20 million gummies a day: Inside what might be America’s largest hemp CBD extractor

ERIE — You’d be forgiven if you took a tour of Zelios Colorado LLC’s back rooms and thought they were a brewery. The dozens of tall, stainless steel tanks connected by pipes and wires seem at first glance like the birthplace of craft beer.

But really, they’re separating CBD and other cannabinoids from hemp plants at a scale that may not be rivalled anywhere else in the country.

In this nondescript business park that’s shared with carpenters and plane hangars, Zelios Colorado now claims to be the biggest white-label extractor of CBD in the country.

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From developers to CBD distillers

CEO Zach Nassar, 31, was first in real estate with his father David Nassar, a stock trader, winery owner and owner of Nassar Development LLC. The company built the park that now houses Zelios’ operations at 3000 Airport Drive, Suite 203.

The first customer in the park was Pete Cummings, the founder of Zelios, who brought in six carbon-dioxide extractors and set up shop right as hemp was on the verge of federal legalization in late 2018.

Nassar didn’t know anything about CBD at that point, but learned about the process of extracting it as he led the buildout of Cummings’ project. With that knowledge in tow, he set up Gemini Extraction, which extracted CBD with ethanol and complemented Zelios’ products.

While CBD is in its infancy as a national industry, competition has skyrocketed in the past several months. Nassar said the price of isolate was a whopping $8,000 per kilogram around the beginning of 2019 and shrunk to $800 per kilogram within a year.

“Both us and Pete came to the realization that if we’re really going to be a dominant  force in this industry, we got to come together and build a bigger company and do what we’re doing at a pretty big scale,” Nassar said.

After Zelios and Gemini closed a merger in March that brought on current chief operating officer Alex Goff, 27, the race to grow was on.

Cummings, who is Australian, remains on Zelios’ board of directors, but lives in Hong Kong and owns international toymaker Zing Toys.

Nassar estimates that the company will pull in revenues of $15 million to $20 million between March 2020 and March 2021.

Processing

Zelios’ warehouses use two different systems for extraction, spanning 25,000 square feet and 16 machines, including six almost brand-new ones added in a recent expansion.

One of the systems forces highly pressurized carbon dioxide to separate cannabinoids from impurities in the raw material, while the other uses extremely cold ethanol to sap CBD and other desired compounds from the biomass and is later distilled to steam off the ethanol and leave behind the desired material.

Between the two systems and approximately 10 members of the production staff, Nassar estimates that the company can process up to 8,500 pounds of hemp in an eight-hour shift and extract about 200 kilograms of isolate per day.

In case your metric is rusty, that’s enough CBD for 20 million gummies at 10 milligrams each.

From there, the staff further distills waxes and compounds out to the customers’ preference, from leaving in some fats and waxes that form a crude oil with peanut-butter-like consistency all the way down to pure, crystallized CBD powder resembling table sugar.

Nassar claims that Zelios, along with sister company Zelios Kentucky, is the largest producer of carbon-dioxide-processed CBD in the country, and either the largest or second-largest ethanol CBD extractor in Colorado.

However, knowing whether that’s actually true is difficult to determine. CBD extractors are not monitored at the state or federal level, and many tend to keep their operating capacity figures close to their chests.

While market-research firms are able to generate data on the largest-selling CBD brands and products, their figures count only the brand names sold at checkout and can’t track which extractor produced the cannabinoids.

Convincing Erie

The various political entities that govern Zelios is akin to a Russian nesting doll.

The largest shell is the federal government, which under the Trump Administration hasn’t been supportive of marijuana, but did allow the federal legalization of hemp.

One shell below is Colorado, which legalized marijuana in 2014 and actively promotes the industry.

Next is Weld County, where the Zelios plant resides. While the county isn’t keen on marijuana, it’s supportive of hemp producers as a subsection of the agriculture industry that, between it and the energy industry, has historically buoyed the county’s economy.

Finally is Erie, where the Tri-County Airport is nestled at the meeting point of Boulder, Weld and Broomfield counties.

Erie officials were fairly hostile at Zelios’ outset. The town had passed a ban on marijuana retail and cultivation in 2015, and a survey at the time showed at least half of the town was strongly opposed to any kind of commercial activity.

Nassar said that up until earlier this summer, Erie allowed Zelios to operate only with temporary certificates of occupancy, which had to be renewed every month, and a slew of permitting roadblocks from building and safety officials made the process a slog.

“They thought we were doing ethanol in a CO2 facility or propane or whatever, that was explosive,” Goff said. “We’ve been here for years now, and nothing’s gone up.”

Erie economic-development director Ben Pratt disagreed with Zelios’ assessment of how the licenses were handled, saying the town’s building codes weren’t perfectly adaptable to the extraction operation like it would for some other type of industrial use. There was also miscommunication on both sides as to what exactly needed to be done within the development process, he said.

However, Pratt said he’s encouraged Zelios to stay in Erie and led efforts to introduce what the company does to the city’s residents via town hall meetings in recent years.

That’s a first step toward the city reconsidering its stance against the cannabis industry. Pratt said the members on Erie’s Board of Trustees have inquired in recent weeks about restarting the conversation about how the town could include cannabis within its economy.

It’s a part of a larger plan for Erie’s economic-development strategy, which Pratt said is positioned to focus on the technical and industrial side of agriculture and biotech industries.

The strategy is fitting for a city that has one foot in Boulder County, a cluster of research and startups, and the historically agriculture-focused Weld County.

“If you ask a lot of the businesses in the industrial park near Zelios, some of them we’ve talked to said this is as close as we can get to Boulder without having to be in Boulder,” he said. “And that we believe is a good opportunity for us as a community to take advantage of the great labor sheds in both Weld and Boulder County.”

The newest market

Zelios has three revenue streams: it acts as a contract processor for those who have hemp to break down, it sells white-label cannabinoids to major brands, and it distributes its own end-products to consumer retailers.

Although hemp became legal nationwide under the 2018 Farm Bill, the regulatory framework is barely established. The U.S. Department of Agriculture regulates the production of hemp in terms of making sure it’s under the legal bar of 3% THC, while the U.S. Food and Drug Administration has put CBD in a gray area between highly-regulated pharmaceuticals and much less scrutinized dietary supplements.

Almost all of the evidence about CBD’s health properties is anecdotal since the plants that produce it have been federally-banned substances for decades, and that’s led to some creative marketing.

Nassar believes that once the rules are set for how CBD is labelled and what it can be used in, major consumer brands will get into producing goods with CBD and launch the ingredient into the homes of customers who never would have set foot in a dispensary.

At the moment, some major brands are dipping their toes into CBD-infused products, such as AB InBev SA (NYSE: BUD) launching a CBD tea in Canada late last year on a micro scale.

But until then, the ambiguity of the law, and the remaining confusion in the broader population between the differences between CBD and THC, will ward away those legacy names in the supermarket.

“Right now, it’s dominated by CBD-centric brands like Charlotte’s Web and the big ones we’ve all heard about,” he said. “But Coca Cola isn’t in it, Anheuser Busch isn’t yet. …The cosmetic companies are starting to dabble in it. I think they see a little bit less of a risk and topicals, but still, cosmetics is still heavily governed by the FDA.”