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We just reached possibly one of the largest milestones in creating pure, consistent cannabinoids in a lab. Here to tell us about it is Kevin Chen of Hyasynth Bio.
Learn more at https://hyasynthbio.com
[1:32] An inside look at Hyasynth Bio and its work creating biosynthesized cannabis compounds
[3:05] Hyasynth Bio’s first product, an ultra-pure CBD oil created using cultured cannabinoids
[7:44] How Hyasynth Bio is improving CBD production in terms of both speed and purity
[9:12] Why multinational companies are gravitating towards biosynthesized cannabinoids for better consistency and supply chain performance
[16:55] How biosynthesized cannabinoids are paving the way for international cannabis brands and which products Kevin believes will go global first
[21:23] How cellular agriculture is giving us better access to rare cannabinoids
[27:48] Why cellular agriculture is easier to automate and how this might influence prices in the cannabis industry
[32:21] Hyasynth Bio’s strategy to profit primarily through intellectual property licensing
[36:24] Where Hyasynth Bio currently is in the capital-raising process
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.
Our guest today is on the cutting edge of research where laboratory science meets cannabis. As you're about to hear, we have reached what is possibly one of the largest milestones in creating pure consistent cannabinoids in a lab. I am pleased to welcome back Kevin Chen of Hyasynth Bio. Kevin, welcome back to CannaInsider.
Kevin Chen: Hi, Matt. Great to be back.
Matthew: Give us a sense of geography. Where are you in the world today?
Kevin: I am based in Montreal, Canada. A little bit further north from you, but not too far.
Matthew: Okay. We were just talking about pumpkin. What is it about pumpkin this time of the year, everybody wants pumpkin spice, pumpkin latte? I'm not making fun of them because I'm one of those people. What is that?
Kevin: [chuckles] Not sure. Like I was saying, maybe it's a genetic thing or same as the reasons why birds like to fly south this time of year, maybe get some kind of psychological attraction to [unintelligible 00:01:16] into pumpkins, the squashes around this time of year. I've got some squashes that I'm going to cook up myself later today or next week sometime. I'm a pumpkin fan too. Why not?
Matthew: Maybe it's nesting or something. I can't figure barely. Well, Kevin, as I mentioned, you've been on the show before, but please remind us what on a high level does Hyasynth Bio do?
Kevin: We're a biotechnology company. Our main focus is on creating strains of yeast that produce cannabinoids. Instead of growing up plant having soil and adding water to that, you just have a big steel tank, you add yeast, which looks the same as baker's yeast to that big steel tank, you add some sugar and some water, let that grow for about a week, and then at the end of that, you extract pure cannabinoids from that yeast culture.
We do that by modifying the yeast cells themselves so that they have the ability to produce cannabinoids. That's genomic engineering. It's synthetic biology, it's about looking at the genome of a yeast and the genome of a cannabis plant and then taking all the genetic parts and the cannabis plant that are related to cannabinoid production and putting those into a yeast's genomes that these on its own can produce cannabinoids.
By way of analogy for anyone that's confused right now, this is the same way that we produced insulin for the past 50 years or so, where insulin is always coming from an engineered bacteria or engineered yeast. It's actually human gene for insulin that's been put inside of a yeast or bacteria genome. Then what these pharmaceutical manufacturers will do is just cultivate that bacteria, that yeast, and then extract pure insulin at the end of that. We're doing the same kind of process, but for cannabinoids, for all kinds of great reasons that we're going to talk about today, too.
Matthew: Okay. I've been banging the drum about this. This is the third time you've been on the show. In a couple years, I've been up to your lab in Montreal and I've kept on thinking, "Wow. If this really, really works, it's going to be huge for the cannabis and hemp industry, and all these other industries that we'll discuss." It sounds like you've made your first sale. Can you talk about that and what you sold and why it's important?
Kevin: Yes, definitely. I'll start with what we sold is CBD and CBDA, if you want to make a distinction between the carboxylated and the non-carboxylated form, that's more of a finer detail. At the heart of it, what we've done is successfully taken our yeast strains from our lab, handed them over to manufacturer, we gave the manufacturer instructions on how to produce the CBD using our strains. They follow those instructions, and at the end of that, we ended up with some ultra-pure 99+% pure CBD and CBDA.
It was, I would describe it like a pretty small batch, we're going to have a few small but important customers around the world with this batch. The key thing that I want to emphasize with it is that this is the first time we've taken our yeast strains out of our own hands and actually done-- We've essentially operated the business model that we want to scale up with almost where we're trying to take advantage of manufacturers that exist all around the world that can do fermentation, enabled them to use our strains of yeast to do the manufacturing of these key ingredients and have them do that consistently, robustly, and cost effectively. We can actually make these cannabinoids into products that are available worldwide and that are available with the right quality and consistency, the same as how insulin available worldwide.
Matthew: It's analogous to how Coca-Cola back in headquarters, they syrup exactly right to a specification that can be duplicated, and then they ship out small amounts to the bottlers. The bottlers, they understand the spec, and then they make their cola on-site to add the water that's to spec, the carbonation, the bottle, it's all done at the edge, where you're getting the formulation, just what it needs to be there, by your standards, or by the customer standards, by both. Then when it's time to scale up, you send them essentially the recipe in the strain in a small form that can be expanded greatly on-site. Is that right?
Kevin: Yes, exactly. That's a perfect analogy and also a good analogy, because I would say large brands like Coca-Cola have taken interest in cannabinoid-related products too. That's exactly what we essentially want to do here, so we have this level of consistency that starts to look more like that consistently that Coca-Cola has where you can get it anywhere in the world, it's always the same look, the same taste, the same brand. We want to have that be something that people can rely on and that brands can rely on.
Right now, if you imagine doing that with cannabis or hemp growth operation, to some extent, people have tried to do this in the cannabis industry and there's so many fine details about how you grow the cannabis plants, what genetics are involved, how much lighting or water or different fertilizers, pesticides, that all go into that process that it's incredibly hard to replicate that. On top of that, you have to deal with the local regulations around each of those, like cannabis growth operations you might want to operate around the world. That's going to add another layer of complexity. That makes it very difficult to actually for any larger from a company or larger brand to really want to invest in that, because there's so many of these risks and so many unique cases involved.
We really, really wanted to focus on how generic our process can be and how robust it can be and how it can be this thing that people can actually rely on. That makes it a lot like the way that Coca-Cola might manage their manufacturing practices, or any multinational brand that has that crosses borders, or that has a nationwide supply chain, because that's ultimately where we see these partners going is that cannabis has always been on its way to becoming part of that mainstream and it's come close, but it's not there yet. Right?
Matthew: Yes. Well, we mentioned the purity, but the thing that one of the other variables I'm focused on is the speed. Let's talk about how much faster this would be to get these cannabinoids versus growing them indoor or outdoor, the plant and the harvesting, curing, and extracting.
Kevin: We highlighted that in our press release stuff about this, just because it is one of the most important aspects of this and to give some experience to this, our process runs in one week. That means that by the time if you started to grow some cannabis plants and I was growing my yeast, on day 1, we said like go today, then like at the end of this week, I'd have a few hundred milligrams or a few grams of yeast or maybe two kilograms, depending on how large a batch I try and run with this stuff.
At the end of the week, I have my first product and then you will have your first maybe seedlings at the best. That's one of the key things here is that we're operating on a weak batch process. That's a huge improvement in efficiency. That changes the way that supply chain works as well a bit. With plants, of course, you're waiting like three months to grow these plants. Then at the end of that, you have to do your processing. For us, it's like this one-week turnaround. Every week, there’s new batch. It's going to make a big difference for how much you can make and how fast you can make it.
Matthew: Right. Okay. I said curing early, but that's not necessarily what needs to be done for extraction. Still, there's a huge amount of time delta here that we'll be able to be capitalized on in the future. It's not just about speed in growing cannabinoids, these big multinationals or even small companies too, they really need the lab cultures because it provides something they just can't get from extracted cannabinoids. Can you talk about what exactly, why they're gravitating to these lab room cannabinoids? What it does from what itch it scratches?
Kevin: I'll clarify a bit with the language there. I think lab-grown is a nice one way to put it. We also like to use the word cultured cannabinoids or biosynthesized cannabinoids. I think biosynthesized cannabinoids is the most popular word right now. I don't like lab-grown as much, because then it sounds like we're growing them in the natural lab and that's not-
-really what we're doing. In some sense, we're still doing agriculture, it's just a different kind of agriculture. It's agriculture inside of cells. Then you can use the word cellular agriculture, which is another fun topic.
Anyways, [chuckles] your question was about like why our company, why people gravitate towards this stuff? I spent like the past six years looking at industry and to some extent, I've been doing everything that I can to get people to start gravitating toward this stuff. I think what it boils down to is a bit of those hard metrics of like, where it's coming from, how it's being made, and what that means for the end consumer. What I mean by that is that we can have a supply chain that is always going to have product available, that's a part of you always using what you always want.
We saw that issue in Canada, where medical cannabis providers would run out of supply suddenly of the strain that somebody was using. If you can imagine if you're using one dose of one particular kind of strain, it's working really well for you for whatever condition you're dealing with, and then suddenly, they're out of stock. That's totally unacceptable from a pharmaceutical supply chain kind of thing. Like if the world ran out of insulin, that'd be the biggest in the world. That's like millions of people that are suddenly in trouble. We can do that with this technology and has been done with technology before. That's one of the things that I think is key.
Other things that are a little bit softer as far as what attracts people to things are getting into the sustainability and the efficiency of it. Sustainability in the sense that like, we care about the planet, we should try and make products in environmentally friendly ways. We know that cannabis cultivation is very not friendly for the environment, in the amount of greenhouse gas [unintelligible 00:12:06] that you have, the [unintelligible 00:12:06] control, you have to put into your process. We're really targeting that as an interesting thing.
That ties into what kind of companies are people building nowadays and what do people care about from that consumer lens, whether you're a small brand or a big brand, maybe small brands here, but it's more because they want to have like an edge over their competition and looking for these kinds of things that are like, "Oh, this will be the way that this will go and the way the future is, therefore I'm going to want to use the cultural cannabinoids or the biosynthetic cannabinoids."
Even the major brands of today I think are tying on and getting behind these sustainability organic green technologies and that's what we are. That's what we provide with this industry. It's not as relevant as maybe like you could argue that producing biofuels using a yeast might be another way of more directly addressing an environmental issue with biotechnology. That doesn't mean that we can't just incorporate a random sense of sustainability into our pharmaceutical manufacturing and enter into manufacturing of consumer products as well.
Matthew: Some of these large food and beverage companies and other types of companies, they want that purity, consistency, and scale. They can't really get that through plants because even if they have a mother plant, the seedling or the clipping that they take off, the mother plant may be grown in a different environment every time. The conditions, environmental conditions are different, so the outcome may be different. We're really talking not like a mother plant, but a mother culture here that is essentially identical or cloned and reproduced over and over again.
This is the moment where you feel the multinationals are like, "Okay, this is-- We have a mature industry that's ready to give us cannabinoids and we can start looking at it as an ingredient."
Kevin: Yes, definitely. You're exactly right about that analogy of having a mother plant and the conditions except-- I guess in our case, we have like-- [chuckles] Trying to tie into that analogy. We do have a mother culture, we have seed cultures that we store and they're all super consistent and then you grow that seed culture into huge volumes and it is still consistent. There's no genetic or environmental version, or at least you have control over all of the environment that goes into your steel tank. There's no airflow concerns or humidity being in half the greenhouse being different from the other half the greenhouse somehow.
All of these things are easily controlled and consistent across our batches. That's definitely true. You could imagine like not just large scale multinational brands that people are familiar with, but also large scale ingredients suppliers that are starting to catch on to this as well, where they can see this as a process they can incorporate into their own manufacturing facility and then have a new product line, which is like-- Essentially, what it boils down to is an ingredient supply ecosystem where we're providing the technology to enable this all to happen.
Then there's manufacturers who are able to produce the ingredient at large scales and move that into the larger brands who are their main clients and purchasers. That's all like with the way pharmaceutical ingredient supply works is it's like there is a lot of different parties involved. It starts with this. It starts with this like having some kind of foundation to stand on and one that doesn't rely on the cannabis plant.
I'm reflecting back on some earlier stories from the cannabis industry where people really wanted to have special genetics or special strains. Maybe those strains were tied more to their name or their brand, rather than their actual chemical composition almost. That's going to go away. We don't need that kind of thing and it's not very useful from a pharmaceutical standpoint either when you're talking about like, "What's the actual ingredient here? What's actually giving us the benefit?" Then we have the cannabinoids, of course, and that's what we focus on.
That's another really big change of mindset is that it's less about plants and strains and greenhouses and indoor grow versus outdoor grow and tan trim versus not having trim, whatever. All these things just start to fade away and we can focus on what's actually helping people and what's actually the active ingredient of the product and how we can use that in the best possible way to treat whether it's a skin condition or epilepsy or I guess to some extent like [chuckles] an alternative to like alcohol on a Friday night, let's say. [chuckles]
Matthew: The big story here and the reason I get excited about this is that it finally paves the way for an international cannabis brand, or CBD, or hemp brand. We almost couldn't be more fragmented or decentralized industry than we are. I like all the small mom and pop businesses, I think they're fun. I enjoy that. At the same time, it would be great if there was like one brand that the whole world understood was cannabis, because I think that would really catalyze the adoption of cannabis, especially away from other traditional medicines and different, maybe even cannibalize alcohol, if we can get more cannabis out there.
I mentioned Coke, but I also think about like other brands that wouldn't exist if there wasn't some way to standardize them. McDonald's, Adidas, that's not food or medicine, but the shoes are essentially the same all over the place. Now we have this opportunity. We have enough countries that are legalizing, at least if not, THC, then nonpsychoactive cannabinoids. What's your guess? Which type of product will go global first, or at least be on multiple continents with one brand? Will it be a supplement? Will it be food? What will it be?
Kevin: Yes, that's a good question. Definitely, it's exciting times internationally in seeing who's developing which regulations. [unintelligible 00:18:44] made the point where it'd be really nice to move some of the dial there with regulations in different countries, or how people you can look at this stuff where they can look at our products and say like, "It's not coming from cannabis. We're trying to regulate cannabis." That reminds me of the whole development of the Canadian cannabis regulations where there was years of tasks forces and figuring out how to grow the plant and how to regulate that process and all that kind of--
Again, starts to fade away a bit when you start to think about like, well, fermentation. We have fermenters, we understand that. We can call somebody tomorrow and ask them how to produce things in fermenters. They'd have 50 years of expertise in that. Then in cannabis, it's a lot from the ground up kind of thinking or maybe the most experienced cannabis growers were obviously doing it illegally for a very long time. I'm excited for what that might look like on a regulatory standpoint worldwide. As far as what product do we actually-- What do you think is going to be worldwide? That's a good question.
I think there is A, pharmaceutical products is like once you get an approval somewhere, then getting that to track around the world is not too challenging to some extent. If you want to think about what are global barriers to like how we make cannabinoids available to people who need them, that's one thing that to some extent already exists with companies like GTB Pharmaceuticals, but from a standpoint of less, less pharmaceutical and more into like the consumer range, it seems like cosmetics are one of the more perceived as acceptable areas where you might have a skincare product that has this stuff in it, as opposed to one that somebody has to consume, or really, for example, again, that ties into some of the different regulatory and maybe even emotional perspectives on cannabis or on cannabinoids in general as well, because you're not going to like rub something on your skin and then get high or something like that. [chuckles]
That's not how people normally think about using cannabis. Therefore, we would have like some fresher perspective from if the stricter governments around the world to try and like enable these kinds of products to exist. The other nice thing that exists already is how the perspective of CBD like Europe, for example, is still complicated, but a lot more open to allowing CBD oils to exist in the health and wellness and nutritional supplement area. To some extent, CBD oils might be like the first one that really starts to become more available anywhere in the world.
Matthew: Yes. Similar to maybe like a five-hour energy drink, there might be something you see everywhere. That's a small little container that you drink or in some way, that's just instantly recognizable that'll just be around everywhere. This is interesting. There's also another benefit to the lab-grown cannabinoids in that it's easier to experiment with rare cannabinoids and not that they're actually rare. It's just that they're not widely adopted at the moment. Can you talk a little bit about cellular agriculture with rare cannabinoids?
Kevin: Yes, definitely. That's one of the super interesting things that excites me a lot about the technology is that with the cannabis plant, we know that there is 150 cannabinoids and there's the main ones which are THC and CBD. Does that make sense? CBG as well and it's slightly different one, but either way, there's ones that Canada has produced in large quantities and ones that are pretty soon very, very small quantities. Some of the latest research and some clinical trials, they're starting to investigate what is the potential of these more rare cannabinoids? That's an area where if I take a THCV or CBDV as an example, like that might be 0.0001% of a cannabis flower.
If you wanted to extract a gram of that, you might need like 100 kilograms of cannabis farming. That doesn't make sense as like a process. There's just not enough there. With a engineered yeast, we can actually, well, we have yeast strains that produce THCV and CBDV, and we've done that successfully and clone that pathway and network-- To figure out how to get a yeast to produce these unique compounds is a matter of like engineering, just looking at these genes, how to assemble them properly and then you have your yeast strain at the end and that takes months of time, not years. It's all about like having a breeding program for cannabis that you're going to just breed strains until you get the right one.
We know exactly what we're changing and exactly what we're doing and our process for producing these rare cannabinoids will be the same process that as what we use to produce the CBD and the THC that we'll make as well. At the heart of it, we've got the ability to clone these strains that produce these rare cannabinoids. We've already done so in a lot of cases. Now that we've done that, it's the same process as what we'll use to produce CBD essentially. We can do the same thing and have large scale quantities of these rare cannabinoids suddenly available for-- ultimately, for human consumption when you go through all the steps to prove them out. But first for researchers, of course, so that they can actually figure out how good these things are at treating different conditions.
That's to some extent, a lot of the ways that people talk about cannabis and how it's useful for so many things is coming from where there's some activity in these rare cannabinoids or in combinations of cannabinoids that right now you can't really get access to by growing just cannabis plants.
Matthew: How do you think cellular agritech culture will affect the global supply chain for cannabis and hemp? I'm just thinking that if we can grow cannabinoids, if we can use biosynthesis or cellular agriculture for cannabinoids, that can be done in more of an urban environment, or at least it doesn't have to be done in a rural environment like outdoor farming for hemp, anyway. Do you think if there's any other ways that it might affect the global supply chain?
Kevin: One of the funnier ideas [chuckles] that I think about sometimes is that a lot of the products that are made using industrial fermentation are exist in the background a little bit. Citric acid is one of the biggest ones where it was in all your foods, it's a common product, it's vitamin C, it's everywhere. That's made using fermentation. A lot of people don't really realize that, or you think it comes from oranges or something like that, but it's actually a fermentation process that's used to make that. In some ways, we want cannabinoid production to start to fade away in that direction, to where you're aware of where it comes from, or maybe actually I'll flip that around. [chuckles]
Historically, these things have faded at the background a bit. Nowadays, people care a lot more about where their parts are coming from and that's probably why cellular agriculture and licenses just become really important because we don't just want to buy a piece of meat in the store and accept that as just normal. We care about the cows and the farmers that are providing this to us which is different today than it was maybe like 10 or 20 years ago or whatever.
What I mean by what we're going to do with cannabinoids is that we're going to remove some of that drama around cannabis production and having that be a big event or having that be a headline news about, "Oh, this cannabis group is opening here," or people getting upset about the smell of cannabis plants because their neighbors growing them or controversy around like the pesticide use around cannabis and how it's making people sick. These things start to fade away and what people get in the end is that they have CBD that's available at a pharmacy maybe the same way that you might want to look at aspirin and you can buy it like on your way to work.
You can buy small jar of CBD oil and it's not a big question of, "Oh, I'm not going to take this and get sick later today," or, "Am I contributing to global greenhouse gases significantly by buying this one CBD oil thing," or, "Do I even know if there's CBD in the CBD oil that I'm buying?" All these things that exist, those are problems that are at the forefront today and those are going to start to fade away. Then we have this really nice and established and reliable ecosystem of manufacturing.
Matthew: Well, it seems like it may be correct me if I'm wrong, but cellular agriculture seems like it lends itself to automation, much more so than plants being grown. Even when I visited your lab, you have things spinning and you have things in refrigerators, all this stuff going on that I can't even describe, but it looks like, "Hey--"
Kevin: A good memory. [chuckles] You got a couple of things done already.
Matthew: Right. I was like, "Okay." These things tend to be smaller than plants, at least when they start out. All these things, these combinations that are being created of cellular agriculture can be done in an automated way. That further brings down the price, if all these experiments and all these initial cannabinoid creations done in an automated way, once it's dialed in. Do you think that's accurate? Do you think that cellular agriculture is really going to bring down the price a lot?
Kevin: Yes. I think automation definitely plays a big role in this. When you look at a fermentation facility, it's maybe a few people who sit beside behind the computer for their days watching the main factoring process go, and it's way different from a cannabis production facility where you have like people trimming plants and moving the plants around and there's always staff handling these things. Again, yes, it's much easier to manage one steel tank where you have all control every single input and output in there than it is to control like a field of Canada's plants that is going to grow and some of that's going to change and it's going to be pests or whatever.
In terms of costs, there's definitely going to be a difference there and that's an interesting one just because we-- fermentation is also-- it's not a very cheap process. [chuckles] I wouldn't put it that way. A lot of the most expensive ingredients on the planet or the most expensive pharmaceuticals on the planet are produced by fermentation. I don't want to say too much about trying to bring down the cost of CBD but there's definitely some cost benefit when you get to the right kind of scale. Let me think about what else I could say on cost. In the end, like cannabis, you do have some floor cost about how you have to handle the plant, how you grow it.
One of the complicated things about cost that's being talked about right now in cannabis is the price of CBD in the US where everybody's like, "Oh, it's so cheap, it's everywhere, no problem." Yet, there's these issues of CBD remediation where there's too much THC somehow in your hemp grow, and therefore we have to remediate it. There's issues from the FDA that are saying like, "Well, half the CBD products on the market don't even have CBD in them."
There's things like that that are starting to come out. Yes, it's easy to grow hemp, and you can try and do that, and then have this low cost, but the cost of CBD, of high quality CBD of CBD that people can actually rely on, maybe that hasn't changed as much. There's still a need obviously for technology like ours to address the cost issue and the supply issues.
One of the other exciting things about cost is when you start to get the price of your ingredients into a range that is also suitable for having this be ingredient in other kinds of products already exist. I remember one of my conversations with a food manufacturer a few years ago, which went like this, where they were super excited about getting into CBD and having products that have CBD in them and making that a new thing for them. They make and sell bars, maybe they pay like $2 for the ingredients, they sell the bar for $4.
If I'm asking them to put like, "Oh, pay an extra like $5 for a gram of CBD to put into your products." That suddenly exceeds what they understand is the cost and how it ends up actually a grocery store shelf or whatever. The cost of ingredients for them is really, really important. If it's fundamentally past a certain point, then they can't commercialize products. That's where we might be able to with fermentation, we can definitely start to break those barriers and get the cost ranges that start to make sense for these kinds of ingredients. The same thing about scale again, and so on so forth. Those are my comments in cost, a bunch of thoughts there. It's an interesting one.
Matthew: Just describe a little bit of how you envision making money here. Is this through intellectual property licensing, or some other royalty agreement? What does that look like?
Kevin: In the end, it'll be a combination of those things. It might depend a bit on who our partners are, how regulations need to be handled, and these kinds of things where it might make sense for some markets for us to get into just purely by licensing, it might make sense for others for us to get into by having a partner and their billing or facilities. I'd say to some extent, we have some options there as far as like how we might deal with each situation.
The heart of it, what we're looking for here is really the ingredients companies or those brands, or those retailers and distributors who understand the market, who have products that are out there now, and maybe they have like a market share and some other sectors, and they're curious about like, "Oh, maybe I could add CBD to my products," or, "Maybe I'm well positioned to take in the supply and commercialize like a CBD product around the US or in Canada or around the world," wherever.
Then they might want to start talking to us and see what that might look like, what commitments do they need to make to have as partner with them, and what it takes to get manufacturing online so they could start to do that kind of work. [chuckles] It'll be a little bit complicated. In the end, we have these kinds of options and choices to make. It'd be exciting to have these conversations with these different partners or investors.
Matthew: You've achieved this milestone here in selling the first lab, cellular agriculture CBD, just for people that are listening, and they're like, "Okay, what are the milestones should I look for, Kevin, to see that this is all really happening and that this biosynthesis is going to become a larger and larger part of the cannabinoid market?" What's the big one or two, maybe three things that you'd say, "Okay, look for this, and then you'll know this industry is getting traction?"
Kevin: Look for me flying overhead in a private jet that I own.
No, I’m just kidding. That's good. The milestones, for years, it's always been a bit of the same, I would say, where we decided to get into this. We knew that the advantages of doing this process are that it's somewhat traditional, there’s these facilities worldwide. You can take your process from your lab, put it somewhere else, and somebody else can run it for you. We've done that at least at this level to show that it works. We'll do more of that, we'll do some larger scales, that'll be one thing to watch out for.
The next thing is to prove that, of course, we can have partnerships around our technology and have ways that we can get access to the market. Does that make sense? We've done that with our relationship with Organigram, which is another big Canadian cannabis producer. Now we're looking for more partners around that and seeing who might be our best partner in maybe by country or by application and say like, "Okay, well, we're going to partner there for this product line."
One of the exciting things that's coming up now, too, is also the idea of product diversity and having a range of cannabinoids that we can make and demonstrating that. That's going to be another really interesting one, where we start to show a bit more of our ability to diversify products. With those three things, we've covered the bases a bit as far as like, here's the advantages, we've proven that these advantages make sense and that they work, and that it will be about growing the business. Of course, we're a startup, we're looking for more investors all the time a bit. That's something else that we can talk about, too.
Matthew: Where are you in the raising capital process?
Kevin: I would say we're always fundraising. There's a way for you guys, a way for people to reach out to me directly to say like, if you're sending whatever. We are looking for more capital, of course. It's going to focus on the commercialization of our technology and seeing who's around that, that can support that.
Matthew: Okay. Well, Kevin, since you've been on the show a few times, I have some different personal development questions for you.
Kevin: Cool. You should change them up, because otherwise, people will get bored.
Matthew: You're right.
Kevin: Then one day, they'll know everything about me after a few times.
Matthew: They might just clone you. We don't need Kevin anymore. We can [crosstalk] What other technologies do you see on the horizon? The public may not be totally appreciating how that might dramatically change their lives apart from what you're doing in the labs, or anything else you just see, anecdotally, we're like, "Hey, this is going to have a big impact." Then people really don't understand it.
Kevin: One of the most exciting things to me is all of this other agriculture and biosciences field is interesting to me. You start to move the bar about like looking at your daily life and the [unintelligible [00:37:43] that you eat, or that you buy in the store or that you have around even today and seeing like, "Okay, well, maybe all these materials can be made using keys or bacteria or something like that."
It seemed that reality is coming up really, really fast. There's one of my favorite other companies is called Perfect Day Foods, and they're producing milk using yeast essentially, and people in the US can buy their ice cream. I can't buy their ice cream because they don't have international sales yet. [chuckles] If you're in the US, you can buy some of this interesting yeast-based ice cream, which is super exciting. I see that's right on the horizon here, that's pretty much here now. What's on that horizon is a bit more of that what else can be made and how else can biosynthesis play a role in our lives?
Matthew: Well, you mentioned ice cream, do you have a favorite comfort food?
Matthew: Your go-to? I forget that concoction that cheese curd they put on fries and stuff there in Montreal, it’s really good. What’s it called again?
Kevin: That's called poutine.
Matthew: Poutine, yes. That is really good. It sounds gross, but it's really good. What's your favorite comfort food? I don't want to put words in your mouth.
Kevin: That's pretty high on my list. I would say that the poutine element, for sure. My favorite comfort food is Chinese food actually. My dad is from Singapore originally. We grew up eating Chinese food all the time. There's a specific restaurant where I grew up, which is the one that we always go to. That's maybe my ideal comfort food spot, in my brain, that's like, "This is the one."
Matthew: I was truly impressed by the food options in Montreal. I don’t know if that's the French kind of legacy there and culture or what, but I was like, "Hey, this is really good food." Every place I went, it seemed like it was really good food. You're in a good food city.
Kevin: Definitely, yes.
Matthew: All right. Last question here. What is your favorite tool? It can be a software tool, physical tool, doesn't need to relate to what you do day-to-day. It's just you'd be bummed if you could never use this tool again.
Kevin: Let me think for a second. Maybe my favorite tool right now is my coffee grinder. I think making coffee at home and working from home, it's been a good experience, one of the silver linings of the current situation. I'll give it that. [chuckles]
Matthew: That's great. That's definitely a ritual I couldn't live without. I'll tell you what my favorite tool is. How about that? I recently got a big Berkey water filter. It's just amazing. They've been around for a long time but it purifies the water. It takes out chlorine and all the things in there and also takes out the fluoride and arsenic and all these things. I've just been amazed at how much different just drinking water it is with it. I don't have any relationship with them, but it is truly a great tool for just having pure, clean drinking water around the house.
Kevin: It's good.
Matthew: You don't have to go for water bottles and stuff like that.
Kevin: Totally. Montreal just has a bunch of scandalous things around lead in the pipes and other kinds of stuff. I think the city is actually supposed to send me a water filter for my own water but I already had my own, but I would say plus one to that, for sure. Water filters are great tools. [chuckles]
Matthew: Kevin, we learned a lot today. I feel like this was a combination of a science course and a business class wrapped into one. As we close, let accredited investors and also companies that may be interested in learning more about your cannabinoids and how they might partner with you or work with you somehow, how can these two parties work with you, accredited investors and who are interested in investing and also businesses?
Kevin: Yes, definitely. I would say our website is the best place to get started. Head over to hyasynthbio.com. You can scroll through the little animation that we've got on our website. People seem to like that a lot and then we've got a few contact forms at the bottom which people can choose whichever one they feel like they fall into. Then that'll get sent over to me and leave a bit of information about yourself and what you're looking for and I'll do my best to help out.
Matthew: Kevin, thanks so much for coming on the show yet again and educating us on what's going on. This is a fast-moving industry and I watch it very closely. Well done with your business and keep us updated.
Kevin: Likewise and really glad to be back and glad to hear CannaInsider keeping up the good word and I'll happy to be back again sometime in the future, of course.
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 guests here. 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 email@example.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 for using it for medical treatments. Emotional 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 company's 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.
[00:43:59] [END OF AUDIO]
Just as oil powered the old economy of atoms, data powers the new economy of bits. Here to tell us how to leverage our cannabis business data and market more effectively is Nicholas Paschal of Alpine IQ.
Learn more at https://alpineiq.com
[1:02] An inside look at Alpine IQ, a data analytics and marketing platform for cannabis companies
[1:27] Nick’s personal background and how he got into the cannabis space
[7:24] Why it’s important for companies to take protective measures with their business data
[11:18] How Alpine IQ not only offers analytics tools but also helps businesses determine the best ways to act on data
[18:32] What companies can expect during Alpine IQ’s onboarding process, from integrating apps to ensuring compliance across the board
[21:36] Alpine IQ’s audience feature and how companies are using it to generate ROI
[31:45] How streamlining analytics tools using Alpine IQ can provide incredible value for cannabis companies
[35:35] Alpine IQ’s journey achieving product-market fit and how the company got its first customers
[39:26] Where Alpine IQ currently is in the capital-raising process
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.
You may not have heard, but data is the new oil. Just as oil powered the old economy of atoms, data powers the new economy of bits. Today's guest is going to tell us how to leverage your cannabis business data and market more effectively. I'm pleased to welcome Nick Paschal, co-founder of Alpine IQ to the show.
Nick, welcome to CannaInsider.
Nick Paschal: Hi, Matt, thanks for having me on. I'm very excited.
Matthew: Give us a sense of geography. Where are you in the world today?
Nicholas: I'm in good old Dallas, Texas, the land that's very flat and dry around here.
Matthew: Compared to Colorado, you're right. What is Alpine IQ on a high level?
Nicholas: Alpine IQ is really a customer data platform and a semi Marketing Cloud. Our goal is really to protect you from breaking promotional compliance, segmenting and personalizing customer journeys, and overall sinking of your in-store and online operations.
Matthew: Okay, that's a lot and important stuff, and we're going to dig into that. Before we do, can you share a bit about your background and journey and how you got into the cannabis space and started Alpine IQ?
Nicholas: Yes, for sure. Stepping back, when I was 13, I played video games, and eSports was not as big as it is today, and out of playing Halo professionally and traveling, I forced myself to learn technology in order to pitch sponsors and try to get people involved in eSports. Over time, that really just laid the foundation for me to jump into the startup game and be more of an entrepreneurial. I started a couple of startups, failed, learned all those lessons, and all those things are very necessary and had my first breakthrough startup in 2012. I've since sold that company three times now. Funny long story, but not relevant to cannabis.
Then my younger brother actually was working for Tilray for a number of years on the retail team. This is all public knowledge, but they were going out trying to get into retail and buy up different chains. Part of that was we were just talking, actually playing video games again, that's how we stay in touch because he was living in Seattle. We were talking about what's inside of all these data rooms? How are these retailers managing things, and especially across provinces in Canada, and we would later obviously work in the US as well.
I started tinkering around with data management in the space, and really found that there was a really great solution there, so we started building out a product alongside the retail team there. Then over time, just eventually had a proof of concept, went through beta, got the green light from a lot of very key players in the space, and then we started to go to market in February 24th, so right before COVID hit, and that was pretty crazy timing, but it's been a journey so far.
Matthew: Wow. You said you played video games professionally, specifically Halo, the Microsoft game, is that right?
Nicholas: Yes. [laughs]
Matthew: That's pretty crazy. I've never met anybody who could do that. Now also, you mentioned eSports, and people that are listening are like wait, what does eSports mean exactly? What is that fantasy football? eSports is now bigger than regular sports, I think. What does eSports mean to you?
Nicholas: For me, it's how millennials were raised, essentially, I feel like, or at least my parents [laughs] growing up playing games and then getting into Halo. That was really the first one that popped off outside of the PC World and went mainstream. At the time, it was on USA as a live event that they were streaming, and that was really the kickoff and eSports being gaming tournaments and live streaming online via companies like twitch which didn't exist at the time. All of those were just very natural progressions to me in that sport, and coming from MLG, which is Major League Gaming, was kind of the first thing that I was in related to that. It really forced me to be an entrepreneur because nobody really believed in gaming being a big industry from people watching it tournament style.
Convincing brands and sponsors of that was a big step, and putting together decks and websites for team members, and then that eventually led to 3D. I got really into particle effects, which led to me actually working on Halo, because one of the guys from Bungie saw my work on YouTube, and I got basically hired and had to move overnight from Arizona with no car when I was 17, so it's pretty crazy.
Matthew: Wow, that's nuts. How old are you now?
Nicholas: I just turned 30.
Matthew: That's quite a long journey then. That's really interesting. I know, in South Korea, in other places in Asia, that the eSports have gone to a whole another level. In fact, I don't think most Americans or North Americans are really aware to the extent they're filling arenas. You're watching people play video games on a big screen and stuff. I think that is someplace where things are headed, especially now that we've got Oculus 2 out there, it doesn't need to be connected to a PC and you can join events virtually and it's really becoming quite immersive. Do you have any thoughts on that?
Nicholas: Yes, I think the cordless VR stuff is pretty huge. I think that the barrier to entry, though, is still the price point on that. It's one thing to get a VR headset, but then you also have to get the PlayStation or build a workstation that's powerful enough to handle it. Yes, eSports is growing immensely. Even here in Dallas in Arlington right next to the Cowboys Stadium, there's a whole indoor arena just for eSports and gaming events, which launched, I think it's the biggest one in the country, if I recall correctly. It's just growing crazy. Especially in, like you mentioned in Asia, there's huge Superbowl stadiums that are just constantly sold out for games like League Of Legends and some of the more popular ones.
Matthew: Fascinating stuff. For listeners that are just not as immersed in data, and specifically, cannabis data as you are, how can you orient us so we can evolve our thinking to catch up to where you're at, and to think more critically about our business data what it is and how to use it?
Nicholas: Yes, so I think really the bottom line is that you're at risk of owning your customer if you have leaks in what I would call your data network or your data infrastructure. At the end of the day, if you don't have trust and confidence in your customer data, or inventory data, or machine learning derived pieces of information to help you grow your business, you're just going to have a lot of downstream problems occurring for both the customers in their journey, and loss of man-hours related to like your internal staff, either on a brand side or maybe a retail side. Some of the other things people don't realize is you're going to bleed customers to competitors in different ways that are subliminal.
Just to back up, a couple of months even, there's so much money getting poured from cannabis into silvery businesses. It's smart money, it's Silicon Valley money, these guys know what they're doing when it comes to data. Those in silvery businesses, you have to be careful with their intentions long term, especially when you have what I would call some conflicts where LPs and some of the big players that are your direct competitor as a retail operator or brand, are collecting that data downstream or have the ability to anonymize it and use it in exchange for maybe free access to your point of sale, which is a very common thing in cannabis.
Just being able to control your data long term and your data network is so critical. When these CPG brands get into this space in a big way, in a couple of years, your data, if you're giving it away for free or you're not governing it correctly, is going to end up powering their rapid penetration into the market. You should be owning your customer, you should control your data, you should have data breach clauses, and really speak powerfully about that for your business.
Matthew: When you say the leaks, I just want to be clear like data leaks so you're using maybe some sort of SAS software, or have an API that links your database to a third party for whatever reason it might be to accomplish something. That might be used in a way that you might not approve of but might not be aware of.
Nicholas: Yes, exactly. It's kind of the same argument that's very public with people like Facebook and TikTok right now, is you don't really know downstream just by using a couple of cool tools how they're going to be able to capture the customer in a way that you didn't really realize upfront. That might not just be, I don't want to pick on tech providers and your stack, a lot of people don't have that intentions. There's also leaks in a sense where if you connect your Mailchimp up and then you're doing SMS campaigns on a platform and the opt outs don't speak together, then that might open you up for problems down the road with compliance.
So just little things like that, that add up especially with such a new space where these tech providers are brand new and all the kinks aren't worked out, and everybody's just trying to work together.
Matthew: You know sometimes I see a lot of tools relating to data, and it lend themselves to analysis paralysis because the data's so overwhelming. It may be beautifully presented, but it's not clear what the actions are, like, "What's actionable here and what's my priority of action?" If I'm going to take some action, which one should it be first? How can you help us understand your data management platform and how to analyze the data to do something powerful?
Nicholas: Yes, for sure. I would say the first step is that you need to clean it and connect it all together. You need to get all your integrations. In this space, especially pre-COVID, most of that is being looked at as, "I just have to connect my point of sale. I can look at my transaction data with a couple of different providers or maybe that powers one or two marking tools."
The problem is if one of those pieces of data changes. Let's say that you have a customer wallet and their phone number changes or they change their address, what do you have to do with that person, and is that going to affect when they walk in to the store, if they're going to have the right information on the point of sale that they would have in the customer wallet that might be provided by somebody else? So just like cleansing, de-duping data. That's a big piece and mapping it together across all these destinations and sources of data.
In Alpine IQ specifically, we wanted to make it really simple to have key metrics. We have a managed service. If you don't understand data science, you don't want to look at a bunch of graphs all day. You just want actionable things to do as of business that would make a difference on your bottom line, we have that as an add-on for a lot of people.
In the dashboard, when you first get in there, we're super agnostic. What happened was, we made this data management platform. Originally, we were going to connect to a lot of tech vendors in this space, specifically in marketing and audience creation, and they didn't really want us to get into their business and power or anything. It was this gate-capped environment, so we ended up just making our own, what I would call Kroger brand of cereals, to match those. You have the option in Alpine to either use another provider for each piece of your technology stack, or you can use our own pieces that we've built specifically because we know that those are the highest ROI generating pieces, things like SMS campaigns, loyalty, wallets, personalizing stores screens.
The ability to attribute ROI across all of those tools, is probably the biggest difference in Alpine versus other things out there. What I mean by that is, when you connect your email provider, like maybe Mailchimp or Klaviyo, and then you have Alpine SMS campaigns, and you might have AdBlue banner ads doing retargeting and geosensing, it's very simple in Alpine to look at a couple of graphs and have a couple of stacks there that tell you, "Mailchimp sent you this much revenue versus Alpine SMS versus AdBlue banner ads." You can really break it out and split it out in one place so you're not looking at these detached different analytics tools on a hundred dashboards. It's all just going to be combined and nice. That's the first thing, it's just combining and being able to look at it in a clean way.
There's a couple of stats that we generally like to move the needle on, both from the managed service and what I just tell anybody to do, is look at the deviation of the member club average ticket size, so your loyalty club purchases versus your non-loyalty member purchases, and try to rise that percentage up, both through dynamic discounting and promotions and just targeting the right people at the right time is a big deal. We even have pieces on our system that map out the audiences you create for SMS or for Mailchimp, and then showcases that on a Google map of where those customers live so that you can decide on physical world promotions and events that might be relevant to specific audience.
Matthew: SMS is really a popular way to do promotions because it comes right up to your attention, unlike an e-mail or something else. There's some litigation right now for people that say they have opted out, which goes exactly to your point of like, "Hey, you've got to make sure you have clean data." When someone opts out, maybe in one database you have hyphens in their phone number and another part of the database that doesn't have hyphens, so your software thinks those are two different numbers, opts out one and not another. The next thing you know, there's a lawsuit because you texted someone that opted out.
Nicholas: Yes, the TCPA lawsuits are definitely a big thing in this space. We have a lot of customers actually come to us after those happen and still run SMS and are very excited about what they're generating there. You have to make sure that you're TCPA compliant in Canada, you also have CASL, in California, CCPA. You have all these different things that you have to look out for, not just for text messaging but e-mail compliance and all these different privacy policies.
Cleaning the phone numbers and cleaning records and de-duping them is a big step to honoring opt outs. In Alpine, we actually have a page that we give every customer that they can link to from their website, and you can opt out GDPR, CCPA compliance, and it connects all of your tools together. If they opt out of our page, then it'll automatically tell like Mailchimp, "Hey, they're opting out," and SMS campaigns will stop. To be honest, a lot of those TCPA lawsuits arose because customers were exporting SMS files from vendors and then switching vendors. There's edge cases there where, if you download a CSV file of all your member club people and you have opt out dates, and then they happen to send a couple of text messages in between the time you're transitioning and somebody opts out, when you're on the new vendor, that's going to send a text message. They're going to get upset and they're going to think they already opted out when the new vendor has no idea. You just have to be really careful transferring things. We try to help people through that as best as we can.
Matthew: We talked a little bit about the dashboard and what you see when you log on. Let's say I'm a business owner. I've committed to Alpine IQ. I've connected up as much of my business as possible, to it. What kind of insights will I be getting? What's actionable there that would draw my attention if I was looking over your shoulder at the dashboard?
Nicholas: As far as onboarding goes, typically we can get that done in a day. We just take you through an onboarding call. We make sure all your data points are connected, all those API keys are good to go. We'll map all the stores together, if you have multi store operations. The first thing you're going to see is, you're going to see a data network. When you log in, you're going to see all of your ingestion points of data pulling in, in real time, the accounts of people coming in, and then our system's core which is cleansing of that data, making sure it's compliant, and then shooting it back out to other third parties or our own in-house tech stack, which would be like SMS campaigns or one click review widgets for SEO boosting.
It's pretty simple once it's all set up. You're really just getting reports day to day, or those are also e-mail directly to the right team members where the data is relevant to them. That's a big difference for us, and yes, ease of use and simplicity is really key in this industry, especially when you're trying to connect up four or five different providers on average for every retail store.
Matthew: Okay. Let's say I'm a cannabis retailer. I've got Alpine IQ. How do I cleanse and sync that data? Is that happening automatically? Am I prompted to cleanse somehow and sync? Because I know that's something that you have mentioned in the past and it's important, but I don't know if everybody knows what that means.
Nicholas: Essentially, after you connect your, let's say you have a website, so you connect your website to our system, which basically tracks page views, what was put in cart, what videos did somebody watch, like maybe those were edible videos specifically. Then you might connect like a rest API, your point of sale, you have email providers, you have, e-commerce like I Heart Jane. All those things, once they're connected, Alpine is basically going to look at data from all of those places coming in real time. Then in some cases, there's a four-hour delay for certain point of sale systems. For the most part, it's really quick, and there's even a timer on the homepage that says, hey, at this time, we're going to run the next cleansing of your customer records and then sort them into very specific, granular audiences that you can use. It's pretty easy to see that it's running, it's constantly going to be going and protecting your entire data network.
Matthew: Okay. Very cool. Audiences, let's talk a little bit about that and what that means. What's an audience and how do you see retailers and brands using the audience feature to generate ROI?
Nicholas: Right. Audiences really are, most people in this space would say, okay, an audience is somebody that has previously purchased edibles or some kind of like generic category. With our system, we have a full segmentation and filtration tool. We generally give you a ton of different audiences that are pretty configured based on what we know is going to be used most, things like top 20% spenders across all of my stores. You might generate these audiences. you can select different traits. You can say, I want to target people that are top 20% spenders that visit at least three times per month and they have over 700 loyalty points, and then you can analyze those and use those people in campaigns down the road if you want to.
Matthew: Okay. Let's just, if you were to just hypothetically put on the hat of being a cannabis retail brand, how would you optimally run things from a digital perspective here? I think of Alpine is like this old time switchboard where the operator is plugged into everything else. It's plug plugged into all these other systems and stands there looking at them all. Now that you're at the switchboard and you have full visibility into all the different systems, how would you run your cannabis retail brand and leverage Alpine to do it the most efficiently and optimally?
Nicholas: I would use a lot of different tools. Right now, the incivility business side of things in the tech space is growing so fast. There's so many vendors in the space, and it's even after taking demos and seeing sales decks, which we did looking at people through Tilray. It was what is working over here? What's the best tech stack? How do I combine these things together? Really I would start with my base set up, my current point of sale. I would install website tracking. I would connect together my eCommerce setup, and that way I can look at everything in a consolidated place. Then I can switch out vendors. I can change out SMS campaigns to target different audiences that are more granular. I'm saving capital, but not sending SMS to the wrong people at the wrong time. Or maybe I'm a high tourism zone and text messaging people at daily deal to come into the store today is a bad idea to just blast a 40,000 members when like 500 of them live anywhere nearby to do that today.
It's like all these little optimizations I would do. I don't know if you want me to give some examples of upgrading campaigns or anything, but--
Matthew: Sure. Yes, I love examples.
Nicholas: Let's say you have 30 stores. Because really, we built this looking at Tilray, we knew it was going to be a very large thing. We went backwards on building it for big enterprises, and then that helped even single store operators obviously. Then they have trust to, as we grow, it's going to work. Let's say you have 30 stores in Colorado. We'll use that top 20% spenders that visited three times last month as an audience example. All you would need to do in our system is create an SMS campaign, and you can use all these little personalization tools, it's drag and drop really simple. You can say like, Hey, first name. that would relate to, Hey, Nick. It'd say, Hey Nick, happy Tuesday. I hope you liked the white widow you bought last week. White widow could be taken automatically from our system as the highest price item from their ticket on their last order.
You're not saying, Hey, I hope you liked the papers you bought. You can get really granular with that. Then you can give them a recommendation. You have a new string called Durban poison that we think you would really love. That recommendation is based on machine learning currently available inventory days of stock and things of that nature.
Now I have one SMS campaign I can send to 40,000 people, but it's going to be different for every single customer. Which is also going to help me not get blocked by carriers when I'm sending SMS because it's very personalized. We can even link a coupon in that SMS campaign that goes to a page that has a barcode to easily scan it at the tail or something else. When this is sent to a customer, there's an SMS campaign I'm talking about. Alpine would automatically add that discount to a customer wallet alongside any arcade style points, discounts, or anything that they're familiar with. This could even go to use the discount for pre-ordering on something like iHeart Jane because that's connected to Alpine. All this stuff is speaking together.
When they come in the store to pick up their product, after ordering on iHeart Jane, in that example, they can scan their ID at the door or be in a waiting room, depending on your state or province. Then we even 10 power things like store screens by saying, Hey, Nick is in the queue. He's about to walk in the store. I want you to put mostly edibles or Durbin poison content on all the screens in the store. Then the bud tender that handles him, I want you to give him a tablet recommendations list of products that are he's most likely to buy based on the white widow purchase and all of his order history and what other people have bought with the same order history in the store.
Then in the customer's brain, everything about their interaction with you is amazing. It's personalized to them. They feel like you understand them. The higher ticket prices come from that, the loyalty comes from that, and that's when you really start to get the boost. Then on top of that, when Nick leaves the store, he's going to get a text with his points, his wallet, that's going to have promos and recommendations in it, and that's going to drive him back to the store again.
Then on top of that, he might get a text message because he's a top 20% spender from Alpine to go review you at the exact store that he just visited in your 30 store chain network, on Google, Facebook, Leafly, Weedmaps, those types of things. All of this that I just said in that example, is completely automated with Alpine. You basically make an SMS campaign, and all of that stuff would automatically happen as the customer interacts with you. There's nothing really, you really have to do after that single day set up and creating a couple of campaigns. At the same time, that SMS campaign could sync to MailChimp, and MailChimp could send out an identical piece of content to that same person.
Matthew: Interesting. That really makes the prospect feel or the customer feel like, "Oh, this retailer gets me. We're in sync here." That makes a lot of sense.
One question about the customer journey. If you're watching videos and let's say all the videos relate to edibles, is it say like, Hey, this person's watched 700 minutes of edibles videos. They get like a tag or some way to know that this person's interested in edibles, but do you have something that says like, Hey, they're super interested in edibles. They're like, they're a 10 out of 10. Or is it just like Edibles?
Nicholas: No. Yes, so typically what we see in the space is just a simple tag for a basic category. I studied machine learning pretty heavily at MIT. My favorite topic, for sure. I probably bore everybody about that. Essentially, our system has got all sorts of brain power in the back end that's saying, okay, Nick is likely to visit within six days based on his propensity with my brand. I want to send a text message out when he's likely to come to the store within two hours. All those things are not necessarily like I wouldn't consider them tags. It's basically like a machine learning derived trigger to send a SMS at a certain time, or a trigger to push a discount when we know that they like edibles, like you said. They can always change interest. It's not like I walk into a kiosk, I tap, I like edibles. That's the only thing I get. If I go from edibles and I start buying a ton of concentrate or tinctures, which is very different type of buyer, generally, tinctures buyers are completely separated. Then I'll start getting different recommendations based on that. I would compare that mostly something like the Netflix recommendations that you get for TV and movies. If you start watching romance stuff, romance videos and TV shows are going to be more prevalent in your feed.
Matthew: I wonder why mine only suggests the Hallmark channel, Nick, any ideas?
Nicholas: I said romance because I'm thinking of my wife's recommendations.
Matthew: It is funny. It's like, how do I break this? I got to watch, like Rambo movies for a week. You can change the profile I'm under or something.
Nicholas: Yes, I got pop patrol for sure on all of mine for my kids.
Matthew: There's a lot of people listening here, and I can totally understand the situation. Because you start with one software platform, or you start with like one software SAS company to do something specific. The next thing you know, you integrate with another one because it integrates with the first one and they both do maybe one or two things well, and then before you know it, you have three or four and you're using all of them, and it feels like it's going well. Then someone like you comes on and it goes, well, it's like you have a body without a heart and a brain. You've got these parts that are not connected in a way that makes sense holistically. There's this sinking feeling like, Oh no, my date is leaking. I don't understand my customer journey. Are they even getting an optimal experience? How do I benchmark that? There's all these questions that start to swirl. What would you say to someone who's in that position?
Nicholas: [laughs] Call us.
It's a very simple workflow that we use often, and has really good success at jarring revenue, is to connect these things up. Do you dupe them have trust in my data, and be able to swap out and not have vendor lock on some of these downstream tools. Just getting that foundation together, even if it's rudimentary and bare bones for now, that's great. If you have a lot of tech providers already, there are ways to cleanse it out.
In some cases like let's take some TCPA lawsuits, if you have dirty SMS data and you're worried about that, there's ways to cleanse that. However, some people do choose to go back and say, "You know what, I've got to restart my member club. This doesn't work." We've had that happen before. It happens. People are learning as they grow right now. Our job at Alpine is just to stop that from the get go and just get you online and with a good solid foundation. Then let you have the freedom to use any tool you want without freaking out that you might lose a piece of data when you transfer. If I try this for seven days, it's going to break my entire network of other tools trying to work together, like on discounting or on other things.
It's not just that. It's also like in the future. Let's say that legalization happens in a bigger way, and all these blue chip tech providers can get into this space and you can start running Facebook Ads, and you can start running some of these key platforms that work so well in a normal environment. If you don't have your foundation set up with Alpine, you would click one button and say, I want to send all my cannabis audiences that are cleansed to Facebook Ads, and that same audience goes to MailChimp and your SMS campaigns. It's all just working together. It's not really that daunting of a task with the platform. It definitely is setting it up blind.
Matthew: People are like, "Wait, you can do that?" Yes, if you have your customers' emails, you can upload them to a Facebook ad campaign, and they can just push the ad right to you. That's a good point.
Nicholas: Yes, they have your most active contact information. That's where all the privacy stuff has been coming up lately, but it definitely works, and so does stuff like Google Ad words, or even something as simple as like doing an Intercom chat on your eCommerce store. Like how do you trigger SMS or in store screen display is based on if that person made a chat with you, and what was that chat about? All those types of events get funneled into Alpine and then it powers your downstream situation.
Matthew: You mentioned earlier in the interview about how, when you were getting started, you went around and talked to different companies, individuals, and got the green light. I think you said. What was that early incubation period like? Were you just trying to see if people wanted this or if they saw the need, or were you showing them a prototype? How did you get that product market fit?
Nicholas: Originally, we made a deck. We modeled the framework base layer off of some blue chip providers that are very large and do most of the Fortune 500 that isn't cannabis. That was really our foundational layer. Then we connected a couple of APIs and tools together for a few retailers, and then just started working backwards from there and did every single integration. I remember just speaking to entrepreneurs out there that might be listening. It's just like when you get into to this industry, it's so gate capped, and it's not generally early retailers or brands, they all want more tools to do their jobs better to connect everything. There's a lot of blocking going on between tech providers that don't want to release APIs, or they feel like somebody is going to be competitive to them downstream.
Honestly, it's funny because we didn't want to be competitive to these people. They just said, that's what we think you are. Then we turned around and said, all right, if you're not going to support these people on prevent vendor lock, then we're just going to build our own solution for it. We have like two or three vendors, minimum per type of marketing channel you might use, like SEO generation, and then we'll have our own version of ourselves that comes with the platform. It was very difficult. It was extremely difficult to get in touch. I remember sending probably 20 integration emails to people and saying, Hey, we're new. A lot of people don't have API support teams, and they get their time wasted a lot by kids coming into this space, thinking that they can just make it a tech play overnight and they just don't let them in.
It took getting the retailers and some of these brands to say, hey, like we need this. We got to find a new point of sale, or we got to find a new vendor for this other process because you're ruining my downstream chances of being successful. My example I always give is like these people doing blocking in the space, it's not beneficial to anybody and not even themselves. If you look, Apple isn't going to come into the space and block you from getting on the app store. You can go as a developer and sign up in two minutes, pay 90 bucks for a year, have unlimited API access and drop an app after it goes through an audit. That's not possible in cannabis right now, per se, in certain situations, but a point of sale, like Stripe, largest online transactions, huge API, well-documented, you can sign up as a developer in two seconds and power their customers with amazing tool sets for free.
All the excuses in the space of like, "Oh, we don't have enough money for this. We didn't budget this into our original tech play," I feel like those are just excuses and really like-- Just to give you an idea. We have three engineers. We have three engineers. We have done 24 POS integrations. Not one of them has taken more than 24, maybe 30 hours to do without talking to anybody. Most of it is probably six weeks of just back and forth on email, just wasting 10 team members time trying to get in, and that's it. It's unbelievably daunting just to get in.
Matthew: Well, so this is a very cool product mission control. It was put on. I think it was like mission control or the switchboard of your business. It was put on my radar because people said, "Hey, this is really a interesting software solution." Well done to you. Where are you in the fundraising process right now? Have you raised capital? Where are you?
Nicholas: Yes, so like I said, I sold my previous business a couple of times. Long story, but basically I took cash from that and then self-funded and have a great team of people working with us. In May, a couple of months after we really started selling publicly, we took on a small private round, and then in the future, we're very conscious about conflicts of interest in the space, and I want data to be owned by the retailer or the brand, and it's collected by you, so like, why shouldn't you own it? Your customers really don't deserve to be anonymized and sold to third parties, so especially at large competitors.
We're always looking for finance partners and to expand our growth, but we're looking at another-- doing like a larger, I would call it a series A strategic in the next couple of months.
Matthew: Nick, I like to ask a few personal development questions to help listeners get a better sense of who you are personally. With that, is there a book that's had a big impact on your life for way of thinking that you'd like to share?
Nicholas: Yes. I get the book question a lot, and I'm an avid reader, for sure. My favorite book, at least in the last couple of years, is definitely Sapiens. I believe it's Sapiens: Brief History of Mankind. I can't even describe how amazing this book is, but just understanding the growth of human psychology and where we're headed. It's just a very good foundational book, and it dives you into that whole process of how we came to be psychologically today. I would recommend that, so it's Sapiens.
Matthew: Great. Besides what you're doing at Alpine, what do you think the most interesting thing going on in the cannabis field is?
Nicholas: Oh, this space is so fun, honestly. I talked earlier about gatekeeping and stuff and how difficult it is to get in, but it's super fun. The people are great. There's pioneers everywhere, and as long as you jump those fences, it's amazing to work in it. The coolest stuff that I've seen is just-- I like seeing the transition of the customer education side, understanding what plants actually do to them, and the new research coming out about those different things. Also some of the more advanced stuff, like people trying to DNA splice and use CRISPR to change the effects, that's pretty crazy, but we'll see where it goes.
Matthew: Yes. Well, let's end on a Peter Thiel question here, Nick,. What is one thought that you have that most people would disagree with you on?
Nicholas: I like his book too, by the way, I forgot what it's called.
Matthew: Zero to One.
Nicholas: Zero to One. Yes, that's a good one. Can you rephrase that?
Matthew: Sure. What is one thought you have that most people would disagree with you on that you believe to be true?
Nicholas: After I worked on Halo, and then I went to-- I ended up doing feature films and working on those in commercials and stuff like in visual effects world. You remember the Sonic the Hedgehog that came out. It was last year and everybody freaked out because he looked just non-menacing at all-- he was just terrible looking. From a design perspective, he was just like way too cute for what the historical version of Sonic was.
I'm just convinced that re-skin of the character was just a publicity stunt plan from the beginning.
Matthew: Oh, really? Just get people talking about it.
Nicholas: Yes, absolutely. Then they ended up changing that character and they bought themselves another eight months to change the character's design, and then release the movie again.
Matthew: I've heard this marketing tactic that says you can't tell your customers what to think, but you can tell them what to think about, and maybe that's what they did there.
Nicholas: Yes, exactly. Oh yes, absolutely.
Matthew: Well, Nick, as we close, are investors welcome to contact you if they're interested in possibly investing later.
Nicholas: Oh yes, absolutely. We're definitely in the process of looking for strategics and smart people to work with. Can I get my information out-
Matthew: Yes please, for accredited investors, go ahead.
Nicholas: Nick, N-I-C-k, @alpineiq, like brain IQ, .com is my direct email. Feel free to email me if you're an investor, just have some questions, need some help on data, we're here to help, and love to talk to people in this space. [unintelligible [00:44:32] Alpineiq.com has some great ways to connect with us, and somebody will help you.
Matthew: Awesome. Nick, thanks for coming on the show and educating us. You've got a really great company. Cool things happenning for you. I hope you'll come back and tell us how things are progressing.
Nicholas: Yes, man. Thanks so much for having me. I really appreciate it. It's been a good time.
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, 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 firstname.lastname@example.org, 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 for using it for medical treatments.
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Lastly, the host or guests on CannaInsider may or may not invest in the companies, entrepreneurs profiled on the show. Please consult your licensed financial advisor for 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.
[00:46:18] [END OF AUDIO]
This startup took away all the complexity of growing your first cannabis plant at home and found product-market fit. Here to delve into the story of A Pot For Pot is founder Joshua Mezher.
Get a 10% discount off your purchase by using coupon insider at https://www.apotforpot.com
See why we gave A Pot for Pot a rare Five Stars in our review.
[00:59] An inside look at A Pot For Pot, the best outdoor and indoor growing kits for marijuana, cannabis, and other fresh herbs
[1:18] Joshua’s background and how he came to start A Pot For Pot
[4:49] What comes with A Pot For Pot’s growing kits that make them the easiest to use for home growers
[8:54] How much plant A Pot For Pot can yield and why this makes it more cost-effective for the customer than purchasing flower
[11:49] What auto-flowering is and why it’s important for home growers
[17:44] Joshua’s advice to home growers on how to achieve the perfect harvest
[25:32] How Joshua successfully bootstrapped A Pot For Pot and the story behind how he got his first hundred customers
[32:47] What Joshua finds most interesting about the cannabis industry right now and where he sees it heading in the years to come
Are cannabis and hemp beverages on the verge of explosion? It all comes down to the fickle whims of beverage consumers. Here to tell us more about it is Jonathan Schultz of Backyard Soda.
Learn more at https://www.backyardsodas.com
[2:09] An inside look at Backyard Soda, a Denver-based startup creating all-natural, non-alcoholic, CBD-infused sodas and cocktail syrups
[3:28] Jonathan’s background and how he came to start Backyard Soda
[9:36] What beverage consumers are looking for in cannabinoid beverages right now
[14:44] Why Backyard Soda chooses to use whole ingredients even though this drives up price points for customers
[21:10] How Backyard Soda is partnering up with restaurants and hotels looking to add CBD cocktails to their menus
[23:46] Why Backyard Soda uses full-spectrum CBD unlike most other cannabis beverage brands that use CBD isolate
[29:03] The challenges of distributing CBD beverages and how Backyard Soda has overcome them
[37:38] Where Backyard Soda currently is in the capital-raising process
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-AInsider dot com.
Now here's your program. Are cannabis and hemp beverages on the verge of explosion. It depends if you can understand the fickle whims beverage consumers. Here to tell us more is Jonathan Schultz of Backyard Sodas. Jonathan, welcome to CannaInsider.
Jonathan Schultz: Matt, thanks so much for having me. I'm excited to talk to you for a little bit.
Matthew: Give us a sense of geography. Where are you in the world today?
Jonathan: I am, in Denver, Colorado. We are at our office, which is based here in the RiNo neighborhood, chatting with you from there.
Matthew: I get a lot of people moving to Denver from other areas because of COVID.
Jonathan: It's such a hot area right now. I think Colorado has done a great job of really mitigating and managing, and things, and people want to be outside. This is a great spot to do that. We're seeing a ton of influx, good for real estate. Not probably so great for everything else as far as resources and things, but people need the sun and people want to be outside and play.
Matthew: Good points. Well, I guess for Colorado size and how cool a state it is, it was just a matter of time before-- it's like 5 million people, it's going to just probably double.
Jonathan: In the last probably 10 years, and I will count myself as one of it where I'm not a native. I moved here from Ohio about 10 years ago with my family. We did it for the same reason that everybody else did, which is just the beautiful scenery outside. Yes, I think people are going to continue to make their way here.
Matthew: Great. Well, give us a sense of what Backyard Sodas is on a high level?
Jonathan: I like to tell people, Backyard Soda is at heart a simple syrup company. We like things simple. [chuckles] Simple syrup is one of those things that people know about. They've probably used or said, "Oh, I've got to make some for a mint julep," but don't realize how versatile it can be, especially with making drinks. Our whole idea around Backyard Soda was to make gourmet drink simple. We want people to think and to feel that they can create the drink that they go out and spend $14 or $15 for if they're at a high-end cocktail bar or they're out to dinner, and then they could do that at their house in their own backyard.
Now they have the opportunity to do it both with an infused a full spectrum CBD version, in addition to our regular non-fused syrups. Then we also have a line of ready-to-drink CBD-infused sodas and mixers. We're pretty simple company and that's the way we want to keep it.
Matthew: Can you share a little bit about your background and journey? Jonathan, you mentioned you're from Ohio, but give us some more sense of what you were doing before, where in Ohio are you from by the way?
Jonathan: I grew up in central Ohio. We actually lived in Cleveland for about 15 years. That's where I went to a business school. I got my MBA from Case Western. Prior to that, we've lived in New York, we'd lived in Boston, and then my wife and I both graduated from Colgate University in upstate New York, so that's where we met. I've had a pretty varied background when it comes to positions and career. Everything was mostly in financial services. I was working for financial companies, banks, and ultimately, I just decided that after several years of that, I wanted to work for somebody that was a smaller company.
It was still in the financial services, but it was a pet insurance company. It was a brand new startup, and I really got the feel for what a startup is like to work for when you're the third or fourth person hired. Ultimately, I went on and decided that that was the path I wanted to take, but I think I wanted to start it myself. I've done a couple of startups and mostly in the technology world, but I'm a big fan of cold beverages.
Matthew: Well, you picked the right field.
Jonathan: Exactly. When we have the opportunity to take over Backyard Soda we saw just a huge opportunity from not only the beverage world, but what was coming down the line in the cannabis world with the passing of the Farm Bill, and just something that was going to be a lot of fun. I don't program software, but I can make a drink or a cocktail. [laughs]
Matthew: I'm a big fan of the nitro coffee. I think the first time I had that it was in around Boulder at 2014 and that has really added something. I feel like that just it's so flavorful and effervescent. It's like, "What else can we be doing here with drinks?" There's just crazy time to be experimenting. People are pretty open to experiment. Tiger Claw and these types of drinks too, is kind of really eaten a hole in beer and wine probably. People are saying, "You know what, I'm going to rewrite my whole idea of what an adult beverage is and what coffee is, what everything is like, I'm going to expand my palette of what I drink." Would you agree with that?
Jonathan: It has. I think I didn't actually drink coffee until I really figured out cold brew. Again, I've got a weird quirk of I don't really like hot drinks, so coffee was never really my thing [laughs] until I could put it on ice. I guess I could have put coffee on ice, but the cold brew was great because it took a lot of the acid out, things like that. I think with the drinks, you're absolutely right. There's people that really want to be that home mixologist at this point, they're open to experimenting. I think they've been out and about now that they're in a situation where, I won't say locked down because I feel like the country's just moved a little bit out of that, but there's still a lot of places that are open.
It just the world obviously isn't the same. Being able to create really interesting drinks and play around and experiment with this, I think is a ton of fun and gets people to be creative. I think the use of things like soda stream, where you can carbonate your water and now add our syrups to make your own CBD drink at home or soda at home. That has been something that people are starting to realize, "Hey, I can do this myself." It's been interesting.
Matthew: You're in the space before you don't like warm drinks. It's a little unusual, but I like guests that have a little strange edge to them, so we'll keep going.
Matthew: You had a skill set making drinks, and then you're like, "Hey, what the cannabis space sounds interesting, hemp CBD. Do you remember the moment where you were just had the idea?
Jonathan: I do actually, and it was back in summer of 18, and a friend of mine who we had been discussing just extraction, and CBD and what can be done and things like that. To me, I found that consuming CBD, vape pen, that's not my interest. It seems weird to be you don't pull out a vape pen at a social party or at least maybe some people do that but I don't and taking tinctures and things just didn't have a very, what I'll call, social norm to it. I said, "What's more normal than cracking a can of soda or making a cocktail? Why wouldn't we create a CBD-infused ingredients that you would put into this?" That ingredient was our simple syrup. It allowed people who are maybe moving towards the non-alcoholic side.
In general, the market is saying, "Hey, less alcohol is being consumed, but we still want something." This allows an interesting mocktail that has the benefits of CBD without necessarily having to just drink seltzer water or wine.
Matthew: When you decide then to go into the cannabinoid beverage market, how do you orient yourself in terms of what you think drink consumers want from a cannabinoid beverage? How do you dial that in?
Jonathan: Well, I tell you first and foremost, they want something that tastes good. [chuckles] I know that sounds counterintuitive a little bit to where-- come looking at it from a cannabis world. At the end of the day, people buy anything once but if you want them to buy it a thousand times, it has to taste good. I think that was the first and foremost thing that we looked at and said, "If we're going to create a cannabis beverage, it has to taste good. It can't taste like basically drinking cannabis. There's a little bit of taste there. You want them to know it, but you don't want that to be the overpowering flavor.
CBD can be very bitter, especially if you're just utilizing an oil or things. There's blockers to mask some of those taste but first and foremost it has to taste good. Next, we want to make sure that we were looking at this from a daily user that isn't looking to necessarily manage something. Obviously, if you're managing some sort of ailment or illness with CBD, and there's some incredible stories out there of what it can do, you're probably not going to go out and drink a bunch of sodas and cocktails to manage that.
Our look at it was what's that daily use number and things that people might want to have a drink with some benefits. If you're going to have a soda at lunch, if you're going to have a cocktail after dinner, this is a great way to consume a daily dose of CBD from that standpoint. We wanted to balance those two. I think we've done a pretty good job with that.
Matthew: Okay. When you have a prospect that says, "Hey, I like the idea of a CBD beverage, how much CBD should I be consuming?" I'm sure that's a question you get all the time and what do you say to that?
Jonathan: Yes, it's probably the number one question. The problem is that the answer is I can't tell you the answer. Everybody's body a little different, everybody processes a little bit different. It depends on the CBD itself. We utilize a full spectrum, we take the whole plant and that goes along with our ethos of using whole ingredients because we believe there's an entourage effect that works when you have not only CBD but CBG and CBN and some form of-- or minimal amount of THC. It all works together from that standpoint.
It's really hard to say. I know that's not a good answer that anybody wants to hear but somebody that consumes 20, 15 milligrams of a full spectrum CBD that's 6'2 and 220 pounds is going to have a very different effect probably than someone that is 5'2 and 105 pounds. It just tends to be a tough question to answer and I think it's something that hopefully we'll get dialed in as an industry of, "Hey, this is the right amount and we believe that somewhere between 10 and 25 milligrams per day."
Matthew: Okay. Each can has how many milligrams?
Matthew: Okay. How you get the water solubility right for the CBD because I know if it's not soluble it coagulates in the liquid and it's not a pleasant experience? How do you work that?
Jonathan: Luckily, we've got a partner that is the extractor that we utilize here in Colorado. All the industrial hemp that we utilize is grown here in Colorado and extracted here. Luckily, they've been able to put together a great water-soluble product for us. Really what our focus is on the taste and sort of our formulation of what are the ingredients that we are utilizing, and then we have the CBD in that water-soluble form that allows us to just add a theme as we're making our batches. It's great to talk to them and it's great to understand their process. It's complicated so I won't get into it but they do a great job. That is a really important piece in this.
Matthew: You mentioned whole ingredients earlier. Is it difficult to use whole ingredients more than artificial ingredients? Are there any whole ingredients you're particularly excited about right now?
Jonathan: Yes, whole ingredients to us is incredibly important. I think that most companies out there if you look at the back of a can or you look at a lot of ingredients labels, it will say “natural flavors.” To us, it's like if you've got something that's strawberry flavored or watermelon flavored and you don’t actually see watermelon or strawberry on the ingredient label, you just see natural flavors, that’s a turn off at least to me and I think that's where the world is going. We take our ginger for our ginger lime and we take whole ginger and press that to a hundred percent juice. We use a hundred percent fresh lime juice. The lavender is lavender flower that's grown in a single farm out in Palisade, Colorado.
Home mangoes for our mango jalapeno. We use whole vanilla beans, which is unheard of to be quite honest because vanilla is very expensive, most people will just use an extract. But we also believe that there are really great properties of utilizing. People drink ginger ale for when their stomach is upset so that they're probably just reviewed Canada Dry. It's not really doing a whole lot.
When you actually consume the whole ginger, it really does have that effect, lavender, all of those ingredients have terpenes and they also have their own, I won't call it necessarily medicinal, but effect of whole ingredients is much different than just a flavor. We believe in that wholehearted. Like I said, we use that across the board, including, the CBD and the cannabis so that we have used all of the terpenes and cannabinoids in the plant.
Matthew: Now, it's a tricky balance because you want to use the best ingredients possible, but you want to keep your price point reasonable. How do you balance those two things? you are?
Jonathan: That's a great, great observation. It definitely costs more. I think what we have done, we have been able to control our costs but I think we're also talking to people about why you might want to spend a little bit more in order to have that type of whole ingredient. I think people are realizing, the market in general is realizing that the natural and organic is here to stay. It's not going anywhere. People don't want to see red dye number whatever or words they can't pronounce on their labels.
I think as people look at their health and they look at what they put into their bodies they're willing. If it costs a few cents more or it costs 50 cents more but it is something that is truly all-natural, I think people are not only willing to pay for it but are starting to seek it out because of the fact that they've heard just don't want those chemicals in their system.
Matthew: What are the retail prices for your drinks? Do you sell them four packs or singles? How does that work?
Jonathan: We leave that up to the stores. Most of them are selling individual cans. We sell a six-pack on our site. That six pack goes for 24.99, and then we will see most stores selling an individual can anywhere from 3.99 to 4.49. It just depends a little bit on the retailer and it depends a little bit about the location. We, I think, hope that those prices do come down right now. I think that the market is interested in. They're finding benefits of consuming it then they're willing to pay but ultimately I'd love to see those prices down in the 2.99 a can 3.49 a can, very similar to Kombucha that you might see many of the grocery stores. Being aligned with that product, I think is the right place to be.
Matthew: What's the conversation like with the retailers? Is there picking your brain, learning about backyard sodas and how it fits into their lineup?
Jonathan: It's also new to them. This isn't like an entirely new category so it's true, they are really learning. I think most see that there's a huge opportunity that truly is about to explode, and it is one of the fastest-growing categories. Even though it's a brand-new category and so that's exciting for them. I think their biggest question is where do I put it. Do I put it in the soda aisle? Do I put it in the beer aisle? If you are a liquor store, do I put it in the mixer aisle? Those are the things that need to be worked out a little bit. Just what's going on? As people walk in and start asking for it, "Where is it?" They'll start to be like, "Oh, we need to put this in the mixer aisle,” or something to that effect but everybody is a little bit different from there. Other than that, at least here in Colorado, the education level's pretty high. As other states allow and legalize the industrial hemp to be put into food and beverage in their own state, the education of retailers will become easier.
Matthew: How about-- is there any restaurants, or hotels that'd be CBD Mocktails or anything like that? Can you talk about that?
Jonathan: Yes, actually there are. We're really excited about it. We have multiple places here in Denver that are utilizing our syrups and our sodas for CBD cocktail menu. Lustre Pearl in RiNo is one of them, Charcoal Bistro in Park Hill is another. We had a great opportunity with one of the music venues here in town, Cervantes, that did some signature cocktails for an event when they were having events. That has been actually a really interesting place that we would like to be once the music venues start to come out because we are what I call mixer focus. They can create a CBD cocktail or a mocktail. Now you've got for folks that may be driving or aren't drinking that night, they've got something interesting for folks that are looking to add to the alcohol. they can now have that CBD Moscow mule or that CBD margarita, things like that.
I think that the mocktail menu is something that people and restaurants are really starting to want to put out there. As I mentioned before, there is a trend going towards less alcohol. But when you can create an interesting drink that's truly made for someone that isn't interested in consuming alcohol, but it has a fun feel and you don't have to compromise that taste, or that feel, that's important. Bars and restaurants can probably charge almost as much for a great mocktails they do for an alcoholic cocktail. That drives some great business. If somebody isn't drinking, it's just like, "I'll just stick with water," because it really isn't anything on the menu that they want or they have an opportunity to say, "Oh, really? Love the looks of that nonalcoholic cocktail. That looks delicious." Why wouldn't you want to sell a mocktail to someone that isn't planning to drink alcohol that night?
Matthew: Right. What are your feelings in terms of using CBD isolate versus full spectrum? I know you said you like whole ingredients, but the masking which you talked about a little bit earlier, the full spectrum oils, you really notice that taste. It can stand out. How do you try to determine what the right balance is there?
Jonathan: Yes, it's difficult. Like I said, that whole idea around a beverage is that taste is always number one no matter what. It is important, but for us, there is no question, full spectrum is the way to go. The CBD isolate is certainly easier to work with, but I'm not sure it really necessarily provides all the benefits. There is probably some question around whether or not if it is used in the pharmaceutical, which I believe there have been a couple of-- maybe just one pharmaceutical products that have come out that are for, I want to say epilepsy utilizing the Isolate. The question really becomes around whether they'll allow beverages and food to introduce just an isolate into it. The FDA will have their ruling of that at some point down the road.
I think they've got a lot on their plate right now. [laughs] But there's been a lot of waiting around for the FDA to give a ruling one way or the other. States are making those rulings on their own. As I said, I think the FDA has a lot on their plate right now and are probably worried a lot more about finding a vaccine for COVID versus making rulings on CBD at this point. It'll be interesting to see what happens and where it goes. We are hoping that that is something that they rule on soon. For now, we are excited about what we utilize in our drink.
Matthew: Talk a little bit about your Backyard Cocktail Kit? What is that and who's that for?
Jonathan: Yes, back in March when things really started to close down, we started to look at what are the opportunities here because our business was really based around walking into a restaurant or a bar or a liquor store and saying, "How do we get this on the shelf? How do we get this on the menu? You’ve got to try it, you’ve got to taste it." Well, if you don't have customers coming in, and tastings have really been shut down, what's the next best opportunity here until things get back to normal? Really our focus turned to online. Sorry, this might be a little bit longer answer but to get to it I just want to give a little bit background. We did a bar attender contest because all the bars were basically shut down. We provided the bartenders with product. We said, "Create your best drink with our products."
We got some phenomenal, phenomenal recipes. We were really excited about it. We started to think about just, "What are people missing?" They are not really excited of walking to stores, places we are not seeing the foot traffic. They weren't going to bars because they were closed, but they wanted to be able to make something at home that, "Where can I get this ingredient, or I got to go to four different places to pick up things?" We looked at it and said, “I think there's a great opportunity here. Just similar to Hello Fresh, or Home Chef and Blue Apron where you're getting your meal kits in a box. Why wouldn't you get a cocktail kit in a box?”
It's delivered through a delivery partner. They provide the spirit, they provide the syrup, they provide any of the [unintelligible [00:28:09] need to go with it as far as whether that's citrus, whether that's bitters, things like that. There is a recipe card that tells you step by step how to make it. It comes with typically 8 to 12 servings. If you're having a party. You can say, "Hey, I've got this really cool cocktail that I want to make." We partnered with different distilleries around Denver and let their bartenders create the drinks. We partnered with Pete's Beverage here in Denver as a delivery partner and a company called Handoff, which is a Drizly like startup where you can just order what you want on the app. We think it's a perfect opportunity for people to stay home and have gourmet cocktails in the backyard.
Matthew: What's it like trying to navigate the distribution? How do you get into retail stores? Was that difficult?
Jonathan: It's very difficult. [chuckles] It is probably one of the more difficult things there is to do. Retail stores, they want to see traction immediately. They are not really interested in taking up shelf space to prove whether or not you can sell a product or not. It's not easy. They've got a lot of products that are coming at them every day. You've got to be the right price points, you've got to have the right marketing, you've got to have the right branding, you've got to have the right messaging. That's even for them to just consider taking a look at you. Then you hope they'll taste it. It's not easy. We have been really exciting and lucky that our products were in Wholefoods, are [unintelligible [00:30:07] in Wholefoods, and getting into some of the liquor stores and the bars and restaurants has been challenging, but we've been doing it. I think our key is getting people to taste the product because once people taste it, I think people typically are like, “Wow, this is really great, this is way better than I was expecting because I've had other CBD stuff and it does doesn't taste that great.” I think it's all a combination of that and it takes a long time. It doesn't happen overnight but as you build relationships and continue to work on social outreach and messaging, I think they're more inclined to try you out.
Matthew: Well, you mentioned a few of the flavors, mango jalapeno, can you talk about some of the other flavors?
Jonathan: Yes, so, we do five main flavors at our retail for our SERPs. We have mango jalapeno, again, whole mangoes, we do a whole dried jalapeno to basically even out the flavor. If you just throw a jalapeno in there, you don't know whether it's going to be hot or whether it's going to be mild and, so if you dry them and get them chopped up and infused that way, you tend to even out the heat. We do a Madagascar vanilla and that's made with whole vanilla beans. We do a ginger-lime like I said, we press that ginger, the whole 100% juice.
We have a lavender lemon. That lavender's grown out in Palisade, and then we do what we call true grenadine. We've actually changed the naming of it to be pomegranate orange blossom. The reason that we did that as most people think of grenadine, they think of cherry. Real grenadine, the true original recipe of grenadine is actually using pomegranates, which is why we do a pomegranate orange blossom. We just saw those as great flavors for making drinks. We actually do a few other flavors and we've just recently introduced our CBD root beer. Our root beer is very, very unique and it's awesome.
We love it. It's made with whole cherry bark and Sarsaparilla and a whole vanilla. We call it a 7-spice root beer and it's really-- we introduced it this summer as a test. It went well. I think we'll be bringing it out here very soon as a full-time product.
Matthew: That's what [unintelligible [00:32:58] Sarsaparilla, is that what you said?
Matthew: Because I think I've tasted like, is it Sarsaparilla root or it's like a little piece of-- it looks like mulch or something you put in your mouth? [crosstalk]
Jonathan: Yes, exactly, it looks like mulch or birch, yes.
Matthew: Yes. Okay. Yes, that's an interesting experience the first time you tried that.
Jonathan: Yes. It's-- but it's the-- for us, it's fair, it goes back to whole ingredients and how root beer was originally made. Root beer was very medicinal when it was first brought out. Not that we're looking for our root beer that tastes like medicine, that is not the case, but we wanted to infuse all those ingredients to make that original root beer taste. This is not your-- this is not A&W or it’s Dad’s. [laughs]
Matthew: Yes. Originally, back in the day, people would say that's a tonic, like a health tonic in there, sometimes talking about drinks like this, like Sarsaparilla root tonic and it helps you feel-- it makes your general wellness feels better after consuming it.
Jonathan: Exactly. Again, that all goes back to consuming whole ingredients. You're not going to get that effect from a heavy corn syrup, lead root beer syrup that just has a bunch of artificial flavors and things like that in there. There's a way to make root beer and make it taste like that, but actually utilizing, like I said, barks and leaves and things like that, and that's what we do.
Matthew: Gosh, I really would hope we stop using corn syrup all together for drinks and in treats and stuff like that. I just don't know who wants that. Anybody [unintelligible [00:34:48]. I don’t know why that is.
Jonathan: Yes, I don't either. We use pure cane sugar from our standpoint. Yes, I don't get-- corn syrup must be very cheap or something, but it's the base of so many drinks right now and it really is-- it's pretty gross. [laughs]
Matthew: Well, you were in the Canopy Boulder cannabis accelerator program. Can you talk about that a little bit and your experience there?
Jonathan: Yes, it was a fantastic program. If most people or I should say most of them if people are familiar with the concept of a business accelerator, it really started in the tech industry. You have Techstars and Y Combinator. They basically take small companies with an idea or maybe they're just getting to a prototype or something, they set them up with mentors, they set them up with being able to create models and help really from marketing standpoint and bounce ideas off them. It's sort of a basically like a mini MBA. I was lucky enough that I had already gotten my MBA so now this was really concentrating on getting product to market.
They typically have about 250 applications from all over the world, they pick 10 companies to be a part of their cohort. We were one of those 10 companies last summer. We went in with this idea for them and we said, “Look, we've got this syrup and want to be doing an infused CBD syrup and we also want to bring this [unintelligible [00:36:34]. In 16 weeks, we started and by the end producing cans and putting them on shelves. It was truly a phenomenal experience and truly an accelerated experience
Matthew: It sounds like the accelerator did its job.
Jonathan: Exactly. There's no way we would've been able to do that by ourselves. We would eventually have gotten there, but certainly, it helped, and having those resources helped. They put in an investment, they've got a great opportunity to be pitching in front of different investors and other networks, it was just a fabulous experience. I couldn't tell you how happy we were to be a part of it and to be an alumni and still be working with them on a regular basis to bounce. Eventually, you can call up any time, you can send an email, you can go up to the office, you're really part of a great network.
Matthew: Where are you in the capital-raising process now?
Jonathan: We're basically raising seed right now. Our goal was-- we're raising $750,000. We have taken a little bit different approach but I think it's because we're a CPG and that takes a lot of branding. We look at it a couple of different ways. You can obviously do that by buying as much placement as you can, except it's very, very expensive to build a brand from scratch and just try and place things and put your brand out there. Really where does branding come from? In my opinion, it comes from having people try it and be evangelists and telling people about it. My philosophy is you don't have a brand until somebody walks out of store because your product wasn't on the shelf.
What we wanted to do was raise through a crowdfund. We've actually done that twice now. Our first crowd fundraise was back last fall with a company called Micro Ventures and we raised our goal in 45 days. That was fantastic. We were approached by multiple other crowdfund sites and we actually decided to do another one. We've been very successful there. It's actually about to close in about a week, so there's still opportunity to get in, but we look at that is having now 500 to 1,000 people that not only are trying our product, they're telling people and they're evangelists, they're part of the company, they own-- they're going to own equity from that standpoint.
They want to tell people to use the product and that's what we need right now. It's hard to do that with a couple of salespeople, but you've got a thousand people, we've got some great stuff. We have an investor that came through the crowdfund and he's making all kinds of introductions to distributors and sending out product to people that he knows all over the country who may have some interest in, “Oh, wow, this is really great.” I feel somebody that would be great to distribute this in Illinois or whatever the case might be. It's really interesting. I think at our next round of financing, I do hope to go with the more traditional VC, angel kind of group and bring in then kind of a larger check to allow us now then to start to really build the brand out so that not only the people can see it, try it, but are starting to see it mentioned places and on shelves.
Matthew: Jonathan, I'd like to ask a few personal development questions to help listeners get a better sense of who you are personally. With that, is there a book that's had a big impact on your life or your way of thinking that you'd like to share?
Jonathan: I'm an avid reader. I like to read a lot of articles. I like to be very current. I think the book that probably, if I'm thinking about a business book that's really been one of the guiding principles is Good to Great, Jim Collins. It's not necessarily something that is brand new. It's been around for a long time, but just sort of the case studies and the examples of leadership and how companies evolve through the growth process, I think has been something, it's hard, don't get me wrong, to emulate. Especially when you're as small as we are, we try.
Matthew: What is one thing that you believe to be true that most people disagree with you on?
Jonathan: I would say not getting too overly political here, especially in the current times, I actually believe that we're putting ourselves in a lot of stress around education and how people are focused on it. I have two kids. One of them is a sophomore in college. She ended up going to school, was there for three weeks and they said, “All right, we've got a bunch of cases and we're sending everybody home.”
My opinion is there's a lot of people out there that are scared and are worried, and we’re putting kids and teachers and things. I wish they just said, “We're just not going to have school anywhere for the next year. No one is going to fall behind. If you graduated '19 instead of '18-- Just let's get through this without having to put any undue pressure on children and teachers.” I would say it's probably not the most common thing to hear.
I think people really liked the fact that my kids are going back to school, but there's just so many schools that are finding that it's just really difficult, having a model of hybrid where somebody goes two days a week and somebody goes three days a week, and then two weeks online and then you're back in school. It's just so confusing. It just seems like we all could have taken a year and just figured it out, and then come back and started where we left off.
Matthew: Good point. I don't know if the revenue models support that, so that could be the reason.
Jonathan: Maybe, but revenue and education aren't exactly two peas in a pod.
Matthew: Well, you said that in a very nice kind way, you must have had a few CBD beverages before. One other question, Ohio question for you, I've gone to Ohio twice in the last couple of years to check out Cleveland and Columbus. I feel like the center of the country is starting to become cooler again. What do you think?
Jonathan: It's funny because we lived in Ohio. I grew up in Ohio. I grew up in central Ohio. My father's side of the family is all from Ohio and Cleveland. I always will be an Indians and a Browns fan. I think that there's just a lot of Midwest value and just kind of people really are down to earth. I think as people leave and go into school and maybe live on the coast of New York and LA and San Francisco, and then they realize, “Oh, my God, it costs a fortune to live here. The quality of life and I can spend $2 million for a bungalow in Los Angeles or I can spend $200,000 and have a nice big home in Cleveland, Ohio, what am I doing?”
You're seeing a little bit of a renaissance from food and cocktail bars and just things like that happening in some of these Midwest places where you couldn't necessarily get that a few years ago, but now it's way cheaper to open up a restaurant or a bar in Cleveland than it is in San Francisco or in Seattle or DC, and things like that. I think that I'm excited. I love it here. I probably I'm not moving back to Ohio anytime soon because they don't get enough sun, but I'm excited for the folks, all my friends that are there, to be experiencing it.
Matthew: That's true there. I remember it was like a couple of years ago, I think Ohio had like a hundred straight days of no sun.
Jonathan: It’s impossible. It can get pretty depressing, at least for me it was, in the dead of winter where you might not see the sun from Thanksgiving to spring. Don't get me wrong, you get a few of those days, but, yes, the sun makes a huge difference to be but there probably is no better month in Ohio than September, it is absolutely glorious there.
Matthew: You're not kidding about the values there. I was in an area of Cleveland called Hingetown. There was these doctors from the Cleveland clinic that were buying these brownstones that had like a view of the lake there. I couldn't believe, I can't remember how cheap they were, but they did need a little work, but I was thinking, this is still a major metropolitan area, has a lake view. It's like cool coffee shops around.
I just couldn't believe how cheap they're buying them for and gentrification full force. I'm rooting for it because I hope it'd be fun to have some cool cities in the middle of the country and there already are cool, but it's this fun to see like some places in the Midwest people want to go to.
Jonathan: I agree. I think the cool part is that a lot of those places have these older buildings that are total blank canvases. Somebody can come in and say, “I've got a building and I want to turn it into a cool office or I want to create an apartment or condo, or even like the brownstone and really just kind of put the modern touches that you want and you see coming from the design centers that are out there, and applying them to these places that you can pick up for incredible steel and then all of a sudden you've got what would be in a magazine in New York, or like I said, San Francisco or something in Cleveland or in Columbus or Cincinnati or Pittsburgh or Milwaukee.
They're all very similar cities. That is pretty cool. I think those cities are going to see some growth.
Matthew: Jonathan, give out your website and let people know how they can contact you and learn more about Backyard Sodas and everything you're doing
Jonathan: Our site is www.backyardsodas.com, that’s plural, sodas is plural. We've got all of our products on there. First-time customers have an opportunity to utilize a discount code that you can sign up for and it gives you a chance to try some products. We've got all kinds of recipes on the website. We have new recipes that we try and put up monthly. As I mentioned before, everything's about of keeping it simple.
These aren't recipes that are outrageous or I've never heard of that ingredient. They're just really tasty and easy to make, and allow people to kind of play mixologist on their own.
Matthew: I'm toasting you right now virtually you can't see it, but toast you. Great job building this company and everything you're doing. It's really cool. I wanted to try one of these drinks soon and I'll give you my feedback.
Jonathan: We'd love to have you do that. Let me know. Love to have you try out the product and make some of those drinks for you and your friends.
Matthew: Cool. Jonathan, thanks a lot. Thanks for coming on the show. Good luck.
Jonathan: Hey, man, thanks so much. I really appreciate it. It's been great to talk with you, and I look forward to our paths crossing down the road at some point.
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