Industry: Cannabis & Hemp
Products: Extraction systems
COO Ali Rashid forecasts a bright future for the manufacturer of extraction systems and THC and CBD oils.
Based northeast of Sacramento, EthoEx was born out of a previous venture with different investors, Nexus Extraction.
In 2019, Nexus founder and EthoEx CEO Bryan Hull recruited Rashid to help build the foundation for a new business. "Bryan's been building extraction systems for five years," says Rashid. "My job is to take a business and make it a business and take it to the next level."
After working with carbon dioxide extraction, Hull moved to ethanol with EthoEx. Producing full-spectrum hemp oil and THC distillate, the system came to market in May 2019.
The differentiator: EthoEx's cryogenic process runs at -60 to -90 degrees Celsius, considerably colder that the -40 status quo. That allows for a purer full-spectrum oil with cannabinoids and terpenes and little else, and fewer post processes. "If you have to winterize, that puts you one day behind schedule," says Rashid. With EthoEx, "You're saving time, you're saving yield, and you're saving a lot of post processes."
EthoEx's industrial-scale systems can process 60,000 pounds of biomass daily. The company's 20,000-square-foot facility only has floor space to accommodate the production of one mobile system at a time. "They're gigantic systems," says Rashid. "One machine is two semi trucks. With 20,000 square feet, we can only build one a time. With 75,000 square feet, we could build four at a time."
Because of the precision required for cryogenic systems that hit -90 degrees C, almost all components are manufactured in-house. "We're a fabrication house. We're building everything except nuts and bolts," says Rashid, noting that electropolishing is the only outsourced process.
The model initially developed at Nexus to cut lead times. Job shops might take a month to deliver, versus "a day or two" making parts in-house, says Rashid -- then multiply that by the 4,000 components in a typical system. "It's really about scalability."
It's also about quality: Certifications "are pretty important to us," says Rashid, citing Hull's experience with medical device manufacturing. "We pride ourselves on running a clean ship," he adds. "We're currently working on our GMP and ISO 9000."
Experienced employees drive the entire operation. "We have 10 master fabricators and welders in-house and two master machinists and we're currently looking to get more people," says Rashid. "We're really big on taking care of our team."
The company has five systems installed in three states, including two owned by the company in Sacramento (hemp/CBD) and Los Angeles (cannabis/THC).
Rashid says the company has a novel business model: "We don't sell equipment per se. We license our equipment."
Up-front fees start at $500,000, plus royalties due on a monthly basis. "We come in and give them full turnkey systems," he adds, and that means everything from architects and electricians to maintenance and repair.
"Since we've launched, we've had thousands of inquiries," says Rashid, "but we're really choosy about who we work with."
He shares some eye-popping humbers: He forecasts revenues will grow to $100 million or more, and the head count to hit 500 by 2021. EthoEx's extraction facility will process about 2 million pounds of biomass in 2020 and the L.A. location has capacity to produce more than 5,000 liters of THC distillate a month.
Rashid projects extract sales will account for about 70 percent of sales as the company scales to $100 million or more and "hundreds of employees," offering a lofty prediction: "We will be the largest CBD manufacturer in the United States."
Challenges: "Our only challenge is scaling," says Rashid. "We've been scaling by the day." As that involves the previously mentioned new facility, EthoEx leaders are currently exploring options in California, Oregon, and Nevada.
Opportunities: "For us, it's building the best equipment in the world," says Rashid. "That's going to differentiate us."
Needs: Employees. Rashid says he expects 200 fabricators on the payroll by late 2020, as the company prepares to open a formulation and R&D lab and bolster the sales and administrative teams. He describes "a little bit of trial and error" with hiring, and says employee referrals tend to be the best recruitment method.
"We're truly blessed. We're a company that's been in business for six months, and we're cash-positive," adds Rashid. "Our goal is to keep building great systems, keep our employees happy, keep our shareholders happy, and keep expanding."