Convectium: Cannabis Post-Harvest Equipment Manufacturer Navigates Murky Industry Waters

Founded by Danny Davis in 2014, Convectium has been supplying the cannabis industry with cartridge-filling systems since the release of its first design, the 710Shark, in 2015. The first iteration of the machine “was a mass-produced glue machine from the fifties and sixties,” Convectium CEO Mark Adams shared with Cannabis Business Executive in an interview. It worked “because cannabis oil has a lot of the properties that glue does: a lot of it can be very thick, especially distillate, [and] it’s hard to fill in precise measures,” he said. 

Things have changed a lot since then, including the original system going through “eight and a half iterations” to date, Adams said. 

Changes at the California-based company haven’t been limited to system upgrades. Since Adams took the helm of Convectium in 2017, the company has expanded its product offerings to include capping (2018, currently on its fourth generation), pre-rolling (2020), and infusing pre-rolls (2021). 

These extra offerings allow the company to turn active customers into repeat buyers, Adams explained. “We have probably 700, 800 customers that are active that we can sell other things into.”

But as the cannabis market, along with the broader economy, navigates a landscape of rising interest rates and dried-up capital pools, Convectium has been trying to find additional income streams to shore up its income–a difficult feat in the best of times.

Manufacturing System Suite

Adams pointed out that Convectium’s products are best suited for large-scale operations and multi-state operators (MSOs)–the scale at which the systems operate often makes them too large for craft-style operations, he said.

For example, Convectium’s flagship product, the 710Shark cartridge filler, can fill up to 100 cartridges or disposable pens in less than 60 seconds and works with plastic, ceramic, and stainless steel cartridges up to 500 milligrams. Its capping system, the CaptainH100, can cap up to 100 cartridges every 30 seconds. When purchased with the filler machine, operators can expect to shell out approximately $50,000. With that in mind, Adams said the system is ideal for operators producing 15,000 vape cartridges or more per month.

In 2018, Convectium released its PreRoll-ER system to streamline pre-roll production. Convectium puts the system’s output between 700-1250 pre-rolls per hour, and it estimates project the system effectively replaces up to 20 workers per shift, giving the unit a short ROI time, Adams said. Convectium also offers a smaller-sized unit dubbed the PreRoll-ER100 that has a production capacity of 500 to 650 pre-rolls per hour (replacing 8-10 workers per shift, per the company). Pre-roll systems retail at a starting price of $150,000.

Seeing a growing demand for concentrate-infused pre-rolls, Convectium launched its IFX-100 in October 2021, a system to infuse pre-rolled joints and blunts. The system has a throughput of up to 6,000 pre-rolls per hour and only needs one supervising operator. With the infuser, cannabis producers can introduce distillate, live resin, shatter, rosin, and delta-8 into their pre-rolled flower products. The IFX-100 is the most expensive system in Convectium’s lineup.

Convectium doesn’t offer any financing options–at least not directly. Sales orders are processed once purchasers place a 50% deposit, with the remaining balance paid when the product is ready to be shipped.

Building Beyond Hardware

While he believes the company’s systems are competitively priced when accounted for scale and throughput, Adams acknowledged that sales for the higher-priced items have trailed off recently. The “pre-roll business has been down the last few quarters because of capital constraints,” Adams said. While the filling and capping systems make up the bulk of the company’s sales volume, according to the CEO, revenues historically are evenly split between those and the pre-roll systems. Despite a slowdown in sales for those big-ticket systems, “we think that that’ll come back” when access to capital becomes less expensive. 

Resale markets where operators can buy assets from distressed and failed businesses also chip away at the company’s sales. To recapture some of that lost business, Convectium offers 1-year extended warranties typically costing “a couple of thousand dollars,” Adams said. 

Equipment service typically is done via videoconferencing between Convectium’s engineering team and customers. The company did have a traveling engineering staff when about half of its service requests were completed in person, but the Covid-19 pandemic and declining sales forced a shift to remote servicing, Adams shared. A library of how-to videos on its website enables users to fix their own systems. “Once we have a problem that we’ve seen three, four, five times, we’ll make a video and just shoot it out to them and they can troubleshoot it for themselves,” Adams explained, noting that upwards of 90% of issues are due to “user error.”

In another response to capital restraints and lack of financing options, Convectium offers contract manufacturing in California through its partner Bear Flag, a white-label co-packer and manufacturer making pre-rolls, cartridges, and tinctures. Manufacturing 1-gram pre-rolls through Bear Flag starts at $0.65 per unit, while infused pre-rolls start at $1.15 and 1-gram distillate cartridges are a $2.75 minimum. All other products are quoted on a custom-order basis.

Tough Financial Outlook

Despite offering what it believes is a needed product for large-scale operators, the market downturn has been a challenge for Convectium to navigate. In the company’s recent 10Q filing (covering Q3 2022), Convectium reported a net income loss of more than $300,000. It also stated in its filing that “the Company has negative working capital, recurring losses, and does not have a source of revenues sufficient to cover its operating costs. These factors raise substantial doubt about the Company’s ability to continue as a going concern.”

One of the main culprits for these tough market conditions, according to Adams, is federal government policies impeding the industry’s growth. “You hate to blame everything on the government, but I think it falls squarely on the federal government to do something and at least pass a banking bill,” he told CBE, citing specifically the lack of access to traditional banking and capital. “I think ever since the days of the carriage and horses you’ve had banking in this country … and not to have banking in a multi-billion dollar industry is just preposterous.”

Convectium is “exploring strategic opportunities” in the cannabis space, trying to bolster its business and monetize its assets, Adams said. “I think going forward, a few years down the road, it’s going to be very profitable and those who can stick around will do well in it.”

That said, he acknowledged it was a difficult time to find such a partner. “I welcome every call coming in from someone that has an idea for us to gain customers–and we will leverage our customer base for good ideas that will eventually help shareholder value. So we are open to doing that.

“It’s just tough because nine out 10 [groups are]  just keeping their head down, trying to survive.”