Tackling Operational Risk in Cannabis Extraction
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Cannabis extraction companies face a wide variety of operational risks that can adversely impact their operations, profitability, and competitiveness. The list of risks in a highly regulated and highly competitive market is too large to cover but here are four salient ones an extraction company faces:
- Regulatory compliance: The cannabis industry is regulated and companies must ensure that they are compliant with local, state, and federal regulations. Failure to comply with regulations can result in fines, legal penalties, and reputational damage.
- Safety hazards: The cannabis extraction process involves the use of potentially hazardous solvents and equipment, which can pose safety risks to employees if not properly handled. Companies must have proper safety protocols in place to mitigate these risks.
- Product quality: The quality of cannabis extracts can vary greatly depending on the extraction method used and the quality of the raw materials. Companies must ensure that their products meet quality standards and are consistent in potency and purity.
- Supply chain disruptions: Cannabis extraction companies rely on a steady supply of high-quality raw materials to produce their products. Any disruption in the supply chain can impact operations and profitability.
When tackling operational risk, it’s important to remember an organization has a few different levers it can pull: people, processes, and technology.
It goes without saying that there is a different degree of complexity when it comes to an extraction operation compared with a cultivation operation. As such, the pool of qualified employees is likely smaller. Strong extraction technicians have a combination of technical and mechanical skills along with a thorough understanding of chemistry and laboratory protocols. This means both hiring and training will be vital when it comes to staffing the operation. The nature of an extraction business typically means many change controls – in other words, constant evolution, and therefore ongoing training. Technology (more on that later) can go a long way to facilitate this required training.
It’s no secret that standard operating procedures (SOPs) are the lifeblood of any extraction operation; they outline how to handle hazardous materials, equipment, and manufacturing processes. It’s also worth noting that no matter how well-written an SOP is, they are living, breathing (figuratively of course) documents that constantly evolve. While SOPs themselves are inherently risk mitigation tools, if the administration (the edits, reviews, approvals, and subsequent training) of those SOPs isn’t executed perfectly, it can absolutely lead to increased regulatory compliance risk.
To quote the affable Dude from The Big Lebowski, “[That rug] really tied the room together”. In this case, technology is the rug that enables the people and reinforces the process. A complete tech stack in the cannabis sector usually includes the following platforms:
- Inventory system
- Financial reporting system
- Customer relationship management system
- Quality management system
QMS = risk mitigation
Tracking inventory, customers, and finances are all largely considered table stakes. When it comes to the tech stack, however, it is a quality management system (QMS) that is the ultimate risk mitigation tool. Regulators (federal or state) are intimately familiar with QMS and the vast majority of data and records that they request for inspections are located here.
When it comes to an extraction operation compared with a cultivation operation, the extraction operation will likely involve a more complex manufacturing process that involves more steps, more equipment, and potentially more vendors (from whom to source biomass). QMS directly addresses the four aforementioned operational risks that extraction companies face in the following ways:
Regulatory compliance > eQMS automates the edit > review > approval > training workflow associated with regulated documents like SOPs, marketing materials, product labels, legal contracts and more. Dummy-proof workflows ensure the required information is captured and steps are circumvented. Detailed reporting with push notifications ensures your staff are up to date on their training.
Training dashboard example. Image credit: C15 Solutions.
Safety hazards > eQMS comes with a hazard analysis critical control point (HACCP) module, full equipment management (schedule work orders, execute calibration and sanitation activities, commission new equipment, etc.) as well as an employee health and safety module to automate the recording and reporting of any safety incidents.
Equipment MGMT dashboard example. Image credit: C15 Solutions.
Product quality > eQMS works diligently to quantify what poor costs quality operators are incurring and the combined use of OOS (Out of Spec), continuous improvement, corrective actions & preventative actions (CAPA) along with internal audits, automated CoA analysis, and real-time visibility into production and quality KPIs means extraction companies can expect to lower their costs associated with things like complaints, re-work, product destruction, failed CoAs, and product recalls.
Supply chain disruptions > eQMS enables extraction companies to thoroughly vet their supply chain partners through supplier audit workflows while simultaneously keeping a close eye on them via audit trails, dashboard reports and supplier corrective actions requests (SCARs).
Quality event monitoring. Image credit: C15 Solutions.
Transforming extraction operations with QMS technology
Extraction operations are undoubtedly rife with operational risk. Whether that be compliance, safety, product quality, or supplier risk, a dedicated QMS platform will be able to mitigate much of this risk while simultaneously empowering your staff and reinforcing the blueprint for your operation.
To drive home just how much these operational risks can cost you, the American Society for Quality (ASQ) saypoor costs of quality can range from 15% to 40% of an organization's operating costs, depending on the industry and the maturity of the organization's quality management system. Based on the relative immaturity of the heavily regulated cannabis sector, we would assume extraction companies typically find themselves on the higher end of this estimate.
The cherry on the risk mitigation sundae is that leveraging an eQMS platform will not only bring you peace of mind, but it generally translates into a much faster end of line to market time!