Socati raises $33m to scale production of THC-free full spectrum hemp extract: 'It’s what gets you from a $1bn industry to a $20bn industry'
Following the passage of the Farm Bill, hemp products with no more than 0.3% THC are no longer subject to the Controlled Substances Act.
And while it is not currently legal to market and sell CBD as a food or beverage ingredient, the FDA has not specifically clarified its position on broad spectrum hemp extracts.
Investors in Socati's latest $33m funding round included:
- Lorne Abony, Founder and CEO of Mood Media, Fun Technologies, Nuuvera and Petopia.com.
- Jim Mellon, European billionaire biotech investor and chairman of both Juvenescence AI Limited and The Burnbrae Group.
- JJR Private Capital Inc., a private capital firm that specializes in financing and advising companies in the financial services, healthcare and consumer goods industries.
Mark Elfenbein, chief revenue officer of Socati, believes that the company's capabilities of being able to completely remove the THC component (the part that delivers the high) from the hemp plant will give some CPG companies more peace of mind to develop food and beverage products containing full spectrum hemp that could one day be on the shelf at mainstream retailers.
"We are seeing most brands and blue chip retailers that are interested in this want to have the certainty there’s not THC in the product for a variety of reasons," Elfenbein told FoodNavigator-USA.
"THC-free is a key point. It’s probably what gets you from a $1bn dollar industry to a $20bn industry because we feel that the likes of Target, CVS, and Walgreens want to carry a THC-free product. Now they actually have a reliable partner that can ensure that."
According to Elfenbein, a hemp extract containing no more than 0.3% THC is easier to produce than a 0.0% THC extract because it's what the hemp plant naturally contains.
"At a high level, it’s very difficult to pull out all the THC from a process because THC and CBD effectively have the same molecular weight. The systems today typically rely on that, therefore, are inefficient in stripping out the THC component," he said.
Socati uses proprietary chromatography technology to separate and fully extract the THC component from the hemp plant, explained Elfenbein.
"There is some capability of chromatography in the lab setting but not at scale. What we have developed is the mass scale version of chromatography, which allows us to be a large, consistent provider of product in the marketplace."
CBD isolates or broad spectrum hemp extract?
According to Elfenbein, the future of CBD in consumer goods will be in a 'full' or 'broad' spectrum hemp product rather than a pure play CBD isolate.
"The market is valuing the THC-free full spectrum [hemp] product much more than a CBD isolate at this point," he noted.
"The full spectrum hemp extract brings the other 111 cannabinoids into the product to [deliver] what’s referred to as the ‘entourage effect’, which is the preferred product in terms of addressing the issues of why consumers are interested in CBD in the first place."
Elfenbein added that scaling production of a full spectrum hemp product will help relieve a bottle neck the CBD industry is currently facing.
"In 2018, there was an incredible shortage of CBD on the market, even when demand was exponentially less than what it is today. If we look at last year, the CBD market did about $600m in revenue across limited distribution points and product shortfalls.
"And that’s where the bottleneck in the market is today, there is not a provider that can produce [THC-free full spectrum hemp extract] at scale, and that’s really why Socati exists," he said.
With CBD, is the marketing getting ahead of the science?
From a legal standpoint, using a broad or full spectrum hemp extract is a safer bet for CPG brands who want to avoid ending up in legal hot water as long as they're not using the word 'CBD' on its packaging or in its marketing.
As attorney Larry Reichman and partner at law firm Perkins Coie previously told this publication: “If you are using a broad spectrum hemp extract but on the front you say ‘CBD infused,’ that’s potentially misleading.”
As a vertically integrated processor and supplier of full spectrum hemp extracts, Socati does not deal directly with the marketing of its product, but Elfenbein believes that there will be a shakeout in the marketplace.
"If you look at the top 20 brands, they’re very conservative in their packaging, most times they’re not even saying ‘CBD’ on there, they’re calling it ‘full hemp extract’ and are basically making no claims whatsoever, and that right there tells me that’s it’s probably a trustworthy brand," he said.
"There are brands that are using aggressive packaging and marketing I would be more hesitant about because they’re not really following the guidelines that have been set out there; there most likely will be a shakeout in the marketplace."
Within the food and beverage category, Elfenbein foresees more beverage brands launching products with either CBD or a full spectrum hemp extract into the market before mainstream packaged food companies get on board.
"We’re seeing a lot of interest on the energy drink side which are typically first movers for these types of products, so we would expect the energy drink companies to enter with CBD products for sure in 2019, probably ahead of the General Mills-type traditional food companies," he said.
However, Elfenbein believes that almost every small and large scale CPG company is developing its plan to market with a CBD or full spectrum hemp extract product.
What's to come for CBD and full spectrum hemp?
Elfenbein believes the CBD and full spectrum hemp market is poised for increased growth as suppliers, brands, and retailers address current distribution and supply chain issues.
"Most of the places that sell CBD are out of stock because there aren’t enough distribution points. What we’re seeing in 2019, slowly but surely, are more mainstream retailers at the regional level starting to carry CBD, which will result in an exponential increase in that marketplace," Elfenbein said.
