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    Ep 368 – Are Terpenes-Infused Products the Next Big Thing? Expert Says Yes…
  • Yvette Pagano
    Ep 367 – Labs Are Saving Big Thanks To “Used-Car Dealership” of Cannabis Testing Equipment
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    Ep 366 – How To Use Equity Crowdfunding To Launch Your Cannabis Business
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Ep 368 – Are Terpenes-Infused Products the Next Big Thing? Expert Says Yes…

kevin koby abstrax

As new studies shed light on the benefits of these powerful plant compounds, terpenes could become the biggest thing in wellness since CBD. Here to tell us more is Kevin Koby, co-founder and Chief Science Officer of Abstrax Tech.

Learn more at https://abstraxtech.com 

Key Takeaways:

[1:03] Kevin’s background in chemistry and how he came to start Abstrax

[1:55] An inside look at Abstrax Tech, the leading innovator in terpene sensorial experience

[2:44] A breakdown of terpenes and how this segment has evolved over the last couple of years

[4:44] How terpenes enhance the flavor and effects of cannabis through the entourage effect

[6:51] Abstrax’s Type 7 licensed lab testing versus standard cannabis testing

[10:50] Exciting takeaways from Abstrax’s “Man vs. Machine” experiment with Max Montrose

[14:02] How Abstrax’s terpene research is taking cannabis to new heights

[17:07] Abstrax’s terpene infusion products and the biggest trends Kevin sees among wholesale clients

[20:32] Where Kevin sees the terpene market heading over the next 3-5 years

Ep 367 – Labs Are Saving Big Thanks To “Used-Car Dealership” of Cannabis Testing Equipment

yvette pagano gentech scientific

With the demand for cannabis testing services on the rise, one company has found a way to provide top-tier equipment at a quarter of the price. Here to tell us more is Yvette Pagano of GenTech Scientific, a supplier of quality refurbished laboratory equipment for the cannabis industry.

Learn more at https://gentechscientific.com

GenTech’s $25K for 25 Years Giveaway: https://gentechscientific.com/25000-for-25-years

Key Takeaways:

[1:14] An inside look at GenTech Scientific

[1:52] Yvette’s background in manufacturing and how she came to enter the cannabis space

[7:18] GenTech’s biggest customers in cannabis and the company’s wide selection of lab instruments

[10:26] How GenTech sources its equipment from universities and laboratories across the world

[12:48] How GenTech is able to save clients up to 70% on top tier lab equipment

[17:50] The first steps to starting a cannabis lab

[20:48] GenTech’s training and education programs for cannabis labs

[25:20] Where Yvette sees the cannabis testing market heading over the next few years

Click Here to Read Full Transcript

Matthew Kind: 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 cannainsider.com. That's C-A-N-N-A insider dot com. Now, here's your program.

Sinead Green: The cannabis testing market is seeing some major growth opportunities as demand for testing services continues to outstrip supply. Here to tell us more is Yvette Pagano of GenTech Scientific, a supplier of quality refurbished laboratory equipment for the cannabis industry. Yvette, thank you so much for joining us today.

Yvette Pagano: Thank you for having me.

Sinead: Absolutely. It's such a pleasure to have you on, and I'm really looking forward to hearing about all the cool work you're doing at GenTech. First of all, Yvette, can you give us a sense of geography, where are you joining us from today?

Yvette: Yes. I'm calling from Western New York State. I'm at work. GenTech Scientific is located in Arcade, New York. That's about 40 miles south of Buffalo, and it's a rural community.

Sinead: Okay, great, awesome. What is GenTech on a high level? Can you give us a snapshot overview of the company?

Yvette: Yes. GenTech Scientific buys, sells, and services analytical lab equipment. We are industry agnostic and also brand agnostic. We buy equipment on the market, refurbish it, and we sell it to labs and research facilities, so they can conduct their research and perform testing on everything including cannabis.

Sinead: Okay, awesome. Yvette, before we jump into the nitty-gritty with GenTech, I really want to get a sense of your background because I know you are relatively new to the space. We've talked previously, and I know you've been a longtime consumer, and you've enjoyed cannabis for many years now, but you really only got into the space professionally a couple of years ago. Can you share a little bit about your background and what you were doing before GenTech?

Yvette: Yes. My previous life, I was a CEO president of a precision machine shop. I worked in manufacturing. That's milling, turning, and mill stamping. Was a global company, so I definitely understood how to make money in a commoditized market. It was a family business and record sales, record profits, and doing well on that end, but family businesses can be difficult. I felt like I took it as far as I could, and I got a great offer to sell my shares, and I did. I left that industry, and I don't know if you call it a midlife crisis, but I'm like, "What am I going to do here?"

I knew I did well enough on the sale that I didn't have to get a job instantly but not good enough that I could just retire. I really did a lot of self-exploration and corporate coach and find your why and in the end for me, I am very passionate about cannabis. I care deeply about the industry and social justice and advocacy and normalization. It's just always been a part of my life and when I started at car engineering, my previous company, 2006, I didn't even know you could work in cannabis.

Then all of a sudden, I had this clean slate. I made a determination that somehow someway I was going to become a part of this industry and be on the right side of history and get in the game. I joined up with some guys in Toronto, Merchant Bank, and did some consulting in the space, and that's really how I started meeting people and attending conferences and being part of different groups and COVID and all that. Eventually, I found my way to GenTech, but I have been an accredited investor and doing those kind of moves for the past several years.

Sinead: Oh, wow, okay. I feel like there’s no better segue than that to jump into GenTech because I feel like you've only really gotten into this space as a company a few years ago. How long have you been serving cannabis and what percentage of your customer base is in cannabis?

Yvette: GenTech has been around for 25 years. They have been serving a variety of industries since they started. Our biggest percentage as an aggregate is academia, selling to universities and research centers around the world. The previous owner, he sold to a private equity about a year ago. GenTech is now a liquid capital portfolio company, but the previous owner, he just a smart guy. He saw it pretty early, right around 2014, he said this is going to be big. He was pretty proactive. He sponsored normal, he started going to some trade shows, and positioning himself as an industry leader and making GenTech an industry leader.

I give him a lot of credit for who are having that foresight, but the core thing for GenTech is we're testing. We're testing and research. You have to test your cannabis. You have to. You need instruments that can perform the test to your cannabis. There are six major tests that an accredited lab needs to do. GenTech sells the analytical lab equipment that allows you to conduct these tests. Just like you're building a house, you need a hammer, you're building a testing lab, you need an HPLC machine, and that's what GenTech does. Just like a used car dealer, we find the equipment on the open market, we're brand agnostic.

Agilent is a really popular brand in cannabis testing. We sell quite a bit of Agilent, CyEx, Waters, Thermo, Fisher. We get it from brokers. We get it from labs that are closing, trade ends. We buy internationally. We pick up this equipment, and then we refurbish it, and then we offer it to any industry, but particularly cannabis startup labs are really hot for the product because they've got these unmet needs in the marketplace, and we're the tools to do the job, we're the machines who run the tests is basically what we have.

Sinead: That's great. In the cannabis space, you said it's mostly labs, but do you also, are many of your clients also growers, dispensaries, manufacturers? Who makes up your cannabis client base?

Yvette: Yes. The cannabis clientele, a lot of it is research, academia, Colorado State [unintelligible 00:07:38] they're a pretty big client and they've got a pretty active cannabis research within their facility. That is a big person for people who will take it, but it's these accredited third-party labs who are really verifying that your cannabis is good for sale, and then your big manufacturer. A dispensary or a retailer, they don't really have a use for testing equipment. By the time the product's to them, it's tested, it's packaged, it's ready for sale. The other businesses on the supply chain will use our equipment.

Extraction's really big. You're doing extraction, you're making oils and stuff for your vape pens. In order to do that, you use solvent. One of the tests is to prove that your dissolute or your oil is solvent-free. Send that to an accredited third-party lab and they would use one of our instruments and they would determine that. Mass spec is really the preferred instrument for that. If you're a big extractor and you want to know before you send all this dissolute to an accredited third-party lab if it's truly solventless, you may also buy a mass spec, and you may run your test in-house. You say, "Okay, this is solventless, now let's go send it to the accredited third-party lab for that seal of approval."

If you're growing, you would want some of our equipment because you have to be able to test for mold and for pesticide. Again, you're going to be sending this out to an accredited third-party lab, but you yourself might want to get a heads up and be able to run these tests in-house. If you're on the food and beverage size and you're making a brownie and you're curious how potent it is, if it's got 30% THC or how strong is my brownie, you would want to use HPLC machine, and that's the preferred way to test for potency. Again, you might want to do that in-house when you're in R&D phase and keep trying different brownies and getting the potency and then when it's all said and done, you would send that brownie out to an accredited third party lab and they would verify, or they would also confirm, so different people on the supply chain are using it to check and double-check and do research.

In the end, if you want to sell cannabis legally, it's got to be tested and it's got to be tested by an accredited third-party lab.

Sinead: Absolutely. Okay. Very interesting. And so where do you usually source this equipment because it's not, this equipment isn't just specific to the cannabis industry and what we use it for. This is equipment that is used across various industries, and in cannabis we're now starting to adopt a lot of those practices from other industries…

Yvette: That's a good question. Where we get the equipment is pretty much on the open market globally. Anybody listening right now, if you have a lab that is closing or you have equipment that's obsolete, or you bought the wrong equipment and you're looking to get out of it, you want to sell it, GenTech would love to make you an offer on it, so please contact us. There's also brokers, so there's people that literally that's what they do, so we work with certain brokers. We're very close with the university community so a lot of times when universities are selling or they're looking to upgrade or change around their lab, they'll come to us.

We get a lot of trade-ins because we've been around for so long, eventually somebody will need something new. Sometimes people buy stuff for an experiment, like we just bought something back from Cornell university and they went a different direction. They lost their funding for that specific thing. It was in food science. They just didn't need the machine anymore. There's nothing wrong with it. They just literally weren't using it so we bought it back, so those things will happen, technologies change and certain things like that. Like I said, kind of like a used car dealer, we just get them wherever we can get them and based on our reputation and our ability to buy.

Sinead: Okay. Very interesting. That's something I was curious about because the supply and demand gap right now for cannabis testing is still insanely wide and I feel like part of that is just, particularly with laboratories, it's really expensive to start a lab. Right now we're seeing so much demand for these testing services, but there aren't a lot of facilities available right now. I think that's partly to do just with how expensive it is to start those so can you tell us a little bit about the ROI GenTech offers laboratories, and maybe tell us a little bit about the saving opportunities. Instead of buying new, how can these laboratories really benefit from going through GenTech and getting their equipment through GenTech?

Yvette: I think that's the reason why we do so well with universities, because they truly, truly understand the value of refurbished. Refurbished is just a fancy word for used and so our equipment here at GenTech is certified refurbished. We guarantee that the equipment will perform at the OEM, original equipment manufacturer standard. If you relate it to a car, if you say, "Hey, this car, when it was new from the factory could go zero to 60 in five seconds", then GenTech will certify that our used 2017 Agilent can go to zero to 60 in five seconds for that kind of an analogy, be able to perform the same tasks and get the same scientific result. Just like a used car, these machines, they lose their value when they go from brand new to used.

If you wanted to do, we're basically 70% off. 70% off retail is a good way to think about it. If you want to be a full-scale, accredited cannabis testing lab in US, you need to be able to do six major tests. It's heavy metals, it's terpenes, it's potency, pesticides, mold, and if you went to Agilent, which is one of the most prestigious brands, and you bought all this equipment to do all these tasks, brand new, it would be 1.2 million dollars, and it'd be great stuff. If you went to GenTech and you went with Agilent, but instead of a 2021 brand new, you're going with a 2017 or even a 2010 piece of equipment, you're, for a complete cannabis testing lab, all in, definitely under 400,000.

We're going anywhere between 200,000 and 400,000, depending on, again, exactly what test they want to do, where they're located, et cetera, but it's a tremendous savings. You can either do double or triple your throughput if you were going to buy new, all of a sudden you can buy three machines and get that many more tests done or you can just get in at a lower price point and be able to start monetizing your investment quicker because you paid less for your CapX, your capital expenditure.

Sinead: Wow, that's a steal. Man, that's insane.

Yvette: Listen, I always say the biggest problem with GenTech is not enough people know about GenTech. I believe that with my whole heart, I'm like as soon as the cannabis industry knows what we have and what the price is and what the equipment is capable of doing, it's really hard to resist.

Sinead: Right. Oh my goodness. I can only imagine, as you said, as more people hear about GenTech and you guys get the name out there, you're going to start seeing some major- just I feel like an influx of customers. How are you preparing for that demand? Do you think you'll ever run into any issues with your supply chain or do you think you'll be able to really meet the demand there?

Yvette: That would be my best problem ever is that, we can't get enough used equipment fast enough to turn around and sell it. Again, there are certain pieces of equipment. There are particularly hot certain brands and so certain things turn faster than others but right now, we are able to keep up with the demand and I'd say 25% of our clients are cannabis-focused. Like I said, we've got our food and beverage, our [unintelligible [00:17:13] big pharma, oil and gas, so we have all these other industries that are also contributing to our equipment.

They're [unintelligible 00:17:22] an HPLC machine they, they were testing for pesticides, maybe they were testing for fruit or whatever. You can test anything for pesticide so the method for testing agricultural products for pesticides, that's been around for a really long time. Now you're just taking the same idea, same machine, but you're just testing now pesticides in cannabis.

Sinead: That makes total sense. It's just amazing. Just the savings that you guys are offering. I wanted to ask you how you think it's best for a lab to go about budgeting if they're trying to get off the ground and they're trying to prioritize which pieces of equipment they want to outfit their lab with first.

Yvette: We want business really, really bad. We want you to buy equipment like crazy. I'm telling you the number one thing you should prioritize is getting yourself a good lab technician or a good chemist or both. That's what you need to think about if you're setting up a lab. If it was super, super easy, everybody would do it, and we have seen labs fail, and it's not because they didn't buy elite equipment from GenTech, it was because they didn't know what they were doing. My background in manufacturing, I know how difficult it would be to set up an ISO-compliant, manufacturing shop floor because I've done that, I have lived that, so there are strict regulations.

Again, just like my background's in machining, if you buy the best horizontal mill, seven-axis, this amazing mill, it's not going to produce these great parts. You've got to have a skilled guy who can come in and program the thing and read the prints. It's the same thing, whether you get refurbished equipment or brand new equipment, if you don't have chemists and intelligent quality people who know how to run the equipment and they understand chemistry and electronics, you're not going to be successful. That's my first piece of advice is, if you're green, no pun intended, make sure you get with a partner who has set up labs and who understands what do you need to do.

For an accredited lab, there's six major tests you need to be able to perform. Most people seem to start with potency, so it seems like the intro one is being able to test for potency. That's in HPLC machine but again depending on what you're curious about or what you're trying to do, would lead you to which equipment you would purchase in what order.

Sinead: Okay, got you. First step, if anyone out there listening is thinking about going this route, like you said of that, first step is to get a technician, someone who knows what they're doing. If our listeners don't have a background in that, I can see that would be a problem.

Yvette: Yes.

Sinead: That said, at GenTech you guys do offer training and education, don't you? Can you tell us a little bit about those resources that you have there?

Yvette: Yes, so we do offer training and education. We'll install the machine so you have to pay for an install. If you purchase a machine from us in the US or Canada and you want it installed, then we refurbish the machine. We ship the machine out to your facility and then one of our technicians comes to your facility and hooks up the machine. During that time, they provide training and familiarization. They'll help you get one of your samples through and make sure the machines are working but, again, sadly, we don't offer--

I've never used an HPLC machine before 101 training, so we request that the person that we're with has got some experience in chromatography and has used a machine in the past. We do have some partners that that's sort of all they do. They do the method development. They both happen to be women. They'll help you spec out your labs and decide what equipment you need and where you're going to put it and how everything's going to be networked together. There are outside consultants that we partner with that we can lead our customers to.

At GenTech, we're really selling the equipment, and then training the customers on how to use that equipment is our core offerings. We also will service obviously, so if your machine is broken, even if you didn't purchase it from GenTech, our technicians will come out and we'll service you. We are global. It's called TeamViewer but it's basically a way for our technician and the remote technician to look at the same thing at the same time. We are able to do team viewer sessions for clients that are in other parts of the world to try to help them diagnose and train over the phone. Those are the main ways that we connect with our customers in terms of training and education.

Sinead: Okay, very cool. That's awesome.

[crosstalk]

Yvette: Wait, I have to do-- Can I do one more thing [unintelligible [00:23:29]

Sinead: Oh, absolutely. Go ahead.

Yvette: In GenTech, like I said, we're with a pretty rural community, so literally in our backyard right behind the building, it's called the Arcade Attica Express and it's this big choo-choo train. People come, it's like a tourist attraction and they ride the Arcade Attica Express. It's a two-hour train ride through beautiful western New York. They have different promos, [unintelligible [00:24:00] like a drinking one.

Sinead: Oh my god.

Yvette: Kind of as a joke but not a joke. We ran a campaign called Train on the Train and we were like, "Hey, you can always come to GenTech and train here on our shop floor." Check out the instruments you're going to buy and train here at our facility and anybody who can make it to Arcade for some training can also get a free train ride on the Arcade Attica Express.

Sinead: Oh my gosh. That's amazing.

Yvette: It's amazing, funny, and cute.

Sinead: Oh, that sounds so fun.

Yvette: Sadly, my little gimmick didn't work but I'm going to run it again next year. I'm getting someone on that train at some point [chuckles].

Sinead: Maybe it'll be one of our listeners.

Yvette: I hope so.

Sinead: It sounds so fun. You mentioned one of them is more of a-- I don't know what the booze cruise equivalent would be for a train but whatever the--

Yvette: I hope so. Ale on the rails.

Sinead: Ale on the rails, oh, they did. They found a nice rhyme there [chuckles]. That's awesome. That would be [unintelligible [00:25:06].

Yvette: Yes. If somebody calls, they might be able to arrange a special event since we are friends with the conductor.

Sinead: Oh my god. That is amazing. That's so cool. Wow, that's so fun. Very cool. Yvette, I wanted to turn to some personal development questions here in a second but before we turn to that, I wanted to get your opinion on the federal legalization timeline and how you think that's going to impact Canada's testing market which at present is getting some pretty amazing estimates from now to about 2026? How do you think federal legalization is going to impact to that estimation? Where do you think things are heading there?

Yvette: I think it's all coming up roses. For a company like us, I, myself, am completely for federal legalization personally. I would expect it within the next 3 to 5 years. My favorite news clip is that and I can't remember his name but the Governor of Wisconsin and they're always asking him how he feels about 20 million of his state's dollars like going into Illinois. I think they just have to keep asking that question to enough governors. I think it's going to be very similar to gay marriage in America. I think you're going to get enough states that are leading it and then the other states are just going to go like dominoes because it's just where the country's headed.

Obviously, even if you look at it politically, you've got 55% of Republicans in favor and I think, I don't know, 70% of democrats, so I think it's definitely coming sooner rather than later. In terms of how it's going to affect the testing market and GenTech specifically, again, I think it's going to be extremely positive. Every state is going to have their own rules and regulations and we've got the equipment that's going to meet those requirements. You think about alcohol, that's legal everywhere, but in Pennsylvania, you have to buy a keg from a bottle shop and in New York, you can get a keg in a grocery store.

In California, you can buy whiskey in the grocery store. They have different rules depending on what's up. They might say, "Well, in New York, the potency can't go above 30% percent and in Massachusetts, the potency can't go above 25%." GenTech doesn't care because our equipment is going to give you the result. I just think as cannabis comes on and it's more accepted, there is going to be most likely a federal, a standard, and then I think each state is going to have their own nuances and special rules. As long as things continue to move forward, there's more acceptance of the product. There's more demand. More states go legal, then that's just going to require more testing, more compliance and we've got the tools to meet those needs.

Sinead: That's great, man. We have so many guests who are dealing with this, so many Californians who have to constantly change with the regulations changing almost on a weekly basis. I can definitely empathize and it's definitely a bit of a headache but at the same time, this is the stuff that I think it's really going to bring cannabis up to speed and really help to destigmatize and really, hopefully, normalize it so we get to a point where things settle down. Regulations are a bit more concrete and companies like GenTech are really helping us get there, I think so. Yvette, before we wrap up here, in a second here, I want to share your contact information with our listeners in case they want to get in touch with you and maybe take you up on that train ride.

Before we get to that, I've got a few just really fun questions here to wrap up the interview. The first one, are there any books that you have read that have had a big impact on your life and your just general way of thinking that you could share with the listeners?

Yvette: Yes. I'm an avid reader. I read constantly. I always have one fiction and one non-fiction book going. I've read a lot of great books in business and leadership. I would say the one that changed my life and it just came at the right time, but it's called Becoming Your Best, and it's by Stephen Rob Shallenberger. They're corporate coaches, and I got introduced to them and their book a couple of years ago when I was leaving my previous company, so I think it came probably the right time in my life. BYB, Becoming Your Best, so I really drank the Becoming Your Best Kool-Aid. I've read that book multiple times, I've got the Becoming Your Best Planner, I listened to their weekly podcast. In terms of becoming a better leader, setting goals, having a personal vision, that one really spoke to me the most, I think, in my business life.

Sinead: Okay, very cool. I'm going to check that out. Wrapping up here, Yvette, I want to ask, if you could go back and give yourself one piece of advice when you first entered the cannabis space, what would you go back and tell yourself?

Yvette: The one piece of advice I would give someone is if you do your DISC profile, I'm very trusting, that's like, my personality is I'm a very trusting person. That can serve you well. I did make a couple of financial commitments, what I was doing, investing in cannabis, and I was modeling other people that I admired and thought, okay, you make an investment in this company, and you know, they'll give you a board seat, or you make an investment in this company, and then you can get some title. Then you're betting on yourself, and you're an investor, and so I did that a couple of times, in the beginning, assuming that I was going to get that board role, or I was going to get that job offer, and it never came.

I would say if you're going to be investing your money, and you just want to be an angel investor, that's awesome, but if you're investing your money, and you're trying to bet on yourself and invest in a company that you can maybe have more of an active role in. That was a tough lesson for me to learn, and that's what I would tell somebody else is just be careful with that. Just getting writing.

Sinead: Yes, that's a great piece of advice. I really appreciate that Yvette. Well, Yvette, wrapping up here, how can listeners find you guys and connect with you?

Yvette: Well, I am on LinkedIn, Yvette Pagano. I'm active on LinkedIn, I check it every day, so that's a great way to just connect with me is on LinkedIn. We have our website, which is GenTechscientific.com, and we have a blog that's pretty active. We do, like I said, we have the train on the train thing, but we actually do Tech Tip Tuesdays. These are really good tech tips. Anybody who's like a lab manager, or is actually working with this equipment, we ask our technicians what's your hardest problem, and then we do a little interview about it.

I would say just check out our blog, we do a lot of free content, it's really industry-specific and around analytical equipment and testing in cannabis. Obviously, you can certainly call us for a quote, so we're 585-492-1068. The best way to getting back is probably on LinkedIn. Then we will have a booth at MJ Biz, so anybody listening who wants to meet us in person and talk to us about their analytical equipment needs and meet with the technician and really understand what we have to offer come to our booth at MJ Biz, and we would love to see you.

Sinead: That's great. All right, well, Yvette, thank you so much again for joining us today and telling us a little bit more about GenTech. This has been such a fascinating interview and I'm really excited to see what you guys do in the years to come and really just wish you the best of luck with everything you're doing over the next year. Thank you so much, Yvette.

Yvette: Thank you and I forgot one thing, they're going to kill me if I don't say that. We have been in business for 25 years, and to celebrate, we're having 25,000 for 25 years, so we're actually giving $25,000 off the purchase, a GenTech refurbished instrument. If you're interested in signing up for this, go to our website, it's 25 for 25, but some lab is going to get a really nice piece of equipment at an extreme discount. We would love for your listeners if they do need any analytical equipment, please enter our drawing for 25 for 25.

Sinead: Oh my god, I'm so glad you mentioned that. Wow, what a deal. Okay, so I will definitely include that in the show notes for our listeners. If you are interested in GenTech and the 25 for 25 deal, I’ll have all that information in the show notes, so go check that out. That's great. Yvette, thank you again, and just all the best for GenTech and look forward to seeing what you guys do over the next few years.

Yvette: It was a real pleasure. Thank you so, so much for the opportunity to be on your show. I really appreciate it.

[music]

Matthew Kind: If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher, or whatever app you might be using to listen to the show. Every five-star review helps us to bring the best guests to you. Learn more at cannainsider.com/iTunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at cannainsider.com/trends. Have a suggestion for an awesome guest on CannaInsider? Simply send us an email at feedback@cannainsider.com. We'd love to hear from you. Please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments.

Promotional consideration may be provided by select guests, advertisers or companies featured in CannaInsider. Lastly, the host or guests on CannaIsider may or may not invest in the companies with entrepreneurs profiled on the show. Please consult your licensed financial advisor before making any investment decisions. Final disclosure to see if you're still paying attention. This little whistle jingle you're listening to will get stuck in your head for the rest of the day. Thanks for listening and look for another CannaInsider episode soon. Take care, bye-bye.

[music]

[00:37:27] [END OF AUDIO]

Ep 366 – How To Use Equity Crowdfunding To Launch Your Cannabis Business

davina kaonohi element apothec

While not the most traditional path, equity crowdfunding can be a great way for cannabis brands to raise capital – but only if know what you’re doing. Here to walk us through how she’s successfully crowdfunding her CBD wellness brand is co-founder and CEO of Element Apothec Davina Kaonohi. 

Learn more at https://elementapothec.com

Key Takeaways:

[1:05] Davina’s background in e-commerce and how she came to start Element Apothec

[5:49] How Davina took inspiration from her aunt’s homemade tinctures to formulate Element’s CBD products

[7:48] Why Davina turned to equity crowdfunding and how she’s successfully targeting investors

[11:36] Equity crowdfunding vs traditional crowdfunding

[13:38] How to create a killer marketing campaign through storytelling

[17:54] Element’s efforts to bring transparency to CBD and do away with sketchy “proprietary blends”

[24:04] Davina’s goals to grow Element’s product selection and expand the company over the next few years

[26:02] Where Davina sees the CBD skincare space heading over the next 3-5 years

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Matthew Kind: 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 cannaninsider.com that's C-A-N-N-Ainsider dot com. Now here's your program.

Sinead Green: While not the most traditional path, crowdfunding can be a great alternative for cannabis brands looking to raise capital, but only if you know what you're doing. Here to walk us through how she successfully crowdfunding her new CBD wellness brand is co-founder and CEO of element Apothec Davina Kaonohi. Davina, thank you so much for joining us today.

Davina Kaonohi: Yes, thank you so much for having me. I'm really excited to have this conversation.

Sinead: Absolutely. I'm so excited to have you here and hear what you guys have in the works at Element Apothec. First off, can you give us a sense of geography where are you joining us from today?

Davina: I'm in Los Angeles, quite warm and sunny today.

Sinead: Oh, nice. Davina, thank you so much, again, for joining us and before we dive into element, I know this is a new space for you. You only really got into cannabis about a couple of years ago at this point, even though you've been using it and it's a big part of your family for a long time now. First off, I wanted to talk to you a little bit about your background, can you tell us what you were doing before element and why you decided to start the company?

Davina: Before launching Element Apothec I was doing strategic consulting for startups, mostly in the e-commerce space, and helping them set up their leadership team, their operational and strategic business goals. I just loved it because you could come in early and really help to drive the direction of the business and help them really think about big decisions that they were making in terms of the growth going forward.

I also had touched on helping a niece of mine build a social media app, which was quite a fun experience to be involved with. Then leading into Element Apothec, I think for me, it really was that I liked what I was doing, and I felt like I could make an impact, but I still hadn't figured out my why of exactly when I woke up in the morning what really drove and motivated me. Recently, doing Element Apothec has showed me that that's what it was, but I was at this turning point in my career trying to figure out what was next for me.

At the same time, my great aunt had come to me with these amazing products that she had created. I can tell the story in a little bit more about that and asked me to help build a website and I did that for her, but she still didn't really know what to do with it and basically handed over the business to me. I was really passionate about CBD and cannabis and wellness and living a clean lifestyle and alternative remedies. It just really made sense that that was the direction that I went. That led to the launch of Element Apothec.

Sinead: Wow. That's something really fascinating about your story is what you just touched on with your aunt there. You officially launched the company in December 2020. Is that correct?

Davina: Yes, right in the middle of the pandemic.

Sinead: Great timing, of course. Really, you guys you're so new, but Element really has been in the works now for about a decade if I'm not mistaken and it actually started with your aunt formulating her own tinctures. Can you tell us a little bit about that and the family collaboration aspect at Element?

Davina: We say we're a new company but we're almost a decade in the making, and because my great aunt was initially diagnosed with medical conditions and autoimmune diseases and the medications that the doctors prescribed to her she actually was allergic to some of the preservatives or many of the preservatives and those medications. Her prognosis with that wasn't good.

They gave her a couple of years to live and most of that would probably be bedridden, not with a good quality of life. A sister of mine-- I have two sisters-- is a grower and had some high CBD ratio plants and so she gave her some flour and said, "Hey, there's this great recipe. It's almost like a Rick Simpson oil you can make that and I've seen it help people that have used that before," and then gave her her first plants to start growing. She set up a little grow cabinet in her living room for her. She started creating tinctures. She started putting the oil that she was making in lotions and bath soaks and everything bomb. She didn't really realize that it would help her as much as it did. It did end up making a huge difference in her life to the fact that she was able to get out of bed, she started using her extra time to learn about essential oils and other plant-based remedies.

People also took note of her health continuing to increase and the lifestyle that she was now leading that she wasn't expected to and would come and say, "Hey, can you make me this? Can you make me that?" Over these 8, almost I guess like 10 years now she's created over 40 custom formulations because people would come and say I have this, I have that, can you make me this and every ingredient was never used for a scent or for a texture it was used to basically serve a very specific purpose of being able to help whatever the person might be-- To support whatever they might be experiencing.

Sinead: Wow, that's just such an amazing story. I know you from there, you took her formulations and you've got a medical advisory team now, but you took them to a formulist and had them take a look at the best ratios and all of that. Can you tell us a little bit about the next steps you took from her formulations, the OG formulations, and how you really dialed them into what is now Element Apothec?

Davina: The next step that happened after my great aunt came to me and she basically said, "I want my products to go from the kitchen to the world," and so that's my mission. With that said, I also understood that we were asking people to put products in and on their bodies and I wanted to make sure even though she had the experience and had been creating these products that from the medical science perspective, that they really were safe, that the ratios were right, that we really were going to have highly effective products.

We brought on our Chief Medical Advisor who's an integrative medical doctor and triple certified gastrointestinal doctor, who specializes in gut health and microbiome brought in Dr. Swathi Varanasi, she came on as a co-founder and Chief Scientific Officer who's an integrative pharmacist and a cannabis medical provider. We really looked at the products that we were creating and then we added on our integrative dermatologist and said, okay, let's look at these ratios that have been created, the ingredients that are here.

We want to make sure that they're as safe and effective as possible. We also looked to some of the other minor cannabinoids because there's just becoming so much incredible research on the values of incorporating those in higher levels than just your typical full spectrum or broad-spectrum oil. From that, that was the final formulations that we ended up launching with Element Apothec.

Sinead: Absolutely. Very cool. Just thinking about the timeline here, you dialed in on the formulations. Obviously, the next step there is you think about how am I going to fund this business so that's where you turn to crowdfunding, which I find so cool because we aren't seeing a lot of CBD companies do that just yet. It is it's a great alternative but it is tricky and it requires, as you know, some killer marketing and it's no walk in the park. Can you tell us just a little bit about that whole process and your logic behind it?

Davina: Yes, so in launching the brand we didn't want to just be a home-based business, which is fine and I think amazing if that's the path that you took, but we wanted to go big with the brand and really get our products into as many people's hands as possible. With that, there's a lot of money that's involved to make that happen, the cost of the manufacturing and the packaging and all of your marketing and thinking about what would be the best way to raise that money and also a very competitive space because we did have conversations with some investors early on.

Although they were interested, they wanted to see a little bit more traction before they were willing to write the checks that we felt that we needed. We looked at alternative options of what could get us the money we need right now to launch the brand, start getting some early traction, build the company up in terms of the value proposition and then be able to go back out later and raise additional money. We looked at the ideas and ways that people were doing that and equity crowdfunding came up.

There's two types of crowdfunding. There's crowdfunding where you can sell a product or pre-sell a product and people in exchange give you money for that or there's equity crowdfunding, which is what we did, where people are actually owning a piece of the company in exchange for their investment, and we had some perks or people got some free products and stuff for different levels. It seemed like a really viable option and not only were you getting the attention of micro investors, but at the same time, you were also building awareness of your products and your brand, so you're getting this, it's like a double opportunity almost with it.

We had friends and family that were interested as well and participating and wanted to help. We thought, what a great way for them to get involved, invest a little bit of money into the company, and own a piece of the company, and join us along our journey as we build this brand. We looked at different platforms or some-- We ended up working with Wefunder with their start engine and Republic and we felt really fortunate, especially in the competitive space that we were selected to be one of the companies that they worked with. Yes, it's just been an amazing, crazy roller coaster ride of fundraising, but it's been quite exciting as well.

Sinead: Yes. Wow. Okay. I alluded to this earlier, you just reached this huge milestone, you're currently sitting at just over $100,000, and you've got a goal of $500,000. Is that correct?

Davina: Yes. We are now about 119. We've had some investments come in since we last talked, which has been great. The Wefunder campaign will be ending, but we'll be continuing to fundraise through just a traditional convertible note now that we've been able to hit these milestones, the interest of other investors has piqued and some other opportunities that we've had. Yes, so we'll continue along this fundraising journey for a while, I imagine.

Sinead: Absolutely. Yes. I do want to dive into equity crowdfunding a little bit more here because most of our listeners are probably more familiar with platforms like Kickstarter, where you-- For the project to go through, it has to be fully funded, so this is a very different format where you've got this goal, but it seems like you're able to work with the funds and it's a lot-- In some ways, a lot more flexible. Can you tell us a little bit about how that works and what you are using the capital for and what you plan to use it for as you reach that big 500,000 number there?

Davina: Yes. The way that equity crowdfunding works, like I mentioned, which is different is that you're actually giving equity in exchange for the investment just as you would if you were raising Series A and raising $5 million, but it's on a much smaller scale. Each of the platforms do have specific requirements like on Wefunder to get funded to actually be able to hit the first milestone is a 50K mark. They do have some opportunities for some companies to come in at a lower level recently, but when we started with them, that was you had to hit at least 50K, and then once you hit 50K, you can start taking your first withdrawals from that which helped us to fund our initial inventory run, our marketing, all of our packaging.

As we continue to grow and expand and look to raise more money, we're looking at launching additional product lines, deep investing into marketing, bringing on a sales team, just expanding all of the things that we're doing now as well with education and focused on building a community and establishing more of a presence online. That's really what we'll continue to use the money that we currently have raised and use the additional money as it comes in from other investments.

Sinead: Okay, that makes total sense. Very interesting. Going off of that, I wanted to talk to you about the marketing side, you guys obviously have got amazing products, but even amazing products don't sell themselves, especially when it comes to crowdfunding. What did you do to really develop your marketing campaign there and what advice would you have when it comes to really hitting that nail on the head with marketing and really finding your target audience?

Davina: Yes. It's interesting with crowdfunding, especially in the cannabis CBD space, because a lot of times companies depend on Facebook and Instagram advertising to get a big kick on their marketing strategy. Unfortunately, we had some troubles with that, and Facebook and Instagram would deny our ads even when they would go to Wefunder or to other landing pages, so we had to get really creative. We'd looked to do-- We did some ads on programmatic which were open to us.

We've focused heavily on building our email list so we could focus on reaching out to people that way. I did a lot on LinkedIn of just personally connecting with people and I'm spending-- I'd dedicate an hour, two hours every day just to outreach and sharing our campaign and letting people know what we were doing. It just involved a little bit more than maybe what a traditional company raising on an equity crowdfunding platform might have to do, but at the same time, as we were making all those connections and conversations, we also were building brand awareness and getting people interested in the products, so I don't know, it was a great-- I think, overall great experience, but yes, the marketing and thinking about it, because you'd look at these equity crowdfunding platforms, and you'll see companies raising a lot of money, you're like, "Oh, it's easy, we'll just launch on there, and everybody's going to start investing all their money in our company." Then you realize that's not the case.

There's marketing firms that are specifically set up just to help with managing that and posting on, like I said, on social media channels. Going into it for us was like, "Okay, this is going to take some work, and it's going to take a little bit more work than we thought." They do have their own investor networks, and a lot of these platforms will share when you first launch and different milestones that you hit, so you do have access to other people that you might not otherwise have had, but definitely, it depends a lot on the company itself to provide that marketing to get the word out there about your campaign.

Sinead: Absolutely. Okay. Yes, that makes sense. I feel like at this point too, like you said, there are so many obstacles when it comes to digital marketing and advertising in the CBD world, and hopefully, we'll see some changes there in the next few years, but I feel like CBD brands, they just have to make more of an effort with their storytelling than I think in other industries. Would you agree with that?

Davina: Yes. The story really is everything that we are as a brand, and why we're so passionate about even the way that we continue to operate. It was very intentional from the beginning that that is our core, and that's something that we can't ever forget. We were very purposeful of making sure that we're not just another CBD brand, we're not just hopping on the CBD bandwagon, or looking at a catalog and picking products, which is great, and I think it gives people quick access into the industry. For us, we wanted to show who we were and what we stood for and doing that through the story I think helps people recognize that, "Okay, there's something a little bit different about this brand and how they started and their medical team and the passion that we put behind having clean, safe products," and I'm passionate about the ocean and the environment, and so we built sustainability into it. All of the things that we do I think really is because of this story, and so we'll continue to market and lean into that as we expand also.

Sinead: That's great. Something that, like you said, that really differentiates you, that element from so many other CBD brands out there right now, it's just that dedication to transparency and to your quality. You really are trying to lead the charge away from additives, and as you've mentioned, preservatives, not hiding behind proprietary blends, as I've seen on your website. I see that messaging across the CBD world all the time. It's amazing how often I see that word 'proprietary'. Can you tell us a little bit about how the CBD world and even the skincare world falls short on transparency in the ingredients that we're currently using?

Davina: Yes. To talk about first, why because I think that's also why we're so against it is, a lot of companies, a lot of the ingredients that people use are not great. We even in hunting for manufacturers had a difficult time finding manufacturers that were willing to work with us to test products and create products that have shelf life stability without using some really well-known preservative that we just aren't comfortable using in our products, and so they can hide behind proprietary ingredients. Also if you have under a certain percentage, you don't even have to list that ingredient on your label, which is just horrifying to me that that happens.

The reason for that is because I think if it's in such low quantity, it's not going to really have an impact on you, but you have to think about how much ingredients we put on our bodies and in our bodies every single day, and the accumulation of those benefits over time, there's no way that that's good for us. In thinking about the products that we created and why when my great aunt first started, she needed those products to be clean, safe, and preservative-free, and also ourselves being conscious consumers, I always look at the ingredients. I'm the one who tells friends like, "Hey, do you realize what you're putting in your hair on your lips," or, "You should really check out that company and make sure that the products are safe," and so for us, we felt like people deserve to know everything that's in the product.

They deserve to know at a higher level why we use these ingredients. We partnered with a company called clear for me, they're actually behind Ultra's clean beauty movement that powers our ingredient list and database. People can see what the ingredient is studied for and researched and why companies might use it because we felt like people really deserve to know this information and we don't need to hide behind any proprietary ingredients or any mislabeling because they should know exactly what they're putting in and on their body and be able to make informed decisions about the products that they buy.

Sinead: Absolutely. Yes. Something I've read recently which is so shocking is the number of ingredients and chemicals in the US that we use that are banned in most other countries. I think there are something like 1,400 different ingredients that we use here in the US.

Davina: Yes.

Sinead: Yes, like Canada and the EU just absolutely forbid these ingredients.

Davina: Yes. It's something we're so passionate about. Of course, we have to hold ourselves accountable, but we have something called our never, ever promise which is our commitment that we will never use any of those band ingredients in any of the products we create and that's abiding by European, Canadian, Japanese standards because again our health and wellness matters. If we're putting things in our body that are banned other places, we might want to think about why we're actually using them here.

Sinead: Yes. I would agree. I certainly don't want to put something on my body that is banned in most other countries. Gosh, it's really crazy and something you mentioned earlier was how difficult it was to find a manufacturer that would work with you to find alternative preservatives and work with you on sourcing really high ingredients. If I'm not mistaken that alone took you almost a year to find a manufacturer that would do that. Is that right?

Davina: Yes. It took us a while to go through that process. We would start going down a path with somebody and then they kept trying to push us to their products that they already had and we're like, "No, that's not what we want. Onto the next manufacturer," and through that process, because especially if you're working with someone and you're testing out the products and working on the formulations, it's weeks of time that you're spending with each person of going through that. We did spend a lot of time doing that, but I am happy that we did that because, again, we didn't want to sacrifice or take the easy path. One manufacturer came to us and said, "If you don't use this preservative, then we're just not going to work with you. It's too much work."

We're like okay. That was after several weeks of conversations with them. You do the work and you put in whether it's for manufacturing or focus on your packaging of finding packaging that's going to be sustainable for you or ingredient sourcing. That was another thing with a lot of the manufacturers, is they have their established relationships with ingredient providers who are very specific about using eco cert and organic ingredients, really clean products. Obviously, that also takes work for them to go out and find these suppliers that have these specific ingredients that we were using.

Some of them also said, no, it's too much work. We don't want to do that, but that's okay. More power to them and we're fortunate to find one and we're actually in conversations with a couple more as we're looking to expand some of our product lines as well. I think there's a little bit of a shift happening where people understand that conscious consumerism is really becoming valuable and companies are looking for really good manufacturers to partner with.

Sinead: Absolutely. Yes. It's so great to see companies like yours helping to spur on that conscious consumerism in the CBD space. That's amazing. You mentioned some expansion goals. Can you share a little bit about that with us or is it still under wraps?

Davina: There's a couple things. We have a new tincture we're launching just in a couple weeks, which I'm excited to share that is called Be Well. We believe that everyone deserves to be well and it's amazing. It has CBD, CBG, and CBN at pretty high ratios. As well as turmeric, and, lemon and lime, it's just a great nightly tincture to take. I love it. Every night I take it, I sleep so well and wake up feeling great in the morning. There's some other expansion opportunities. We have had some people come to us because of the medical advisor and expertise that we have with formula products that are looking to add CBD. We have a cosmetic formulator and a macho company which is really cool. We'll be working with them to help them create products that'll be powered by Element Apothec.

That's pretty exciting and then in terms of other expansion, we're just also really focused on education. It's a huge part of Dr. Swathes mission and so we're launching an education platform which is a CBD health and wellness certificate for all of our customers and our brand strategic partners to just have more information about CBD and cannabis and our EndoCannabinoid system and understanding better products and how to buy them and what to look for. It's amazing all of the things that are ahead for us.

Sinead: Yes. I'm so excited to see what you guys have in store over the next few years and speaking of, where the cannabis industry as a whole is heading. Like you just said, I feel like that estimation just continues to grow year after year. Where do you see cannabis skincare specifically heading and where do you see maybe consumer preferences and the different products there heading over the next three to five years?

Davina: Yes. There was just a report that came out with incredible numbers in terms of the growth for CBD beauty and skincare products. I think as people start to understand the benefits and looking at CBD or CBD as ingredients, we're a body care wellness company. We're not just a CBD company and as that changes in people look to the benefits of having CBD or CBG or CBN as an ingredient in the product especially when you look at skincare, it has amazing anti-inflammatory benefits and anti-aging. So many of the things that people are concerned with with skin and some of the medical skin conditions that it can support, that people will be looking to have the best product that works and the best product that works may have the ingredients of CBD, CBG, other cannabinoids in it.

I definitely see a lot of growth and it's just really bringing the awareness again, the education of why would I want that ingredient in my product? How is that gonna help me for skincare because I think a lot of people still think about ingesting it and are skeptical to put the product. We were at an event in Chicago and we were giving out samples of the lotion and letting people try it and one woman's like, "Does it have that stuff in there?" I'm like, "What's that stuff?" She goes, "That THC or CBD stuff," and I said, "Yes, let me tell you about it. It's an amazing ingredient," and she was like, "No, I don't want to learn. I don't want to understand it," but another woman asked about it and she goes. "I'm afraid, is it going to do anything to my skin?"

I said, "No, actually it's going to benefit it, and here's how it's going to benefit. The values for it's amazing for nourishing and supporting, providing relief and has a skin regenerative properties," and she goes, "Okay, I'll try it," but I put it on her hand, she was still really nervous about it. You could tell, she kept looking at her hands, like something is going to happen, but she came back an hour later and she ended up buying our lotion. She said that her hands just felt so great. She couldn't stop thinking about maybe why this ingredient made the lotion feel better than other ingredients that she had been using. As we all work together to educate, I think the skin care's really going to be an incredible opportunity for people to get in and build products around that.

Sinead: Definitely. Yes. I really couldn't agree more. I feel like skincare is going to be such a great bridge for the CBD and cannabis industry. Just make it more accessible and normalize it and really broaden the public interest around it. That's great. Davina, I want to wrap up with a few, fun personal development questions because I know CBD is a big part of your life, but it's not the only part. I'd love to ask you few questions. First one, is there a book that's had a big impact on your life or way of thinking that you could share with listeners?

Davina: Yes. I'm a huge fan of Brene Brown and I constantly go back and reread like Daring Greatly I think I must have read like 20 times whilst I'm here, listened to it because I think the idea of being vulnerable and putting yourself out there, there's daring to lead. I just think it's something that's much more needed for everyone to drop their shells, to look at their past and to accept it and to live life with courage and vulnerability. That's something I am really thoughtful about. Another book that I recently read is called Give and Take. It's the idea, something we talked about about even partnering with competitors but the idea in the business world of being a giving person or giving company instead of trying to hold all of your IP or proprietary stuff or not sharing and how those returns come back to you in multiples. It's something that I think about all the time as we're building the business, but personally, I'm a huge Brene Brown fan.

Sinead: Interesting. I'll have to check that out and add it. I ask this question every interview and I've got quite a reading list going here so I'm going to have to add that to it. That's awesome. Next question, what is your favorite music at the moment? Do you have a band or maybe even just a whole music genre that you're really into at the moment?

Davina: You know, it's funny because I always go back to Hawaiian music. I love alternative music and classic rock but I love Hawaiian music. I think it just takes me back to my days visiting my dad when we were young in Hawaii. It's what inspires me when I need inspiration and what calms me down when things are stressful. There's a particular artist called Keali'l Reichel. I used to also do Polynesian dancing when I was younger [unintelligible [00:31:33] It brings back so many emotions and memories that I tend to go back to that all the time.

Sinead: I definitely get that. I've never been to Hawaii but I'm dying to go. It looks just so beautiful over there. It's definitely been on my bucket list for a long time so definitely hope to get over there in the near future. That's great. Davina, wrapping up. One question I have for you, I know Element is still very new and you really only launched last December, but you've been working towards this for some time now. I wondered if you could go back and give yourself one piece of advice when you were first starting Element Apothec, what would you tell yourself?

Davina: I think just to start sooner. There's goods and bad, but we were so focused on coming out of the gate with everything so polished and done. We were a pending B corp and then got [unintelligible [00:32:31] certification, we wanted this, we wanted everyone to really trust and believe us, which I think we could have done along the journey with people. Maybe launched quicker with one or two products and just started that process. That's where I go back and think all the time because we launched, we kind of missed the holiday season. We were like, "We should have just launched with the first couple products," and we could have gone along this journey as it happened instead of trying to have everything so fine-tuned before. Maybe that would be probably what I would think.

Also, understanding of just having patience about how long it takes to actually build a CPG business because we thought we were going to launch these products and we're so different than so many other companies out there and we know these have helped hundreds of people. My aunt's sold these products, so we're going to sell like thousands in day one. Well, it takes a lot more time to build brand awareness and to get people used to your products, especially in a competitive space. Also, just having a little bit more awareness of the amount of time and money that it would take to actually launch the brand and being able to better plan that from the beginning is definitely something for anybody new that's getting into this space or launching a business I would definitely think about.

Sinead: That's great. That's some really great actionable advice for our listeners who are just up and getting going and maybe experiencing a few of the same challenges you experienced. Thank you so much for that. Davina, thank you so much for coming on. This has been such a fascinating interview. Really, I've so enjoyed talking to you and can't wait to see what you do at Element Apothec over the next few years.

Davina: Thank you so much. I enjoyed the conversation. It was great talking to you. I just love being able to tell our story. It's just amazing when you have that opportunity, so thank you.

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Matthew: If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher, or whatever app you might be using to listen to the show. Every five-star review helps us to bring the best guest to you. Learn more at cannainsider.com/itunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at cannainsider.com/trends. Have a suggestion for an awesome guest on CannaInsider? Simply send us an email at feedback@cannainsider.com. We'd love to hear from you.

Please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments. Promotional consideration may be provided by select guests, advertisers, or companies featured in CannaInsider. Lastly, the host or guests on CannaInsider may or may not invest in the companies or entrepreneurs profiled on the show. Please consult your licensed financial adviser before making any investment decisions. Final disclosure to see if you're still paying attention. This little whistle jingle you're listening to will get stuck in your head for the rest of the day. Thanks for listening. Look for another CannaInsider episode soon. Take care. Bye-bye.

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Ep 365 – How To Win VC Funding For Your Cannabis Startup

ross o'brien bonaventure

What types of businesses are cannabis venture capitalists willing to fund? Here to answer that question is Ross O’Brien of Bonaventure Equity.

Learn more at https://www.bvequity.com

Key Takeaways:

[00:57] An inside look at Bonaventure Equity, a boutique venture capital firm focused on early-stage investments in the cannabis space

[1:54] Ross’ background and how he came to start Bonaventure

[5:35] The two-step process Ross follows when choosing which companies to invest in

[9:22] Ross’ portfolio of investments in cannabis to date, from research and development to health tech

[11:55] Attributes that Ross looks for in a company founder

[13:43] Ross’ advice to entrepreneurs looking to raise capital

[23:13] Common mistakes people make when putting together a pitch deck and how to avoid them

[25:58] Exciting developments in the cannabis healthcare space and where Ross sees it heading over the next 3-5 years

Click Here to Read Full Transcript

Matthew Kind: Hi, I'm Matthew Kind. Every Monday look for a fresh new episode where I'll take you behind the scenes and interview insiders that are shaping the rapidly evolving cannabis industry. Learn more at cannainsider.com that's C-A-N-N-Ainsider dot com. Now here's your program. Today we're going to learn what type of businesses cannabis venture investors are willing to fund and why. I'm pleased to welcome Ross O'Brien from Bonaventure equity to the show. Ross, welcome to CannaInsider.

Ross O'Brien: Hey, Matt, great to be here. Thank you very much for having me.

Matthew: Give us a sense of geography. Where are you in the world today?

Ross: Well, interestingly enough, you've caught me on a road trip on my motorcycle four days in about 900 miles. I'm in Wilmington, North Carolina, but I currently make my home in West Palm Beach, Florida.

Matthew: Okay. What is Bonaventure Equity at a high level?

Ross: Bonaventure Equity, I founded the company about seven years ago really focusing on working with family offices, high net worth investors that I had been involved with, prior to starting the company myself. We started out really as a funnel sponsor putting together interesting transactions in a broad range of sectors, mostly focused on healthcare. Over the last few years that really transitioned to an exclusive focus on cannabis. A couple of years ago, we decided to start investing exclusively in cannabis businesses, we put our first venture fund together. We currently have eight portfolio companies in that first fund.

We are on to our second fund right now currently raising 50 million for some follow ons in the next set of companies that we're going to invest in.

Matthew: Great. Ross, can you share a bit about your background and journey and how you got into the cannabis space and started Bonaventure?

Ross: Sure. Cannabis had been something I've been intrigued with, and quite interested in for some time as an investment thesis, and also something that was a part of my personal life. For years had been looking at what is happening on the regulatory side, such that it seems to me that this was going to be just a massive business opportunity at some point, and I think that everybody would agree that's what's now happening. The challenge was, I worked at a family office, I was responsible for all their self-directed venture capital, private equity, real estate investing.

The challenge was, is every time we tried to look at the space, there were a couple of hurdles, one being, it was so early on from a legalization standpoint, that there just wasn't enough line of sight to what the markets will be looking like and how they'll be regulated. We were struggling with seeing complementary entrepreneurs in the cannabis spaces probably five years ago, that were the same level of sophistication that we find in other sectors that we're investing in, like I said, like healthcare, for example.

We kept taking a pass and then a couple of years ago, about to the end of 2018, the beginning of 2019, we were really seeing some interesting opportunities and put together a group of investors with myself, and we set about really trying to understand a strategy for cannabis that was best suited to us and how we invest. We are early-stage investors, meaning that we invest in a series C or series A typically. Typically investing one to three million at any first initial round. We looked at close to maybe 400 companies, or certainly over 300 to 400 companies, before we wrote our first check.

What we decided to do was a go slow to go fast strategy. One of the things Matt that really concerned us was this green rush mentality. Having invested in and been involved in entrepreneurship for my entire career, as an entrepreneur, as an investor, as an advisor, and having a whole string of failures along the way, this is a very difficult thing to do in any segment, let alone one that's as nascent as cannabis. What that means Matt, is we put together a platform before we started deploying capital. We were hosting a series of events that have been postponed after the pandemic happened in 2020. Those were really great.

We were hosting in the San Diego, New York, Dallas, Miami area, and really bringing together the best and brightest in the space and convening a lot of thought leadership. I wrote a book, the book is called Cannabis Capital. It's the first book on venture capital for cannabis and that actually took a very interesting turn as we were developing that, that I can speak to if you'd like about how it's actually formed our investment thesis. It's really a playbook for entrepreneurs, to help them be more successful and having the conversations with investors like us. Really helping them understand, the dynamics of raising capital and the fundamentals, et cetera.

Then we have an operational piece to our platform as well, where our companies can leverage our back office and finance team to scale up with them. It wasn't just putting together capital, it was really understanding the landscape and where we wanted to invest to achieve the venture returns that we're seeking.

Matthew: Now that you have a sketch of the landscape you've made, I think you said eight investments, how do you go about it? You've described a little bit of your organizational procedure and process. If you were to just to give us another just a quick sketch of how you do that, how do you actually say these are the ones that are going to get a yes and these are ones going to get a no, and here's why?

Ross: Sure. I'll take it in two steps. First is what is our investment thesis and what do we look for then secondarily, then how do we focus in on a specific business and the founder, so I'll take it in those two chunks. The first being the investment thesis, as we invest, as I said, early stage, meaning that we are looking for companies that will generate venture returns. One of the things that I certainly noticed in this space is there's a lot of new investors putting together funds, and that haven't had historical investment in venture prior to the space. They tend to be all over the map. We really focused in and said, 'No, this is, this is venture."

What I mean by that is, we need to get a 10x cash on cash return on any investment that we make, meaning that if we put a million dollars in a company, we have to have a line of sight to getting 10 out through some an exit. We are not particularly enthusiastic about the public markets. We're really looking for companies that will be ideal acquisition targets. What that means is many of the investment strategies that we see in cannabis don't fit that profile, for example, cultivation. You need way more than a million to 2 million to put together a cultivation business to start with.

Secondly, it's agriculture, it's a commodity, and you can see as we're seeing in the market, now, there's a lot of price compression, and that will continue to go that direction. A lot of these companies, when they reach a certain size and certain scale, they have a lot of the upside value baked into the valuation today. This is what we see in a lot of the public markets, that the companies are being valued on the future potential of the business today, as opposed to valuing what the company is worth today and then benefiting from that arbitrage for that upside. Does that make sense, Matt?

Because we're looking for where that value curve is going to occur from an early stage to a later stage as opposed to pricing in now, that later stage state.

Matthew: Yes, that makes total sense. You mentioned a little bit earlier working with family offices and so forth in the past, what is the posture towards cannabis investing right now with family offices?

Ross: The family offices have largely been filling the gap where you don't have a lot of incumbents venture being able to participate yet. A lot of the existing venture funds are prohibited from investing in the space because it's still federally illegal and their agreements with their limited partners prohibit them from certain sectors, meaning that there's a gap in accessible capital, being cannabis first and sector second, in terms of our strategy allows us to be in a position to fill that gap.

The family offices have been incredibly active, there's still a lot of stigma in certain groups and certain categories, but they have a ton of capital, very sophisticated investors, and have largely stepped in to where in a more established market, you would have a lot more venture players or funds that are driving certain elements of the sector.

Matthew: Okay. You mentioned you had made eight investments. Can you talk about those a little bit, your portfolio [crosstalk] and any highlights you want to make?

Ross: Yes, absolutely. Maybe what I'll do is go back to the second part of the question on what we look for in entrepreneurs, because I think that'll paint the brush for some of the companies that a couple of companies that we're working with, first and foremost. Now, so, really what we're looking for are dynamic founders. We'd like to have some veteran entrepreneurial experience, whereby we tend to have the most success with entrepreneurs who have gone through a couple of business cycles prior to the business that they're working on. Really look for great culture builders, innovators. We don't really see disruption as being one of the-- which is a more traditional venture characteristic, because we think that legalization is the disruption that's happening. For us, we really want to see collaborative founders that are going to be able to build something for the long term. Within our portfolio right now, there are a few really interesting highlights. We're really focusing in now in the second fund of the overlap of healthcare and cannabis. We think that's the single greatest opportunity from an investment, an early-stage investment standpoint. We think a lot of the other spaces, whether it's brands, or retail, or dispensaries, and things are getting pretty mature very quickly.

For us, this is the most exciting, and I think, New Frontier, which is because of legalization that healthcare is going to be entirely transformed. With that, we have a company in our portfolio, that was the first to map the genome of the cannabis plant with two PhD female founders that are just fantastic. We have a company that's doing a handheld spectrometer potency testing device with a really experienced engineering background founder. We have a company that's developing the first synthetic CBD compound with a female founder who has built and sold biotech companies before. Those are some highlights of the things that we get really excited about.

Matthew: Okay. You mentioned when you looked at a founding team that you'd like to see some success in the past. Is there any other kind of things you'd look for, or say, hey, this makes me more interested because the founder has these attributes?

Ross: Yes. It's an interesting question because I think one of the characteristics that tend to be highlighted the most in our process, so we do a lot of work with the founders in understanding personality profiles, and personality traits, and qualitative, quantitative, cognitive abilities. We do the same with ourselves. We look for compatibility between us and the founders because it is typically a long-term relationship. One of those key examples during the early stages of getting to establish, getting to know somebody in their team is really looking for a collaborative personality or collaborative approach to challenges.

It's not necessarily that I'm looking for founders that have all the answers, or even the right answers. I'm looking more for what thinking went into those answers and if the answers need to be challenged, or otherwise changed directionally. Is there enough rapport between us and the founder that we can have the hard conversations and make adjustments and be open to that kind of feedback? That usually shows up if somebody is very defensive, or reluctant to hear constructive criticism, even early on in the presentations, that'll be a red flag for us.

Matthew: Okay. There's a lot of listeners that are either now raising capital, or they're planning on starting a business, and they're going to raise capital, how do you think they should kind of orient their thinking, so they put their best foot forward and have success in that endeavor?

Ross: Yes. This was actually the impetus for writing the book. Canvas Capital started as really a textbook to help entrepreneurs have a little more sophistication around their fundraising, how to have conversations around valuation, to understand what due diligence is, and how to develop term sheets and corporate governance, and just all these sort of blocking and tackling elements that you see with a lot more experience in sort of other sectors. That was one of the things that we really wanted to focus on because there was such a lack of fidelity in the conversation I found between founders and investors in the space.

One of the big challenges, Matt, is that I think we're doing ourselves a disservice to talk about cannabis as if it's an industry. Everybody talks about the cannabis industry. As we're doing the research for the book, it really became apparent to us and this was one of the things that we established in the book is that cannabis is not an industry, it's an economy. It's a global macroeconomy. It's here to stay. It's not a trend. As with any macroeconomy, it has sub-sectors and industries within that are being developed. This broad stroke cannabis industry, I don't think is robust enough to really give people the comprehension of what legalization really means.

We have a challenge, that if anybody can identify a sector that otherwise hasn't been impacted by cannabis, please let me know. It's my belief, and so far, I'm batting 1000 that every industry and every incumbent industry, and every company boardroom, cannabis has reached at this point. What that means is that is this ubiquitous landscape. Now, when we get into the cannabis economy, and the sectors that we focus on, it really occurred that there was a lot of tension between investors and founders out there. There tended to be the sort of legacy advocacy-based cannabis insiders that had been in the space for some time saying, the finance, people don't understand us, or the business people don't understand us.

Then on the other side, and when I was interviewing investors for the book and talking to other people in the space, you'd get the inverse of that, right, where people would say, these cannabis people don't understand business. I was trying to find a way to take some tension out of that wedge really that was between the two parties. Where does this translate to advice to entrepreneurs, as you asked is have some humility about going into the process, and recognize that just because it's a cannabis business doesn't mean that the rules of business don't apply.

I see a lot of companies and founders try to be overly creative in trying to put structures together and wanting to do funky sort of debt structures, instead of raising equity, and all this kind of stuff, where it's really about building a great business for the long-term. If you have a plan, and a team in place, and the resources to do that, it shouldn't matter that it's cannabis. It shouldn't matter that it's a great organization that happens to be able to benefit from cannabis legalization in this new economy that's developing. I think it's just having that perspective. When you're reaching out to investors understand that it's not about convincing them that your view of the world is right. It's about understanding what their view of the world is, and helping them understand why your business fits that, right. We get a lot of-- one of the things that, like I said, is a big turnoff is entrepreneurs who get very defensive, well, you just don't understand it, or this is cannabis, you don't get it.

Well, most investors in the space have a lot of experience. Certainly, when you're talking about family offices earlier, and most of the families that I've worked with over the years have generated their wealth through entrepreneurship. You've got to give them some benefit of having some rationale for exploring the opportunities in the way that so that they do.

Everything's a negotiation. Right from the beginning, you're starting to develop a relationship, and building rapport, and understanding how to interact with those people through the process. It can be a very long process for finding fund investors like ourselves, or it can be a very quick process with angel investors if you've got the right people that are looking for the opportunity that you're presenting,

Matthew: Let's jump into one of your investments, Revolutionary clinics. Can you talk about that? What attracted you to them and what they do?

Ross: Yes. I don't know if you saw this but Revolutionary has made the Inc 5000 list this year. It's the number four fastest-growing company in America.

Matthew: Wow.

Ross: They're just very impressive operationally, very impressive in the way in which they establish themselves in their community. Great team, great leadership. I happen to know the founder and have a personal relationship there, which was how we got involved. We're not actively involved like we are with some of the other earlier companies. As far as their business model goes, we just really thought they were the gold standard space and would be an important so relationship to work with and we couldn't be happier about how things are going.

Matthew: Great. Is there another portfolio investment you want to talk about at all?

Ross: Yes. The three I talked about earlier would be the ones that were-- which is Leaf. I don't know if I should mention by name, but LeafWorks and the two PhD founders, which is mapping the genome. The other company is tCheck. tCheck is the handheld spectrometer device for potency testing. Great story. Peichen Chang, the founder is an engineer by background and he had a personal relationship with somebody that was managing their Parkinson's symptoms by baking edibles for themselves and couldn't find the right tools in order to get the dosages right. It was a real problem and the company's doing great. The product is very well-recognized.

We look at that as something that is going to be just an essential tool for people that are developing their own dosages for themselves in home and then the other company that I mentioned as well that's building this and they're developing rather the synthetic compound for CBD is [unintelligible [00:21:08] a very exciting company out of California team of biotech entrepreneurs that have been there before. The thesis there is that as with aspirin that originated from naturally occurring plant-based compounds, the way to actually scale and have consistent quality and produce that scale is to create it synthetically and then scale it up.

Matthew: For your book, Cannabis Capital, you wrote it. Everything you put in there, you feel like is valuable, but is there any feedback you get that's like, "Hey, this was really helpful to me," this aspect where you hear that feedback consistently about any certain areas of the book?

Ross: One of the best compliments, and if anybody finds any grammatical errors in there, I'll blame the publisher on that, but one of the most interesting compliments and I don't think it was intended to be a compliment when I got this feedback was that it was that the advice on building a business, managing a business, and raising capital could have been applicable to any business and it wasn't specific to cannabis. That's entirely the point. The cannabis economy is the thought leadership that was developed in there and it is the first place to publish on this concept. When we get into the term sheets and structuring transactions, there's a lot of nuance for cannabis businesses there. Then the case studies that run throughout the book are all cannabis-based businesses. The whole point is that the fundamentals of business don't change and the fundamentals of understanding how to manage a balance sheet should be applicable to any type of business. I think this individual was looking for something that was more nuanced or specific to cannabis and said all this could apply to any business and that's exactly the point, is those best practices exist in the world and we should carry them forward into this sector as well.

Matthew: Interesting. You mentioned before it's a real turnoff when someone's a founder is just not flexible at all, but what else can they make sure they steer clear of like in terms of maybe their slide deck having a problem? What's a good slide deck look like when they come to you and how is it clear and digestible versus one that's just not digestible?

Ross: I think that's a great question. It is something obviously that we see day in and day out is going through decks. My advice to your listeners out there would be the strategy for creating a slide deck should be based on putting big foundational items in place first and then moving the narrative forward from there. For example, I always like to see the team and the people in the backgrounds very early on in the first one or two slides because the credibility of those individuals and the people that we're speaking to will inform the whole rest of the presentation. I also tend to see an overemphasis on market and market numbers and addressable market.

If we're having a conversation about whether or not cannabis is going to be a large marketplace, you're not having the right conversation. We believe in that completely such that we're on our second fund now to invest in that strategy. We don't necessarily need to be convinced of the big numbers multiplied by other big numbers. What we really want to see is, is there a thoughtful go-to-market strategy that identifies clearly what the channel to market are and how to go manage those channels to market successfully? An overemphasis on market and market sizing and ideas is generally something we want to move on quickly, pass quickly.

I would say that if you can't explain your business in 20 minutes, you probably don't have a clear understanding of your business. We sometimes get into these presentations that an hour, an hour and a half later people are saying, "Oh, well, I haven't told you about this yet or I haven't told you about that yet." That to me is indicative of we just want to do everything and do everything great and we're going to do a million different things at once. We really just want to see a lot more focus and discipline around the hypothesis with business.

Matthew: What trend in the cannabis space do you feel like is underappreciated but you believe is going to be huge in the next three to five years?

Ross: It's healthcare for sure for us and our focus is they're--

Matthew: Dig in there. Tell us why.

Ross: A few things. One, we're only just at the front end of the research and discovery that's happening now around getting access to this plant legally. It's really exciting what is being developed and look, nobody's debating whether or not cannabis is good for treating the symptoms of Parkinson's. We had the FDA-approved Epidiolex which have a huge $7-plus billion exit which is for treating epilepsy and people have known for generations that cannabis can be applicable for sleep aid or for inflammation or for anxiety or depression, and glaucoma and all these.

The application that the plant can have for all these different pain management and different symptoms and underlying morbidities is to my mind, we're just scratching the surface on that and barely started that cycle. We also see I think the FDA is going to be more malleable and the government institutions are going to be more malleable than ever going forward. We're seeing government now trying to move at the pace of business as opposed to the pace of policy. I think that will open up for a lot more rapid comparatively processes to get FDA approvals and things like that, which we think are necessary.

We believe more regulation is required. We don't think that the objective should be to have zero regulation. We think the objective should be to have sensible regulation that can help bring the highest quality products to the market. With that, we definitely see this transformation on the healthcare side. It's difficult to find these things out, but we estimate there's somewhere around 40 or 50 applications or in-process to the FDA applications being developed for new therapies based on cannabis, and to our reservation, that should be more like 400 to 500 at a minimum at this stage. We think that's just wide open space.

Matthew: There's a lot of investors, entrepreneurs, and others moving from the West Coast to Texas and Florida. You mentioned you're in West Palm Beach. Are you a native there or did you relocate from somewhere else?

Ross: Yes. I'm a bit of a nomad. I'm from Canada originally. Calgary, Alberta is where I was born. First moved to Michigan in the US, then did a dozen or so years in Manhattan, and then just spent the last 10 years in Florida. We're actually moving our headquarters to Raleigh, North Carolina in the coming months as well. For us, it's less about being in a legal state. Recreational use is not really something that is driving our investment activity. We're looking for where are the centers of highly scientific innovation going to be happening. We don't think that the individual state regulations play into that that much. We invest all over the country. Most of our companies are on the west coast now, but yes, there is a huge migration right now to some of these areas and we see certainly in the sub-Florida area, the Miami region up to West Palm, but we will continue to have a presence there. There's a lot of uptick and venture activity, which is just exciting for everyone.

Matthew: Ross, I want to turn to some personal development questions. Is there a book that's had a big impact on your life or way of thinking that you'd like to share?

Ross: Well, I'm a voracious reader, so there's a lot of them. I actually just wrote a blog article on the five books that I recommend for entrepreneurs to read, and then re-read. There's a lot of great books, business books, obviously, and self-development books. One of the things that occurred to me was after decades of experience, the context can take on new meaning, and depth, and color, and those are really really great books. For example, the book The Hard Thing About Hard Things by Horowitz, that book took on a much more powerful narrative for me after I had gone through some cycles of being on boards, and managing boards, and having boards, for example, at the board level, senior C-suite level. Also, one of my all-time favorites is Good to Great, which is a lot of people's all-time favorites. Some of the concepts in that really became applicable only in the last few years of my career versus when I first was exposed to that book. On the personal development side, I'm a really big fan of Tim Ferriss. I like Tools of Titans and his anthologies are really, really terrific. I love his expression that success leaves clues. I'm always going back and re-reading even just short anecdotes that he's collected from other successful people. One of the personal development people that I didn't really acknowledge until later in my career, I just ignored, was Tony Robbins and Awaken the Giant Within was actually a really transformative book for me when I visited it a few years ago in the later stages of my career.

Matthew: What is your favorite unhealthy comfort food?

Ross: [laughs] I love food, I love to eat. I would say I probably eat more high-end steak than any normal person should. I enjoy a lot of the good steakhouses, but to take that even a step further, I'd say my favorite meal of all time would probably be Beef Wellington. How can you get anything more delicious than steak wrapped in pastry?

Matthew: Nice. Well, Ross, as we close, how can listeners find out more about Bonaventure Equity, and the work you're doing, and connect online with you?

Ross: Great. Well, thanks very much, this is great. Anybody can find us at bvequity.com, B as in boy, V as in Victor, equity.com. We also have the Cannabis Capital podcast, which is cannabiscapitalpodcast.com. The Book Cannabis Capital is available on Amazon and wherever fine books are sold. My personal blog and website is rossobrienbc.com.

Matthew: Ross, well, thanks so much for coming on, really appreciate it. Good luck with all of your investments in 2021 and beyond.

Ross: Great, would love to come back and give you some updates. It's going to be an exciting few years ahead.

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Matthew: If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher, or whatever app you might be using to listen to the show. Every five-star review helps us to bring the best guest to you. Learn more at canabisinsider.com/iTunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out through Free Report at cannainsider.com/trends. Have a suggestion for an awesome guest on CannaInsider? Simply send us an email at feedack@cannainsider.com, we'd love to hear from you. Please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments.

Promotional consideration may be provided by select guests, advertisers or companies featured on CannaInsider. Lastly, the host or guest on CannaInsider may or may not invest in the company's entrepreneur's profile to the show. Please, consult your licensed financial advisor before making any investment decisions. Final disclosure to see if you're still paying attention. This little whistle jingle you're listening to will get stuck in your head for the rest of the day. Thanks for listening and look for another CannaInsider episode soon. Take care. Bye-bye.

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