Cannabis Oil Extraction Expert Details How The Market is Changing

andy joseph apeks supercritical cannabis oil extraction

Andy Joseph is CEO of Apeks Supercritical. Andy and his team make advanced extraction machines. Listen in as he talks about how the industry is evolving and how businesses appetite for specific methods is evolving.

Key Takeaways:

– Andy’s background on Navy submarines
– Creating extraction machines while moonlighting
– Business owners are more interested in terpene preservation
– CO2, Ethanol, Butane, Propane, which extraction method is better?
– Why your finished product should drive your extraction methodology
– Monitoring and controlling extractions in real-time
– Fractionating, what is it and what does it matter?

Learn More At:
https://www.apekssupercritical.com/

Read Full Transcript

It was only a short time ago that cannabis oil extraction was an esoteric practice that people had little interest in. As the market for edibles, vape pens and infused products grow, cannabis oil as an ingredient has really taken off. Here to tell us more about it is Andy Joseph, founder and CEO of Apeks Supercritical. Andy, welcome back to "CannaInsider."

Andy: Thanks, Matt. I appreciate you having me on the show and looking forward to our second conversation.

Matthew: Yeah. Well, give us a little refresher. Where are you located again?

Andy: We are in Columbus, Ohio.

Matthew: Okay. And I'm in Paris today. Now, Andy, Columbus is becoming a hipster paradise. And for people that are in California or in Brooklyn, they'll say, ''Surely you jest, Matthew Kind. Nothing happens in Ohio," but people are moving from other cool places to go there. What is going on there and are you responsible for it?

Andy: Yeah, I am definitely not responsible for it, certainly not for the hipster influx into Columbus. But, you know, the Midwest in general has a lot of favorable things. But I have to put a disclaimer out first. The most unfavorable thing that nobody has control of, that no one has changed is the weather. So while it's not Columb-, it's not California, it's not the beaches that you're gonna find, the East Coast, it's Midwest and, you know, summers are kind of nice. They get a little hot, winters are terrible and, you know, the gray skies for two or three months kind of make it unbearable. Nonetheless, the lower cost of living, the jobs [inaudible 00:02:03] manufacturing, you know, [inaudible 00:02:06] renaissance that you can almost call it, you know, the rebirth of manufacturing jobs is Midwest. But you just don't find that kind of resurgence of jobs and economic boost in some of the other places where cost of living is just so ridiculously high that, you know, regular guys can't get a job.

Matthew: Yeah, and, you know, as I have gone around Ohio and especially Cleveland and spent time there, bicycled around the different emerging neighborhoods there, and one thing I notice is that all the infrastructure's already built for a manufacturing renaissance there, it just has to be, flip the switch and there's people there that know how to use it, too, which is, you know, other places, it's not the case. It's like this can just be turned on if we can make this happen. It sounds like it is happening there, but why are...?

Andy: It is.

Matthew: But, you know, I grew up in the Midwest, in Chicago and you cannot underestimate the soul-crushing nature of about a hundred days of granite gray skies and no sunshine. It's absolutely, I say "soul-crushing" because it is, it's just, you feel like you might be in purgatory and then the sun comes out and it's like, you're in the Emerald City from "The Wizard of Oz" or something. It's like everybody, like, rips their clothes off and runs down to the nearest body of water. Like, "What? What is this light that's coming between the clouds?"

Andy: Some folks will take the positive aspect on that light deprivation anxiety problem and say when the light does come out, you know, it makes you appreciate it that much more. The Midwest does have some beautiful seasons and we got all four seasons coming through and, you know, the price to pay of having all four seasons is that, you know, there's about a hundred days of gray. It's rough.

Matthew: Yeah. Well, I could reminisce about the Midwest all day, but I will say here in Paris, I've actually had a couple people ask me like, ''Hey, I've heard Detroit's cool now, is that true?'' And I was like, "Wow, I don't know where you guys get this information from," I guess it is rebuilding, but I think it's funny that more than one person has said that to me. And how does this information trickle over here?

Andy: Well, and it's downtown. You know, what they don't realize is that as soon as you get about maybe a mile away from the downtown of Detroit, it's still the same crappy Detroit it's always been, but the actual downtown area itself has really been revitalized. It's pretty impressive up there.

Matthew: Yeah. I know that the billionaire guy from Quicken Loans and is it the Cleveland Cavs? He's really taken it upon himself to turn that city around and I think it's fantastic. But let's jump into extraction here. What are we doing? We're just joking around, so. Okay, let's jump into extraction. And I like to welcome everybody into the conversation, not just people that are already familiar with it. So tell us what "supercritical" means and what "extraction" means so we can understand it.

Andy: Well, supercritical, and I suppose to be clear, it should be supercritical fluid that we're talking about. And, you know, basically supercritical is a phase. It's a matter of state. So everybody knows there's a solid, there's a liquid, there's a gas. Supercritical is sometimes called a fourth state of matter. [inaudible 00:05:23] just a combination of liquid and gas properties, so it acts like liquid. When we talk about extraction, it acts like a liquid and can dissolve oils from the plant material and has solvency capabilities. But it acts like a gas at the same time from the standpoint that it's gonna expand to fill the container that it's contained within. It's not affected by gravity. It also gives it a very, very low, what's called surface tension. Surface tension, if you think about it, it's like the meniscus in a glass of water. It's the force...

Matthew: It's what the water bugs float on when you see them on top of the water.

Andy: Yeah. Exactly, exactly. That surface tension, right, is the force and, you know, it's very, very hard to break that surface tension. If you can imagine, you know, a droplet of water trying to get into a very, very small groove, say, for instance, a piece of plant material, you know, it's gonna have a hard time getting in there because of that surface tension. Supercritical fluids have extremely low surface tension. And so they can get way, way deeper into these little nooks and crannies that are in the plant material that allow it access to essentially act like a solvent, dissolve out those oils. So supercritical fluid is really kind of this unique combination of gas and liquid properties that happens not only with CO2, with lots of other things. But because it can happen at such a lower pressure and lower temperature for CO2 compared to, say, like nitrogen and oxygen and other kinds of gases, you know, it's typically the gas of choice for supercritical fluid extractions.

Matthew: Okay. And give us a little about your background. You were on two years ago, and I think even people that heard that episode probably don't remember exactly your background. How did you get into this field and come to start this business?

Andy: Sure. I started, I guess to start, my career started in the Navy. I spent six years on nuclear submarines stationed out of Pearl Harbor. I was an enlisted nuclear mechanic so I essentially ran all the mechanical portions of the power plant and the propulsion systems on the submarine. And spent six years doing that, got out of the military. And went to college at Ohio State. And needed to make a few extra bucks, right. The GI Bill pays for some of your college but doesn't pay for all of it. So I started a fabrication business. I was in the welding engineering program and met a customer who needed some botanical oil extraction equipment manufactured. So I really came at the extraction industry or the botanical oil industry from a manufacturing approach. Not so much from I was already extracting these other things and decided to build the equipment because I couldn't find one. That was on me, right?

There was definitely a hole that needed to be filled. I approached it from a manufacturing standpoint. So that was all the way back in 2001. And from 2001 until 2012, Apeks was a part-time job for me. I did it on the side at the same time that I was a director of a engineering group for a consulting firm. And 2012 came legalization of both Colorado and Washington. And, you know, just the kind of the massive growth of the cannabis industry, they all came together and I was so busy at that point in time. I essentially had two full-time jobs at Apeks and I had this, you know, my real ''job.'' So I made the leap. 2012, I decided, you know what, I'm gonna focus on Apeks full-time and here we are, six years later. And just about a year ago we shipped our 500th CO2 extraction system.

Matthew: Wow. And were you on the submarines then when they would go out at sea or when they came back, you'd work on them?

Andy: No. I was stationed aboard the submarine. So I would go out and go under the water and, you know, maintain essentially all the mechanical propulsion and kind of the life support systems, the water and different elements like that.

Matthew: Do they give you some sort of screening to see if you have a good fit for this type of, like, understanding? Because I think of this stuff and it just sounds like all Greek to me in terms of nuclear propulsion and all the stuff that you are comfortable with.

Andy: Yeah. There's definitely initial screening, you know, way, way back in high school, they give you a test called the ASVAB. I have no idea what it stands for, but that basically is a preliminary screening to show that you have the intelligence to get into some of the more challenging programs within the military, not just the Navy. But then, you know, going on submarines, there's some additional psychological screening that says, you know, "Are you gonna go nuts when you're in this steel tube underneath the water?"

Matthew: Yeah. Does any crazy stuff go on down there after you're underwater for that long? I mean, I guess being in the Midwest with the gray skies for 100 days of gray gets you used to it a little bit more than people from California or Florida or something.

Andy: Yeah. A little known tactic that the military, at least the submarine service anyway, generally tends to take when you're out under what's called underway for a long period of time. My longest was 56 days. They typically run the oxygen at about 18% or 19% as opposed to 21%. And you're running the oxygen lower, basically it keeps everybody kind of, you know, a little more even-keeled and a little less active.

Matthew: Okay. That's kind of how they like put saltpeter, I think, in the water in prisons to keep everybody kind of chilled out.

Andy: Exactly, the same concept.

Matthew: Okay. Okay. Now, why did you choose CO2 as the means to extract oil from plants instead of a different medium like ethanol or butane?

Andy: I suppose it's worth pointing out at first that we manufacture equipment. So, you know, we don't do the actual extractions themselves, at least not yet. Now we were fortunate enough to win a processing license here in Ohio to start with the medical marijuana market. And so our processing entity, which is called Ohio Grown Therapies, will obviously utilize Apeks Supercritical equipment. But, you know, it's important to note that I don't believe that any one of the three main extraction methods that are commonly being used in cannabis, CO2, ethanol, and hydrocarbons of butane and propane, I don't think any one of them is better than the other. There's pros and cons, right? And I would argue that most of them are complementary, but all of them are ultimately driven by not the extraction technology, but rather what you want at the end, right? What's your final product?

As an example, hydrocarbons, butane and propane, they're fantastically efficient at making water or more commonly, more and more popular dabbing products, recreational type of dabbing products. Very, very efficient extraction method and just not very much post processing to be able to create those popular types of products. CO2 and ethanol can make them, but it can't do it as well, ethanol, certainly. On the flip side, CO2 does a fantastic job of extracting not only the bulk extraction of the cannabinoids that are there, but also doing a terpene extraction. And so, the ability to what's called fractionate, or start to separate some of the elements that are found in the plant material get the terpene separate from the cannabinoids, for instance. That gives the ability to do things like come back in and reconstitute a vape pen cartridge. In other words, you do an extraction. You get those terpenes, you set them off to the side.

Then you finish your cannabinoid extraction, you do a process like winterization, you do a distillation, and you can take those terpenes and put them back in to create a distilled cartridge that's got the full flavor of the terpenes that came from the original plant, right? CO2 affords those kind of possibilities.

Matthew: Do you find that more people are asking you about terpenes now than they were a couple years ago?

Andy: Then they were six months ago, let alone a couple of years. But you know, ethanol, and I'll address the terpene thing here in a second. Ethanol, you know, has its pros and cons as well. The biggest problem, the biggest pro about ethanol is, it's fast. I mean, it does a really great job and it's widely utilized in other industries like flavorings and essential oils. The problem with it is it's not selective at all, right? And so you have to either get really cold to prevent it from grabbing all the chlorophyll out of the plant material. And no matter what you do, you're never gonna get terpenes from it because of the fact that you have to expose it to so much heat in order to separate that ethanol and alcohol.

That being said, ethanol is a fantastic feeder. If your end product is just straight distillate, sorry, straight distillate, essentially, you know, high, high purity THC or CBD products. That's a good feedstock for edible products, for instance. So ultimately the choice between propane, butane, CO2 and ethanol really isn't about the technology. It's more about what you're trying to make at the end. And most of our customers have both, right? They're complementary. Some of them will even have all three of these different technologies. CO2 does a great job with extracting terpenes, but ethanol can be faster at extracting cannabinoids. We'll find most of our customers actually use both. And for our processing facility here in Ohio, that's what we intend to do as well.

Matthew: Interesting. So that's a great way of framing it is that, you know, "Tell me what your end product is and I'll describe to you what might be the best extraction solution."

Andy: Exactly. That's exactly right. And anybody who says, "CO2 is the best for everything," or, "Butane is the best for everything," I would run away from that because that is, it's just not true. It's not reality, it's not how it works. There's pros and cons for everything.

Matthew: Now you talked a little bit about how people are asking more about terpenes, but how have the customers that approach you, since we last talked two years ago, how has it changed? Are they more sophisticated? Are they looking at things more holistically, have they different preferences?

Andy: Well, I think that the market's changed. You know, there was this race to the maximum amount of THC that we could possibly get not too terribly long ago and, you know, how much more pure, how much more closer to 99% can we get. And I think, you know, it sounds kind of cool, but people missed the rest of the puzzle, right? Just having THC, 99% THC means that there's nothing else left. And so all of the other elements, whether you're looking for an entourage effect, whether you're just looking for flavor in a vaporizing pen, it doesn't really matter. People started to say, ''Hey, you know what? This 99% thing's not so cool. Number one, I just get so stoned, I can't do anything and it's not even fun. And number two, it doesn't taste good. It's not an enjoyable experience overall.'' And so the term "full spectrum extract" has really started to take hold in the last year, which is a combination of extracted oils and terpenes and cannabinoids from the plant material that most... How do I say this? That are very similar to or most closely replicate what was originally in the plant material to start with.

Matthew: Okay. Okay. And what type of businesses are your prospects, would you say in the last six months, the majority creating? Are they dispensaries that are vertically integrated? Are they processors selling only to other businesses? What are you seeing the most of?

Andy: Well, it really depends on what state you're in. You know, unfortunately you can't just kind of generalize the entire industry because of the licensing structures that have come across in different states. If you force me to generalize it, I'd say, you know, the West Coast and/or recreational states, you know, those are, our customers tend to be what we refer to as processors. Fewer and fewer of them are becoming vertically integrated. I would actually say that they're moving away from being vertically integrated. But the processors are a combination of either wholesalers, where they'll take oil and sell that as crude or even do some secondary or tertiary refinement and sell that as a wholesaler to other companies like edible manufacturers, for instance. And so you're starting to see kind of this segmentation of the industry start to come forward where, you know, not everybody's doing every single piece of the vertical integration, but rather just their own little piece and getting really, really good at it, getting really, really efficient at it.

Now contrast that with other states, and Ohio is a great example. Pennsylvania and New York, right? Some of these other newly medical states with new industries that are extremely, highly regulated and have licensing structures that preclude "business as usual," right? Those ones are a little bit more difficult to predict because the license structure really drives the economy of things, not so much just, you know, free market. And so those ones are a little bit stranger and you can't necessarily say that they're doing it because it makes sense. They're more doing that because that's the way the license structure was put together.

Mathew: Okay. So it sounds like there's more specialization happening. The field is subdividing and people are specializing. The specializations you're seeing is there's more interest in fractionation in terms of... It's fracturing, right? I'm saying that correctly. I feel like I always say that wrong.

Andy: No, it's fractionation.

Matthew: Fractionation.

Andy: Yep, fractionation, or fractioning.

Matthew: This is happening to preserve terpenes or to get a different desired outcome for a specific product.

Andy: Yeah, absolutely. And that's one of the pros of CO2 is its ability to fraction the initial bulk or crude extract. Whereas ethanol, butane may not necessarily have that ability to fractionate, or be selective is probably a better way to say it. CO2 is tuneable and you can make it selective as a solvent and say, "Okay, I'm gonna run parameters that aren't going to get all the fats and waxes out. I'm gonna get just the lighter oils and the terpenes." And then you can change the parameters that you're operating at to make it a more powerful solvent and pull out more from the plant material, right? So you can start to get these initial fractions. What you can't do, and this is kind of a misunderstanding why a lot of people wanna talk about fractionation, what you can't do is just say, "Okay, I wanna select just the THC," or, "I wanna select," even more popularly, "I want to select just the CBD." It doesn't work that way. You can select kind of ranges of molecular weights, but you certainly can't select individual compounds, at least not in this initial bulk extraction stage.

Matthew: Okay. Now you'll notice at the commodity exchanges, you know, a pork belly or a bushel of corn or wheat, all of these commodities are kind of defined exactly what they are, so then traders and farmers and speculators can all kind of can trade on something they understand what it is. Do you think we're moving into any kind of standard buckets in terms of what oil is? So it can be, so you don't have to go into some huge spec sheet on what the oil is that you want created? You could say, "I want this grade," and it's understood what that means.

Andy: I think that the industry is in the very early stages or the infancy of something like that. I don't know that, certainly not the medical marijuana industry and maybe even the recreational marijuana industry. I don't know that you'll ever have volumes that are big enough like corn to justify, you know, kind of trading like that. But you're certainly gonna have qualities and/or standards of quality for different refinement levels of the extracted oils, right? Now, an area where you might go to look to here in 5 or 10 years that might be closer would be more hemp CBD. So to get out of the marijuana side, start talking about hemp and CBD, you know, they're growing that in fields. They're using agricultural equipment to do that kind of stuff. I think if there was something that was gonna happen in the ''marijuana industry,'' it would probably be more hemp CBD-related.

Matthew: Okay. Yeah, I agree with you. Hemp is much more agricultural. It's just gonna be a vast farmland dedicated to it. That'll be probably more fitting. Okay. And now when a customer or prospect comes to you and says, "Hey, how do I define the return on investment or ROI?" or, "How can I put my business person hat on and look at this?" What do you tell them?

Andy: Well, we've got return on investment schedule...we actually started putting out return on investment schedules for our equipment...geez, I wanna say that's four or five years ago because that was a lot of the questions that we're getting. And today, we still publish all return on investment propositions for every one of our pieces of equipment. So it's right on the back of our price sheets and, you know, very transparent. Where people tend to fall a little bit short, though, is that's the return on investment on the equipment, just the extraction system. And, you know, if there was a pressure point or a failure point that we would see startup companies in particular going through, it's the lack of recognition that the extraction is just one piece of the puzzle, right? There has to be an entire business process that has to be put together all the way from supplying the feedstock or securing the feedstock to the extraction to refinement, to branding, to marketing, to packaging, the distribution agreements, cash management, profit and loss.

There's, you know, all of these extraction companies are businesses. And if you don't have every single piece of that business in place, you're gonna fail. And that's where talking about return on investment in the equipment is a little bit narrow-sighted. It isn't the full picture. But nonetheless that, you know, taking the return on investment from our equipment that we publish, combining it with return on investment and/or cost modeling for a business, that's really the total picture.

Matthew: Now you mentioned you're just shipping your 500th unit. Congratulations on that. Now you come across a lot of different business owners and I have, too, and businesses are just like people. They all have different styles, different strengths, some have trouble answering the phone while others seem like they're capable of accomplishing anything. When you think about the experience you've had with different businesses entering this field, is there any common trends you see amongst the ones that succeed and the ones that fail that you've kind of noticed like, "Hmm, they trip up here," or, "They're successful in navigating this"?

Andy: Well, yeah, and it varies. You know, that's one of the challenges of being in this industry. You know, there's so many people that are attracted to the green rush that they come from all walks of life and all experience levels, but very, very few of them come from the processing or manufacturing of consumer goods. And when I say "consumer goods," I mean more like food stuff or edible products. It's amazing to me still how few people have any kind of industrial manufacturing experience in a food environment. Just very, very few of our customers have that type of experience. And, you know, today the FDA isn't playing. The FDA is not involved, but it's only a matter of time before those kinds of regulations start to come in and that's gonna be a huge hurdle. The people who've had the foresight to see what's coming down the road, whether it'd be, like I said, FDA, have the foresight to understand cash management, especially in these new states like the East Coast states that are passing medical marijuana laws with extremely strict regulations.

The ramp-up time is long, right? It's not like a medical state that went recreational and there's already an established patient base and/or consumer base. Just take Ohio as an example. There are zero patients today in Ohio. And, you know, the amount of time it takes us to get from zero to 200,000 patients is a huge unknown. If you don't have the cash reserves, if you didn't have the business chops essentially to be able to manage and/or mitigate the unknown which is how long is it gonna take us to go from zero to 200,000, you're gonna fail or you'll run out of money because there aren't enough patients there. Those are the kinds of things that have to be thought through. There's definitely a technical aspect from the extraction. There's certainly a formulation aspect, but I think probably more important is understanding the long-term business aspects and also the marketing and branding. I mean, that's a really, really important element. You can make oil the best oil in the world, but if nobody knows about it, you're not gonna sell it.

Matthew: Yeah. Great points, and make it consistently so they know what to expect every time they open up a package from your business.

Andy: Exactly. Exactly. And that's not easy, right? So it doesn't mean just running the same parameters. It means knowing how to adjust to changes in incoming feedstock, right? So remember we're talking about a plant here and those plants aren't gonna be the same every single time no matter how much you want them to be. But understanding how your equipment extracts, you know, the different incoming feedstocks and then ultimately being able to modify your manufacturing process to produce ultimately the same product at the end, that's the real skill.

Matthew: Now how about throughput and maybe you could talk a little bit about how big of an extraction solution, how people get the right fit for their need. How does that work? Do you say like, "How much plant material you're planning on processing?" "Are you gonna be running 24/7?" I mean, what questions do you typically run through?

Andy: Yeah, let me tell you what a common conversation that we're having here recently will be as, you know, somebody will call in and we'll just say, ''Hey, this is Apeks Supercritical, how can I help you?'' And they say, ''I'm a hemp farmer. I've got 5,000 acres or 50,000 acres of hemp. I need your biggest extractor.'' And we say, ''Oh, okay. Have you done any extractions yet at all?'' And, you know, we typically hear a long, long silence at the end there. And then they finally come through. ''Well, no, I've never done an extraction.'' And that's a huge red flag for us. Right. That's a major problem. Bigger is not better. There's a huge misperception in the extraction space that the bigger the system is, the better it is and the more throughput that it's gonna have, and throughput and size can be unrelated. Right. The bigger the system, think about it from a volume standpoint, right? You gotta you got a 55-gallon drum and you've got a 500-gallon drum. Right. You can put significantly more material in that drum, but it doesn't necessarily mean that material's gonna be extracted faster unless there's a way to get solvent in and solvent out faster.

Right. So just the volume of the container, the "size" of the extraction system isn't the way to judge throughput. Throughput is really how much CO2 flow rate can go through, how much ethanol flow rate can go through. Right. And then it's also the secondary processing side. So how long does it take to do the secondary processing or the refinement of those oils? So bigger doesn't necessarily mean better and they're also, you know, smaller pieces of equipment have advantages over bigger pieces of equipment when you're talking about throughput and processing operations.

Going back to the submarine days, you know, submarines have two of everything, right. There's two turbine generators, two propulsion generators. There's two life support systems, oxygen generators. There's all these different systems that are onboard a submarine, have duplicate systems on them. And the reason for that is if one of them fails, our submarine can still maintain a one to one surface-to-dive ratio, right? To make sure that if we go down, we come back up every single time. If we didn't have two of everything and there's a failure, we're down, right? And that's life and death in a submarine.

Manufacturing doesn't have that life and death thing, but it can sure be a pain in the butt if your piece of equipment goes down and you don't have a backup. And so the scaling approach or the production throughput approach that we always recommend for our customers is not don't go by one of the biggest giant things you can get your hands on. It's start small, do some test extractions first, then scale to the next size up. Pick a manufacturer that has a scalable technology so you can make sure as you buy the next piece of equipment that it isn't gonna change the operating characteristics or the quality of the output.

And then once you get to a point where you just need the capability, further capability, you don't need to do experiments and trials anymore, get redundant systems, right? Buy two, buy three medium-sized systems as opposed to one large system. What that does is it gives, you know, the backup capability. And it also does things like spare parts. Right. Now you've got one kit of spare parts as opposed to three. And those spare parts can be used across all three of those different pieces of systems. Generally the systems are smaller, so the spare parts are cheaper.

And one other really, really critical point, especially if you're talking about CO2, smaller systems, smaller vessels in particular mean thinner walls, and who cares how thick the wall is of the vessel? Well, thinner walls, most of these systems are stainless steel. Stainless steel does not conduct heat very well, so you don't get good heat transfer or thermal properties. Thinner walls are able to overcome that better, faster because there's not as much material that had to transfer that heat through. So we always recommend going with smaller vessels because you can go from subcritical parameters to supercritical parameters much faster than having one giant vessel that you essentially have to think of more of a startup, it's like starting up a power plant, right? You've gotta get it going, it takes three, four hours to get the thing heated up and get it equalized. And then you have to run it for a long, long time, right. And making changes to it on the operating characteristics are very difficult. So these big systems that people are considering purchasing, that have the capability of one system doing all the throughput that they need sometimes isn't the right solution.

Matthew: Yeah, I agree with you. Mentally, I think I would make that mistake, too. Just always throw more horsepower, more cow bell at every problem. So that was a good distinction there. I appreciate you making the, like, you know, teasing out those nuances because I hadn't thought about it that way.

Andy: Yeah, and my wife is actually the one that points this out to me frequently. I tend to say, and I think men in general are like this. If a little of it's good, a lot's better, and it doesn't matter what the application is, if a little is good, a lot's better. That's really not a good way to think about extraction and manufacturing throughput.

Matthew: Good points. Now I know that this tax plan that went through at the end of 2017 has more depreciation or, you know, 100% depreciation the first year on a lot of capital equipment. I haven't talked to you about this, but is that something that transfers to the equipment that you're selling?

Andy: Yes. I mean, so this is a capital acquisition. For our customers, buying the equipment is a capital acquisition. And so the ability to do a section 279 write-off is there, but that's been there for quite some time. You know, the bigger challenge for our customers, particularly in the marijuana industry are the 280E tax hits. And so, you know, being creative about taking a financing structure as opposed to doing a capital acquisition is generally the approach that we'll see more savvy companies and/or more financially-smart companies will take, if you finance it, if you rented essentially. So develop a secondary corporation or a leasing corporation that acquires the equipment outside of a marijuana license and then rent or lease that piece of equipment to your marijuana licensee. That rent becomes a cost of good. And so that's a way that a lot of people will try to minimize that 280E burden.

Matthew: So they created their own financing vehicle, another company. Do you offer financing or do you have a third party financing company? How does that work?

Andy: Yeah, you know what? My financing story's kind of funny. But we don't currently offer financing. There's too many other people out there that do it. But it wasn't too terribly long ago that there wasn't anybody out there that was offering financing. Back five, six years ago when I decided to focus on Apeks in a full-time capacity, I had this piece of equipment and I had customers, and the equipment costs $100 grand, but they didn't have $100 grand to throw with the equipment. Now they could make $100 grand on it in a matter of days, but they didn't have a way to get the $100 grand in the first place. So I was basically forced into self-financing a lot of these systems that we produced in the early days. And, you know, I'm not a finance company, don't ever wanna be a finance company. But nonetheless, that's the way it had to go in order for us to survive back then. You know, nowadays there's plenty of other financing companies out there that specialize in doing financing and are much more well-equipped to do it than we are. But nonetheless, that's kind of my history of the financing.

Matthew: So you point prospects to these financing companies as you go through the process of introducing them to your solutions, I take it?

Andy: Yeah. And we've been through, you know, unfortunately, we've chewed through a lot of financing companies. It's disappointing, but as you might expect with most everything else in the marijuana industry, there's some unscrupulous players that are just trying to take advantage and make some quick bucks. The best financing companies have long-term careers and provide support. Brokers tend to be a giant pain in the butt. We try to work directly with financing companies themselves and not really involve brokers because they really tend to muddle it up.

Matthew: They delay the process and just introduce some complexities that don't need to be there?

Andy: Well, yeah, they're looking for their fees. And so, you know, the challenge with a broker is if they're shopping your deal across four or five different banks or private equity firms or whatever it might be, they're doing that. They're shopping it. While they're trying to get a good rate, they're also looking for the best deal for them. And so sometimes they'll say, ''Well, these guys are gonna give me a better deal. They're gonna give me a bigger cut of this. And while the rate may not be quite as high, I'll get a better deal. So I'm gonna push everybody towards these guys.'' When that may not be the best solution for the end customer. I look at consultants kinda the same way. You know, consultants, they should be third party, unobjective, unbiased. Any consultant who says, "Yeah, I get a kickback or I get a cut from different manufacturers, different vendors." And that subsequently is what I recommend as a solution. There's a conflict of interest there and, you know, so the financing brokers, consultants in the marijuana industry, you know, those are red flags to look out for.

Matthew: Interesting. Now, if you could wave a magic wand and solve one problem in extraction technology or take the technology to a new level, what would you do?

Andy: So real-time control is how I would probably answer that one in a short answer. One of the biggest challenges with, with any of the extraction technologies that are being deployed right now in the marijuana space and/or even hemp CBD is, it's kind of this black box, right? You load the material in, push start, it runs for a little while and makes some noise and does its thing. And then at the end, you open up the cup to see how much was there. Right. And there's really no way to tell while the extraction's happening, you know, how efficient it is, what's it bringing out, what rate of throughput is it running at, what efficiency is it utilized at and, you know, are you utilizing all of the power and energy that's been put into the solvent as it's passing through the material.

Those real-time controls and this real-time monitoring of parameters just hasn't made its way into the industry yet. And that's what we're super excited about. You know, we started doing some testing on this almost four years ago and I've kind of struggled to figure how to get it in, but just last month, we had a tremendous breakthrough on real-time processing analytics and monitoring that is gonna revolutionize the automation platforms for us.

Matthew: Wow. That sounds cool. Okay. Now, when you put on your x-ray vision, future vision here, what does the extraction industry look like? How is it different in three to five years than it is right now?

Andy: Well, one, it's bigger. You know, I think you're gonna see a delineation between recreational and medical markets, especially if there's some kind of a change at the federal level. But even without that, you can already start to point to medical companies look more like pharmaceutical operations, whereas recreational companies tend to look more like, you know, alcohol and even, to some degree, tobacco companies. And, you know, the way that they produce their products is different. Pharmaceuticals, you know, clean, pure, single compounding and, you know, taking the approaches to get things approved through the FDA, whereas recreational tends to be more about branding, logos, brand recognition, and a lot of times, cost. You'll have a smaller connoisseur market, you'll have a larger bulk market for what is a lower-quality, cheaper product.

So I think that's the way you're gonna see the market go. The extraction companies are gonna follow suit and support those things. So I don't think you'll see this combination of both, an extraction company providing both medical and recreational products. You know, I don't think the cleanliness standards for the medical side are gonna be low enough to support doing it in recreational efficiencies.

Matthew: Right. So you get a lot of customers asking you the same questions over and over, and probably they're not thinking about things the right way. Like as you mentioned, they're like ''Give me the 10,000 horsepower and one that's the size of a sperm whale.'' And they really need one that's much smaller and much more focused to the task at hand. Are there any other questions you feel like prospects should be thinking about, but they just don't even know how to frame what they're doing yet because they're new to the industry?

Andy: Yeah. You know, the scale... There's two pieces there and we've kind of touched on both of them, so I'll reiterate them here just briefly. But scale is one of them for sure. You know, if you've never done an extraction, you get no business modeling out a million-dollar or a multimillion-dollar extraction platform. There are so many things that you just don't know about the extraction parameters and the response to your feedstock without doing smaller scale testing first that...it's irresponsible. Right. You're not doing your investors or your money guys any favors by taking that approach. Start small, scale up and, you know, find a scalable platform that's been proven over time.

The other one is, that we touched on earlier, is the fact that, pay attention to what your end product is. I can't stress that one enough. Making sure you understand what you wanna make rather than what extraction equipment you wanna start with. It's so important and vitally critical to the success because you have to think through, before you start, you have to think through all of the different steps that it's gonna take to get to your end product. One of the huge, as you mentioned, lots of people call us and we get a lot of first-timers calling us, which is fine. We enjoy talking to them. We enjoy helping them through this process, but, you know, one of our qualifying questions is, "Have you done an extraction, yes or no?" And, "If you haven't done an extraction, what do you want to make? What's your end product gonna be?" When the response is, "I want to make everything, but I've never done an extraction," that's a huge red flag. Pick something. Focus on it. Start on whatever, you know, whether it's vape pens, whether it's dabs, whether it's edible products, whatever it might be, pick one, focus on it, get really good at it, then start to expand your product line. And those are the guys that we ultimately see succeed.

Matthew: That's funny that you mentioned that. I was a reading a story about how Bill Gates' mom, before she passed away, got Bill together with Warren Buffett for a dinner and they're all sitting around and Bill Gates' mom said, ''You know, what do you two attribute your success to?'' And they both at the same time said, ''Focus.'' And then laughed because it was, you know, it's not what they're doing so much as what they're not doing or, you know, however you wanna look at that. So that's interesting.

Andy: Yeah. I, for a very brief stint in my career, I did a little bit of work for Apple, and then talking to the guys who were deep-in with Steve Jobs back in the day. That was their one thing that they always went back to, on what Steve Jobs was good at and that was saying "No." He was really, really good at saying no.

Matthew: Yeah. They said there's another saying there that "Genius loves constraint." Like, if you have no constraints and everything's wide open to you, like all the permutations and possibilities, it's just overwhelming and then you can't focus.

Andy: And if you're smart enough to be able to deal with all of those possibilities and can actually think down the tracks of the different possibilities of what you could produce, you know, next thing you know, you're off in outer space someplace. I've got a partner who's kinda that way actually. He's just brilliant and if you put something in front of him, he will have 17 different ways to utilize it and different solutions for how to do it. And by that point in time, we're so far off track of where we should be as far as an operational program that it doesn't even matter. So, you know...

Matthew: But at least it's entertaining, though, right?

Andy: I mean, it's fun to watch, it's fun to listen to and it's impressive just because this guy's just so incredibly intelligent. But, man, oh, man, the herding cats saying is, that's exactly what it's like. When we're trying to have an operational conversation about how we're gonna move efficiencies from 1% to 3%, that's not the guy you want in the room.

Matthew: Right. It's good to have the dreamers, though. It's like, "Hey, this is a whiteboarding session. Nothing's off." So it's good to have both. I guess that's what makes humans so interesting.

Andy: Yep, and it takes all types.

Matthew: Yeah. Well, let's turn to some personal development questions here. Is there a book that's had a big impact on your life or your way of thinking that you'd like to share?

Andy: Yeah. I got turned onto a book called ''Extreme Ownership'' by one of my advisors about a year, maybe two years ago now. And it's a book by Jocko Willink and Leif Babin. Jocko and Leif are Navy SEALs and they spent a lot of time in Afghanistan and in Iraq and places like that. Recently, I guess not recently, a few years ago, got out of the military and kind of wrote a book about the SEALs and what it's like being in the SEALs and how that translates into business and, you know, kind of...the title really gives it all away. It's extreme accountability. But if I was trying to summarize it in my words, ''Extreme Ownership'' is just that anytime anything ever goes wrong, and there's always lots of opportunities for stuff to go wrong, think of it not in terms of why it went wrong and who someone else or what someone else did or what extenuating circumstance happened that ultimately came down and bestowed this problem upon you. Think about what you could have done differently in terms of extreme ownership. Take full accountability for it. Whether you really think you do or not, doesn't even matter. Think about, put yourself in the context of extreme accountability. What could you have done differently to affect the outcome?

And if you put yourself in that situation and you start thinking about all of the different reasons and all the different things that you could have done different, right? Sometimes it's tough to swallow, but when you start thinking in that context and taking extreme accountability, the outcomes start to become different. And that's the real key. If you think, "Hey, you know what? Everything that happened is my fault, right? I could've done this better. I could've done that better," things start to fall into place. And from a culture standpoint, right, your employees, your directors, the guys that are working for you, they start thinking the same way as well. "Hey, you know what? I could've done better on this, so the next time we go do this, I'm going to do this differently, right?" That culture starts to really grow and that extreme accountability or extreme ownership really starts to play out in every aspect of the business, right? It's not just producing or, you know, the individual product, it's engineering, it's customer service, it's cashflow, it's finance. When everybody starts operating at an extreme ownership mentality, you get significantly better results. And that's ultimately how the, that's how the SEALs are as successful as they are. Every one of those guys operates under extreme ownership. Every problem is their problem and they're the cause of that problem and what can they do to fix it? Never place blame on anyone else. Always place blame on yourself.

Matthew: That's a great idea because if you don't take ownership and you project blame onto outside circumstances, you can never improve because you can't control outside circumstances.

Andy: Exactly.

Matthew: And it also happens at an executive level where you're saying, "I make mistakes, but I own the mistakes." That's a great thing that, you know, can then radiate out to everybody that's like, "Hey, you know, we're gonna make mistakes, but we're gonna take ownership for them and we're gonna improve." I've had the displeasure when I was younger to work at businesses where the person in the highest ranks did not even acknowledge that they ever made mistakes. And that is, it's so uncomfortable. It's like, "What are you talking about? Everybody makes mistakes. We're human."

Andy: Right. Exactly. So this particular book, this "Extreme Ownership" book, you know, Jocko and Leif do a real nice job of breaking it down into 10 or 11 sections that are all applicable to business. And they tell a story, you know, from their time in Afghanistan where, you know, it's a life and death situation. And then they translate that story to a business situation that they're working with, you know, as consultants on and tie the two together and it's very entertaining. It's engaging. And at the same time, it's an opportunity to learn. I really enjoyed the book.

Matthew: That's a great suggestion. I haven't heard that one before. Now, is there a tool that you consider vital to your company or your individual productivity that you'd like to share?

Andy: Yeah, that one's a tough question. There's about a million different things that I would share. But trying to keep it contextual to the marijuana space, which is in the cannabis industry, cash is probably the biggest tool. As strange as that may sound, you know, a lot of people might say, ''Well, yeah, duh. You know, if we had more cash, then everything would be fine.'' Cash is king, and in an industry where financing opportunities and financing options are limited even for us, I mean, we've had our bank account shut down, you know, multiple, multiple times. We struggled to get banks to give us a loan for even building expansions for our business and we don't touch the plant. You know, our accountant shut us down because we got a processing license now that we do touch the plant. Lots and lots of constraints that ultimately all flow down to cash, right?

And making sure that you got enough cash on hand to be able to survive good months and bad months, but also keeping in mind that the industry is growing and evolving and getting so much bigger so fast that if you're not innovating, you're dying. And so you gotta have cash not only to support your business operations, but you also gotta have cash to be able to invest in your future, your company's future, your business's future. And if you don't do that, and you could do it by getting an investor, right, you can bring on investment. That's what a lot of people do. But if you're like me and you bootstrapped the whole thing, you gotta have a lot more cash on hand than you would normally have for any other business where you can go get things like lines of credit. And, you know, I think there's lots of business systems and processes and accounting software and all that kind of crap, but I really think cash is the tool that can make and break businesses. It does, for that matter.

Matthew: Yeah, it's funny. It's like the oxygen in the room, like, you need that just to continue. You notice when the oxygen starts to get low. So it's vital. There's a book about, I can't remember the name of it, but I'll try to link to it in the show notes that talks about that principle of cash first. And my experience has been with my own businesses and others, is that most businesses fail not because they have a bad idea, but then they run out of cash.

Andy: Yep, exactly. And that's going back to where I was talking about financing, that absolutely almost put us out of business. So we were the 24th fastest-growing private company in the US, back in 2015 on Inc. 5000, and we almost ran out of cash because I had financed so many deals that, you know, I was at a point where I was like, "Yeah, I got all this back order, we got all this stuff, but I don't have enough money to make payroll." And, you know, a huge, huge, huge problem. So that was a big eye opener for me.

Matthew: Now, where are you in the capital-raising process? Are you raising capital? Are you done with it? Where are you?

Andy: So I currently still own 100% of Apeks and I've never taken on any investments. That being said, we're actually looking for opportunities for investments. And, you know, in an ideal world, it's not so much private equity and just coming in and shoveling a bunch of money into it. In an ideal world, you know, we would look for an acquisition strategy. Whether we're the acquirer or whether we're the acquiree doesn't really matter. But as you start to see consolidation of our customers, you know, the plant-touching folks, whether they're processors or whether they're cultivators, doesn't really matter. There's a ton of consolidation going on. That consolidation is gonna carry through into the ancillary supply side, you know, the manufacturing businesses and service providers and things like that. You're gonna start to see consolidation and that's really what we're looking for. Not so much of an investment strategy, more of a longer-term growth strategy to allow us to combine with other similar-sized and complementary extraction companies and/or manufacturing companies to ultimately get into a consolidation area and become one giant company.

Matthew: Very interesting. You're looking ahead. That's great. Well, Andy, as we close, how can listeners reach out to you and learn more about Apeks Supercritical if they're interested in investing or if they're interested in becoming a customer, how do they do that?

Andy: Our website's the best place to start. And that's apekssupercritical.com. And Apeks is spelled A-P-E-K-S, supercritical.com. You can always call us, 740-809-1160. And if you wanna get a hold of me directly, feel free to email me. I am andyj, A-N-D-Y-J, @apexsupercritical.com.

Matthew: Well, Andy, thanks so much for coming on the show today. And as the winter approaches, I'll be thinking about you as you go through a hundred days of gray skies and all the best to you. And when you start to get patients in Ohio, we'd love to have you back on to hear about how you're doing as a processor.

Andy: Yeah, we're super excited about it. You know, Ohio's program has been stalled a couple of times and delayed a little bit more than certainly anybody wants. But it's coming around. You know, we expect that we're gonna open our processing facility in the March of next year timeframe. And, you know, we're really eager to provide medicine to patients. But we're not just gonna make our own stuff, we're also gonna take a opportunities from our 500-plus customers to white label and do what's called commercial kitchen manufacturing where we'll manufacturer things in our facility here in Ohio. But we'll do it according to the formulations of our customers and put it into the customer's brands and packages that might be in California or Colorado or Oregon or other places like that.

So we really see this as not just an opportunity for Apeks and/or Ohio Grown Therapies to succeed, but it's an opportunity really for all of Apeks's customers who've developed brands in other states to have an opportunity to play in Ohio without having to put up the million-plus dollars that it cost us to get this license.

Matthew: Very cool. Well, you'll have to come back on and tell us as that evolves how things are going, because I haven't heard much from an Ohio market because there's no patients, but I can't wait to see what evolves there.

Andy: Definitely. I'd be happy to come back on.