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Report on Business Cannabis Professional WeedMD converts original building from cultivation to extraction as strategy evolves

HIGHLIGHTS
  1. The renovation, which will introduce several Vitalis CO2 extraction machines, will cost “in the high seven figures range.”
  2. Most of the extraction capacity will be used for WeedMD harvests, although contract manufacturing for other LPs is a possibility later on.
  3. WeedMD, like most cannabis companies, continues to struggle with processing and packaging logistics.

WeedMD Inc.’s original grow facility is being turned into a space for extraction, processing and packaging, as the company rethinks how it uses its licensed square footage ahead of new product categories becoming legal this fall.

The 26,000-square-foot building in Aylmer, Ont., which was licensed by Health Canada in 2016, was producing around 1,200 kilograms of cannabis a year. Taking this cultivation capacity offline, “was not an easy decision to make," WeedMD CEO Keith Merker told Cannabis Professional. However, the company needed more licensed space to process product from its greenhouses and [yet-to-be-licensed] outdoor growing facility in nearby Strathroy.

The decision is indicative of moves being made across the industry as LP announcements about “square footage” and “funded capacity” hold less and less water, and companies start focusing on operational efficiencies.

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"Our margins will improve on the cultivation side by virtue of concentrating our efforts on Strathroy... And by having this site here fully running and able to add value to the product, it's one of many ways WeedMD is looking to protect our margins," Mr. Merker said.

WeedMD is already running small-scale ethanol extraction in its Aylmer building. The conversion, which Mr. Merker said will cost “in the high seven figures range,” will introduce several large CO2 extraction machines built by Vitalis Extraction Technologies. The building’s two large grow rooms will be renovated to contain "rooms within the rooms,” which will allow for a “sort of GMP-certified flow of product through this large space as it goes through the various stages of extraction.”

The company is targeting an extraction capacity of 200,000 kilograms of biomass a year. In the short term, most of the new capacity will be used to process WeedMD’s own crops. All of the product grown outdoors will be destined for extraction, as well as most of the product grown in WeedMD’s [yet-to-be-licensed] “traditional” greenhouse; dried bud will come from its “hybrid greenhouse,” which has higher levels of environmental control.

Longer term, the Aylmer facility may do contract extraction for other cannabis companies, “once we have the full capacity online,” Mr. Merker said.

Beyond extraction, the building conversion will also open up more space for basic logistics, such as processing, packaging and quality assurance. WeedMD, like most companies in the space, underestimated how much non-cultivation infrastructure it would need to get products out the door.

“There is a very large bottleneck, industry-wide, when it comes to processing and packaging cannabis. It's one thing to be able to grow large quantities, and not everyone can even do that effectively, but it's quite another to get it all packaged, trimmed, excise tax stamped and out to market. I'd be lying if I said that wasn’t one of the bigger challenges we're facing as well,” Mr. Merker said.

HEXO Corp. CEO Sébastien St-Louis made a similar point to Cannabis Professional earlier in the week when he explained his company’s acquisition of Newstrike largely in terms of acquiring more licensed space for logistics and manufacturing. By Mr. St-Louis’s estimate, an LP that wants to play in multiple product categories – flower, vapes, edibles and topicals – needs one square foot of licensed processing and manufacturing space for every square foot of cultivation space.

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Earlier in the week, WeedMD announced that another room in its Aylmer facility, which is part of an old Imperial Tobacco factory, was licensed by Health Canada for processing. This room contains semi-automated packaging lines that are currently being calibrated. “We were actually running popcorn through them to get them calibrated in the early going," Mr. Merker said.

With the Aylmer renovation, WeedMD will no longer be producing indoor bud, which is generally thought to be of higher quality than greenhouse grown product, due to the higher level of environmental control. Mr. Merker, however, claims that the quality of WeedMD product won’t drop as its indoor bud is phased out.

"In our hybrid greenhouse in Strathroy we're growing product that is quite frankly indistinguishable from anything that's grown indoors, and at a much lower price,” he said.

“We had to prove out the model in Strathroy, first and foremost, before we took this step. At the end of the day, a greenhouse is not a greenhouse is not a greenhouse. What we have built at the Strathroy site is as good a hybrid greenhouse as you’re ever going to witness, and we have the full capability there to control the humidity, the temperature, the overall climate, the lighting and all of the elements that are required to produce a consistent crop," he said.

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