Investing in Cannabis Extraction with Xtraction Services (CSE: XS)
A $90 Billion Pot Picks and Shovels Play
This is the value of the cannabis extracts segment — a segment that most investors don’t even know about because it’s not particularly exciting.
But you know what is exciting?
The fact that this market will be worth $90 billion by 2030. That’s a CAGR in excess of 30%, and that’s actually a conservative number.
So what are extracts?
Extracts are products derived from the cannabis flower that are processed into a concentrated form. So basically, any vaping products or edibles rely on extracts. And these represent more than half of the cannabis market.
Without extracts, you don’t have vapes or edibles.
And without extraction equipment, you don’t have extracts.
It’s the ultimate picks and shovels play for those looking to get a piece of the burgeoning cannabis market, and it’s one you should take very seriously, even though you’re probably not going to read much about extraction technology in the mainstream media.
But you’ll sure as hell hear about it at Energy and Capital, because this is where a massive amount of cash is up for grabs.
Challenges = Opportunities
While there’s a boatload of cash to be made in the extraction space, there are also a lot of industry challenges.
Truth is, existing solutions for the industry today are actually quite capital intensive, unreliable, and inadequate for industrial-scale usage.
You have to understand that in this industry, we’re not talking about small runs anymore. This is a billion-dollar market that’s growing rapidly. And companies that can’t efficiently deliver high volumes simply can’t compete. I don’t say this to be critical of the market, by the way. It’s merely an observation of truth that we, as investors, must be aware of.
So when looking at the extraction space, there are four key challenges the industry faces:
- Companies are overly reliant on in-house expertise
- Limited supply of expert scientists, trained extraction operators, and engineers
- Inconsistency in operating procedures and working protocols
- Basic lack of capital and credit availability
- Capital raising is time-intensive and can be dilutive to existing equity bases
- Limited data to support pre- and post-processing for compound-specific yields
- Potency and full cannabinoid profiling is lacking
- Terpene analysis is lacking
- Product formulations are lacking
- Manufacturers lack alignment with current operators
- No existing industrial-scale options and/or equipment standardization
- Hardware obsolescence
To be honest, I’ve had plenty of opportunities to invest in extraction companies, but I never found them very compelling due to all those challenges. But it looks like the cannabis extraction industry is about to undergo a major change that will likely make some investors very, very wealthy.
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The challenges I listed above are the challenges I’ve presented to extraction companies that have pitched their companies to me. And nearly all of them could never offer valid solutions to these problems.
But one did.
That company is called Xtraction Services (CSE: XS). And here’s how the recently public company has met all of these challenges.
- Xtraction Services works with clients to create comprehensive and individualized laboratory and extraction environments with trained technicians for their businesses.
- Each service agreement is tailored with formulated standard operating procedures to the customer’s unique extraction and finishing solutions.
- By working with its team of engineers, scientists, project managers, and 24/7 remote monitoring support, the company’s clients essentially gain access to the most exclusive full suite service in the industry. There is absolutely nothing else like it in the space.
- Xtraction Services provides on-demand equipment to qualified processors, thereby removing the need for its customers to raise dilutive equity or debt.
- The company’s monthly royalty or rental payment model aligns it with its customers’ business goals to maximize production. And because this type of equipment requires constant upkeep to run optimally, the company provides all maintenance and upgrades to operators.
- Xtraction Solutions’ team of engineers, scientists, and project managers develop, test, and refine equipment and protocols to achieve maximum performance and efficiency. Make no mistake: When these machines operate inefficiently, margins get squeezed. There’s no room for error at this stage of the game. I can’t stress enough how important this is.
- Xtraction Solutions also has a cloud-based remote monitoring technology that simplifies collection and analysis of data. System users get a lot of valuable insight from real-time testing and the company’s proprietary data collection and analysis procedures.
- One thing I really like about Xtraction Solutions is that it has what is essentially unprecedented access to previously unavailable data (e.g. potency and full cannabinoid profiles and terpene analyses). This data is incredibly valuable.
- In terms of equipment, no one comes close to what Xtraction Services has. The company’s proprietary technology allows for the production of extracts that are superior in quality and purity and come in at a significantly lower cost than incumbent methods due to the difference in yield and efficiency.
Xtraction Services has a really good thing going here because, quite frankly, this is the future of extraction. And Xtraction Services has first-mover advantage.
In the very near future, few cannabis players will build, buy, or maintain their own extraction equipment. It’s just too cost prohibitive for companies that are trying to pump out high volumes of vapes and edibles in a cost-effective manner.
The bottom line is that Xtraction Services provides a real solution to a very real problem, and this solution is incredibly lucrative.
Now, I’m not saying you should rush out and buy the stock without doing your own due diligence. After all, this is little more than my thoughts on the extraction industry and the only company that’s really impressed me.
But if you want to learn about the extraction segment — which I would encourage you to do — you should at least take a look at the model Xtraction Services has developed.
As well, I would encourage you to read my two latest reports on what I believe are the biggest opportunities in the cannabis space for 2020.
The first is called “Marijuana Millionaires International: Get Rich off the Worldwide End of Pot Prohibition,” and you can get access to that report by clicking here.
And the second is called “The Kennedy Blueprint: Three Millionaire-Maker Stocks for the End of Pot Prohibition.” Here’s a link to that one if you want to take a closer look.
The bottom line is that there are a lot of opportunities to make a boatload of cash in the cannabis space. Extraction is one, and honestly, it's one of the most lucrative. But there are certainly more, which you can read more about here.
To a new way of life and a new generation of wealth...
@JeffSiegel on Twitter
Jeff is the founder and managing editor of Green Chip Stocks, a private investment community that capitalizes on opportunities in alternative energy, organic food markets, legal cannabis, and socially responsible investing. He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor's page.
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