Cannabis Extracts, Terpenes, and the Future of the Industry with Jose Rivas

Jose Rivas, CEO of Premium Extracts, explains how cannabis extracts are made and how his company evolved into an ingredients supplier focused on terpenes. He shares his journey from early startup failure to building a licensed extraction facility, and discusses industry trends including price compression, THC beverages, and regulatory challenges shaping the cannabis market.

Transcript

Andrew Allison 0:04

Welcome to Wine Country Business, the podcast exploring the strategy and trends shaping the global world of wine spirits and luxury hospitality. I'm your host, Andrew Allison, a third generation Napa Valley native and exited startup founder. I'm bringing you inside candid conversations with the business leaders defining our industry today. This show is brought to you by Top Shelf Ventures. Top Shelf finds, funds, and accelerates the premiere opportunities in the global alcohol and vice categories, led by industry experts with a track record of major acquisitions. Their team acts as the catalyst for disruptive startups reaching for global scale. They don't just invest, they bring operational horsepower, a huge network, to you, the entrepreneur, to help you dominate your market. That's topshelfventures.com, accelerating the world's most innovative brands. Let's dive in. I can't wait to introduce today's guest. I've known him for quite a while, but I will let him introduce himself. Who are you and what do you do? Andrew, good to see you, buddy.

Jose Rivas 1:10

Uh my name's Jose Rebas. I am the CEO and founder of Premium Extracts in Kawia Bravo LLC. I'm multiple patented adventor, all revolving around inventions uh for various extraction methodologies uh all in the cannabis space. I founded the company in 2015, and we've been on an epic journey ever since.

Andrew Allison 1:31

I have had the good fortune to follow your journey, but you have had some serious highs and some serious lows over this journey. For those that don't know what extracts are, let's take it all the way from the top. Let's make it real simple. What is a cannabis extract?

Jose Rivas 1:46

Well, a cannabis extract is, you know, exactly what it sounds like. What we're doing is we are taking the cannabis plant, we are refining the molecules that are relevant to various product pipelines, and essentially what we become is an ingredients company for the cannabis business.

Andrew Allison 2:03

How did you get here? What was your upbringing and what led you to running an extract's cannabis business?

Jose Rivas 2:09

Well, that's uh a long story, actually. So it started in college. I had to pet my way through college, I paid myself through college and didn't like working at Quisnos. So I thought to myself, hey, like I like smoking weed. I think this is a possibly a good opportunity for me to make some money. And I started growing uh some cannabis plants in my closet. My degrees in molecular cellular biology. From that, I I found that I had some natural talent growing weed. And that's really how it started. That went from a closet to a bedroom to a house to five houses, and then by our senior euros, making a ton of money.

Andrew Allison 2:42

So you get into cannabis in college, then where did you start to professionalize that? What what was the spark there?

Jose Rivas 2:51

Well, I actually, you know, I about a year after college, uh, I had a falling out with a business partner. And, you know, I started several LLCs at the time. And so, you know, I told myself, you know what, I've I've got a degree in molecular biology. I don't even know if I really want to do this. So I transitioned out of the cannabis space at that time uh and went to go work for a biotech company that was based out of Liege, Belgium, um, selling robotic systems to automate epigenetic research. And then after five years or so with them, I had worked my way from uh, you know, the San Francisco sales rep to managing their the West Coast sales pipeline. And through the process, I had met several really interesting individuals. And I could see that that cannabis was about to become legalized. And, you know, in in my heart, I felt like this is where I could compete at a world-class level. You know, my my passion for cannabis had not left. So I partnered with a couple chemical engineers at Gilead Pharmaceuticals, and we decided to start premium extracts. And, you know, our whole mentality was we are gonna be like the scientific experts in this. It turns out that that was not the right approach. And we took a very safe course utilizing a technology called supercritical CO2, got uh $120,000 in investment money, bought a piece of equipment, and that thing turned out to be a total piece of shit. And we almost went bankrupt immediately.

Andrew Allison 4:10

Like most startup journeys, you have an idea on how it's gonna work, and then you get punched in the face. Where did you make the turn to start to develop your facilities, secure licensing, and take us on that journey where where you turned left into raising a bunch of capital and building a quite a large business?

Jose Rivas 4:27

Yeah, absolutely. So after cannabis was legalized in California in 2016-ish is when California voted to pass it. It still took a couple of years to kind of get the rules of the road down. And, you know, I I knew that at that point in time, like I'd ride the ship. We started to make some pretty good money, and I knew that we had a a shot of competing at a very high level in this. So I went to go to build out an investment deck and start to raise capital. And so we raised about $3 million and built our facility in Woodlake, California, ironically, very close to where I grew up. You know, I was willing to move to Mars to make this happen. And it turns out I just needed to move back home from the Bay Area. So in 2018, we started building our facility. We bought what at the time was an olive orchard. And then fortunately, the city of Woodlake was very, very accommodating for the cannabis sector. So permitting went really quickly, and we were able to build this facility within a year from an olive orchard to a fully licensed uh extraction manufacturing facility.

Andrew Allison 5:28

And for those that have never had a chance to visit or tour one, what what are some of the safety standards that need to go into an extracts facility? Because it has a reputation of being highly flammable, very dangerous if if you don't know what you're doing.

Jose Rivas 5:40

Yeah, absolutely. There's no fins or buts about it. If this is done incorrectly, you can die. And so the safety standards, uh, all of our equipment is ASME certified. That's the American Society of Mechanical Engineers. All of our extractions are what's done in a C1, D1 environment. It's a class one division one environment. And that's an environment where flammable or combustible materials are likely present in the normal working environment. And is that butane or yes, we our preferred extraction solvent is butane for various reasons. One, I just think it's uh from a chemistry perspective, it is the best solvent to pull out a really robust combination of cannabinoids as well as terpophenolic compounds, the essential oils, if you will, of the cannabis plant, which are really responsible for giving it a very robust flavor while omitting many of the other things that you don't want, which would be fats, waxes, lipids, depending. And you can manipulate these uh the solubility standards, if you will, by various temperature ranges. Colder you'll you'll omit more fats and waxes, warmer you can get kind of higher yields, but you get a dirtier extract coming out of it. And so, kind of circling back around, our booth that we do this in is what you would call uh quote unquote explosion proof. So there's a gas detector on the wall. There's no, or it's spark-proof completely. Everything's grounded and bonded inside the room itself. And if that gas detector detects uh limits of gas that are above a certain threshold, it shuts off all the electricity with these interlocks, it kicks on these massive blowers and it blows, uh evacuates the air from the room, bringing that gas threshold back down into a safe range.

Andrew Allison 7:14

Wow. So we're on this journey. You're into cannabis in college, you're starting your career with a science background, you work for big med tech or biotech, and then you end up raising some capital, building a facility, and start going on this entrepreneurial journey where you're trying to make it as an extracts manufacturer in in central California. When did you start to realize it was gonna work?

Jose Rivas 7:38

I'm not sure we're there yet. We've been growing at a a clip of about 40% a year, and candidly, like I knew this was gonna work if just like I've always known it was gonna work. Never doubted. Yeah, I I have uh almost delusional self-belief. You know, that's usually how it has to work. Yeah, like I know I know I'm very good at this, and I'm confident in my ability to pivot and figure things out. You know, some of the best advice I ever got was that which gets measured, gets attention.

Andrew Allison 8:06

Interesting. So when you think about developing your own processes, you hold some patents and the company holds some patents in some interesting aspects of the cannabis industry. What do those patents do?

Jose Rivas 8:16

All those patents revolve around uh a process called a gravity-assisted uh deep vacuum microwave hydro distillation, which is really just a long-worded answer to say that uh I figured out a way using microwaves to extract a very specific subset of molecules from cannabis. And those are what we'll colloquially call terpenes, but really what they are is the essential oils of the cannabis plant. And what makes this interesting is that when I'm finished with the extraction process, it is just the molecules that are responsible for the smell, the flavor, and the nuance of any particular cannabis varietal. The other interesting component of it is that they're completely devoid of cannabinoids. So there's no THC, C B D or anything else. And what makes that interesting is that allows us to take this product that comes from something that is regulated in California, and now we can sell that everywhere in the world. And so what we're really doing is trying to bring that California cannabis experience around the globe before various regulatory bodies allow for cannabinoids. We can go and say, Hey, you've seen this in High Times magazine, you've heard about the strain X from California. Here's what it smells like. And you can put this in a thousand different products.

Andrew Allison 9:26

And so is it a floral aspect that you're selling? Like what is the purpose of using this in whatever medium that you're using it in? And what are those mediums?

Jose Rivas 9:36

Yeah, well, so predominantly what it's used for is it's a flavorant in various products and components. The biggest one is still vaporizer pens. Um, that being said, we have uh a very large customer in France um through RGMC who uses this to manufacture CBD hashish. So if you're familiar kind of with like a Moroccan-style hashish, which is very big in Europe, they still don't allow uh THC as a cannabinoid, but CBD is allowed. And so this customer has fields of CBD flour. He'll extract the resin glands out of it, press this into hash, and then mix in our terpenes with that to give his particular hash various flavors of different strains from California.

Andrew Allison 10:18

Oh, that's super interesting. And I've understood that this can also, these terps can be added to cocktails as well. Is that true?

Jose Rivas 10:24

Absolutely. Yeah, absolutely. There's a a massive beverage component to this as well, you know, and a little bit goes a long way. Like one drop is a is enough to probably flavor an entire bottle of spirits. A milliliter will make several gallons taste like whatever cannabis strain I extracted it from.

Andrew Allison 10:41

When you think about the THC beverage industry, which is absolutely on fire in the US, what trends are you seeing? And for somebody who's not following the space, what is the trend?

Jose Rivas 10:53

I think what we're seeing right now, particularly in the beverage space, is a market opening up which is separate from alcohol. I think people, particularly younger folks like you and I, uh, even though I don't look that young with the gray hair anymore, the hangover gets pretty rough after your 30s. Cannabis doesn't give that to you. So I think we're seeing this entire segment of consumers transitioning from alcoholic beverages to cannabis-infused beverages to have that achieve that altered state of consciousness while kind of omitting the negative effects of alcohol.

Andrew Allison 11:22

My point of view is it's just a different mix of share of palate. I I believe that people drink alcohol will continue to drink alcohol and they might choose different beverages at different times. And I also believe the people that are now learning about some of the downsides of smoking are consuming THC in different ways as well.

Jose Rivas 11:39

So I'm inclined to agree with you absolutely. Like I'm a heavy cannabis consumer, as you might imagine, but I still enjoy uh alcoholic beverage as well.

Andrew Allison 11:47

When you think about your business, what are some of the trends that are coming up that are gonna be to your headwinds or tailwinds that you're paying attention to?

Jose Rivas 11:55

Aaron Powell Yeah, right now, what what we're really trying to focus in on, and and I think what the entire industry is looking forward to is some sense of a national regulatory framework. The difficult thing about cannabis is this entire time we've been playing, you know, like a six-dimensional chess piece. There's what you can do as an individual business owner, and then there is this subset of regulations that extend out from your local municipality to your state to or your local municipality to your county, to your state, and then nationally. And each state has different regulations. Each city has different regulations. Some cities don't allow cannabis at all, any kind of cannabis business. You know, in California, there's something called local control. And that means some municipalities, like the city of Woodlake, for example, allow for cannabis business. But if you go 10 miles away to the city of Wysellia, they don't. And that's all through zoning ordinances. That doesn't mean that you can prevent somebody from uh like selling licensed cannabis in the space, but they don't allow cannabis businesses, so delivery service has to come in and service those consumers.

Andrew Allison 12:59

And it's a heavily regulated, very fragmented space. When you think about some of the things that are going to play to your benefit in this space, what what are the things that are going right?

Jose Rivas 13:10

For us, where we're seeing most of our growth right now is in our terpene business. There's been extremely heavy price compression in commodities throughout the cannabis sector, and that's from flour all the way down to the purified cannabinoids that that we extract and purify. There we go, our pure THCA, um, which is the acidic form of THC, which is really just the natural form that it grows in on the plant. And then the decarboxylated form, which is Delta 9 THC, which you know we're all familiar with, which is the compound that actually elicits the psychoactive effect of cannabis. And so, you know, all those things have been very difficult for us. We've had to manufacture twice as much to make the same amount of money, but through this alternative business that we've found, we've been able to just find uh, you know, a global marketplace for our products. And that's really what's been driving growth for us. And I think that's going to continue because cannabis as a culture is getting much bigger globally.

Andrew Allison 14:02

Aaron Powell And as a business owner, you're hoping to find CPG brands that want to put TERPS in their products and you could be a wholesaler to them or a sub- ingredient supplier.

Jose Rivas 14:14

Aaron Powell Yes, absolutely. You know, at our core, that's really what we are. You know, if we have a national marketplace to sell our cannabinoids to, I'm convinced that the number one cannabinoid that's going to be sought after is still going to be Delta 9 THC. You know, right now we have this loose patchwork of legalized hemp and intoxicating hemp products. And I think a lot of those end up going away once THC is legalized nationally. And so for us, it's been a difficult question because we've had opportunities to expand into other states, but we don't have traditional access to banking and finance. So everything that we've ever built, we've had to bootstrap ourselves. And so, you know, the question goes, okay, do I build a manufacturing facility in New York or do I build it or do I expand my facility in California and then sell stuff to New York once it's legal to do so? Because it's still a felony to ship cannabis over state lines.

Andrew Allison 15:06

Yeah. And there's a couple things I want to touch in there, but do you believe that the Trump administration will allow the cannabis industry to start using the federal banking system?

Jose Rivas 15:14

I don't know. You know, like that's a $28 billion question. I hope so. I think it's well past time that we have access to traditional banking. Like this is a massive business. It's legal in the majority of states in some form or another, but we still don't have access to traditional banking. I mean, we have access to banking through Fresno First Bank, but that bank account cost me $1,400 a month just in compliance fees.

Andrew Allison 15:39

Yeah, that's super interesting. You used a couple different terms, and I just want to touch on them. THCA is the type of cannabis that is the unburnt nug. That's why THCA will not get you high, is because it hasn't dropped the molecule to become delta nine. Is that right?

Jose Rivas 15:57

Yes, that's completely accurate. THCA is the form of THC that naturally grows on the cannabis plant. And it's not until you provide heat energy and oxygen that you're able to break off this uh CO2 group. And through breaking off or by breaking off that CO2 group, it then allows for THC to bind to your CB1, CB2 receptors, and that elicits this cascade that we're familiar with that will get you uh intoxicated.

Andrew Allison 16:22

And so my understanding, and if you don't know, just feel free to say so. But my understanding is the THC beverages that are out there, some of them are actually just infusing THCA into their beverages so that they could say it's THC to the benefit of saying that to consumers, but it will not get you high. Is that right or is that that's accurate?

Jose Rivas 16:43

I don't see a lot of beverages that are quote unquote THCA because I think that removes the entire point of the consumption. I have some questions revolving around how so legally, the diff the definition between hemp and quote unquote marijuana is that there's a delta nine THC threshold of 0.3% by weight to any particular product. So, you know, I I ask myself frequently like how are these things getting manufactured? Much of this comes through chemistry by converting a CBD uh extract into a delta nine uh cannabinoid. But at some point, when you do that conversion, you're making marijuana. Like nobody would use 0.3% of let's pretend it's a syrup, you know, if if you were to make Coca-Cola. But that syrup only had 0.3% sugar in it. And you needed to add 10 grams of sugar. You can't fit that into the Coca-Cola, so to speak. So you kind of have to go through this route to purify this, because you know, I've always said this. I think this is how we uh evolved into uh like an ingredients company in the first place, is that if I ask you to make me a chocolate chip cookie and I bring you a bushel of wheat, some cocoa beans, and a bunch of sugar cane, it's gonna be a long time until I get that cookie. But if I come with flour, purified sugar, vanilla extract, etc., you can make me 10,000 cookies today. Yeah. And and that's really what I'm trying to do. I'm trying to allow for various entrepreneurs to make that cookie the way they want it by giving them pure, reliable ingredients.

Andrew Allison 18:16

Jose Rivas, it's super interesting to hear you talk about your business. For those that want to get a hold of you or follow you, how can they find you on the internet?

Jose Rivas 18:24

Instagram handles at premium extracts jose website www.premium extracts.net, or conversely, our hemp business is www.coeobravo.com, and that's where you would be able to get a hold of me. You know, other than that, like I've tried to really keep a low profile because we don't have a CPG brand. My customers are are big companies. And, you know, to that extent, like uh it's been easier for me to play a role in the background because I'm I'm not really a natural brander or marketer.

Andrew Allison 18:53

Well, we'll put all those links in the show notes. Thank you, thank you, thank you. Have a great day. Yeah, you bet. Thanks for having me on. Thanks for listening to Wine Country Business. For more insights and video clips, make sure to follow the show on Instagram at WineCountry. If you found value in today's conversation, please follow us on Spotify, Apple Podcasts, or wherever you get your pods. A brief thank you to our publisher, Wine Country Media, and a special thanks to Napa Valley Car Club for letting us record at the Barn, their members only club in downtown Napa. I'm Andrew Allison, thanks for joining me, and we'll see you in the next episode.