Founders Tim Cullen and Ralph Morgan are applying the razor/inkjet model to the marijuana industry with high-tech cannabis oil refining and vaporizer pens.
Ralph Morgan started using carbon dioxide in marijuana extraction in 2009 with Organa Labs and was the first to market with the resulting premium cannabis oil to fill vaporizer cartridges. (For the uninitiated, vaporizers offer a smokeless alternative for inhaling marijuana.)
Morgan subsequently teamed with Tim Cullen and the pair honed the product through three iterations into O.penVAPE. The rechargeable vaporizers are made in China. The oil is still made by Organa Labs. The parent company, Allied Concessions Group, now licenses the O.penVAPE brand and the extraction process to operations in nine states, including Colorado.
Using carbon dioxide instead of butane in extraction is more expensive, but it's safer and cleaner. "It's not a volatile gas," says Cullen. "It doesn't explode."
The standardization of the oil across all of the markets "is more difficult to do than say," says Cullen. "A Big Mac tastes like a Big Mac whether you're in Shenzhen, China, or Aurora, Colorado," says Cullen. "That's what O.penVAPE is trying to do."
The product has taken off in a big way, as the company has grown from six to 100 employees in two years, and brought on a new executive team in mid-2014 to pilot it through all of the "exponential" growth, says Cullen. CEO Gary Ross, formerly with KOTA Microcircuits, now runs the company."There are different people with a company at different stages of growth. Now there are no founders involved in the day-to-day running of the company."
The company is releasing three new patented pen devices in 2015, but Cullen notes, "At the end of the day, we're an oil company, not a pen company." He likens the model to that of razor blades and inkjet cartridges; pens are loss leaders and the cannabis oil is the profit center.
The booming sales suggest the model is a good fit for the cannabis industry. "O.penVAPE must feel like when a rock star has a hit song," says Cullen. "It's just gone ballistic."
Challenges: "One of the biggest challenges of expansion is dealing with different laws in every state," says Cullen. "It's not as easy as it would be if we were making popcorn."
But he says federal marijuana prohibition is waning, noting, "You're seeing the beginning of the end."
Opportunities: "It's the ability to refine oil in better ways," says Cullen. Again, consistency is key, and he points Kendall Jackson's chardonnay as a model -- people know exactly what they are getting. "Cannabis oil can be like that. You can mix blends. You can make it more sativa. That's all in the refining process."
Needs: Banking and federal tax reform for the marijuana industry. "Banking is sorting itself out," says Cullen. "We have legitimate banking, but it's expensive. It costs $1,000 to make a deposit” -- due to transportation and security costs.
As for federal taxes, IRS code 280E prohibits the deduction of expenses associated with illegal activity, and has been used to deny even medical marijuana dispensaries business deductions. "There's a lot of gray to it and it's been interpreted differently by different judges," says Cullen.