Cannabis investors have had a series of rude shocks in the past few months. Right now, people still believe in the cannabis opportunity are much more selective in their investment choices. They want companies with real assets, cash on hand, a real business plan, proprietary intellectual property and a well-defined market.
That in mind, I was delighted to be able to visit the World-Class Extractions (CSE:PUMP) manufacturing facility in an industrial park in Langley, British Columbia.
There is nothing more real than a metal fabrication shop with three large extraction machines in various stages of completion and then two finished machines undergoing testing. (See photo above.)
The cannabis market is much more than just the smokable dried flower. Edibles, oils, concentrated waxes and many other products can deliver the various cannabinoids people want. Whether the objective is medicinal or recreational, products extracted from cannabis are a huge business. In fact, in Oregon, where marijuana has been legal for several years, the non-dried flower sector represents 50% of the market.
All of those non-smokable products require extraction and given the size of the market, extraction on a large scale.
“A lot of the extraction devices out there are really “garage band” level,” said Tamas Jozsa, President of Soma Labs, the WCE subsidiary which is actually designing and building the WCE machines, “We’re professional engineers with over 30 years experience in high-pressure industrial equipment.”
Which is important because the WCE technology is based on using supercritical CO2 as the agent to extract the crude cannabis extract. Supercritical CO2 is very efficient at targeting desired cannabinoids while maintaining high-quality terpene integrity, with the ability to partially recycle the solvent which consequently leaves. In order to handle these high-pressure operations, it needs well-engineered and certified pressure vessels, properly specified tubing and fittings, a number of sensors throughout the system and operating software to control and monitor the process and allow both on-site and remote troubleshooting.
The Boss, WCE’s top of the line extraction system can process over 100 kilograms of biomass a day. To do that it has to be designed and tested to industrial standards. It also has a unique “Clean in Place” system to reduce downtime, unwanted impurities and ensures consistent performance which allows for seamless GMP (Good Manufacturing Practices) compliance. This did not happen overnight. Soma Labs has been working on its extraction technology for over four years.
Having a well-engineered, high capacity machine is the beginning, not the end of the WCE story. Speaking with PUMP CEO Rosy Mondin you begin to get a sense of the scope of World Class’s ambitions.
“We intend to utilize our technology in our joint venture extraction and processing facilities and providing toll processing and contract manufacturing services for third party license holders and independent brands. This provides World-Class with recurring revenue streams. “In addition, we will also continue selling our BOSS CO2 Extraction System and other extraction components, subject to availability.” said Mondin”
It is an engaging strategy and PUMP has already signed two Letters of Intent for Joint Ventures. The first, with FSD Pharma will create an extraction facility at FSD’s Cobourg Ontario location. “The initial phase, which is scheduled to commence production in December 2019, is comprised of several BOSS CO2 Extraction Systems as well as WCE’s BEAST Ethanol Extraction System, along with all the ancillary equipment required for the preparation of the biomass, as well as refining and distillation processes. With ample room to expand, the Facility will initially have an extraction and processing capacity of up to 5,000 pounds of biomass per day.” (September 25, 2019 Press Release) The second is a Joint Venture with Canntab Therapeutics Limited (C.PILL) announced on October 8, 2019 for a facility at Markham, Ontario. This is a more modest operation with an extraction and processing capacity of up to 220 kilos of biomass per day.
Both deals leave ownership of World-Class’ equipment with the company until the cost of the equipment and installation has been paid through the operations of the extraction machines. After that, revenue will be split which will give PUMP a significant revenue stream going forward.
Having industrial scale, working, cannabis extraction machinery puts World-Class’ in an ideal position to benefit from the growing cannabis market.
“The edibles cannabis market in Canada has yet to begin – representing the largest segment of value-added cannabis derivative products. Oil is the base ingredient for all these products. Current extraction companies are already reaching capacity as it is. The market is huge for Canada, US and internationally as cannabis extracts (including CBD) gain acceptance and traction worldwide,” said Mondin. “According to new data from the US Department of Agriculture (USDA), US farmers more than quadrupled the land planted with hemp in the past year, from 27,424 acres in August 2018 to 128,320 acres today. Which means there is a large need for extraction equipment to process this hemp into CBD products.”
The edibles regulations in Canada were issued at the beginning of October and Mondin knows that sector will be good for World-Class’ saying, “It will increase demand substantially. Current extraction companies are already reaching capacity servicing current needs. Demand for extracts, edibles and topicals is on the rise, outpacing demand for flower.” If the US experience is any guide, edibles and other extraction driven products could soon account for 50% of the Canadian cannabis market.
World-Class has the great advantage that its technology is ready to go. “BOSS machines have been sold since late 2017 and equipment is currently being shipped to our two-announced joint venture partners to setup the extraction and processing facility – one with FSD Pharma and one with Canntab.
“We not only build & manufacture our technology but use our technology and work with licensees to ensure that our equipment, tech and processes provides them with the best & most efficient methodologies to get them to ROI as quickly as possible,” said Mondin. “By working with our technology we have figured out the extraction bottlenecks ensuring the best end-to-end solution for making the best cannabis oils.”
With real extraction technology already built, cash in the bank and a revenue-generating business plan which is designed to create ongoing future revenue streams, World-Class Extractions is very, very real.
For investors looking for a low downside window into the cannabis world, PUMP offers a very attractive entry point. Like many companies in the marijuana space, PUMP has been pummelled in the stock market with its shares currently trading near all-time lows. Unlike many cannabis stocks, World-Class Extractions has a clear path to profitable participation in the marijuana marketplace.