Hi I’m Matthew Kind. Every Monday look for a fresh new episode where I’ll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at www(dot)cannainsider(dot)com. That’s www(dot)cannainsider(dot)com. We’ve talked about CBD or cannabidiol on the show many times. Just to review though CBD is a nonpsychoactive compound from the cannabis or hemp plant that has many benefits. Now our friends at Treatibles have put together a wellness chew that can help your dog or cat become more calm and balanced. Valerie wrote in to tell us about her experience with Treatibles.
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Matthew: An entrepreneur has come on the cannabis scene in recent months that developed a technology that will solve a problem cannabis infused product makers have been struggling with for some time. Here to tell us about it is Kelly Ogilvie from DeepCell Industries. Kelly welcome to CannaInsider.
Kelly: Thank you Matt. I’m glad to be here.
Matthew: Kelly give us a sense of geography. Where in the world are you today?
Kelly: We are in sunny Seattle, Washington.
Matthew: Good. It’s rare to hear of the preface sunny in front of that but I’m glad you’re getting some rare sunshine.
Matthew: And I am in Chicago today. Now Kelly give us a little background about yourself. What were you doing before launching DeepCell?
Kelly: Directly prior to DeepCell I served here in Washington state as Governor Jay Hensley’s Senior Policy Advisor for economic development and business interests and what that means is cannabis economic development, technology, life sciences, etc. Those were all in my what we call our policy portfolio and so I saw firsthand the emergence and the growth of this nascent cannabis industry here in Washington.
Matthew: Yeah what’s it like behind the curtain on the other side. I feel like when I look at government it’s like looking at a fish bowl like what is going on here. I hear things coming out of it but I can’t see. What’s it like being on the other side of that curtain and doing economic development for the governor?
Kelly: You bet that’s a good question. It’s an interesting question to answer. Prior to the governor’s office I’m an entrepreneur by nature. DeepCell is the fifth business I’ve founded. I’ve founded a biotech companies, software companies, strategy firms, etc. So going into public life in the governor’s office was a bit of a change for me. Behind the curtain I got to tell you I think the regulators are doing the best they can to balance two interests. On one hand you have this emergent industry where there’s a lot of opportunity but also a lot of risk. On the other hand they’re trying to do the best then can to protect the public interests in an area where there’s a lot of gray areas in terms of what is and is not allowed. Of course the federal prohibition alongside with the state allowances via state laws it’s a very interesting time to be in this industry.
Matthew: And what’s DeepCell?
Kelly: So DeepCell it’s a technology development company. We’re a product development company and licensing firm. So what we do is we develop technologies that we license into the cannabis industry and the reason we’ve done this is because of some of the issues that both cannabis touching and non cannabis touching operators face. So as your listeners will know very well if you handle cannabis you’ll deal with lots of regulatory issues. You deal with baking issues. You deal with the inability to deduct certain types of taxes that normal businesses can and so we constructed DeepCell with a very specific idea in mind and that idea was how do we work with cannabis touching operators, how do we deliver value to our investors and shareholders, how do add value to the industry and do it in a way that is accretive to both cannabis touching companies and non cannabis touching companies like ourselves and so what we do is we develop technologies like our crystal fusion technology which allows us to fuse cannabinoids with crystals such as sugar and salt. We license out that technology and our brands to manufacturers and distributors in Washington State.
Matthew: So why focus on crystallized seasonings or ingredients?
Kelly: Yeah that’s a great question. So in Washington State we’ve seen explosive growth in the cannabis industry. It went from zero and now we just crossed a billion dollars in gross sales maybe two weeks ago here in Washington State. That’s massive growth.
Matthew: That is, that is massive growth.
Kelly: I mean no pun intended right.
Kelly: It’s incredible when you think about there was virtually and literally no infrastructure to really base any expectations on and so I remember sitting in meetings with the governor and the finance folks forecasting taxes and they literally said we’re not going to forecast any taxes and I looked at them and said you guys are crazy. This is going to be huge and they said well can you give us any market comps and the answer is no there was nothing that existed really in terms of a legal market to really forecast taxes in this industry. But getting back to the concept of crystallized ingredients we did it because in this industry in Washington State this explosive cannabis growth is being fueled by three primary segments the flower, concentrates and extracts, and primarily edibles.
And we’re seeing probably the most growth currently in the edible market and in the edible market it’s primarily dominated by edibles such as brownies and cookies. Things that you can make with butter or you can make with oils and we found that there is a huge opportunity in this ingredient space to build platform ingredients and that’s why we focused on sugar and salt because sugar and salt are the two most used ingredients in the world. They are incredibly flexible in terms of the types of recipes and things they can make both sweet and savory and also they perform differently than oils. So for instance oil and water don’t mix so creating beverages require; if you add oil you need something that will emulsify or have that oil blend with the water like soy lecithin.
Sugar and salt don’t have that issue. They dissolve in water. They’re easily dosable. They perform well under heat. They just have very different performance characteristics that we think can help unleash a lot of innovation in the space.
Matthew: That’s really interesting because I over the years have talked to a lot of infused products companies and you do always hear about hey I need to use a fat here like an oil or a butter or an emulsifier to make kind of a homogenous liquid. This kind of removes that constraint if you will. Does it taste? Does the sugar or salt crystal have a cannabis taste to it?
Kelly: It has a very, very light taste and smell. I’d love to say it doesn’t have any taste or smell which some people don’t notice it. I notice it because I’m very sensitive and I’m very critical of the products that we manufacture or license out for manufacture and develop in our labs here. It is a very low flavor profile relative to what’s on the market today if that makes sense. If I were to give you a regular bowl of sugar and then a bowl of the Ruby cannabis infused sugar you’d say oh it tastes like something almost like a nutty something or other. It does not taste like your traditional cannabis plant and that’s because or a cannabis edible excuse me and that’s because we go to great lengths to remove the terpenes and chlorophylls that give cannabis it’s very distinctive flavor and smell.
And so for us we’re trying to create a platform ingredient that allows food to taste like food because once you do that you don’t have to have some of the artificial flavorings or ingredients that are used to mask certain flavors with the bitterness associated with certain cannabis edibles.
Matthew: So you’re licensing this technology. What kind of partners are interested in this type of technology that want to license it from you?
Kelly: We have a licensee here in Washington State called Green Labs. They manufacture a gourmet line of edibles called the Swiss Brand. They make truffles, they make seven layer bars, they make macaroons, they make honey sticks, they make CBD mints. They’ve won some awards for different edible products. So we’re finding that there’s interest from edible manufacturers and licensed processors and I think what they see is an opportunity to manufacture not just products such as brownies or cookies or what have you but they see an opportunity to manufacture an ingredient that they can sell to other manufacturers as well.
Matthew: This is interesting Kelly because in other industries I’m thinking of precious metals we have royalty companies and in oil and energy business we have master limited partnerships and it’s kind of developing this intellectual property or royalty streams and this is kind of a new development for the cannabis industry. You’ve seen it with some edibles companies licensing across state lines but I can’t recall something like what you’re trying to do here in the cannabis industry so it’s pretty interesting. Have you borrowed any ideas from other industries like the pharma industries or anybody else to kind of create this idea or business structure?
Kelly: You bring up really interesting model and that’s the streaming and royalty sort of structure of the precious metals industry. It’s very interesting you mention that because part of the construct of this company originally in conversations with my business partner who originally founded DeepCell in I think March of last year. It was really sort of thinking about what models have been unique and innovative in different industries which solve problems and applying it to this industry because really there is no best practices in cannabis right now and so there is a real opportunity I think to borrow models that have been successful in different places and bring them into this industry to see if they fit and the precious metal streaming concept is something that I have found very interesting for several years. I personally am an investor in several precious metal streaming companies and I love the idea of having leverage and exposure to an industry without some of the same manufacturing risks.
Matthew: Yeah, yeah.
Kelly: And their lie sort of the seeds of what would become the DeepCell model of developing IP and then licensing that IP out to manufacturers who have already invested in the property, plant, and equipment and have the means of production to manufacture these things. So that was sort of the genesis and the idea behind the company and it’s funny you bring that up because that’s exactly how we thought about this.
Matthew: Now do you see this being kind of only manufacturing partners using your crystal and salts and sweeteners like Ruby and Sapphire and Emerald or do you see end users like someone at a dispensary saying hey can I have some infused cannabis sugar to take home? I mean who’s kind of the target market here?
Kelly: Yeah so we’re currently licensing out the Ruby and Sapphire brands and products to our licensee green labs and they manufacture and distribute to dispensaries around or retail shops, adult use recreational shops around Washington State. The product began in medical here in Washington. It’s now transitioned into the adult use recreational space and so packets of sugar are being sold to consumers today and therein lies I think an opportunity as both consumer facing products where you can build brand equity and consumers can recognize the brand but also the plan is to sell and license the sugar to enterprise processors to put the sugar into their edible products. So it’s really an exposure to both consumer facing and business facing enterprises.
Matthew: This has so many interesting applications. I think about how when I talk to baby boomers about cannabis and there’s still a stigma around the smoking. Once it’s lit there’s a stigma around it and I can understand why kind of some general rational biases and things but when I think about like a salt or a bath salt and as the boomers age and they have arthritis and other problems if they can just use a salt that’s already cannabis infused and slip into a bath and feel so much better it’s going to change a lot of perceptions. So as more of these innovative applications come out that are not smoking like we’re talking about here this is going to further accelerate the perception shift.
Kelly: No I totally agree with you. What’s interesting is we’ve had patients in the medical space tell us that they love the sugar but they put it in their coffee and when we asked them what about the edible they like they actually say well it’s because it’s an edible it’s easy to use and we don’t want to smoke because it hurts our lungs.
Kelly: And I never really thought about that until the patient said that but when folks are dealing with medical ailments lung capacity issues depending on their ailment or preserving their lung capacity when they’re getting sort of older in age is very important to them and so it began to sort of shift my thinking around what edibles really are for and I think you’re seeing this interesting blend of medicine and recreational happening here in Washington State. People will use cannabis because they have a headache or their back hurts or they want to have a good time. So that line between is it medicine or is it not medicine is getting blurred as a result of sort of the multifaceted uses and sort of cultural uses around cannabis.
Matthew: So with Ruby and Sapphire your sweeteners and salts from DeepCell are we going to see something like a NutraSweet type like sweetened by DeepCell or sweetened by Ruby or Sapphire on some products in the future you think?
Kelly: Absolutely. That is the business model that we’re going after. We really want to be the intel inside for edibles. I think NutraSweet probably is a really appropriate example in the food space of a brand that is both consumer facing but also is a label ingredient and that for us is really important is having the marks either Ruby or a Sapphire being a marked quality and so for us we don’t have any artificial ingredients or binders to make our product water soluble. It’s literally just certified organic sugar and high grade distillate cannabis extract and I guess one feature I want to mention is we are a technology development house and one thing we’re working on right now is a field called microfluidics and for your listeners who may not be familiar with what microfluidics are if they’ve ever seen the movie “Bug Life” or if you’ve seen the movie “A Bugs Life” there’s a scene in that Pixar movie where a bug goes up to the bar and he says hey give me a drink and the bug tender he doesn’t hand the character a cup he hands him a ball of water.
Kelly: And the character sticks the straw in the water or the ball and sucks the ball with a straw and he hands the straw back and what’s happening there is microfluidics deals with the nature of fluids at very small scales and the physics changes and here’s what’s exciting about Ruby and Sapphire and microfluidics. Because sugar and salt are water soluble they dissolve into a water medium and that allows us now to use droplet by droplet dosing for the future for us. So we’re building platforms for future devices where you can use your mobile phone or you can use some other device to dose specifically for your particular ailment. So if you know what your ratio is in terms of THC to CBD or if you know what type of terpene profile gives you the relief or the experience you want you can now dial that specifically for your wants and that’s a really exciting innovation for us to be working on here at DeepCell.
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Matthew: And so when do you think your licensed technology will go around the country. I mean you’re in the Washington area now. Are you planning on staying just in Washington for a while letting it mature a little bit before going elsewhere?
Kelly: No. So we’re out looking for licensee’s in both Colorado and New York. So we’re been in some discussions with some firms in New York. We have some traction with firms in Colorado. We certainly are eyeing Oregon and then California of course is the big enchilada. That’s the ballot measure coming up in November. They’ll probably go through a rule making process and have a legal market by 2018 and so that for us is a huge deal is focusing on that market.
Matthew: Now just thinking about baking and things I mean are sweeteners used much more than salts because salts are used a lot but it’s probably in smaller dosages.
Kelly: That’s correct.
Kelly: Yeah that’s correct. Yes in terms of volume of actual product for us our Sapphire salt a half a gram is a full 10mg dose. It’s very potent and the reason you want to do that is because salt you don’t want a whole lot of salt in your diet. As a micronutrient you don’t want a teaspoon of salt in your food it would be too salty because it’s very strong. Sugar on the other hand it’s much less of a potent sweetener and a lot of folks don’t know sugar; a teaspoon of sugar isn’t that high calorie, its fifteen calories versus say another edible that might be 300 or 400 calories.
Matthew: Okay. What’s the reaction been from investors?
Kelly: Investors in DeepCell?
Kelly: I would say the reaction how would I characterize their reaction? Very eager, excited they love the concept but I think all of our investors have been told by me and our management team that startups are already risky. One in ten make it in general. We’re in an industry where that risk is magnified by the uncertainty around the politics and the regulatory framework. So I think they all know that they’re in a high risk venture and along with that risk comes high reward I think is what they expect.
Matthew: I would say your risk profile seems less to me because you’re licensing technology that others are actually taking on the risk back to the kind of royalty model. So I like the risk exposure here compared to some other things. I think there’s a lot riskier things out there so; but I guess if you have nothing to compare it to it sounds riskier in the cannabis field and you’re not; people aren’t used to the cannabis field just yet.
Kelly: Right and I guess one sort of friendly amendment to this conversation would be technology we do not generate a royalty from our license agreements. It’s technically a per unit or packet fee.
Kelly: And then it’s very specific because the regulators in Washington and other states I think have deemed it that if you become what you call a part of interest then you derive benefit from the direct business practices of your business partners or a business entity that’s licensed. So for us we had to stay away from a direct percentage license fee and move towards a packet fee that bakes in no pun intended; bakes in a lot of the different types of costs and upside that the product could have in the marketplace. So it isn’t as if we’re selling them a package and the package is two cents. The package comes fully loaded with the expected profit, the expected expenses, all of the above. So it’s more complicated than it sounds.
Matthew: Are you still looking for new investors?
Kelly: We are not looking for new investors currently however we will be launching our next round at some point at the end of 2016 into 2017.
Matthew: Okay. How do you feel about Seattle as kind of a hub for cannabis innovation?
Kelly: I think I mean I’m very bias I live here in Seattle. I really like Seattle because of the type of I think intellectual curiosity, the environmentalism here and I think that environmentalism plays out in these really interesting ways. In one way there isn’t a lot of materialism in Seattle and so you don’t see a lot of people who are doing things just purely for the buck. You see a lot of companies here who are trying to do right by the consumer, who are trying to do right by the environment, and I think that culturally has had an impact on the types of companies that are emerging here. They have an ethos about them. They’re not just profiteering although those people are out there. I think in general having a tech sort of community and emergent industry it’s been influenced by the environmental culture of the Northwest.
Matthew: And this is back to kind of your role working with the governor. Do you feel that the fact that Washington has no state income tax attracts more business?
Kelly: I think it does and I think you’ve seen that play out with large companies being domicile here such as Microsoft and Starbucks and Boeing, Nordstrom, and Costco. I mean there are a lot of; Amazon, big companies are all domiciled here and I think; I know they certainly use it as part of their recruitment tools for bringing talent here. The lack of an income tax certainly has been beneficial but I think being on the other side having worked in government it also can have drawbacks in terms of its a very regressive tax structure and I say that because what ends up happening is without an income tax you have very high sales tax and the people who can least afford to pay that sales tax are poor people and they’re the ones who shoulder most of the burden on a relative basis of income to tax burden.
Matthew: Yeah that’s true although there could be a model where on your state income tax returns if you make under a certain threshold it could be credited. That could be possible. I’m a big fan of the no state income tax especially in the state I’m in right now in Illinois where I’m originally a native of and I see; I look at Texas, I look at Washington, Nevada, Florida and I just see it seems like businesses really want to go to these places because they’re treated better and I’m just hoping that message starts to cascade through the country and through the world that business goes where’s it’s treated best so that would be amazing. I’ll just get off my soapbox there but I just wanted an opportunity to say that. Let’s transition to some personal development questions Kelly.
Matthew: As you look back over the arc or your life is there a book that you think has had a big impact on you and your thinking that you’d like to share with listeners?
Kelly: You know I love the sciences and so my friends think I’m a huge nerd because I read in my personal life at night I’ll go through things like the financials of some company. That stuff kind of gets me going so I’d say in my formative years I read a book by a gentleman named Bertrand Russell and the book was called “The Mind of God” and he’s a mathematician/philosopher and that was really interesting for me to read is thinking about the universe around us. Really taking a scientific approach and sort of waxing poetic around boy were people a science we don’t necessarily believe in mysticism but if we don’t believe in mysticism how the heck did we get here and so that kind of thinking, intellectual curiosity I think took me on a journey of really beginning to explore and love the sciences and I went from that to “Black Holes and Baby Universes” by Stephen Hawking and that took me on a journey of love for science.
Matthew: Gosh those are great recommendations. I saw Mr. Hawking speak once at the University of Chicago and it was mind blowing. He really has; he was talking about a fourth dimension and so forth and it was crazy.
Kelly: Yeah, yep.
Matthew: I don’t know if you saw Elon Musk recently he was on some panel and he was talking about how he thinks perhaps we are living in a virtual reality created by an alien race. Did you see that?
Kelly: I saw just some of the clips and the headlines. I think that’s just silly in my opinion.
Matthew: You know what it’s so funny to me because when you hear him talk about it he obviously has been thinking about this in detail and talking about it with other people so it’s interesting to hear about it and then he thinks that as we discover deeper math principles and physics principles these are the source codes of this reality. So it’s one of those things you really go down a worm hole if you start to think about too much.
Kelly: Yeah. It certainly is possible. A lot of things are possible in this universe. I guess in the multi-verse anything is possible right.
Matthew: One more personal development question. Is there a tool web-based or otherwise that you consider indispensable to your day to day life or productivity?
Kelly: I would say we use two platforms that have been very helpful in terms of organizing our business. One is Trello and the other is Slack. But both are productivity tools for individuals or businesses. We use Trello to communicate with our graphic design firms and some of our packaging developers. It’s a fantastic tool to organize content and Slack has been a fantastic tool to communicate within our teams.
Matthew: Yeah so Trello is that kind of like each idea or task you’re trying to communicate it looks like an open card and you have cards on the table? Is that right?
Kelly: Yeah that’s right.
Matthew: Okay and Slack is more of a Messenger would you say or your communication channels on themes.
Kelly: Yep that’s right. That’s absolutely right.
Matthew: Okay great. Well Kelly thanks so much for coming on CannaInsider today. Before we close do you want to let listeners know how they can find out more about DeepCell?
Kelly: Yes. They can visit our website at www.deepcell.industries. d-e-e-p-c-e-l-l.industries or they can visit www.rubysweets.co to learn about the Ruby product.
Matthew: Yes and you did hear him correctly here. Instead of .com, .org there’s all these new domain extensions so it’s deepcell and instead of .com it’s .industries so that’s cool. We’re getting more minimalist here in the domain names. Kelly thanks so much for being on CannaInsider today we really appreciate it.
Kelly: Thanks Matt.
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Kelly Ogilvie the CEO and CO-Founder of Deep Cell Industries joins Matthew Kind to talk about how his products will revolutionize the cannabis industry. Until this point cannabis infused products companies needed a fat soluble way (oil, butter, etc) to get THC into infused products. With Deep Cell’s pre-infused sweeteners and salt that is no longer a requirement. This will open the door to a myriad of new products.
[2:11] – Kelly talks about his background
[3:42] – What is DeepCell
[7:34] – What does the sugar or salt crystal taste like
[8:43] – Kelly talks about their licensing partners
[11:40] – DeepCell’s target market
[14:28] – Future DeepCell products
[17:29] – Kelly talks about expanding to other states
[18:55] – Reaction in DeepCell from investors
[21:10] – Seattle as a hub for cannabis innovation
[24:09] – Kelly’s book and internet app recommendations
[27:29] – DeepCell’s contact information
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What are the five trends that will disrupt the cannabis market in the next five years?Find out with your free guide at: http://www.cannainsider.com/trends