Katie Stem, CEO of Peak Extracts
Eastern Washington native Katie Stem started her first business at age 22 while in the Americorps VISTA entrepreneurial division. A graduate from Carleton College in 2002, majoring in pre-med and literature, she has extensive business and management experience, as well as more than 10 years of laboratory science background. While working for Washington State University and Oregon Health & Science University, she experimented in the fields of physiology, pharmacology and neurology using natural products and pharmaceutical interventions for human diseases. In 2010, she completed her degree in traditional Chinese medicine and became a nationally-certified licensed herbalist and acupuncturist. Stem’s skills as both a scientist and herbalist are invaluable to Peak in formulation, R&D, and educational outreach. A medical cannabis patient since 2004, Katie has been heavily involved and connected within the community since the early days. Her battle with Crohn’s disease led her to explore alternatives to dangerous biologic and immunosuppressive drugs. Cannabis has been a powerful tool to manage her disease and she is a passionate educator and advocate within the industry. Stem maintains an acupuncture and herbal medicine practice in Portland that she’s had since 2010.
[00:00:01] You're listening to Thinking Outside the Bud where we speak with entrepreneurs investors thought leaders researchers advocates and policymakers who are finding new and exciting ways for cannabis to positively impact business society and culture. And now here is your host Business Coach Bruce Eckfeldt.
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[00:01:07] Welcome, everyone. This is Thinking Outside the Bud. I'm Bruce Eckfeldt. I'm your host. And our guest today is Katie Stem, who is CEO of Peak Extracts. And we're gonna find out a little bit more about the work that they do. There are women owned and operated edibles company out of Oregon. We're going to find out more about a lot of the chocolate work they do. I'm excited about this. I love edibles. I love chocolate. So I'm curious to learn more about the business. Learn more about her background with that. Katie, welcome to the program. Thanks so much for having me. So I always like to start with guests telling us a little bit about their personal background and their personal story. How are you? What were you doing professionally? What were you doing before cannabis? How did you get into cannabis? Give us a little bit of the backstory.
[00:01:45] So I have a sort of a blended background in Western medicine and scientific research. I did about 10 years as a laboratory assistant, research assistant in a few different fields, physiology, neurology, pharmacology. And then I got a degree in Chinese medicine in 2010. I did a tour in the entrepreneurial division of AmeriCorps, two of them, actually. And so I have some training with business starting in my early 20s. So it kind of converged neatly between the science and the herbal medicine and business into canvas.
[00:02:19] And so and so. Cannabis was a particular focus or was cannabis kind of the conclusion of a series of questions you're asking yourself about in terms of where should I start business?
[00:02:29] Cannabis was an entirely personal driver for me because I had been a medical patient since 2005 when we started the company in 2014, and it was enormously useful for me to control my Crohn's disease symptoms. And so it became sort of a you know, I have this expertise in extraction and science and chemistry and business. And so why don't we make a go of it since it's becoming legal in Oregon now?
[00:02:54] Interesting. So the business focus on extractions, when you just give those people that don't know the details of extraction and kind of the production or the processing process for cannabis. What stages are you involved in? What do you what what do you receive? What's your kind of input to your systems and what do you produce?
[00:03:11] Sure. So we wanted to be as vertically integrated as possible, but I still wanted to take advantage of what I anticipated to be a lot of market fluctuation on the beginning side of farming because, you know, you don't know very many rich farmers. And that's because when I think everything can go wrong. And so I sort of anticipated that it would be pretty scarce at first and then there will be a glut. And that's exactly what happened. And so I want to be able to take advantage of that as the person in the middle. And so we take raw material and then we process it manually and then we process it with solvent, which is in this case carbon dioxide. That was a little bit of a lengthy process for us to settle on CO2, but we're very happy with it. So we extract using CO2 and then we infuse into a variety of products and we make our own vape pen line to got it.
[00:04:02] And so I like to get somewhat technical on some of these things, but so CO2 vs. what I mean. I know there's a couple of different extraction technologies out there at this point. What were you looking at? What were your decision criteria? What were the kind of trade offs and then why? CO2, sure.
[00:04:17] So I have experience with all of them. And the three primary solvents that we use in the cannabis industry are classes of someone's really is ethanol and hydrocarbons and CO2. And so ethanol is cheapest and you can do a ton really quickly. But unfortunately, you pull a lot of chlorophyll and chlorophyll is really upsetting to the digestive systems and it's a really cumbersome molecule and it doesn't interact well with chocolate. And so I veered away from that. And then the hydrocarbons they produce really beautiful extracts, really high and her beans. But I didn't like the environmental impact or the explosive risk. And so, I mean, with with CO2, when we're done, we create a lot of waste material because you just pull what you want out of the cannabis and then you have to discard it. And so with our process, it just goes right back to the farm and is composted. Whereas with the hydrocarbons, it's Hellenistic, it's explosive. It has to be incinerated and it has to be properly disposed of by the municipality or the state, which it's really tricky because, you know, some of these incinerators aren't in Oregon. And then you're breaking the coal memo by taking your waste across state lines to. Legal and logistical nightmare. So I just wound up with that entirely now and you actually works marvelously well. We spent a lot of time winnowing down our parameters so that we get what we need out of the end product button. I'm super happy with it as as a solvent.
[00:05:46] Yeah. And so talking about the chocolate, I mean that you you primarily focused on chocolate as that. Was that a strategic decision?
[00:05:52] Was that a personal decision in terms of looking at the possible kind of edible products that you could be producing? Tell us about that. Yeah. I mean, chocolate. I love chocolate. Really? Likewise.
[00:06:04] I have an entire drawer in my house that's filled with chocolate. I would never be able to give it up. So, I mean, I made my own chocolates with cannabis for many years before we started the business. And I felt like it was a good choice because there's a fair amount of barriers to entry. Either you have to have a lot of skills with chocolate or you have to have the right equipment. And because it's so finicky and so difficult to work with. And so the better we got at making chocolate, the more I felt like we could set ourselves apart in the market because candy and other things are much easier to make. And then it just became a passion.
[00:06:36] Sure. Yeah, well, it's kind of the benefit of being both passionate and a good strategic advantage.
[00:06:40] Right. Tell us about the sourcing side, though. So, I mean, you know, chocolate has its own a sourcing and processing. Like how much do you do with it where you partnered? How would you combine kind of the cannabis side with the chocolate side to create the product that you create?
[00:06:54] Yeah, we we went through a big R and D process. We've tried more than seventy five different creatures, which curvature is just the term for raw chocolate that has not been tempered. That consists only of chocolate products like either cocoa butter or cocoa liquor or cocoa nibs and butter. And so we settled on a 70 percent dark. And we work with a giant company. And this was a little bit of a decision because we had the struggle of do we make Bean to bar the issue there, which was kind of comical is that if you don't do it right. According to Oregon pesticide rules, the chocolate would not pass.
[00:07:33] Your cannabis would be fine, but you'd be out of market because of your chocolate. That's right.
[00:07:37] And so we were like, well, crap, we don't we don't want to risk that. And so if we work with Q Richer with a giant company, they spray things a lot more with the bean stage. And though the chocolate that we get will have less pesticides and if we made it raw from scratch ourselves, which is it's a pity, but it's just the way it is, which we didn't have the footprint to, to have the conch and everything else in our facility. So we work with Coop Richer and so we we bring it in, we buy it at a ton at a time and then we temperate and fuse it and then mold it, package it and distribute it.
[00:08:10] Donna And so as you've kind of develop these processes, what would have been the kind of nuance or the harder parts or the pieces that were were more difficult to kind of get right in terms of creating creating the spice infused product?
[00:08:23] Most of the tricks and difficulties that we ran into with actually infusing the chocolate we ironed out before we started the business. That was something that we did, too.
[00:08:33] You had you had a product, you basically had a product design, pretty baked, no pun intended, before you started the company.
[00:08:39] Yeah, I made a lot of mistakes. Between 2007 and 2014 before we we launched it officially. Since then, it's mostly been environmental and equipment problems. As I said, chocolate's really a pain in the ass and and everyone will know that Oregon's really moist chocolate and chocolate hates humidity.
[00:08:58] Yeah. You know, you're you're trying to produce in a fairly difficult environment.
[00:09:03] Totally. And, you know, we have really tall ceilings. And so, you know, we have a rainy day. And if we're not careful, the chocolate wheel will suffer. I mean, we don't lose product. We just have to do it again. Lose a day of production. But, you know, that can be extra irritating, especially if you know something that's in high demand and we need to crank it out.
[00:09:22] And tell me about the kind of forming the company and kind of early stages of the company. How to. I mean, how did that play out for you? I mean, you were you were one of the first one of the first extractors, correct? I mean, where were you in terms of the bleeding edge of the industry and kind of the licensing stuff? How did you play out? Not in that sense.
[00:09:38] We were at the very beginning. So my partner, Kate and I my girlfriend started the business in 2014 in the medical market. And we were among maybe four or five edibles company at that point in time. And then we got our edibles license in 2016 and we were the first edibles producer licensed in Oregon. Then we're still among a very small handful of people who make their extracts and infused products. Most people are edibles producers and they purchase their extracts and then use them in-house. There's more licensing and more hoops to jump through if you do both. The city of Portland was extremely hostile to our facility.
[00:10:17] And that's why. So what was the why?
[00:10:20] Why they were really nervous about the machinery, the extraction machinery. It's really a very safe machine, but they were nervous about it. You know, the hydrocarbon explosions have happened several times in the city limits and the city, Portland is notorious for being really slow to get any permitting done and start to finish. It took us 14 months to get our extractor approved. Wow. It was gnarly. Many different rounds and inspectors and we had engineers who wrote reports for engineers who wrote a report for us, for engineers. We had at one point a daisy chain of five different engineers that had to write off on each other's work in order to get it approved by the city approved.
[00:11:00] That's crazy. Now, the history they had with the explosions was not cannabis produced. I mean, it's just other industries that had had these events that caused them to be cautious of anyone doing it right. Or was it these are cameras.
[00:11:11] It was cannabis. It was cannabis. It was like open blast. Yeah. Obtain where people were taking cans of butane and in their kitchen, literally. Got it. Went into cannabis and trying to get hash out a lot of it and then blowing the building up because, you know, the dryer turned on or something like that.
[00:11:30] I mean this is a cannabis production. I had a bad rap or had, you know, had a stigma or a history to the city. And so anyone else doing it, even if it's a professional situation they were wary of. Yeah, you got it.
[00:11:43] So I'm sometimes I ask. Yes, I mean, I think in this case, because of the medical history. Well all I'll ask it as you got into cannabis. Was there any impact for you? Kind of.
[00:11:51] Family social was in terms of, you know, people kind of looking at you differently. You know, what do you what do you doing getting involved in this kind of a space? I mean, what was the what was the reaction to from from friends and family?
[00:12:03] It's really evolved. When I first started doing it, there was a lot of skepticism and and a bit of judgment. It's been lot in the last couple of years, as you know, ticked over that 50 percent approval rating in the last five or six years. It's really shifted and it went from being something that was really risky. And we'll see how it goes, too. Oh, yeah. That's a growth industry. Well, for yourself and for being the first mover and I've got I've got a cousin I need to drop.
[00:12:31] Do you think you have a spot? Totally.
[00:12:34] So it's been really fun watching it go from the fringe to the mainstream.
[00:12:39] Yeah. Has there been any downsides that I mean, have you.
[00:12:41] Has anything changed for you in terms of, I don't know, kind of your interests or the fun that you have in the industry? You know, as things have gotten kind of bigger and more corporate or more sophisticated has had some downside or has been. Not not as fun.
[00:12:56] Sure. I mean, I think that in the last couple of years, there's been a huge influx of money, of money to people. And there's a bit of a joke that especially the conferences are playgrounds for middle aged, rich white dudes wanting. When were there, you threw some sort of interesting mid-life crisis. You get really wild and play with their money. And and that's obviously something I feel super comfortable with. There's a lot of drug use and prostitutes and stuff like that is just not not everything that bad that they see the underside of that stuff. But, you know, I think it's it's just interesting. Like I said, the influx of people that's common the last two years. But I think that's going to phase out. I think people are going to realize what an insane amount of work it is and how frustrating a lot of these regulations are. And they're gonna get deterred very quickly.
[00:13:46] Yeah, it is. It's a little daunting sometimes how complicated this is, how much it changes, too. So it's one thing if it was a stable set of requirements, but like as things shift, it's like you've got to you've got to redo everything.
[00:13:57] Once someone decides that the law has to change or the house law is gonna be implemented or is going to be regulated.
[00:14:03] Yes. But from our perspective, it's about consumer packaged goods and having to redo all the packaging or the warnings or stuff like that. You know, people don't realize how expensive and cumbersome that is. So just change something on a label. It's it's very irritating. And, you know, we never know what kind of notice we've gotten. We've gotten emails and memos that are post-dated. So we'll get an e-mail and they'll be like, all right. So the rule changed as of two weeks ago.
[00:14:28] Everything you've produced and label them sitting on on shelves two weeks ago is now is now non-compliant right now.
[00:14:36] Let it roll off your back.
[00:14:38] Yeah. What is it? And I guess what are some of the things you've had? I've had to learn how to do as CEO as the company's gotten bigger. I mean, I guess. Do you still. Are you still, you know, in the baking process and coming up with new products and, you know, the artisan side? Or have you found that you've had to really kind of focus on the management leadership and and how has that impacted you?
[00:15:00] It's just all about just spinning plates. You know, obviously, the regulatory stuff is on fire when it's on fire. And so that takes all of my my focus. And then when that dies down, I immediately switch to the R.A. and the product development. You know, we always have a couple in the wings that we're working on. And so, you know, I would love to get the regulatory stuff calm down so I can focus more on that. But, you know, it's just not always possible.
[00:15:25] Yeah. And with your strong science background, I mean, I guess how.
[00:15:28] What pieces have you been able to leverage from your your research and your science background that you have, I guess, and what parts of it were you knowingly or did you know you could transfer and what parts were kind of a surprise or you didn't consider at first? That might be transferable, that are proven helpful for you?
[00:15:46] That's a good question. Well, initially, I knew that they weren't all that many people. And the sounds probably elementary, but there were that many people who could really formulate and to do the math. It's not difficult math, but, you know, there's a couple of different moving pieces to get the oil into the product and homogenized and most correctly. And I have a great deal of experience with with dosing pharmacological compounds into either human or animal subjects. And so that was way easy. And that that part was was fine in the chemistry part was something I knew I would have experience with. The thing that kind of surprised me was how much I tapped into Chinese medicine because they use a lot of CO2 extracts to use their herbs and there's a ton of Chinese herbs and the data is pretty readily available about what parameters they use to get what they want out of each different Chinese herbs. And so I was able to extrapolate based on what they do for, you know, similar families of herbs in terms of parameters and toy with that and see whether we can get more of what we wanted out of the cannabis plant, which was totally unexpected and fun.
[00:16:49] Yeah, yeah, yeah. That's it. That's a fun kind of integration of kind of what western, western and eastern kind of approaches to the science of medicine.
[00:16:58] Yeah. Yeah. They're focusing so much on whole plant medicines. That's what I really wanted to do with cannabis and I think underserved in the industry right now.
[00:17:07] Are you going to guess do you consider yourself primarily medically focused or adult use focused or do you not distinguish I mean, I guess bridge for me a little bit of kind of your personal background on the medical side to where the market's going and how you're positioning yourself?
[00:17:21] Well, I worried that people would have they would have a feel stigma at staying in the medical industry. And it's tough to say how much of the exodus away from medical use patients in Oregon was because there were a lot of people who wanted to be in that cannabis industry that got cards not through any legitimate medical cannabis. Right now, I mean, our market, we make a medical line, but it's my new compared to our recreational one. But what I wanted to create was a broad and diverse set of products that you could use medically. And for me, there's there's a really hazy line between recreational and medical use, because I think fun is medicinal and relaxation and being able to sleep. And so I don't wanna get too puritanical about that. But I also wanted our chocolate bars because we we differentiate them into several different categories. It's still really useful medically. And so people can gravitate towards whatever purpose they need. They're they're edible for and use their color coding system to tie them to the right experience and effects.
[00:18:21] Yeah, I guess how much of you had to kind of learn from the market and figure out from a brand and kind of product point of view how to kind of develop different products for different market segments and how much how much is this kind of research based, either formal or informal, and how is the market kind of need driven your product development process?
[00:18:38] It's been a lot of back and forth and it's always difficult to tease out what the branding of each individual strain has in terms of impact because, you know, we do single strand chocolates and they're color coded. And so we'll we'll rotate through the strands every three or four months and some will sell better because of seasonal things like our city to sell better in the summer and our indica sell better in the winter. But there's also, you know, Blue Dream is Blue Dream, and everyone loves a dream. And so that one's going to sell faster than brick offsite, even though they have extremely similar effects. The branding and the and the awareness behind the the strain itself that will drive the market.
[00:19:19] Interesting. It's kind of a kind of double branded situation. Your brand to the strains have reputations and brands and then the products have reputations of brands.
[00:19:27] So kind of the intersection between those two firms too, because we ko brand with the farms and so the farm, you know, interesting package. And so people will be like, well, I love that farm, so I'm gonna go with that one.
[00:19:39] So, OK, interesting. I mean, that was that a conscious choice in the beginning that that was kind of how things played out.
[00:19:45] And as you developed your relationships, what was the why brand the farms as well?
[00:19:48] It was meant to be a cooperative thing. And also people were curious. Oregon, you know, if you've seen Atlanta, you know how how much we care about soy and the story behind everything. And I think it's totally wonderful on these farms that we work with put an enormous amount of effort. And so it would be a pity to just try to hide the light under a basket, so to speak. So we're really happy that we got to do that. And it's forged some really cool, collaborative relationships. And we've been able to give feedback to the farmers about what strains we need and that thing. So it's been super, super awesome on all sides.
[00:20:24] Yeah. So so as CEO, what have been some of the challenges in terms of building the. You is it? You know, talent is it? You know, logistics is that equipment is a supply chain.
[00:20:35] I mean, what would have been your kind of the things that have been most challenging for me?
[00:20:40] From a business standpoint, I think it's kind of a similar or really typical story. I think everybody has a story when they grow company from one person to 10 to 60 that you start out doing everything and you need to let go of things along the way and figuring out which ones are the most efficient to let go and which ones are the most efficient to keep.
[00:21:00] And then at this point, I'm trying to figure out how to make myself able to actually step away entirely so that I can work on more product development and expanding the company. And so that's been the track is the right people at the right time that can pay for themselves along the way. And we're all self-funded thus far. And that's been tricky to just make sure that everything gets done without, you know, going and run out of money right now.
[00:21:26] We always say that the more companies die of drowning than starvation, you know, they end up growing themselves broke rather than running out of business just from a cash flow point of view. So I guess how common and how much of that has been, you know, kind of the logical strategic kind of external figuring things out versus how much of it has been, you know, your own kind of mindset and way of thinking and think, you know, values and beliefs that you've had to kind of change or reconsider, given where you are at with the business. I mean. Well, how much is external and how much of his internal for you?
[00:21:55] Probably about half and half. And I feel like I'm a totally different person than I was four years ago. And the way I approach problems and so I don't even know how to begin to explain it, just that I feel like we always have to keep moving and we always have to keep changing. And we can't let our mistakes drag us down because there's always gonna be another mistake on the horizon.
[00:22:17] Yeah. Yeah. Now, any any strategies that you had in terms of, you know, either just processing mistakes or turning. Learning from mistakes and anything that you do that has been particularly helpful for you?
[00:22:27] Sure. We've painted ourselves into a corner a couple of times with our extraction process and we've learned lessons the hard way, like there's a strain called supercell to do that. We got from this amazing firm called Yerba Bueno. And it has a particularly unique Turpin profile. And our goal is to retain all the trappings rather than pulling them and adding them back later. We do everything very slow and cold and deliberately. And we made this beautiful extract and it smelled great. The Turpin levels were through the roof and we learned that that particular combination of Turpin makes THC come our solution and are all of it right. So we had to start over because we filled the cartridges and then they crystallized like, honey, that's been in a cupboard for two years. And so they were pretty much unusable. And so that's the risk of having something that's so already based but is still in motion. And that's the kind of thing that I wish I'd had three years to tinker around before we launched it. But we didn't. And so we've we've had to throw our product back and we've had to take losses on items because we're learning as we go.
[00:23:40] Yeah. Anything you'd suggest to, you know, cannabis business. Early stage companies, you know, entrepreneurs, founders in terms of sort of going through that process, you know, either strategically how to how to do it in a way that you can maximize learning or just mentally. How do you how do you not let it get you down?
[00:23:58] What advice or insight would you give to someone that's who's in the beginning of the process?
[00:24:02] I would say that although it's often not feasible to have the standard amount of operating expenses in your bank account for any other business I run, I wanted between three and six months of operating expenses in the account, and that's just not going to happen in Kansas. And I don't know any cannabis companies that are not hugely funded that have that kind of buffer. But what we do have is a six to 12 month inventory buffer. And so when some sort of crisis that is in our NDE type crisis that this product could launch in a week or it could be a failure or it could be delayed by three weeks because of some packaging regulation. And so we try to keep enough stuff in the queue to last six to 12 months.
[00:24:43] So you're not going to you're not going to have an outage, a raw outage on the product. Right. Right. And what are your thoughts on where things are going right now? And so we've got this kind of state by state license. I think, like as I'll say, when a big if on a timeframe, if we go federally legal, you know, if this kind of plays out, you know, where we get some kind of clarity or some kind of legalization at the federal level. How does that impact the business? How does it impact the industry for you? What are your thoughts on where this is going to go?
[00:25:10] I would love it. That would really allow us to take advantage of the economies of scale that we're not able to now being in such a relatively small state. There's only a few million people here. And if we could serve 10 states and we can get the really fun machinery, the bigger.
[00:25:28] Bigger equipment.
[00:25:30] It takes one person to operate and will make 20 times the chocolate that we can with three people. That kind of stuff. And I think that Oregon is going to be a major hub for cannabis cultivation, which I would love. We do a great job here and there's way too much of it right now. And so, yeah, I'm going to have to insulate myself from that being, you know, taking advantage of the low prices now, because I have a feeling they're going to go up hugely if we're able to go across state lines at all.
[00:25:58] Yeah. Yeah. If we can pick an expert to other states or ideally other countries, it's going to it's going to increase that demand. Right. Interesting.
[00:26:05] So if people want to find out more about you, about peak extract, what's the best way to get that information?
[00:26:10] Just go to our Web site, peak extract.com. We're on Instagram at peak extracts and Twitter and epic extracts. And there's a link and a contact forum if anyone wants to contact me or our sales team directly as well.
[00:26:21] Excellent. I'll make sure that those links are in the show notes. Katie, that's been a pleasure. I love. I love what you're doing. I love the chocolate side. When I was young, my grandfather was a chocolate salesman and I used to go with him to the companies making the chocolate. And I have these, you know, very fond memories of that. So it's nostalgic and close to my heart. So I appreciate the time that you had today talking about this.
[00:26:40] Well, thank you so much for having me. And this was super fun.
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