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Capna Systems

by Eric Peterson on January 17, 2019, 02:06 pm MST

www.capnasystems.com

Chatsworth, California

Founded: 2016

Privately owned

Employees: 28 (Capna Labs (sister company): 25)

Industry: Cannabis

Products: Extraction systems

CEO Vitaly Mekk and CTO Gene Galyuk are making innovative cannabis extraction machines for businesses of all sizes.

Mekk and Galyuk started investigating opportunities in the cannabis industry in 2013. They co-founded Capna Labs as an extract manufacturer after learning about growing demand for concentrates. "We started out not as manufacturers of equipment," says Galyuk. "We started out as Capna Labs, making extracts."

Using existing processes, manufacturing "was very hard to scale up," says Mekk. "Butane was out because of safety." But carbon dioxide had its limits and the company soon outgrew it and began making their own extraction systems in-house.

"We saw there was a major gap," says Galyuk. "It was either very explosive or not very efficient, and nothing straight down the middle."

Capna's patented process involves ethanol and ultra-low temperatures. "The biggest innovation is we took out the need for a post process," says Galyuk. The crude oil produced from plant material "is free of any co-extract. That is the biggest challenge for processors. . . . Not every solvent is very selective."

But Capna's system is just that, he adds. "Our method selectively picks up just the desirables . . . which makes it really easy to go to market," he adds. "It's already ready to consume." Largely because it eliminates the need for a secondary process, Capna's system also cuts production time from 18 hours to three, Galyuk says.

He also touts the resulting extracts "the purest form of any system on the market," with crude oil that's about 80 percent THC, versus the industry standard around 60 percent.

They kept the technology in-house for more than two years before starting to market extraction systems to other cannabis manufacturers. "It was our biggest advantage," says Galyuk.

Expanding from extract to equipment manufacturing in late 2016, Galyuk says the goal was to "semi-automate or automate [the process] and make it extremely easy for the end user."

 

 

He says Capna Labs has provided a great platform to make the system simple. "Our extract processor, that is an entry-level position at Capna Labs. The first thing they do is run the extraction machine. If they don't get it in 15 minutes, they don't get the job."

Capna sold its first system in April 2017; customers in California represent about half of sales, and exports are around 20 percent. Capna Labs continues to manufacture the Bloom Brand of extracts.

Systems range in price from the $75,000 Ethos-4 to the $400,000 Atles, designed for industrial-scale usage. Lead times are 11 to 13 weeks.

More than 20 of 28 employees work on the production floor at Capna's 18,000-square-foot facility in Chatsworth.  "About 80 percent of it is done in-house," says Galyuk, noting that welding and cutting are outsourced. "We're working diligently to streamline our processes."

That's critical as Capna continues to scale. "The company continues to outgrow ourselves over and over," he says. He's looking to bring in experienced production staffers and implement Lean techniques. "Our ultimate goal is to be vertically integrated to have everything in-house," notes Mekk.

Challenges: "Finding the right help," says Galyuk. "Making the key hires that are going to take this company to the next level." As the company grows, he and Mekk see the necessity to recruit people from traditional manufacturers. "There's not that many professionals from the cannabis industry. It's simply too young."

Along with that comes the challenge of maintaining high standards. "We're trying to keep up with the growth without compromising quality," he explains.

Opportunities: "The whole cannabis and hemp movements are worldwide," says Mekk.

Galyuk sees Canada as a key market, but expects exports to stay around 20 percent. "Every market that comes online with medical or recreational cannabis is a new market for us," he says. "Canada is a big market, but we still have a lot of runway here in the United States. . .  . The big growth spurt would be federal legalization in the United States."

As of early 2019, California is driving the growth. "In recent time, we've got a lot more interest from California, because more cities are giving out permits," says Galyuk. "When we first launched, most of the interest was coming in from out of state."

In the end, it's all about liability and compliance, he adds. Capna has interfaced with police and fire organizations to work towards a safer industry.

Capna Systems VP of Operations Mehdi Sinaki says the company is essentially making its own market by offering a turnkey manufacturing solution. "We're getting inquiries from individuals with no previous experience in the industry trying to get on the forefront of this emerging trend," he explains. "The opportunity is for us to be on the forefront of not only providing a great product, but also providing a system to individuals or investors who have never been in the industry before. . . . They don't have to have these special skills beforehand."

Needs: "We've been diligently looking for a new home," says Mekk. "We've moved three times since inception." The target is 40,000 to 60,000 square feet in the San Fernando Valley in early 2019.

Capital is not a constraint, says Mekk. "We've been self-funded from the very beginning," he explains. "We don't have any interest in bringing in outside funds. . . . At this point, it's about scaling up production and keeping up with the growth."

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