Exclusive Interview with Precision Extraction Solutions Founder and CTO Nick Tennant
Equipment manufacturers have proliferated in the cannabis industry. Precision Extraction Solutions aims to stand out from the crowd through its depth of knowledge. Beyond the engineering and design of its technology, the company partners with its clients to integrate the equipment and develop SOPs and processes. Founder and Chief Technology Officer Nick Tennant spoke with New Cannabis Ventures about the changing equipment landscape, Precision Extraction’s customer base and the power of innovation. The audio of the entire conversation is available at the end of this written summary.
A Rapidly Growing Team
Tennant has been in the cannabis space for about 13 years. When he saw the tide shifting toward extraction, he began Precision Extraction with Marc Beginin. They still lead the company together, Beginin as CEO and Tennant as CTO, but the team has grown considerably. At the end of 2018, 21 people worked at the company. Today, the team has 63 people.
The company has strong technical leadership, as well as robust engineering, R&D and sales teams. The company has built a strong corporate culture, which can be difficult to achieve but is essential to driving success, according to Tennant.
End-to-End Equipment Solutions
Buying equipment is not a challenge, but successfully integrating that equipment and ensuring it helps operators hit their goals within a certain time-frame is, according to Tennant. Precision Extraction provides its client with equipment, helps them to develop compliant processes and supports smooth integration. Innovation is Precision Extraction’s other main competency. The company looks for bottlenecks and customer concerns in the industry to help drive its R&D efforts and product mix.
Precision Extraction works with a broad range of customers. Its client base includes a significant portion of the largest publicly traded cannabis companies. Multi-state operators are another significant customer group, accounting for roughly 40 percent of the company’s business. Recently, the company expanded its partnership with TerrAscend. It also works with new market entrants. Tennant sees strong growth in this sector, particularly as new states come online. Service–installation, process development, training and maintaining equipment in the field–also provides the company with a revenue stream.
The company has a broad market reach across North America, its core focus. It has done business in most legal states in the U.S. and a significant amount of business in Canada. Precision Extraction regularly fields inquiries from outside of North America, and it is considering additional markets as regulations come online. Over the past five years, Precision Extraction has completed thousands of installs and developed a diverse business model and customer base.
Competition in the Equipment Space
Two years ago, the competitive landscape for equipment manufacturers was relatively small. There were approximately two dozen companies, each with substantial market share, according to Tennant. When he attended an industry conference at the end of 2019, he saw approximately 120 operators in the space.
The advent of the Farm Bill sparked a rush of new entrants eager to take advantage of opportunities in the hemp space. But, the market has stabilized, leaving many hemp-focused companies struggling or finished, according to Tennant. But, he is still bullish on the hemp market over the long-term, looking forward to the release of FDA regulation.
Tennant expects to see significant consolidation in the equipment sector. Many of the companies focused on hemp will likely struggle to pick up cannabis clients. The majority of cannabis companies have established relationships with equipment manufacturers, and those relationships are hard to break, according to Tennant. He sees active consolidation over the next 12 months as the market moves toward stabilization.
Building a Strong Business
Last year, the company took a small investment from a private equity company, Rivers Innovations, but Precision Extraction remains primarily founder-owned. It will likely stay that way, as Tennant and his partner want to retain control of the company’s strategy. Precision Extraction is well-capitalized, and raising outside capital is not an immediate goal. If the company does decide to raise capital, the method of fundraising will be determined by the market dynamics of the time.
In the meantime, the Precision Extraction team is focused on building a strong business through its people, processes and products. Tennant and Beginin do not run the company with the idea of being acquired. The company is focused on bringing the best value proposition to the market and serving its clients. It may look at opportunities on the periphery of that main goal, but the focus remains on building the best business possible, according to Tennant.
The Road Ahead
Precision Extraction operates out of Michigan, where cannabis businesses have been deemed essential. The company has had to take precautions, like shifting a part of its team to working from home and carefully operating the spaces, like supply chain, warehouse and logistics, where people are still coming to work.
While it has had to shift its operations in response to the pandemic, the company is not experiencing any drastic changes. Precision Extraction’s clients are not putting their plans on hold. They are still building their labs and grow operations, according to Tennant. While the ultimate timeline of the pandemic is uncertain, he sees solid growth prospects for the company.
The company’s focus on innovation holds promise for future growth. Its recently released T-SEP and L-SEP technologies are expected to be a significant growth driver for the company. Precision Extraction will likely experience year-over-year growth, though less than anticipated during the pre-COVID economy, according to Tennant.
Tennant expects this current economic cycle to weed out weaker products and strategies, leaving behind a stronger industry. Precision Extraction will spend the next six months recalibrating its business. It will focus on the most profitable areas of its business and how to double down on those aspects. The company is preparing itself for a strong position when the market finally reaches the new normal.
To learn more, visit the Precision Extraction Solutions website. Listen to the entire interview: