CannabisNewsWire
Editorial Coverage: Extraction technology plays a crucial part
in the production of cannabidiol (CBD) from hemp.
Sugarmade Inc. (OTCQB: SGMD) (SGMD
Profile), a company already established in the
hydroponic equipment business, is making plans to add extraction
technology to its repertoire. Canopy Growth Corporation
(NYSE: CGC) (TSX: WEED) has been researching new medical
applications for CBD and related chemicals — medicines for which
extraction will be critical. KushCo Holdings Inc. (OTCQX:
KSHB) has moved from providing support services to
CBD-related companies to running its own store and has recently
bolstered its leadership team for further growth. Harvest
Health & Recreation Inc. (CSE: HARV) (OTCQX: HRVSF)
has expanded swiftly over the past six years, growing from a single
operation to a presence in five U.S. states. And in a boost to
CBD’s public profile, Aurora Cannabis Inc. (NYSE: ACB)
(TSX: ACB) has teamed up with UFC to research the
application of CBD and related treatments for mixed martial
artists.
- Extraction technology is not normally owned by the cultivators
growing the crops.
- The technology uses a range of different methods, utilizing
substances such as ethanol and carbon dioxide.
- The need to extract CBD oils allows extractors to take a
substantial portion of hemp harvest profits.
- Soaring demand for CBD has added to the profits for those
providing extraction equipment.
To view an infographic of this editorial, click here.
Turning Hemp Into CBD
In the modern market, CBD is money, a sure seller that can be
easily turned into cash by companies with even halfway capable
supply chains and marketing. The incredible popularity of this
hemp-derived substance has led to its use in medicines, foods,
vaping oils, cosmetics and anything else manufacturers can think
of.
But just as money doesn’t grow on trees, CBD doesn’t grow in the
form of a pure oil that cultivators can just pick and put in a
packet. The valuable commodity has to be extracted from hemp
plants, a sophisticated process that involves expensive equipment
and technical expertise. The need for that extraction work is
fueling an important subsector of the hemp industry.
Extraction Efforts
The CBD industry is a complex one, with a range of companies
providing different services at different places in the process.
Key players include farmers and cultivators, who get most of the
press attention; product developers and brand managers, who draw
commercial attention onto products; and of course behind-the-scene
companies such as Sugarmade Inc. (OTCQB: SGMD), which
provides cultivation supplies. Perhaps the most overlooked element
of the process — extraction — may be one of the most important in
adding value.
All CBD extraction is achieved using a type of solvent. This
chemical is mixed with the prepared hemp plants in carefully
controlled conditions within specialist machines. The solvent
attaches to the CBD and draws it out of the plant. The machinery
then separates the solvent-CBD mix from the rest of the hemp
remains, and then extracts the CBD from the solvent. The aim is to
complete this extraction process as quickly, efficiently and
affordably as possible. The ideal extraction system draws all of
the CBD from the plant, though it is seldom possible to get 100%;
even high-grade ethanol
extraction equipment works at 98.5%.
A number of different solvents are used. Carbon dioxide, butane
and ice water are among the options. The one favored by many
companies, including Sugarmade, is ethanol extraction, in which
alcohol detaches CBD from hemp as easily as it extracts common
sense from a student on a Saturday night.
Because CBD is essentially useless until it has been extracted,
a delicate balance exists in the relationship between farmers and
extractors. Growing a crop of hemp takes months, during which the
plants are carefully fed, watered and monitored to ensure the best
possible harvest. The valuable crop is then taken to the extraction
company, which might process the entire crop in a matter of days.
Right now, extraction technology is in short supply and high
demand, so the extraction companies can take up to 60% of the CBD
or its value as a processing fee — a highly profitable outcome for
the minority of the work.
This imbalance appears certain to change. While the number of
hemp growers has risen dramatically recently, the number of
extraction operations has not. Clearly, the time has come for
extraction operations to catch up, both in the number available and
in the scope of their processing. This obvious need is what
Sugarmade is working on as the savvy company makes a move into the
market.
As with its previous work in cultivation, Sugarmade isn’t going
into extraction itself — at least not yet. Instead, the company is
preparing to provide state-of-the-art extraction equipment. Move is
designed to allow more companies to get involved in this lucrative
piece of the CBD trade. As more companies get involved and existing
operations grow larger, supply should push down prices, meaning a
better deal for cultivators.
A change looks to be imminent in the CBD industry. But how did
this extraction bottleneck arise?
The CBD Rush
The answer lies in the extraordinary growth of the CBD industry.
Barely even a novelty talking point a decade ago, CBD has seen its
profile soar in recent years. In the health and well-being sector
in particular, CBD has become the new wonder ingredient, the elixir
that customers want and retailers are eager to provide. The key
component is used to tackle problems such as pain, insomnia and
anxiety, and is also used in relaxing vaping oils and edibles.
CBD was given a boost in December when the U.S. government
legalized its production on the federal level. Previously produced
under state-level licenses, CBD was grown in an uncomfortable legal
area, with federal constraints making business complicated. With
the change in the legal status of this crop, cultivators are making
the most of a CBD rush.
But despite the best efforts of companies such as Sugarmade,
supply of CBD isn’t keeping up with demand.
It’s been less than a year since laws making production easier were
introduced in both the United States and Canada, and the industry
is working feverishly to catch up. In many areas, companies can’t
obtain enough CBD to keep up with what their customers want.
This supply-vs.-demand problem is exacerbating the power
imbalance between cultivators and extractors. Working to meet the
mounting demand — a demand that appears certain to only continue
its upward trend—cultivators are eager to obtain CBD as quickly as
possible and move it on to market. This forces them to accept the
rates offered by extractors. But fortunately, as is often the case,
the trend is forcing change.
The same legal changes that have created greater demand and
greater cultivation make it easier for companies to move into or
expand their extraction business. Supply chains are becoming better
established both for CBD and for the equipment involved in its
processing. The provision of more extraction equipment, regardless
of the solvent used, will remove the bottleneck and allow the CBD
to flow free.
CBD Spreads
The growth of the CBD market has both encouraged and been driven
by the success of companies working in the field.
Canopy Growth Corporation (NYSE: CGC) (TSX:
WEED) is one of the largest companies working with CBD, in
part thanks to a multibillion-dollar investment from drinks
manufacturer Constellation Brands. Already a leading player in the
market before the Constellation deal, Canopy Growth has seen its
profile and business go from strength to strength. But while that
deal drew attention to the recreational side of the company’s work,
and it has recently made a move in skin care
through acquisition of This Works, Canopy Growth’s core focus
is still on medicine. The company’s research division recently
provided an update on its
work, which includes the development of a whole range of
medicines that include CBD.
Like Sugarmade, KushCo Holdings Inc. (OTCQX:
KSHB) first moved into the CBD space as a support company,
providing packaging solutions. The company has since moved to a
more central position, with an online store for CBD and related
products. And to ensure continued high-quality leadership, the
company recently bolstered its
leadership team.
Founded by a former lawyer in 2013, Harvest Health &
Recreation Inc. (CSE: HARV) (OTCQX: HRVSF) provides
CBD-related products in the United States. The company has shown an
eagerness to expand, already spreading from a single location to
five states in the space of six years. Harvest also has a focus on
education and information that reflects the community-minded
approach of many businesses within the sector.
One of the companies that has seen the greatest growth is
Aurora Cannabis Inc. (NYSE: ACB) (TSX: ACB), which
has profited from Canada’s liberal drug laws. Aurora has become
heavily involved in research, looking at new treatments that can be
produced with CBD. The company has even partnered with mixed martial arts company UFC to
explore how its products and discoveries can help consumers.
All of these companies rely on extraction technology to create
products that use CBD. Growth in the extraction industry and better
provision of its technology will provide a boost for many of them
as the CBD market grows.
For more information on Sugarmade, visit Sugarmade Inc.
(OTCQB: SGMD)
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