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Volume 3, Issue 2
This tutorial article outlines a holistic approach to scaling up.
The challenges of scale-up are not insurmountable. Resources are available for start-ups and small businesses to overcome and develop plans to scale-up. This support needs to be a holistic approach. Learning from others and planning can help entrepreneurs avoid common pitfalls of scale-up.
Here, we outline a holistic approach to scaling up.
Now is a time of great opportunity for cannabis and hemp entrepreneurs. Consumers are demanding more choices, and e-commerce is connecting buyers and sellers worldwide. Startups can grow in new ways and more rapidly than was previously possible, but when success maxes out production capacity, the entrepreneur faces a new challenge-scaling up hemp and cannabis production to keep up with demand.
Scale-up is an exciting time with much hope and promise, however, it is also a vulnerable time for new businesses. Innovators who do not plan ahead can make tragic mistakes and suffer losses too great to survive. The challenges of scale-up are not insurmountable. Plenty of entrepreneurs have succeeded, and you can too.
Resources are available for start-ups and small businesses to overcome and develop plans to scale-up. This support needs to be a holistic approach. Learning from others and planning can certainly help entrepreneurs avoid the common pitfalls of scale-up.
This article outlines a holistic approach to scaling up including:
• Understanding and controlling feedstocks
• Navigating regulatory and compliance requirements as it relates to manufacturing
• The importance of the strategic facility methodology for your design with the end products in mind
• Determination of your manufacturing plant’s capabilities, purification levels, and processes
• Utilization of cannabis and hemp-based
Let’s take a closer look at each of these strategies. Note that some supplementary information related to each of these topics can be found within reference 1.
Not to get too elementary, but as in all cases of farming, understanding and controlling the quality of feedstock is absolutely essential to delivering a consistent product. In this market, we are growing our feedstock. It is not synthetically derived; it is developed through a series of genetic mutations. We create clones from a mother plant to arrive at optimum characteristics: larger buds, more oil, and stronger, more tolerant stocks.
This is not earth-shattering information. But once you arrive at the feedstock that offers you the best oil or the best isolate (or whatever attributes you require on the backend of the processing), you must be able to control and nurture it, and prevent it from being adulterated.
That’s not always so easy. If a third party is providing the feedstock, you are trusting them to nurture the feedstock, so that when it is introduced to the plant facility for processing, it yields the intended product.
For now, the cannabis market is largely self-regulated and therefore not strong in terms of quality assurance. That can be dangerous in terms of consistent quality of product. It demands that you do all you can to control your feedstock and understand the supply chain for the downstream piece, and to have confidence in the consistency of your final product.
If you are not controlling the feedstock on your own, audit the provider from whom you will get product. Understand how they grow and what their cycles are. Are they able to scale with demand? It’s advisable not to put all your eggs in one basket, but instead to have a group of suppliers that can provide you the same quality of material.
On the other hand, if you’re controlling your own feedstocks, make sure that your mother clone environment is well managed internally. You don’t want to adulterate anything you have in your current facility. Maintain an adequate level of documentation to ensure consistency in growth quality. After all, consistency in your feedstock equals consistency in your product.
Navigating Regulatory and Compliance Requirements Related to Manufacturing
If you were to eliminate every other consideration from effectively managing your facility, this would remain the lynchpin to becoming a successful long term manufacturer. This is the level barrier to entry.
From a risk standpoint, federal requirements are lacking in terms of testing procedures, compliance organizations, and so on.
In general, therefore, the industry is actually asking the government essentially to be regulated under some aspect of the Food Drug and Cosmetic Act or a similar regulation. This is to prevent unscrupulous aspects of the industry from shirking good manufacturing practices (GMP) as a shortcut to making money, even at the expense of releasing good quality materials to the market that people will ingest.
The fact that the industry is not really required to do anything in terms of regulation is obviously very dangerous. One tainted gel tab, gummy, or sucker could potentially destroy the industry. (Our firm in particular is working with a variety of other groups to encourage the federal government to apply some regulatory oversight as pre-emptive legislation to undermine a convoluted system where every state has its own guidelines, and no two may match completely.)
One aspect of federal legislation that might be applicable here would be the U.S. Food and Drug Administration’s (FDA) Code of Federal Regulations Title 21, pertaining to food and drugs (2). Part 111 of this code applies specifically to “current Good Manufacturing Practice in manufacturing, packaging, labeling or holding operations for dietary supplements.” We routinely encourage our clients to apply some of these guidelines for constructing and designing facilities for clean room environments, at a minimum.
Because regulatory information isn’t codified in the cannabis industry yet, manufacturers have an obligation to at least prepare their facilities to a level appropriate to what their output will be in general. The cannabis industry does not have the same level of granularity in compliance guidelines as the pharmaceutical industry has. It is still incumbent on companies to create products in an environment that suggests a level of cleanliness or control within that space appropriate to the product being created (for example, raw oil as opposed to a highly purified product).
There might be some pushback in the ranks within the industry to federal regulation, but it is no different to what is being done with the Food Safety and Modernization Act (FSMA), for example. From a business standpoint, FSMA asks food producers to prove that standards are being met for cleanliness and that operating procedures exist for food preparation and handling. To the extent that the end product is being ingested, some level of regulation and compliance is essential for the responsible growth of the industry.
Before we get into the details here, let’s consider some strategic facility questions your organization must be prepared to answer:
• How well do our proposed facilities support our five-year business plan?
• How much additional space do we need to meet our growth projections? When do we need it?
• What deep-dives are needed to make key decisions?
• What is our roadmap for implementing our strategy?
That may be a lot to absorb, so let’s break it down a bit further. When planning for a scalable facility, the best strategy has two parts. The first is to begin with the end in mind. What is it you want your facility to produce? Whether you plan to be the leading manufacturer of cannabidiol (CBD) gummies, pet food treats, or something else, you’re trying to understand the inter-relationship of all the building blocks that go into the creation of a particular type of facility-from warehousing to production to purification and so forth.
The second aspect of strategic methodology is to understand the time frame in which a master plan for your business growth is to be implemented. That plan has milestones along the way-so in a five or 10 year plan, for example, there are things to be accomplished that can be extrapolated from your current capabilities.
Developing a strategic master plan starts with an understanding of what’s possible today (that is, the products that you are building from today), and where you know you want to go-and where you do not know yet whether you want to go or not.
Planning for the unknown can be daunting, of course. If you don’t plan for some variability, however, you may find yourself stuck at some point down the road, especially once government regulations become more detailed. You need to be prepared at some level to make adjustments or upgrades to your facilities as your business develops and for regulatory compliance issues yet to come.
Beyond variability, it is important to model your projected growth. For example, what production levels are you trying ultimately to attain? That understanding is essential to setting budgets for your current plan and for successive years’ planning. No organization has an unlimited budget, and no organization has unlimited space to build. By understanding your projected growth, you can begin to optimize the usefulness of what you have now.
A responsible growth strategy, therefore, must adopt a “modular” approach. In this type of approach you determine the scalability of your existing equipment and create points in your strategic plan in which additional components can be added to that equipment, to accommodate your expansion.
Obviously, you don’t want to buy equipment now only to discard it later, so the idea of modularity gets down to a granular level of whether you can turn up or turn down equipment to match your current and projected output levels. For example, might it make sense to buy a piece of equipment capable of processing a thousand pounds per hour, even if your current capability is 500? Can it still be efficient to use the same piece of equipment?
This is why you and your engineering and production partners must thoroughly understand your business model. You really have to understand where you’re going and where you want to go. And take to heart the advice that comes from your partners. It may be difficult to hear that you may not have enough feedstock to run your plant for a week at a particular production rate. But with that information, you can match your capability to acquire feedstock to the operational needs of your plant. From there, you can begin to understand how to build the next layer on top of that.
Your strategic plan is developed by understanding both the inputs and the outputs of your business operations-beginning with the end in mind and working backwards from there.
Here we’re moving our thinking from the strategic level to the component level. You’re still determining what your plant is going to do, and in that determination you will come up against code compliance issues at the state or municipal level. These issues will play a huge role in the capabilities and likely locations for your operations.
The components that drive the front end piece of what your business will be are subject to a variety of codes. Take extraction, for example. Each type of extraction methodology produces a different extract, from CO2 to solvent extraction with ethanol or methylene chloride or heptane and hexane. Once the oil has been extracted and the solvents have been removed, what will you do with it? Crystallize it, further distill it, create isolates, or just sell the raw material? Those are all considerations that factor not only into your strategic plan, but to the very nature of what your plan does and how it is to be designed.
As you go through this methodology, you will find that it is likely to change what your facility is, and what you need to do to ensure code compliance.
This is critically important because besides regulation at the federal level, code compliance at the state or municipal level is the most important aspect of scaling your business. You are creating an environment inside your facility that requires a wide range of code compliances-electrical classifications, hazardous occupancy building classification, storage of solvents, and more.
If you are determined to establish a CBD facility in a small office park to extract material, you are more than likely to run into code compliance issues. Not to be too glib, but if you have large tanks of solvents outside your facility, your neighbors will take note, and you will attract the attention of inspectors who might take a dim view of those tanks in that environment. Consequently, you have to make a decision up front. For example, will you be purifying product on site or have someone else handle that level of processing?
So, what’s your plan? When you’re choosing your location, you must understand the codes in that area, which in turn helps determine your facility design. Code compliance issues and regulatory requirements are the key factors in defining what your facility will be and where it will be located.
Whether you classify your feedstock as hemp or cannabis, your scoping strategy ties into the regulatory environment, your locational environment, and what the municipality will allow, among other factors. The U.S. Farm Bill set a level of below 0.3% tetrahydrocannabinol (THC) to be considered industrial hemp, but ultimately it’s all cannabis, and you can’t lose sight of that very basic fact as you build your business.
Let’s consider feedstock strategy. Different plants can be cloned to provide different levels of THC, levels of oil, sizes of buds, and so forth. You have to understand what your state will allow. If you can’t have any cannabis in your state at this point, or you don’t see it happening in the future, it’s not advisable to design a facility that’s capable of providing or processing cannabis at the moment. It would make more sense to design for that capability once you understand how the regulatory environment will change. In the meantime, you may need to focus your efforts on finding other feedstocks.
If you are planning to use both low THC hemp feedstocks and cannabis, you have to plan for a separation of the two. It is essential to have good controls over the feedstock for medical marijuana manufacturing, including whatever waste is coming out of your plant. Even as states deregulate, there will still be a need for that level of control. It’s analogous to the GMP implemented in the production or processing of alcohol or tobacco.
Scoping strategies, therefore, boil down to how industrial hemp and cannabis will be handled in your facility because the two are handled differently and they are going to remain that way. If you plan to have both in your plant, you will have to accommodate both, with rules for separating them at the warehouse to guidelines for processing psychotropic from nonpsychotropic products. Those considerations will be vital to your plans for scoping your facility as your business expands.
As we’ve seen, it’s an exciting time to be in the business of cannabis processing. Scaling up your facilities requires considerable upfront planning, taking into account not only your business goals and priorities, but how specifically you expect your organization to grow over the span of five or 10 years or more. By creating a strategic plan that takes into account state and municipal codes and the federal regulatory environment to come, you can be well on your way to developing a facility design that will scale to accommodate your needs as your business grows.
Charles Jabara is a senior project manager with CRB in Kansas City, Missouri. Direct correspondece to: Charles.Jabara@crbusa.com.
C. Jabara, Cannabis Science and Technology 3(2), 40–44 (2020).