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How to make money in the competitive cannabis market during recession?

a green cannabis leave on top of a dollar bill.

Author

Dr. George Stantchev
Dr. George Stantchev

PHD, MBA, MSEE, Entrepreneur and CEO of most innovative extraction technology company.

What is Changing?

Understanding the customer

The world is changing daily. The world economy is affected by market, pandemics, customs, ethnicity, religion, politics, laws etc. Whatever worked years ago will not be applicable now. The customer gets more educated and in many cases influenced by convenience. 

There are normal cycles in the economy that drive the customer behavior. Below is an overview of the changes in the economy when the cost of raw material changes and the adjustment of the consumers. 

  • Inflation is a general increase in the prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services.
  • Recessions generally occur when there is a drop in spending. In a recession, you would usually expect a fall in the inflation rate due to lower economic activity.
  • Stagflation is rising inflation and falling sales. If countries respond to a fall in output governments react by by printing money, then this could lead to hyperinflation

In inflated market there are few sequences that affect the market:

  • Firms have unsold goods. To improve their cash flow they try discounting goods to get rid of their excess stock.
  • Lower wage growth. As unemployment rises and there is more competition for job vacancies. Unemployment should reduce wage inflation.
  • Lower commodity prices. A global recession should usually reduce demand for commodities and reduce the price of commodities.
  • Lower expectations. Low confidence in an economy usually reduces inflation expectation.
  • Falling asset prices. In a recession, the price of assets tends to fall due to lower demand. This leads to lower wealth and therefore, less spending.

Understanding Recession Psychology

Purchases depend on consumers having disposable income, feeling confident about their future, trusting in business and the economy, and embracing lifestyles and values that encourage consumption.

According a Harvard research there are 4 types of goods that become a reference: 

  • Essentials are necessary for survival or perceived as central to well-being.
  • Treats are indulgences whose immediate purchase is considered justifiable.
  • Postponables are needed or desired items whose purchase can be reasonably put off.
  • Expendables are perceived as unnecessary or unjustifiable.
Consumer Segments' Changing Behavior

And there are 4 types of consumer behavior: 

  • The slam-on-the-brakes segment feels most vulnerable and hardest hit financially. This group reduces all types of spending by eliminating, postponing, decreasing, or substituting purchases. 
  • Pained-but-patient consumers tend to be resilient and optimistic about the long term but less confident about the prospects for recovery in the near term or their ability to maintain their standard of living.
  • Comfortably well-off consumers feel secure about their ability to ride out current and future bumps in the economy. They consume at near-pre recession levels, though now they tend to be a little more selective (and less conspicuous) about their purchases.
  • The live-for-today segment carries on as usual and for the most part remains unconcerned about savings. Typically urban and younger, they are more likely to rent than to own, and they spend on experiences rather than stuff.

In recession cannabis market companies should prepare for a possible long-term shift in consumer values and attitudes and start building value and trust

  • Assess opportunities – Track how customers are reassessing priorities, allocating budgets, switching among brands and product categories, and redefining value. Determine products that have poor survival ability and embrace the right products
  • Allocate for the long term – Realignment with market conditions requires frequent re forecasting of demand for each item in a product line as customers’ buying habits shift.
  • Build value – Create a package of benefits into an offering so the customer fills that is buying more for the money.
  • Improve affordability – Depending on customers the businesses fold more services into the bundle, creating value.
  • Build trust – reinforce an emotional connection with the customer and demonstrate empathy are vital
  • Position for recovery – There is a good possibility that consumer attitudes and behavior shaped during this recession will linger substantially beyond its end

Where is the value?

Cannabis has been used to treat pain since as far back as 2900 B.C. The most powerful is the flower oil. Тhe Flower Oils contain a mixture of natural compounds that are extremely beneficial for the body functions:

  • 104 different cannabinoids, also called oleoresins 
  • 3000 terpenes also known as essential oils
  • Flavonoids are natural substances with variable phenolic structures
  • nitrogenous compounds, 
  • common plant molecules

The Major Cannabinoids

There are few major cannabinoids that make 90% of the effect when cannabis has been used: CBD, CBG and THC. CBD may help reduce some cancer-related symptoms and side effects related to cancer treatment. THC is a cannabinoid that activates neurons responsible for pleasure, memory, and thinking. CBG is the precursor of both and works to fight inflammation, pain, nausea and works to slow the proliferation of cancer cells.

The benefits of the major cannabinoids have been already well studied. According the national institute of health (NIH) there are the following 20 conditions that can be directly influenced by the major cannabinoids: amyotrophic lateral sclerosis, dementia, anorexia and weight loss, irritable bowel syndrome, dystonia, nausea vomiting, addiction, sleep disorders. tourette syndrome, traumatic brain injury, multiple sclerosis, spinal cord injury, depression, stress disorder, epilepsy, chronic pain, parkinson’s disease, summary, glaucoma, anxiety

The New Minors

There are few very popular minors that are obtained from hemp derived CBD by either chemical reaction as shown at the diagram (pTSAL, B3, T41) or form solventless with the PURE5™ isomerization reactor equipment:

extra cannabinoids

Why are customers looking for those extra cannabinoids? The short answer is it is all about Building experience. 

D8-THC is currently known to be an active CB1 receptor agonist within the endocannabinoid system, with a potency roughly 66 to 75%. D8-THC is a natural isomer of D9-THC, and it also classifies as a sesquiterpenoid. D8-THC was first discovered in 1966, is more stable than D9-THC to oxidation, and is less expensive to produce in a laboratory setting. It has been shown to assist with appetite stimulation, pain, and vomiting. D8-THC is often compared to strains like OG Kush, Wedding Cake, and Purple Punch

D10-THC can get you high, although it is much less potent than regular delta-9 THC. Anecdotally, delta-10 is commonly reported to provide energizing effects, whereas delta-8 is reported to be more sedating. D10-THC is often compared to strains like Sour Diesel, Pineapple Express, or Super Lemon Haze.

The New Populars

Cannabinoids are easy to be isomerized. It is a natural flow during the row and curing process that starts from the CBG and blooms through the major CBD/THC then at the end of life it finishes in CBN. Out of the minors and more specifically from D8-THC a set of derivative cannabinoids were created with significant psychoactive effect. 

What is important to understand about the cannabinoids is that they are oleoresins created from an alkaloid which is the real medicinal component and have profound physiological actions on humans. They include many drugs and poisons. In the case of the Cannabinoids the alkaloid molecule is connected to a terpene tail which makes it and oil and its effect stronger and more bioavailable. 

derivative cannabinoids out of D8-THC

HHC is known to have many similar effects to Delta 9 THC and is almost as strong. HHC and its derivatives produce effects of pain relief, anti-anxiety and a feeling of well-being. 

HHC-O has an acetate added to HHC which makes it a pro-drug. It bonds to the CB1 receptors.  It is stronger than HHC alone due to its higher bioavailability.  The positive effects of pain relief, anti-anxiety and feelings of euphoria are going to be stronger than if you have HHC instead.

HHC-P shares many affinities with Delta 9.  This longer tail allows them to bind to the cb1 receptor much stronger than other cannabinoids. HHC-P is estimated to bind at cb1 approximately 33 times stronger than Delta 9 THC.

The Seed and Fiber 

The Seed Oils

  • 3 polyunsaturated fatty acids
  • linoleic acid, 
  • alpha-linolenic acid, 
  • gamma-linolenic acid, 
  • common plant molecules

Experts agree that this 3:1 fatty acid ratio is ideal for health benefits in humans

linoleic acid significantly reduces total cholesterol and low-density lipoprotein (LDL), or “bad” cholesterol

The medical effect

The Endocannabinoid System (ECS) helps to fine-tune most of the vital physics. It promotes homeostasis and affects the processes that regulate sleep, appetite, pain, inflammation, memory, nausea and even depression. The ECS helps to regulate homeostasis in all major systems of the body, which guarantees that all systems work together.

There are 11 basic body functional systems in the human body:

  1. Vascular system, CB1
  2. Respiratory system, CB1
  3. Excretory system, CB2
  4. Reproductive system, CB1
  5. Nervous system, CB1
  6. Muscular system, CB1
  7. Endocrine system, CB2
  8. Lymphatic system, CB1, CB2
  9. Gastrointestinal system, CB2
  10. Immune system, CB2
  11. Skeletal system, CB2

It is often mistakenly thought that endocannabinoid receptors are found exclusively in the brain. This is not entirely true, as they can be found in some glands as well as in immune cells. The functions of the receptors are mainly to maintain the balance in the body and to monitor the proper course of homeostasis.

CB1 and CB2 receptors

The receptors that act as locks in the endocannabinoid system are CB1 and CB2.

CB1 receptors are found in abundance mainly in the central nervous system (CNS) – the cerebral cortex, basal ganglia, hypothalamus, cerebellum and less in the periphery.

CB2-receptors predominate in the tissues of the immune system – spleen, tonsils, thymus, immune cells.

The terpenes are now considered as the lesser known modulator that amplifies the overall performance of the cannabinoids. The most common terpenes in cannabis are Myrcene, Pinene, Caryophyllene, Limonene, Terpinolene, Linalool, etc. Since the terpenes are the hormones of the plants they play an active role in the manipulation of our moods and emotions

The “entourage” effect

The “entourage” effect is based on utilizing all natural compounds present in cannabis working together to create “the magic power of cannabis”

  • CBD – collagen
  • THC – central nervous system
  • THCV – obesity-associated glucose intolerance
  • CBDA – anti inflammatory
  • CBC – antitumor effects in breast cancer
  • CBDV – anticonvulsant effects
  • CBN – peripheral Nervous system
  • CBG – Stem cell activator
  • Flavonoids – powerful antioxidants

When we discuss entourage effect and bioavailability the next logical question is do we preserve all those values in the oils we use to formulate our medicine. The Cannabis industry has been yang in its maturity and product formulations and a lot of quick decisions have been made. As an example for the extraction of the active components, a number of methods have been implemented. Most of them do not transfer all the medicinal components to the extracts.

That is why PURE5™ scientists have developed an extraction methodology that maintains all plant vitality and does not degrade the components from the original strain. The PURE5™ equipment uses safe aerosols and performs the extraction at ambient temperature on either fresh (cured) or dry (decarbed) flowers, gently extracting the oil-based components without creating any undesired byproducts. The terpenes are also gently extracted along with the full spectrum of cannabinoids thereby preserving all-natural values in a natural pristine oil extraction forming pure strain specific oil.

diagrams that show the original terpene profile

On the diagrams above one can see the original terpene profile (1) of the plant preserved by utilizing the PURE5™ gentle, ambient extraction process in the order and quantity over and over in the Live Resin (2) and Full Spectrum (3) oil fraction.

Building the Value

We already discussed all the basics of the plant, raw materials and processes to obtain them and have all the building blocks to create the value.

Building the Value

Starting with the unity cost that the customer is always willing to pay and bringing the values we have achieved in the process as example: organically grown strains, maintaining full body entourage cannabinoids, phenols and terpenes, that directly address the metabolic and neuro stimulation of the body systems with high health benefit, extracted in such a gentle way that they preserve all natural values and complete terpene profile that enhances the bioavailability. 

All of the above, along with properly built consumer trust, would increase the value of the products to the customer and will more likely have that customer returning back for the same products and services over and over. This is how the PURE5™ pure botanical extraction process offering is creating values in your products and overcomes the crowded marketplace general offering.

Economics

The below discussion is usually kept as the proprietary extractor knowledge and no extraction company will rarely discuss with customers. The reason for that is that the numbers differ between systems and vendors and since the extraction companies are focused on selling their machines most often shorten the process explanation especially in numbers. 

Below is a parallel in between the Capital Expense (CapEx) and Operational Expense (OpEx) that an extractor should know. In those numbers only the hard cost of operation (power and loss) is included without taking into account labor and Time to Market. 

ParametersCO2EthanolButaneR134aUnits
CapEx450,000125,000250,000125,000$
10L Volume3333lb
particle size0.5NANANAmm
Extraction Time120404060min
Efficiency90%85%95%95%%
Recovery Time1801806060min
Solvent per run10888kg
Pressure310169bar
Loss10%15%10%1%%
Solvent Loss11.20.80.08kg
Solvent Cost10.007.005.007.00$
Cost per Run10.008.404.000.56$
Power2010102kw
Energy cost6.003.003.000.60$
Total per Run16.0011.407.001.16$
Cost per Month2,8802,0521,260209$

The only extraction we have not discussed above is the “solventless” Rosin press. That extraction is not really solventless since it has to go through ethanol for a secondary step. Rosin winterization is necessary because it is required to remove impurities, like wax, left behind in the rosin. By removing the impurities in the rosin, it keeps and looks fresh for longer and also increases in THC content.

Knowing your process

Each extraction method delivers quite different extract consistency. That is so because of the properties of the solvent and what it is its selectivity within the plant values. It is essential to understand the nature of the active ingredient to be obtained. In the case of extraction oils it is a fairly non polar compound that would be extracted easily with other non polar compounds. 

The other important topic is the aggressiveness of the solvent and the byproducts that may be created during the process. As example CO2 under supercritical pressure would create acid with the moisture, rosin will burn terpenes and convert cannabinoids, ethanol is a polar solvent, allowing it to extract both water and fat-soluble plant compounds that need to be purged. Hydrocarbons should be purged thoroughly to avoid aftertaste and health complains. 

Knowing your process

PURE5™ uses safe aerosols for R134A extraction that has been used in the pharma industry for decades and the inert nature of the solvent along with the ambient process does not create byproducts which makes it one of the most natural single run processes. It also minimizes the pre-processing since the extraction can be on a full or grinded fresh or dry plant. The processing is quick and the pure extract is separated from the raw material under the most favorite conditions. Since it is an extremely selective process toward the plant oils there is no post processing required.

Time to Market

The Time to Market (TTM) is as important as the CapEx and OpEx for the success of the business. Utilizing CO2, ethanol, rosin and butane needs lengthy pre and post processing which requires stock of a product to be maintained to satisfy demand. Utilizing the PURE5™ single run process can put a product on the market within 24 hours. Below is an example chart how multiple products can be created from each fraction the method can produce. 

Time to Market

What the PURE5™ process creates is an unique type of extract containing all terpenes and cannabinoids that differs by values from every other extract obtained. We simply called the extract “Hash Resin” which means hash drug made by compressing and processing parts of the cannabis plant, typically focusing on flowering buds containing the most trichomes and resin is a solid or highly viscous organic substance of plant or synthetic origin that is typically convertible into polymers.

Summary

Our 10x formula for success in the competitive cannabis market is simple and comprises the answers from few simple questions keeping a full awareness of the customer, market and the tolls you are using to get to your target profit:

  1. Who is your customer (what is the psychology)?
  2. How much will it cost you to acquire it (plan your expense)? 
  3. What products will you plan to produce (capture the demand)?
  4. What process will you choose (build the value)?
  5. How much is your CapEx (startup capital)?
  6. How much is your OpEx (keep the cost low)?
  7. What is your ROI (be successful in months)?
  8. What is the Time-To-Market (on demand)?
  9. What type of people (partner) do you need?
  10. What are your 1, 5 and 10 year goals?

Share your success with PURE5™. We offer a cutting edge worldwide exclusive cannabis extraction and processing equipment that can deliver a post winterized terpene rich oil in one gentle extraction pass. The oil is fully strain specific, highly potent and ready to formulate in products right off the extraction.

For inquiries contact:

Dr. George Stantchev, CEO

george@comerg.com 

(602) 992-0744

www.pure5extraction.com

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