By Eric Peterson | Nov 25, 2019
Colorado City, Colorado
Hemp storage and processing
With a background in construction, largely for the government and military, Evans' start in cannabis was building greenhouses for cannabis grows. He then launched Craft Solutions Group before going into the hemp business with Paragon Processing. "We decided to pull the trigger on a large [350-acre] property in Walsenburg and develop that out," says Evans.
That experience led him to hemp: "We could see where the cannabis industry was, and being in the water, we could see where the current was going with the hemp industry and CBD and CBG. We decided to pivot and focus our resources on the hemp industry."
Evans connected with Tim Chan of Superior Flow Technologies, an extraction company in California, his co-president at Paragon, in a somewhat serendipitous manner. "Tim had designed and manufactured this equipment overseas and it was on its way over," says Evans.
But a funny thing happened on the way to California: "At the time, he couldn't place it in California because of the local regulations, so he was looking for a partner in Colorado."
He found one in Evans. "Tim brought in the equipment and Tim brought in the expertise," says Evans. "Our head extraction guys and distillation guys are all longtime industry guys, many of them coming from California from the cannabis industry."
Evans brought the construction experience. "When it came to this project, it was our duty to secure the building and get the building ready, get all the improvements that were necessary from the county to be able to operate a large-scale ethanol extraction operation," he says.
The macro view was the true catalyst for Paragon's launch: Due to less barrier to entry, hemp farming has spiked across the country. "You could see a lot of farms coming online each year," says Evans. "The amount of acreage coming online for hemp is far outpacing what the processing capacities are."
Those trendlines led Chan and Evans to take over a 250,000-square-foot facility once used by Columbia House for compact disc storage in Colorado City, about 20 miles south of Pueblo. A more recent incarnation as an FDA-registered food manufacturing facility meant it had infrastructure that would translate to hemp. "They built a beautiful storage facility. It's fully climate-controlled, fully fire-sprinklered," says Evans. "It's got a massive firewall between the storage area and the manufacturing side, and the floors are 18-inch-thick concrete."
The jury is still out, but estimates range point to a 300 to 1,000 percent increase in the U.S. hemp harvest in 2019, while investment in processing lagged. "So from our standpoint, that's really where we wanted to get in. We're not farmers," says Evans.
Farms in Colorado, Oregon, California, Illinois, Michigan, Montana, and Kansas are currently contracting with Paragon, and about 50 have inquired about the company's services. "About 30 to 40 percent of the farmers we've spoken to didn't have a first-harvest plan," says Evans. "They grew it with the expectation they'd be able to sell it, because of how hot the market was last year, but with the amount of product being grown this year, the bottleneck at the processing level, there's starting to be a little bit of panic. That's why farmers are calling from all across the country, asking, 'Do you have capacity?'"
He adds, "Right now, everything is wide open. I think as the market settles and stabilizes, then you'll see everything localize and go regional. . . . It's coming from all across the country right now."
Drying has also been a service in demand: "Farmers were going to lose their crops to rot because they couldn't dry it." The facility's previous tenant had conveyor-based, jerky-drying technology that's been repurposed for hemp, diminishing moisture from 50 to 70 percent to 10 percent at a clip of 3,000 to 4,000 pounds an hour. That volume will roughly quadruple by the end of 2019.
About 170,000 square feet are dedicated to climate-controlled hemp storage, enough room to accommodate 25,000 "super sacks," in the ballpark of 10 million pounds of hemp. If the hemp is pelletized, that capacity jumps to 50 million pounds. "A lot of farms are turning to pelletization because it helps with costs of transportation and material handling," notes Evans. "We believe it also slows down the degradation of hemp itself. Hemp will degrade over time, so you've got about a 10- to 12-month window to process that hemp before it's degraded to a level where it's not viable to process.."
After launching as a service provider in 2019, Paragon will also become a wholesale supplier of hemp oil in 2020. "We're running our front-end extraction now. Our capacity right now is roughly 1 million pounds per month. That's taking a million pounds of hemp biomass and turning it into winterized crude."
The extraction capacity is currently 1 million pounds a month, and the hourly output is about 75 liters of crude. "From there, we have a three-stage molecular distillation system that we believe is one of the largest -- if not the largest -- systems in the country for hemp and CBD production. That has the ability to process roughly 300 liters of winterized crude per hour. . . . We've got plans to expand our front-end extraction to about three times the size, but the distillation we won't have to touch."
The company is currently focused on attaining GMP, EU GMP, and ISO certifications. "We're going through an audit right now for our certifications," he says, citing targets of GMP certification in late 2019 and additional certifications in 2020.
He says Paragon is working with consultants well-versed in FDA machinations by way of the pharmaceutical industry and Rymedi, a provider of blockchain technology, to improve the supply chain.
Challenges: "Forecasting what the market's looking for," says Evans. ":Six months, eight months ago, people were really focused on CBD isolate, and that market has gone really soft. It takes very expensive equipment to produce a lot of these finished products."
The strategy at Paragon is "trying to stay relatively neutral and not overcommit," he adds. "We're still in the infancy stage and we're still finding out where the market is really going."
Developing consistent formulations is also challenging with variability from crop to crop, adds Evans. "Being able to supply a consistent level of each cannabinoid in the distillate every time," he says. "Right now, you kind of get what you get, whatever the plant grew."
Opportunities: Big growth in CBD and hemp products should buoy both the service and supply sides of the business. Paragon as a supplier "is where I see the most expansion," says Evans.
"We're working on farm relationships and contracts right now in order to secure and stabilize our own supply chain," he says. "We intend on manufacturing products. Right now, our focus is to provide wholesale product to other brands and other manufacturers. Our focus is to become a supplier."
Beyond CBD, Evans also sees room to grow in emerging categories of products with other cannabinoids like CBG and CBN. "There were a lot of farms this year who were able to dial in the genetics to grow CBG," he says.
Needs: "Staffing is really big for us right now," says Evans. As the Colorado City facility staffs up to about 150 people in 2020, needed skill sets are "all across the board," including machine operators, chemical engineers, and general laborers.
He's also scouting secondary locations on both the East and West coasts, and ultimately sees room for five facilities nationwide that would ship winterized crude to Colorado City for distillation.
Contracts with hemp farmers are another need as Paragon looks to ramp up as a supplier in 2020. "For us, supply chain management is a really big thing," says Evans. "It has to be very fair, very long-term relationships with the farmers and growers."