Although often overshadowed by the importance of marijuana retail and branding, cannabis extraction is a vital component of any vertically integrated cannabis company. Not only do in-house extraction operations allow cannabis companies to avoid outsourcing costs, but it also enables the potential for additional revenue streams and more rapid product ideation.
With cannabis edibles, extracts, and topicals expected to be legal in the Canadian market later this year, we examine some of the marijuana industry’s largest cannabis extractors.
Westleaf Inc. (TSX-V: WL) (OTCQB: WSLFF) is a vertically integrated Canadian cannabis company focused on innovative retail experiences and engaging cannabis brands as well as cultivation, production and extraction of cannabis products.
While Westleaf is best known for its mission to become Canada’s largest premium marijuana retailer, its recent term sheet with Xabis Inc. strengthens Westleaf’s position as a truly vertically integrated Canadian cannabis company.
Based in Colorado, Xabis is a world leader in the design, construction, and management of cannabis extraction and manufacturing facilities, as well as product development. Led by a team of seasoned business professionals and some of the industry’s foremost chemical and biological PhDs and engineers, Xabis will provide expertise to Westleaf’s 60,000 sq. ft. Delta West cannabis extraction and production facility, now rebranded as The Plant By Westleaf Labs.
Xabis boasts an impressive track record—having designed, built, and operated facilities across 5 U.S. states and developed more than 200 individual cannabis SKUs (ie. oil based oral solutions, gummy edibles, hard pressed tablets). Xabis’ exclusive partnership with Westleaf marks the American firm’s first foray into the Canadian markets.
Designed to include R&D, processing, extraction, manufacturing, and order fulfillment, Westleaf expects that The Plant will be complete in Summer 2019. This provides Westleaf with ample time to refine its portfolio of cannabis derivative products before cannabis edibles are legalized later this year. The company also notes that The Plant can offer a variety of services to generate multiple revenue streams, including white labeling and contract manufacturing services for raw extract and distillation.
MediPharm Labs Corp.
MediPharm Labs Corp. (TSXV: LABS) (OTCMKTS: MLCPF) is a leader in specialized, research-driven cannabis extraction, distillation, purification and cannabinoid isolation.
As the first Canadian LP licensed under ACMPR to focus exclusively on cannabis oil extraction, MediPharm Labs is widely recognized as a pioneer in the field of cannabis extraction. The company already supplies some of the most well-known names in Canadian cannabis, including Canopy Growth, Emerald Health Therapeutics, The Supreme Cannabis Company, and others.
MediPharm Labs’ 70,000 sq. ft. extraction facility is capable of processing 150,000 kg of dry cannabis flower per year, making it one of Canada’s largest licensed extractors. It’s a title that’s likely to stick—considering that the company expects to increase this capacity to 250,000 kg of dry cannabis per year by Q2 2019. With capacity expected to grow by over 60% this year, MediPharm Labs has projected $85 million in revenue over the course of 15 months starting February 2019.
Valens GroWorks Corp. (CSE: VGW) (OTC: VGWCF) is a multi-licensed, provider of cannabis products and services focused on various proprietary extraction methodologies, distillation, cannabinoid isolation and purification, as well as associated quality testing,
Valens GroWorks is comprised of Valens Agritech Ltd., a 25,000 sq. ft. extraction center, Valens Labs Ltd., a leading edge cannabis research laboratory housed within Agritech, and Valens Farms, a 400,000 square ft. cultivation greenhouse that is in the early stages of development.
With the capacity to process 240,000 kg of dried cannabis and hemp per year, Valens GroWorks has signed cannabis and hemp extraction agreements with some of the biggest names in the legal marijuana industry, including Canopy Growth, Tilray, The Green Organic Dutchman, and Organigram. To complement its extraction business, Valens also offers product development and white-labeling services.
Most recently, Valens announced a $30 million bought deal equity financing in which AltaCorp Capital Inc. would act as the lead underwriter and sole bookrunner. The financing has since been upsized from $30 million to $37.5 million. The company intends to use the net proceeds from this offering to grow its presence in Canada, increase production capacity and white label offerings, and for general corporate purposes.
In parallel to this financing, Valens announced that it had acquired its existing processing facility (which was previously owned by one of the company’s directors, Ashley McGrath) for $4.4 million. Valens has also entered into an agreement to purchase a neighbouring property to this facility, providing Valens with 18,000 of additional square feet for extraction, product development, white-labeling, and office space.
Indiva Limited (TSXV: NDVA.V) (US: NDVAF), a Canadian cannabis company aiming to become a house of global marijuana brands, recently hired Seattle-based Lucid Labs Group to design the company’s London extraction facility.
Planned for Q2 2019, Indiva’s 40,000 sq. ft. London facility will serve as a center for oil extraction, cultivation, processing, and product innovation (ie. tinctures, gel capsules, licensed edibles products). The company expects this facility to be able to process 70 tonnes (70,000 kg) of biomass into 4 million grams of distillate.
Prior to the construction of this facility, Indiva signed a 3-year revenue sharing agreement with MediPharm Labs Inc, whereby Indiva would supply MediPharm with dried cannabis for the purpose of creating cannabis oil. By branching out into extraction itself, Indiva may be positioning itself to better protect its margins throughout the lifecycle of the marijuana industry.
Neptune Wellness Solutions
Neptune Wellness Solutions Inc. (NASDAQ: NEPT) (TSX: NEPT) is a wellness products company that specializes in the extraction, purification and formulation of health and wellness products.
With 50 years of combined experience in the diversified wellness products market (ie. marine oils, seed oils, pet supplements, custom formulations, etc.), Neptune first signaled its intent to enter the high-growth legal cannabis market in 2017.
However, it wasn’t until January 2019 that the company received its license to process cannabis from Health Canada. The license allows Neptune to make good on previous multi-year supply agreements—including its June 2018 agreement with Canopy Growth, in which Neptune will supplement Canopy Growth’s extraction, refinement, and extract product formulation capacity.
Neptune’s extraction operations are planned to take place at the company’s 50,000 square foot GMP-certified facility in Quebec. Although this facility can currently only process 30,000 kg of dried cannabis flower, Neptune is on track to complete Phase II of its capacity investment by March 2019, which in effect will increase the facility’s input capacity from 30,000 kg to 200,000 kg of dried cannabis. Concurrently, Neptune is applying for a Health Canada sales license, which would allow the company to distribute finished form cannabis products directly to consumers and patients.
Cannabis Extraction Will Drive New Marijuana Products
By enabling higher margins, new revenue channels, and faster product development times, in-house extraction operations will likely fuel some of Canada’s most successful cannabis companies. That said, we do expect the transference of extraction know-how between companies like Xabis and Westleaf to eventually diminish much of the technical gap between cannabis extractors. Even still, cannabis extraction will play a crucial role in the coming years—especially as new marijuana markets continue to open around the world.