Abstract: A method and apparatus is provided for the two stage grinding of paper material with the controlled addition of dry and wet fire retardant chemicals to produce a desirable cellulose insulation material. The paper is first ground into coarse granules which are placed in a storage hopper and systematically fed by an auger into a fine grinder. At the same time that the cellulose material is introduced into the fine grinder, a controlled flow of dry fire retardant chemicals is continuously added and ground with the material. The resultant granular material is then transported by air in an upward direction where a solution of liquid fire retardant chemicals is sprayed in a concurrent direction with the flow so as to wet and saturate the cellulose material producing a fire retardant product. The wetted material, because of its adhering qualities, is directed through a corrugated flexible pipe section to storage.