Precision Extraction Solutions co-founder Nick Tennant on the most common mistakes companies make when starting an extraction lab, the whopping profit margins to be had, and the pros and cons of extracting with light hydrocarbon, ethanol, and C02 supercritical.
Business is good at Precision Extraction Solutions. As a whole, the extraction sector is booming, and gross margins are impressive. Precision has received more “extract awards” than any other company in the field. Though co-founder Nick Tennant describes Precision as “an extraction equipment company,” the business doesn’t sell only hardware: It’s a fully compliant, turn-key professional services firm that does everything from installation and lab buildout to tech support and training.
Precision’s best-selling machine, PX1 The Judge can process up to five pounds of material per run with an average fifty-five-minute recovery time. Tennant said the PX1 is ideal for mid-level commercial production and craft applications. It utilizes hydroc arbon solvents, the most efficient commercial method for extracting oil from hemp and cannabis plants. In fact, hydrocarbon extraction is a U.S. Food and Drug Administration-approved method of extracting botanical oils.
“The most common mistakes people make when starting an extraction lab are lack of planning when it comes to production requirements, regulatory compliance, and staffing needs.”
In short, Precision’s extraction systems are “certified in all regulated jurisdictions for safe, effective operation and the production of superior concentrates,” Tennant said.
Extraction is booming with 90-percent growth. How’s business at Precision?
Nick Tennant: 2016 marked robust growth of the company’s extraction equipment and professional service business. Precision is continuing this trend in 2017, and we anticipate well exceeding the growth rate for the extraction industry as a whole.
How competitive is the sector?
Extraction and concentrate products continue to dominate consumer market demand. As new geographic regions continually open themselves up to extraction, more and more businesses are entering the space. There’s abundant opportunity for new entrants in the extraction market, and many savvy entrepreneurs are capitalizing on the rapidly growing extract industry.
Precision offers many different services. Do you consider Precision a hardware company or a consulting company?
Precision is an extraction equipment company that provides professional services including training and industry consulting. In addition to equipment, many of our customers, and particularly new extraction businesses, require a variety of specialized services that may include a mix of site planning, training, workflow, and efficiencies consulting.
When it comes to starting an extraction lab, what are some of the common mistakes people make?
The most common mistakes are lack of planning for production requirements, regulatory compliance, and staffing needs.
What is the average start-up cost for an extraction lab?
For a standard 2,000-square-foot extraction lab, the cost of the primary extraction equipment is approximately $100,000. To produce distillate and other specialty products requires additional equipment, all of which Precision supplies, in addition to professional training for the same.
Cost of property, buildout, peripheral lab items, marketing, packaging, and staffing are, of course, dependent on the unique attributes of particular businesses. A small commercial producer of raw oil may start up for a few hundred thousand dollars, while a large industrial-size operation may run into the millions.
How long does return on investment typically take?
If done right, return on investment may occur in a matter of a few months.
What is the success/failure rate?
For companies that build a team of competent industry professionals with the requisite know-how, planning, and execution, success is virtually inevitable. However, the businesses that don’t plan, staff, and execute properly are more susceptible to the pitfalls of any competitive marketplace, including the cannabis extraction industry.
What would a typical profit margin be for a successful lab?
Depending on cost of input material and wholesale price of extract, gross margins are currently in the 100-percent to 300-percent range, with the higher percentage attributed to specialty products such as distillate. A typical 2,000-square-foot lab has approximately seven full-time employees.
What’s the first thing you ask a new client?
We always like to know the location of the prospective lab, as regulations differ based on jurisdiction.