The Regulations You Should Consider Before Running a Cannabis Extraction Operation
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As cannabis flower consumption falls to less than 50 percent of the market share in North America, it's clear that a significant portion of consumers prefer the ease and convenience of extracts and edibles. Cannabis businesses preparing for the future of the industry, and taking changing consumer tastes into consideration, are finding that the right design to support their extraction operation is increasingly critical to business performance. A wrong step in the early development stages can be extremely costly, especially if operations are facing inspection failure or an inability to scale with growth and demand.
Starting an extraction operation is a complex process, and unfortunately the cannabis industry is not yet at a point where a standard set of guidelines applies to every business. Each individual operation has its own set of unique factors, and the steps in the permitting process are on a case-by-case basis.
As the industry continues to progress, we can expect to see more standardized processes and more similarity between extraction operations. Until then, here are some of the most important regulatory considerations to keep in mind when building a processing facility.
Cannabis extraction and regulatory requirements
As your business plan is developing, the key regulatory requirements will mostly depend on your chosen method of extraction. Keep in mind that the governing bodies and codes regulating the cannabis processing industry are primarily focused on safety concerns and don't necessarily take efficiency or final product into consideration.
We can generally classify extraction methods into three categories: CO2, hydrocarbon, and non-hydrocarbon. CO2 extraction involves pressurizing carbon dioxide into a supercritical fluid, which is then used to pull the desired compounds from the cannabis plant. Hydrocarbon extraction methods are the most well-known and typically utilize solvents like butane, propane, or hexane. Non-hydrocarbon methods are less common, but involve using ethanol or even vegetable oils, animal fats, or ice water as the main solvent.
Clearly, these very different extraction processes have different safety concerns, maximum allowable quantities, space and occupancy classifications, and other considerations required to meet code. These regulations comprise one of the few areas that tend to be quite similar as we move from jurisdiction to jurisdiction, however some states may restrict businesses to specific extraction methods. Before getting the ball rolling, it's important to understand all options, and what local jurisdictions require for each extraction method.
Understand land use and zoning regulations early in the process
One of the biggest mistakes a processing facility can make is committing to real estate before understanding the land use and zoning requirements. Making changes to a property later down the road can be extensive, expensive, or in some cases, not physically or legislatively possible.
Recently, a large extraction facility client narrowly avoided landing in a situation like this. The client had chosen a property and was ready to sign the lease to get the project moving forward. However, with a little digging, our team was able to uncover that the building would have never met the codes based on property lines and the amount of storage needed for hazardous material. They narrowly avoided a costly error.
When building a team, extraction operations need to ensure that they bring on experts early in the process who are experienced in the extraction facility process. If an architect is unfamiliar with land use and zoning requirements for these types of operations, the right engineering team should be able to help address this issue. Engaging the right experts at the outset of a project can mean the difference between spectacular failure and well-executed success.
Be highly cautious when choosing cannabis extraction equipment
We have seen it happen time and time again: processing operations choose their extraction equipment based on branding and advertising, set up their facilities and are ready to hit the ground running. During the final inspection process, it turns out that the equipment systems they have chosen are not actually certified to do what they are advertised to do, and the business owners are left circling back to square one.
Most authorities having jurisdiction (AHJ) require that all equipment and equipment systems used in a processing facility are certified by a nationally recognized testing laboratory (NRTL), which means the equipment has been certified by the Occupational Safety and Health Administration to meet product safety standards. Examples of NRTLs widely known in the cannabis industry are Underwriters Laboratories, CSA Group, and Intertek Testing Services. Many times, specific pieces of extraction equipment may be listed by an NRTL, but when all of the different components are put together to operate as one processing system, the NRTL certification no longer applies. If an NRTL listing for an extraction assembly isn't present, most states will require that a design professional registered as a professional engineer in that state submit a third-party technical report. Some extraction equipment manufacturers provide this service as a part of their proposal, but some do not, so be sure to ask.
If a specific extraction equipment assembly doesn't have the correct certifications or third-party review at the time of purchase, doing this step after the fact is going to cost a significant amount of time and money. Even small extraction operations can cost upwards of half a million dollars in equipment and having to go back after spending this amount of money can be a nightmarish process. If an extraction operation chooses to purchase equipment that is not NRTL certified, the business should bring on a design team before signing the check to ensure the system will pass inspection.
Be prepared, cannabis extraction is no low budget process
One of the first things we discuss with new extraction operation clients is budget. Many processors want to start facilities on a low budget and build capital as they go, but unfortunately extraction is not a low budget process. There are, however, measures that can help prepare for the regulatory process while saving time and money in the long run.
The cannabis industry is maturing rapidly, and local jurisdiction and regulations are changing very quickly compared to other industries. Even if a client has opened a processing facility before or been part of an existing extraction operation, we have seen regulations change drastically in as little as six months. Just because a certain process has worked in the past or has worked for another facility does not mean it will work for another unique business, and every project must be examined with fresh eyes and perspective.
At the end of the day, extraction can be a dangerous process involving hazardous materials and extremely high pressures. While they may seem excessive, the regulations and codes surrounding processing facilities exist to ensure the physical safety of those working in the building.
By bringing in the right team early, extraction operations will have the necessary knowledge to navigate the regulatory process and get an operation up and running smoothly.
This article originally appeared in Analytical Cannabis' Trends in Cannabis Extraction ebook in March 2019.