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Keeping Extraction Costs Down

Lance Griffin
Written by Lance Griffin

Reducing operational costs helps increase profit margins. This is true for any profitable business, including cannabis extraction. Extractors must identify and resolve bottlenecks, downtime, and inefficiencies to thrive in an ever-evolving and increasingly competitive market.

Ideally, extractors perform cost-benefit analyses before extracting anything in order to optimize a facility at startup. This means isolating potential interventions—for example, choosing an extraction solvent, whether supercritical CO2, ethanol, butane, etc.—and subtracting the anticipated costs from the expected benefits. Looking at this one example, we might account for supercritical CO2 equipment being costlier than hydrocarbon equipment. But CO2 is a cheaper solvent, and CO2 extracts are sold at premium prices. Furthermore, hydrocarbon extraction facilities must meet extensive safety restrictions.

Regardless of solvent, purchasing cheap equipment may result in short-term benefits but more significant long-term costs when superior equipment is later required. Equipment also consumes variable energy to operate, and these costs add up. If the extractor relies on guess work when designing their facility, they are likely to be riddled with inefficiencies. Some extractors fail to account for post-processing equipment.

Other considerations include:

Automation

Does the operation rely on manual labor for tasks that can be automated? Automation may spare significant labor costs. One example is cleaned-in-place technology that automatically sanitizes large-scale extraction equipment, eliminating the need for manual ethanol cleaning. Another poignant example is technology that uses sensors and software to automate extraction, largely freeing up the need to monitor the process. Of course, knowledgeable technicians ensure that faltering equipment does not remain stalled.

Scaling

Economies of scale refers to the greater efficiency that comes with large-scale production; more product disperses operational costs and therefore enhances profit. If expanding extraction equipment would result in more product at lower cost per unit, the extractor may be wise to invest. Large operators are also positioned to negotiate bulk discounts from vendors.

The cannabis extract producer can also effectively scale their product packaging. This requires packaging that can easily be customized for different products. Flexible, generic packaging able to meet versatile needs can be purchased in bulk and may spare the extractor many future headaches.

Management

State-of-the-art equipment and flawless facility design will not spare poor management. Lean production refers to the seamless distribution of workload and minimization of waste in a manufacturing facility. This usually refers to figurative waste, such as employees lounging about waiting for another process to complete. It could include mismanaged talent, inefficient transportation, and processes that can be combined.

Waste may also be literal. For example, rather than paying third parties to remove spent hemp raffinate from a premises, extractors may be able to sell it for industrial applications that include animal bedding, biofuel, textiles, and more.

Cost-benefit analyses ultimately relate to the operator’s circumstances and goals (existing facility, target market, intended scale of production, etc.). Adaptation and evolution are imperative, and analyses must be ongoing.

About the author

Lance Griffin

Lance Griffin

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