Q&A: MUNICIPAL GUIDE TO THE CANNABIS EXTRACTION INDUSTRY
Jobs, Revenue & Growth Opportunities for your City or Township
Why should your municipality welcome extraction businesses?
The cannabis extraction industry is one of the fastest growing markets in the United States with near 90% growth year over year and billions in investment flowing into the industry. This fast-paced industry is a perfect fit for cities and townships interested in creating jobs and generating significant tax revenue at the local level.
The average extraction/manufacturing facility employs 30-50 full time positions. With generous licensing, a municipality may easily add hundreds or thousands of jobs to its local employment rosters, thereby contributing to a robust local economy.
The general cost to build a commercial extraction and manufacturing facility ranges between $2 million – $10 million, prospectively generating tens, if not, hundreds of millions in local investment.
APPLICATION, LICENSING AND OTHER FEES
Initial Application Fee: $5,000 – $7,500
License Fee Upon Approval: $5,000 – $7,500
Building Permit Fees: % of Construction Costs
Annual License Renewal Fee: $5,000 – $7,500
Generally state legislation allows municipalities to tax cannabis based businesses at substantially their own discretion subject to certain caps. Gross annual revenue for a single extraction business range as follows:
Small: $1 million to $5 million
Medium: $5 to $10 million
Large: $10 to $30 million
It should be noted that well operated extraction businesses are also currently experiencing a 30-40% annual growth rate. Typical municipal tax rates range from 2-5%.
How should your municipality regulate extraction businesses?
Regulating extraction businesses has become standardized over time, with specific guidance from a variety of sources to ensure safe and regulatory compliant operations.
RIGHT TO REGULATE/OVERSIGHT
Per state legislation via local ordinance, your municipality has the right and duty to administer the zoning, licensing, inspection, and compliance of extraction businesses – providing your municipality ultimate control of your burgeoning industry. Your municipality has the right to adopt an oversight board, perform random inspections, and ensure licensee compliance per established ordinance.
Local ordinances have been tested in numerous municipalities throughout the legalized cannabis states. To make the process easier for your municipality, we have compiled state-specific ordinances from other municipalities and model regulations that meet the highest safety standards in the industry, available upon request.
USE OF THIRD PARTIES
Via a well-crafted municipal ordinance, your municipality need not hire a local, industry-specific, inspector. Third party pre-approved qualified engineering firms may be utilized on a case-by-case basis, with the costs borne by the licensee via inspection and licensing fees.
How fast can your municipality enter the extraction business?
Extraction-friendly municipalities have seen a surge in license applications. Generally, 30-100 facilities can be licensed in a 3-year period.
Methods of commercial extraction/safety concerns:
There are three main commercial extraction methods: Light Hydrocarbon, CO2 Supercritical and Ethanol extraction.
Light hydrocarbon, which utilizes butane, propane or a mix of the two, is by far the most efficient, cost-effective means of commercial extraction. The light hydrocarbon method provides for 9 times faster processing times at half the cost of CO2 equipment. Ethanol assists in the further refinement of raw cannabis oil and may be a supplementary extraction method to light hydrocarbon.
There are safety concerns with every method of extraction. Light hydrocarbon and ethanol extraction utilize volatile solvents and require the use of fumigated hoods and spark proof environments (i.e., Class 1, Division 1 Rooms). CO2 extraction requires the use of pressures well in excess of 1,500 PSI, and as much as 10,000 PSI, requiring vessels and fittings that are able to withstand such extreme force.
In addition to the above, operators must be well trained and certified by the manufacturer of the equipment used in the extraction process. All equipment must meet established safety standards, including ASME certification. With proper regulation and compliance, extraction operations are extremely safe.
No matter what method of extraction is used, or a combination of methods, regulation isn’t that difficult. Our model draft ordinances are inclusive of all commercial extraction methods.
How Precision can help:
Precision Extraction Solutions works with municipalities in all regulated jurisdictions in the development of ordinances and regulations for the proper governance of extraction labs.
Once the municipality issues extraction licenses, we work closely with the new businesses and established governing authorities in site planning, lab design, code compliance, factory acceptance training, and third party engineer inspections.
From concept to completion, we work to make the process as smooth as possible while maintaining the highest safety standards in the industry.
Next Steps: Where to go from here
If you’re interested in learning more about opportunities in the extraction industry for your municipality, and also obtaining a state-specific draft ordinance with model regulations, please do not hesitate to reach out to us directly, we’re here to assist you.