Hemp legal limbo challenges Sonoma County's Delta Separations, other equipment makers
Usually spinning and freezing delicate things does not cause them to produce valuable oil, but that is the case with some hemp plants.
And it’s even harder than it sounds.
That is according to the executives at Delta Separations in Cotati who manufacture equipment that can extract, evaporate, and distill oil and other desired materials from plant mass, including from cannabis plants like hemp.
Hemp is a type of cannabis that, unlike marijuana, is legal at both the federal and state levels and does not contain significant levels of THC, the compound in marijuana known for its psychoactive effects.
Hemp is prized for its oils, particularly nonpsychoactive cannabidiol (CBD), which some claim has medicinal properties.
Started in 2015, executives at Delta Separations say their business is growing rapidly, doubling sales year over year. There are still constraints, however, with being associated with hemp, which is legal cannabis, according to Chief Operating Officer Roger Cockroft.
“This industry is a very undercapitalized industry. And that’s partly because of the segmentation of the market through various regulations,” Cockroft said, noting the company does not touch cannabis plants and instead sells equipment to manufacturers and distributors.
Cockroft said because marijuana, or cannabis with high THC levels, is still illegal at the federal level, it is still associated with hemp cannabis. The Federal Deposit Insurance Corporation has also not handed down regulations on how to handle banking of hemp-derived cash. As a result, many financial institutions are wary of handling it and the regulatory hurdles they face if they do.
Credit unions have been somewhat more open to the idea. The National Credit Union Association published guidance in August stating that legal hemp businesses provides new opportunities for rural communities and allowing federally-insured credit unions to provide certain financial services to the industry.
Continued stigma and association with federally illegal marijuana has somewhat limited what Delta can do, according to Cockroft.
“It has proved to be really difficult for us to test our equipment,” he said. The company now has a research and development facility in Santa Rosa to go along with two manufacturing facilities and its offices that are in Cotati.
Because Delta is not a cannabis company, one model has been to test its equipment through licensed cannabis clients who handle hemp and marijuana.
“We usually have beta test models that are in the field for about six months to 12 months that are being operated by a licensed facility,” said Ben Stephens, founder and chief technical officer at the company.
“We get their feedback data of how things are working,” Stephens said, underscoring that the processing of hemp into things like CBD is still something that is being perfected. “That keeps the client happy because they’re getting a free piece of equipment. It keeps us happy because we’re getting the data off of it.”
Hemp processing may be a newer industry, but it could expand rapidly if and when the Food and Drug Administration regulates CBD and allows it to be placed in things like food products according to Erica Stark, the executive director of the National Hemp Association.
“Right now there’s still legal impediments at the state and federal level with the [U.S. Food and Drug Administration] that prevent businesses from realizing the full potential of what they can be,” said Ryan Lowther, a partner at Farella Braun + Martel LLP and founder of the firm’s cannabis industry practice group. “That is causing investment constraints and capital crunches until investors are more comfortable.”