and Drug Administration oversight.
In addition to processing plant material from hemp grown in Colorado, Mile High Labs also extracts hemp trucked in from other states. To date, Mueller says demand for CBD has far exceeded production. At some point, the supply and demand will certainly balance out, or there may even be an oversupply of hemp, “but we haven’t seen that yet,” Mueller says. “We’ll see when that happens.”
Not only is demand in the U.S. growing steadily, resulting in more than $300 million in domestic CBD sales in 2018, but international demand is growing as well, particularly in Europe and Asia.
“It’s definitely going global,” Mueller says.
And this skyrocketing demand is happening without a huge, multinational conglomerate like Coca-Cola or Bayer getting into the CBD market yet, which Mueller believes is still at least a year away.
“When that happens, that could shift the market quite a bit as well,” he says.