The cards are cut apart and then stacks of cards (sometimes random and some times in a set order) are inserted into a collator. Each tower of the collator can hold whatever cards you want and can be programmed as to when to drop a card into a pack. So you can have a several towers of regular cards and one tower of rare cards. If a pack is supposed to have 7 regular cards and 1 rare card you would have 8 towers of cards and the pack would pass under each tower and get one card. Video shows a pretty good sample. Skip to around 1:10 to see collator.
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