[Hemp] Incremental toll processing rollout

Hempire Building
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Hello all, new member of this awesome community.

Have read intensely through many threads the last two days, do not have a background in the space, rather pharmaceuticals on the corporate finance side. Have not yet put together all the conceptual pieces of building a hemp CBD processing line, anticipating a budget circa $5-600k.

We don’t anticipate backwards integrating into cultivation and would like to have capacity in anticipation of our market’s development not after the fact. We will budget anticipating out-of-state material purchase for our own account to sell locally/ nationwide post processed. As our market gets going we intend to provide tolling services to the local farming community.

What we would like to determine is whether there are options relative to where we begin building out our toll processing line that best match current market demand for those services, the resulting material and the value creation/ “bang for your buck” from the investment. Potentially poor examples based on what we’ve learned so far might be: (1) buy an FFE + ancillaries, buy out-of-state crude, sell our distillate in-state/ nationwide. Profits fund next stage of buildout. (2) Buy ethanol extraction portion of the line, buy out-of-state biomass, sell our crude in-state/ nationwide. (3) Etc.

We’ll want to have our services begin where the local farmers’ needs begin, once there is local cultivation, however before our market is established we have the ability to strategically initiate our processing line investment into the best return-on-investment/ rate-of-return portion of the line and let the lab self-fund or pay into its own up/ downstream expansion.

Any thoughts from folks far more experienced than a pharma “numbers cruncher” on this concept or which portion of the line might be the best place to start would be greatly appreciated.

Look forward to embarking on this adventure with y’all! :cowboy_hat_face:

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First off what state are you in ?
Second i often say it and i will say it again ethanol is not any easy solvent
Alkanes are easyier
Third FFE is good but a lot needs to be done before it go s in

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Hi @Roguelab I’ll respond inline:

First off what state are you in ?

We’re in a Midwestern state that hasn’t had laws in place long enough for there to be an outdoor hemp grow season yet. Not trying to be coy, would actually prefer to focus the discussion on the topic free of getting bogged down in specific jurisdiction regulatory considerations. Example: “Well I’d do XYZ but since you’re in state ABC forget that cuz regs”.

Second i often say it and i will say it again ethanol is not any easy solvent
Alkanes are easyier

Welp you stumped us already, we’ve only gotten as far as “butane/ propane” or “CO2” or “ethanol”. A quick Google search indicates you’re likely talking about a category we’re not familiar with yet. Please elaborate if you like, we’ll be sure to do reading on it.

Third FFE is good but a lot needs to be done before it go s in

FFE was just an example to generate discussion on these types of market dynamics:

  • The demand for this phase of processing capacity is in Low/ Medium/ High demand
  • The supply of this phase of processing capacity is Scarce/ Available/ Saturated
  • The cost of this equipment + ancillaries is in the Low/ Medium/ High range if you’re just getting started at the scale a $5-600k budget puts you in
  • The value creation of going from This Product to That Product using This Process + Equipment is Low/ Medium/ High Profits/ Rate of Return/ Some Combination of the Two

tl;dr - “Bang for your Buck”

Based on your response it sounds like the lengthy thread we scoured about the “cheapest falling film” may have given us the impression it is much cheaper/ simpler than it actually is…

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I dig the state story so ok
First of all you are jumping on the last carts of the band wagon prices are falling and they will keep falling is my prediction
Now i asume you are thinking of CBD (hemp ) proccesing
These coming 3 years are interesting times a lot of farmers are cultivating hemp wich is an art on it s own
So how that will work out is to be seen
A very underestimated factor is rhe drying of biomass and i foresee mistakes beeing made by many
Next i do believe that extraction cappacity is to low at the moment for the amount of biomass beeing planted so yes there will be need in this
Solvents
Bho and propane make beautifull products but not for the hemp scene
The extraction cappasity is low and cumbersum
Co2 as a solvent make great products once the opperator knows how to fine tune his rig and also great by products
(Terpenes) but the equipment is expensive and on a large scale 1000 pounds a day i think that waiting line is in the 2020 area (thar)
Ethanol works great when cryo makes nice oils but cryo is an expensive processing method and has many pit falls deffenatly if one once to extract large
Warm ethanol has the biggest down side of extracting chlorophyl wich is hard to remediate and when biomass drying was not done appropriate more negetive factors come into play
So my easy solvent of choice is hexane Or heptane
Warm extracted it makes ok crude
And yes you will need to winterize but with industrial filtration this becomes a lot simpler ( centrifuge filtration or bag filters )
It has no problem with not well dried biomass and evaporates 2x to 3x faster than an alcohol
It doesn t form an azeotrope even thou i must warn you that in high amounts of water pressent it does evaporate off some water when distilling
With crc teck and vacuum solvent recovery(cold 40C ) some nice crude oils can be produced
I know it s not beeing preformed a lot
But i am confident that when al numbers are crunched alkanes will become the wining solvent of choice
About equipment every thing already exists (compliant ) and several members have done much research on equipment that work for this trade
Your budget seems reasonable to get started

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I largely agree with what Rogue said. Having recently started up the vertically integrating path into extraction, I can tell you that CO2 is fairly simple to get started in, but you’ll want consistent supply of biomass from local farmers lined up for Day 1 of extracting, so I think you want to be developing those relationships (and futures contracts hopefully) in conjunction with your facility buildout. You don’t want all those fixed costs upfront, then be forced to buy on the open market in a mad scramble to utilize your shiny new toys. Toll processing may be a good option to fill excess capacity, especially if it’s hard to find in your state currently.

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I don’t know who exactly gets all this tolling done I haven’t met a former yet who was going to plant a crop with that in mind .Farmers want to grow their crop and sell it… I think towling is more popular for people who want a product line… rather than a producers growing a crop trying to scratch out a living. Personally my motto is keep it simple and cheap this is going to be a totally different monster in 10 months then we’re dealing with today

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This. Great point @Mont7071. So when planning the economics it may be better to assume a base case scenario of raw material inputs coming in at takeoff contract rates not open market rates, and to plan for purchases to occur at a certain time of the calendar year.

What do you think about the impact of unsold biomass languishing in the market in the lead up to the next season’s harvest? Seems there might be bargain-hunting to be done.

Have only looked a bit, but have seen some takeoff contract rates at perhaps 40-50% of the open market rate. Does that sound about right?

Wishing you big success with your shiny new toys! :smiley:

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@Ncfarmer Very cool to hear from the standpoint of the farmer! Is there a general market consensus on which party is expected to do the drying? In reference to @Roguelab’s point.

Is it something like “farmer expects to hang it like tobacco, makes arrangements for that and that’s the point at which he wants to sell it”. And the next step in the chain is “processor gets the dried biomass, but the drying phase is not being consistently addressed in the marketplace, so this handoff point has risk for one side or the other’s business, to resolve inadequate drying processes”. Risk being “farmer gets beat up on price” or “processor wastes time & resources on further drying or lower extraction yield or more troublesome extraction process etc.”

In reference to @Mont7071’s point this aspect would seem like an important one to set clear terms and expectations for in any takeoff agreements.

Perhaps there already is or there is an opportunity for it to be someone’s dedicated business to fill this gap and “own” the drying segment of the value chain.

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Made some remarks in response to @Ncfarmer and was going to mention Dhydra Technology who I see was mentioned here:

Thoughts on whether the drying segment is a business in and of itself?

Would the potential mistakes you think people will make be in line with what I was speculating in my response? Aka, farmers getting beat up on prices, extractors getting beat up on processing woes from capacity not fit to handle higher water content material.

Did some reading in a separate thread about membranes. More reading to do ref centrifuges.

Great azeotrope thread started here by @Photon_noir for future readers (too n00b to come to any sound conclusions yet :laughing:):

Would you say there is a certain scale of operation beneath which it doesn’t make sense? So a refinement to the discussion is “what is best at a certain scale” vs. simply “what is best”. From your final comment it sounds like our budget is adequate to initiate with this type of system, but could we at half that budget, for example.

Our idea is to strategically select one part of the entire processing line that is not as capital intensive to get into, has adequate supply/ demand dynamics, and may quickly generate a return, so the line itself can pay for its own expansion. This is the lean end of the continuum from the risk @Mont7071 pointed out about too much shiny new equipment.

I’ve attached a concept drawing of what I’m referring to, devoid of the particular processes themselves, focused purely on the economics. Of the 3 possible investments, what we are interested in is Investment 1, Bang for your Buck. Many outfits are probably Investment 3 outfits. We want to grow that infrastructure via Investment 1’s ROI. We’d like to avoid Investment 2 except to the extent it is necessary for achieving scale/ total vertical integration.

In #1, the investor triples their money.
In #2, they make 50% on their money, and their startup costs double.
In #3, startup costs triple, and the investor doubles their money. But it’s big money and the eventual outcome of a successful enterprise.

So the question is, in the entire processing line, what are the potential segments with Investment 1 dynamics: low startup cost, high market value add going from the starting material to the process output, and the output being a marketable commodity in its own right. There are surely some segments where more marketable outputs are produced versus others. And there is surely better investment return potential relative to the capital intensivity of building capacity in each respective segment. Or perhaps we’re crazy and unless you’re totally vertically integrated you’re not producing anything anyone is interested in.

The same concept in real estate would be where painting the walls costs you hundreds yet makes you thousands in property appreciation. You do that to flip the house versus replacing the roof.

Happy to elaborate if the drawing is too cryptic. Mindmaps are how I think but it seems many people can’t stand them. :upside_down_face:

extraction%20value%20chain
extraction%20value%20chain1141×444 54.5 KB

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For clarity’s sake let me add that Investment 3 is Investments 1 & 2 combined into a single investment.

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You need to hire a consultant, there are many here that could help you.

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Pffff now this is my weak side :grin:
I work on instinct don t crunch numbers and have no laws to abide to
My equipment must function but does not need any accreditation no amse or ul listing needed
No atex or what so ever
All i try to make you understand is
A you are starting of late in a busniss that already has pased it s peak
B that the return on investment must be made quick for most company s investing in such equipment take years to write these cost s of
That on a large scale cryo ethanol is
A madmans method

Co2 with the need to decarboxilate the biomass before putting it into the extraction unit the same

About drying of biomass
I don t think it s a busniss unless there are machienes to do it right
Hang drying takes a whole lot of space wich will be empty most of the year

Pff i am by no means a profesional
But instinct tels me
By complaint equipment cheap
And chose a method that is least cumbersome to extract
And realize that hemp only has 2 products of interest at the moment at a large scale full spectrum thc free oil or issolate

Another part of busniss i think is hardly looked at is spent biomass stalks leaves etc etc wouldn t it be wiser to focus on that there have to be great products that can be made
Man i think collecting all winterized. Fats and waxes makes a great soap
I can keep rambling on sorry

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@nomadgt is very veryright about a consultant but one that rhinks outside of the box
I f i was ro stepin now i would organize
In 24/24 hour shifts
Because realize that hemp cultivation is. 5x last years crop ( licensed )
Seeds and clones quality have risen in cbd content since last year
Outside of the us massive crops are beeing produced ( with extraction cappabilitys)

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@Rooney I agree with @nomadgt
You need FBOM consultants. Starting with “F” =FEASIBILITY. This will assess Funding, Market Opportunity, and conduct what I like to call a SANITY CHECK

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:joy::joy::joy::joy: damn straigt

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Most of the farmers in eastern North Carolina are already into tobacco or peanuts they have dryers on the farm already… We used tobacco barns last year ,each one will hold 2500lbs. Pnut dryers work well also

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Hey, that’s my line! :slight_smile: And I agree completely.

Please ramble away! I think you and I may disagree on your definition of “professional”. I appreciate the insight :+1:

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Absolutely, in due course we will surely onboard top notch experts.

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You sound like my banker :laughing:

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Not many tobacco drying barns in Oregon, but I did recently see a warehouse with two large “We Dry Hemp (555) 555-5555” banners hanging in view of the freeway. Not sure if that is a viable business plan, but somebody is trying it.

If you’re looking at the processes individually, I’m not sure if choosing only one would make financial sense unless you already had the clients to reach capacity immediately. Startup costs are high for any of the processes you’re picturing, and margins are only getting thinner. The more vertical the better, otherwise you’re buying something, paying people to process it, then attempting to sell it in an extremely competitive market where prices are currently bottoming out.

It’s hard to estimate the return on investment for any of these processes. It will end up coming down to the deals you are able to secure with the other links in the chain. Facility and equipment price, starting material price, quality of material, labor, hiccups and speed-bumps, etc. It may take you all season to make back what was invested.

There is plenty of business to go around, and only more on the way; it’s not too late to get into this industry. Just make sure the numbers are right and you have the right people involved before you sell the farm.

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