Quandary for Dispensaries, Recreational Marijuana Shops: Produce Extracts or Buy From Third Parties?

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By Marijuana Business Daily staff

Kevin Lamb, who’s been advocating for marijuana legalization over the past three decades, has been around long enough to know one thing about the cannabis industry: set yourself apart or get left behind.

That thought was paramount when he and his business partners – two growers and a dispensary owner – decided to purchase extraction equipment costing about $280,000, which they plan to use to start a company that will make cannabis oil cartridges for vape pens.

“There are a lot of people growing marijuana right now, and to differentiate yourself, it helps to be able to produce some value-added products,” Lamb said. “The industry is changing because of the requirements and how much regulation and standardization there is, so being able to separate out and put back together the product is crucial.”

Extracting cannabis oil is one way growers, infused products companies and dispensaries/recreational stores can branch out, provided they are allowed to do so under state laws. But it’s also expensive and time-consuming, leading many marijuana business owners to buy oils from an outside vendor.

Jon Hofer, a consultant at RMMC Consulting in Washington State, said dispensary and recreational shop owners should decide what they want their core business to be when debating whether to perform their own extractions or purchase edibles, tinctures and other concentrates from separate companies.

There are pros and cons to both, he said. Buying from a vendor means not being burdened with high costs, such as the money Lamb said he plans to spend on a CO2 extractor.

“It really depends on their primary business,” he said. “Are they growers that have a retail shop or are they chefs who make edibles who happen to have a retail shop? Making edibles requires recipes and processes and things of that nature, so if they have those in place,” they may be better off buying expensive extraction equipment.

It’s not just the cost of equipment that can burden business owners.

In Colorado, for example, those hoping to get into the extraction game must obtain a permit. The application fee is $2,500, while the actual licensing fee is $2,200, according to the state’s Marijuana Enforcement Division. Another $2,500 is due to the local government.

That’s not a lot of money in the grand scheme of things, but the time and hassle of obtaining a license can serve as a deterrent.

The Bud Depot in Lyons, Colorado, used to make its own medical edibles before the law requiring a license to do so took effect.

Sativa Ball, the store’s manager, said some long-time customers get nostalgic when reminiscing about the products the company used to make. But generally, people are happy with the infused products carried by Bud Depot, including more well-known brands such as Dixie Elixirs and Incredibles.

Purchasing edibles and other infused products from companies allows Bud Depot to keep costs down and let staff members focus on their primary jobs, whether it’s serving customers or caring for patients, Ball said.

Extraction also can be dangerous to novices who don’t know how to properly use equipment or extract oil, and there have been plenty of stories of about home growers and even commercial cultivation sites using butane or other highly volatile methods sparking explosions or fires.

That fact is underscored by an explosion at a well-known dispensary in New Mexico recently that was using butane during the extraction process. Two people were injured in the accident.

Still, Hofer said he agrees with Lamb’s outlook — those who extract their own oils perhaps have more opportunities within the industry.

“If you identify something that’s not being serviced in the market already, you could” create products to fill the void, he said.

Ken Snoke, the president of Emerald Scientific, which sells equipment to extractors, testing laboratories and other industry businesses, said the decision whether to extract your own cannabis oil or sell pre-made edibles or concentrates should be carefully considered.

Companies that plan to only make edibles in small batches can lose money on the venture because the per-unit cost can be quite high.

Businesses that produce on a large scale, have marketing channels and name recognition for their products, and know how to properly extract oil and use it to make concentrates, however, are the ones who will make money, Snoke said.

“From what I’ve seen out there it’s a matter of scale,” he said. “I’ve definitely seen a few examples of producers that decided to go into extraction and find out its not worth it, or not as easy as its made out to be. Extraction is easy to do it but it’s not easy to do it right or well. You can buy a machine and get right to it, but to do it well and do it right it takes a full-time effort.”