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How Much Profit Is In Cannabis Oil Extraction? Find Out In This Episode

jonah barber MRX extractors

Jonah Barber is the co-founder of MRX Xtractors. Learn how profitable cannabis oil extraction can be and the different business models available to those in the business or entering this business.

Key Takeaways:
– From lab testing flower to extraction company
– A lot of oil on the market is not good, here’s why
– The profit margin on a gram of extracted cannabis oil
– Throughput from different extraction machines
– The different business models in extraction

Learn more at
http://mrxxtractors.com/

Important:
What are the five trends disrupting the cannabis industry?
Find out with your free cheat sheet at https://www.cannainsider.com/trends

Read Full Transcript

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 cannainsider.com. Now, here's your program. As the cannabis market continues to grow around the world, there's an increased focus on extraction, and for good reason. Extracted cannabis oil is arguably the most profitable and integral ingredient for cannabis companies. Here to tell us more about the extraction industry and his extraction solutions is Jonah Barber from MRX Xtractors. Jonah, welcome to CannaInsider.

Jonah: Thanks, Matt. It's great to be here. Really excited to speak with you today.

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

Jonah: In the beautiful green state of Oregon. Specifically, Canby, Oregon, which is located about 20 miles south of Downtown Portland.

Matthew: Okay. And I'm in Krakow, Poland today. So thanks for getting up so early to do this interview. I should tell everybody, it's about 7:00 your time. So thank you.

Jonah: Absolutely. Glad to do it.

Matthew: So what is MRX at a high level?

Jonah: So MRX is an OEM that makes super-critical CO2 and ethanol extraction systems, and we bring kinda complete turnkey solutions for our customers all the way through the whole entire extraction process.

Matthew: Okay. And give us a little bit of a sense about your background and journey, and how you got to this point, and why you started MRX?

Jonah: You know, the cannabis and hemp industry is something I've always been incredibly passionate about. You know, they always say, "Do what you love," which I always thought was cliché until I actually got to work in this industry. And, you know, how we actually got started was, you know, we looked...You know, Oregon's always been a leading state, as far as a medical cannabis program, you know, having a strong medical program for over 20 years. And when we saw that Colorado went legal, you know, Oregon had almost passed a couple times going legal, and we knew it'd be a matter of time. And we wanted to get in the industry, but we wanted to get into it in a way we thought would utilize our skill sets. We weren't, you know, master growers like a lot of your listeners are and we didn't have any retail experience, and so our background is very technology. And so we wanted to fit in on the technology side on cannabis, and we saw that there was gonna be the need for standardization and quality control when it came to analytical testing laboratories. And when we looked at the landscape about 4 years, we didn't see a lot of that.

And so we felt like we had the opportunity to kinda set the standard for what an analytical testing laboratory should be with quality controls, transparency, new state-of-the-art equipment, qualified staff with degrees. It was really kind of the Wild West there for a while, with a lot of people just pumping out high-potency numbers and kinda everything getting a pass for pesticides. And then we really wanted to help set the standard, so we opened up...MRX Labs is actually how we started in the industry.

Matthew: Okay. Yeah. It's almost, it can be a huge advantage sometimes to just come in as an outsider because you don't have any concept of the way things should be done. And if you come to the market with skills, you can just start fresh. Whereas people in the industry already can only make kind of iterative changes, where you can start where you wanna start and not have to worry about any kinda legacy. Is that how you felt when you were getting into it?

Jonah: We did. We really felt like we had the opportunity to really, I mean, develop a lot of the new methods and technologies, and stuff that just hadn't been developed before. And a lot of that wasn't because someone necessarily couldn't do it, you know, skill set-wise. But it was just because they really didn't have the access or ability to freely work with, you know, cannabis in a research and development capacity. And so we felt very fortunate to be kind of the forefront, to help develop a lot of those, you know, methodologies and things like that, when it came to standardizing testing.

Matthew: Okay. Okay. And how many customers have you helped so far?

Jonah: You know, from the...Well, there's two different answers. I guess, you know, when we started the lab in 2014, we grew to one of the largest cannabis/hemp testing labs in the U.S. And we ended up working with, you know, thousands of customers here in Oregon. And then on the MRX Xtractors side, where we're the OEM and build all the equipment, we've helped place about 80 different machines in about 10 different states and a couple different countries now. Yeah. So we have about 80 different customers on the extraction side.

Matthew: Okay. Okay. Now, the thing I kinda wanna help listeners understand is how you and your partner approach the extraction business. I guess, perhaps, maybe if you could just talk about, you know, frame how other extraction companies look at extraction and how to provide extraction solutions, and then how you and your partner approach it and perhaps how it's a little bit different or better?

Jonah: Yeah. So, you know, we do approach it quite differently, how we even came into the extraction industry. And with my partner's background, we've always looked at industries and found deficiencies or bottlenecks and came up with, you know, a better mousetrap, if you will. And so how we got really started on the extraction side was actually based off analytical test results. And so, you know, we started testing everything coming into our lab, and we started seeing all this oil about really flood into our lab. It was really almost overnight. You know, it went from like a lot of flower, then about 3 1/2 years ago, it just started flooding into our lab. And at the time, it was still all medical. And so when we looked at the quality of the oil, you know, it didn't look good, it didn't smell good from an analytical standpoint. When we did, like, a terpene test, it was nonexistent. When we did a solvents test, a lot of it still either had some hydrocarbons left in it or there was a lot of ethanol left in the oil. We actually saw a lot of products coming in in [sounds like] propylene glycol as well.

And, you know, it was really concerning from our standpoint. You know, being an analytical testing laboratory, our job is to keep the public safe. And a lot of the products and a lot of the stuff we saw in the products, what people were using for medical purposes, were concerning in the fact that they could potentially cause, you know, some additional damage to whatever ailments they were treating. And I even remember the very first time, you know, I tried CO2 oil. I so badly wanted to like it because I loved the concept, I loved the fact that CO2 was used as the solvent. And to be honest, I absolutely hated it when I first tried it. It tasted kinda like a burnt popcorn to me. And also, after the fact, when I looked at the test results, which it wasn't tested by us, it was like 35% cannabinoids, which meant 50% of it was propylene glycol as well.

Matthew: Ooh.

Jonah: Yeah. And it just wasn't a pleasant experience. But at the same time, it was flying off the shelves. Like people could not make enough of it. You know, people really like the accessibility and discreteness of vape pens. But at the same time, it was like, "Okay, there's a market for this. But this isn't what we'd consider safe or a high-quality product."

Matthew: So Jonah, it sounds like being in kinda the testing part of the cannabis industry, you're in a unique vantage point. You're kind of like the hub where companies that are sending you extracted material or flower are coming to you and talking to you, and you're kinda getting the lay of the land of how this whole extraction business works. Can you talk a little bit about that and what you learned?

Jonah: Yeah. We really had a unique perspective because, coming from the testing side, we're kinda like Switzerland. We worked with everybody in the industry. And so we got a chance to talk to all of our customers that were using other extraction technologies and techniques, and kinda got together a list of what they didn't like, what could be improved. And really, kind of our three hallmarks that we came up with was that there was really no repeatability. And so a lot of people were relying upon an extraction artist or the one person that knew how to make the secret sauce or, you know, someone that knew how to stand in front of a machine and adjust 12 different knobs and try to keep it in a tight zone for temperature and pressure. And we just knew that wasn't commercially scalable from that side. You know, we knew that the industry, the way it was growing, had to have repeatability, no matter who ran the machine, that they could follow SLPs, and put the same product in there and get the same high-quality oil coming out. And we just weren't seeing that.

And just because they also didn't have control over their process, a lot of people were destroying terpenes. And that's actually where CO2 had gotten the knock on it about 4 or 5 years ago. That just kinda produced an inferior product because it stripped the product of the terpenes. And I'd say, rightfully so, at the time, it got that knock because, you know, people were destroying a lot of the terpenes.

Matthew: Yeah.

Jonah: And then the third thing is the engineering, and a lot of the equipment we saw just wasn't safe and it would never be permitted and approved by fire marshals in a regulated market. And so that was kind of our three hallmarks was we wanted repeatability, we wanted control of your process to produce the highest quality product, and we wanted safe equipment that would be permitted by fire marshals. And that's how we set out to build Xtractors from that side.

Matthew: Okay. That makes sense. Yeah. I could see why being dependent on an extraction artist would be...you know, it's problem. Because then, you're at the whims of that person instead of having a process or, you know, some kind of standard mode with your equipment where you can just repeat it over and over again independent of different people or personalities. And actually, I've met a lot of people that are in that exact case, where they're dependent on a specific employee and they really don't know how the sausage is made. So I'm glad you brought that up. Okay. So let's get into a little bit about throughput and what people talk about with throughput. Actually, before we talk about throughput, can you mention why you didn't like the flavor of the CO2 oil when you first tried it? Did you prefer, like, butane extraction or something?

Jonah: You know, it wasn't so much that I preferred something over the other. It was really just, the primary reason was that the people, or the equipment that was making that extract, they didn't have control over their process and they destroyed a lot of the terpenes and overcooked the product in there. And so it almost had like, the best way I could describe it was like a burnt popcorn kinda taste. And it just wasn't even a really pleasant experience, just even like kinda agitating the throat and things like that too.

Matthew: Okay. Actually, before we talk about throughput, let's talk a little bit about what the different kind of outputs are from the MRX machines, what you can actually extract and make and do.

Jonah: Yeah. So, you know, about 90% of all of our customers wanna make as many full-spectrum vape oil pens as they can. They just cannot make enough to satisfy the market.

Matthew: Okay.

Jonah: And so that's what the majority of our customers wanna do. However, the more we've gotten into the industry here, the more diverse kinda the product lines are, and the more specialized and unique they are. And people have some really interesting ideas that they like to make. And so one of the things we always do is like talk to our customers about, "Okay, what's your goals? What's your throughput, and how much do you wanna do a day? What kind of products do you wanna make?" Then, we're able to actually bring kind of a complete turnkey solution.

Matthew: Jonah, tell us, just give us a sense of what kind of products can be created, what the most popular ones are, and what customers are asking for. So we can get a sense of the different things that your extraction equipment can do and just where the extraction market is at, in general.

Jonah: Yeah. Well, the majority of our customers are really going after one of the largest market segments, which really is the vape pens, the cartridges for the vape pens, and making some full-spectrum oil, which is a very high desirable product for that. And so that's about 90% of our customers just make as many vape pens as they can. But what's been interesting is there's been a lot more, you know, development, product development as well, too, with all of our customers coming with really unique products. And so, you know, what we usually always like to do is actually talk to our customers and identify, before they even start, you know, "What kind of products do you wanna make? What kind of throughput do you want to do per day?" And then put together a kind of complete and tailored package with all the equipment they need to achieve their goals.

And so what's unique about the CO2 side is that you can really stop it just about anywhere along the way. And so, you know, from going to a full-spectrum oil, or you can do further refinement or post-processing into like a distillate or then [inaudible 00:14:06] distillate, you can turn it into an isolate. And so you really have a lot of variety in [inaudible 00:14:15] different products you can make with it, is how we approach it and what a lot of our customers are making.

Matthew: Okay. So just to review, can you review, and can you just tell us what you mean when you say "full-spectrum oil," "isolate," and "distillate," so everybody's on the same page?

Jonah: Yeah. So full-spectrum oil is going to be an oil that preserves the majority of the original plant. Obviously, you're not pulling out, like, the plant material and the chlorophylls, and you're removing all the waxes and fats and lipids. So what you're left with is a cannabinoid oil that has, not just your THC or your CBD, but also minor cannabinoids as well. And then, also having good terpene preservation, and that's where all that kinda works together, is what a lot of people call or is known as like the "entourage effect." Which those cannabinoids and terpenes working together make for a much more pleasant high, or a lot more therapeutic or medicinal benefits, all that stuff working together in, like, a full-spectrum oil. And that's a very desirable product for a vape pen. And something like that, if you're doing a cannabinoid potency percentage, would test typically somewhere in like the 60% to 75% cannabinoids.

And then [what a lot of our customers will do] then too is, you know, distillate is a popular product as well too, for...It's very popular such as like the edible makers. Because with edibles, you typically don't want to taste the terpenes. And it's a more higher concentrated dosage, and so that is easier to control in your quality control for your recipes and things like that, hitting your certain dosing for your THC or your CBD.

Matthew: Okay.

Jonah: And so that's what they call "distillate." And that's what that is, is just further post-processing or refinement. And typically, people will use either like a short-path or wiped-film technology. And what that does is further concentrate your THC or CBD, and it pulls out and separates, like, a lot of your terpenes and some of your minor cannabinoids as well. And so that same full-spectrum oil, if you ran it through a short-path or wiped-film would probably end up testing closer to like that 80% to low 90% THC or CBD. And then from there, you can do further post-processing and take the product into isolate as well, which can be more like a powder or a crystal. And that's removing everything except the cannabinoid that you're looking to concentrate. And so one of the biggest and most popular things right now on the market [inaudible 00:17:03] like, CBD isolate. And so we've also developed some new technology to do CBD isolate at a high throughput as well.

Matthew: Okay. That's a good...Well, you know, let's just talk about vape cartridges for a minute there. They were wildly popular a couple years ago, and they still are. And they've just gotten better and better. Now, you know, you mentioned full-spectrum, is you can get a lot more out of a vape cartridge than you used to be able to. Is there any sense that the market's starting to stabilize and there's enough supply? Because it's something I've been hearing for years is just like the demand for vape cartridges is just insane. What's your thoughts [sounds like]?

Jonah: I'll say, it's still not there yet. You can't really make enough to support the market right now. Because if you actually look at, too, a lot of the...especially in the states that have now gone recreational, if you look at a lot of the economic data on the products that are really moving, you know, there's a lot of new social users coming on and trying things that maybe hadn't in the past. And a lot of these people just don't wanna feel that they're doing a drug, or they don't have the where for all, they don't have a dab rig, they don't have a bong, they don't know how to roll a joint. And they just want ease and discretion. And so that's where if you look at, you know, all the economic data, all the new social users or people that are kind of, you know, sitting back and not really partaking much, but now that it's legal, saying, "Oh, I wanna try that," they're really drawn to the vape pens, and also edibles from that side.

And, you know, what's I think also desirable about the vape pens is that you can really control your dosing, in a sense, too. Like, you know, if someone wanted to take a little puff here, [inaudible 00:18:49] pretty much know, you know, how that's gonna affect them. And they can control, you know, how high or how medicated that they would like to get.

Matthew: Yeah.

Jonah: And so that's where I think a lot of people are more drawn. And then, now you just kinda see them everywhere now, too. You know, people don't typically know if it's a nicotine or a cannabis, or hemp cartridge that people have.

Matthew: Yeah. I'm sure there's gonna be some novel use of cannabis oil that might displace vape cartridges in the future. But it'll still be some form of extracted oil. And it's gonna, you know, come in some product form or drink. For me, I feel like kinda what's gonna happen is there's gonna be some company that come along that can consistently deliver the same mood over and over again, and they're available widely. And they're really gonna capture a lot of the market because right now it's just so fragmented, which is good. And I think there's always gonna be the equivalent of microbreweries, you know, doing really well. But, you know, it's nice to be able to be in California, then Oregon, then Illinois, then, you know, New York, and get maybe one vape cartridge that's the exact same everywhere I go, or one drink or one edible that is exact same.

Maybe that'll be done with like an intel-inside model, where it's gonna be like, "Hey, this extract, this contains, you know, this many milligrams of this kind of extracted oil with terpenes." But I feel like it's gotta move from that direction. Am I totally off base on that? Or where do you think it's going?

Jonah: I would say you're 100% correct. You know, when we first started too, there was really no repeatability. There was really no, even, specific product lines. And people would just run whatever trim or material they had that day and put a label on it, and sometimes it wasn't always even what it might have been labeled as, because people didn't know, you know, when they bought trim. And as the markets become more standard and more tracking, you're really dialing in specific strains. And now, with the amount of testing you can do and even the separation, with different equipment and stuff like we have too, you can separate different cannabinoids. And you can really dial in your dosing and have a repeatable product.

And that's absolutely where it's going. Especially, as you see, it's gonna become more of a nationwide product at some point. And that's what people are gonna expect is, you know, going into one state and buying a product, and then going into the other one and having the same thing. And so you're absolutely correct in that standpoint. We're already starting to see it go that direction. And it'll just continue to do so, I think, more so in the next 5 years.

Matthew: Now, we touched on throughput there. And maybe you can dive into that a little bit by telling us, you know, how we should think about throughput? Because you say you have clients coming to you and you ask them, you know, how much do they need. And aren't they just gonna say, "I wanna produce as much as I can?" Or where are kinda the limitation breakpoints with each of your extraction solutions? Or how should they be thinking about that, in terms of running 24/7 or how much throughput they need? What can you tell us about throughput?

Jonah: Yeah. It's really been amazing too, how far the industry has grown even in the last 3 years. You know, when we first started the extraction site about 3 years ago, we started building a 20-liter extractor, which was about the largest anybody was building that I'm aware of. You know, most people were building a 5 or 10-liter, so we said, "We're gonna build a 20-liter, you know, because that's gonna be a larger commercial system." And typically, on a 20-liter, a lot of your [inaudible 00:22:35] customers run about 6 to 10 pounds at a time. There's ways to kinda engineer the material to put 20 to 30 pounds in there. But, you know, most people are doing 6 to 10-pound strain-specific runs at a time, which is great. You know, it's great to be able to...And at the time, you know, a lot of people would sometimes only have, you know, 6 to 20 pounds of the same strain.

Matthew: Right.

Jonah: But now, some of these grows are, you know, 100,000-square foot grows, and they have thousands of pounds of the same strain. And on top of it too just, you know, we do a lot of stuff on the hemp side as well. And, you know, Oregon has been kind of a leader in the U.S. here in hemp as well, having the ninth biggest hemp program over the last 4 years. And when we first started with the hemp farmers 4 years ago, if you had 5 acres, that was a lot. You know, that was...You know, 2,000 pounds an acre, that's 10,000 pounds, that's a lot of biomass.

Matthew: Right.

Jonah: And then, 3 years ago, it was like, "Okay, 20 acres, wow." And then, 2 years ago, it was 50 acres. And then, last year, it was 100 acres. And now, we know some farms are a few hundred acres, and you're talking about millions of pounds of biomass. And so it's pretty amazing how fast everything has scaled. And so that's where we've also developed additional new technology to keep up with the market's demands for a higher throughput, bat the same time, not sacrificing quality. And that's where there might be a lot of manufacturers who will sacrifice quality with throughput by just saying, "Okay, you know, we're just gonna hit it at 5,000 psi and pull more plant material out." But, you know, you destroy a lot of the good cannabinoids and terpenes doing that. And we don't believe in sacrificing the quality with throughput. And so with some of our new equipment here, we have really game-changing CO2 equipment, [pumps] like 100C, which is 2 50-liter vessels that cycle back and forth between each vessel, designed to never stop. And so, as soon as one vessel is done, it switches, and then that person can load the next one.

And you know, people can get tricky sometimes when you talk about throughput, and sometimes people [sounds like] can give you the very best throughput on the very best day with the very best material. And, you know, we like to give real numbers, [inaudible 00:24:50] historical averages. And a lot of it too, depends on your starting cannabinoid percentage when it comes to CO2. If you have something that has, you know, like 6% CBD or THC versus 12%, it's gonna take longer to pull that 12% out versus that 6%. But a lot of our throughput now, in like the CO2, can be, you know, upwards from 100 to 300 pounds a day. And then we've also developed full ethanol processing centers that are desired to, not batch, but to be continuous extraction, that are looking at doing more in that 500 to 1,000-plus pounds a day as well.

Matthew: That's crazy.

Jonah: So we kinda have anything and everything in between, as far as if customers wanna do small batch stuff or if they wanna do full acres that weekend [inaudible 00:25:42].

Matthew: Okay. So you can pretty much do whatever the customer wants within reason, it sounds like. So with the two vessels, you can operate 24/7. So if you have one vessel full, or you have both vessels full, and the extraction machine is running, when it finishes with the first vessel, how long does it take to finish the second one, assuming it's full and your typical extraction machine? Like how many hours do they have before they have to fill it again?

Jonah: Yeah. Like on the 100C, we're looking at closer like to that 2 to 4 hours per kinda 15, 20 pounds per vessel.

Matthew: Okay. So I'm a businessowner. I'm thinking about buying an extraction machine. And the first question you would ask me is, "How many pounds do you want to do per run?" Is that kinda the first question?

Jonah: Yeah. Actually, the question I'd more probably ask is, "How much throughput do you wanna do per day or per week?" is typically what we would ask them. And then, "What kinda products do you wanna make?"

Matthew: Okay. Okay. I wanna kinda dive into some business models here and looking at return on investment and things, because extraction is really, as I said in the intro, becoming a bigger and bigger part of the business. And it's also gonna be an ingredient to all of this, amazing products that are being created. But the people that are gonna buy your machines are like, "Hey, what can I do with that? How much money can I make? What should my business model be?" When a customer or a potential customer, or a friend says, "Hey, what can I expect to make with an extraction machine?" I've heard a lot of great scenarios, but how do you kind of describe, like, the ROI on an extraction machine?

Jonah: So, you know, we always like to look at, you know, your gross margin. Or it doesn't necessarily even, you know, potentially matter what your gross is, you know, as far as your gross sales. But, you know, what kind of gross margin are you looking at? And also too, just how big of a company they want to have versus maybe a smaller company that can make similar margins, but not have as many people. And so, you know, some people want to be the biggest and best, you know, vape company in their state, or launched from state to state, and that's a big business. I mean, you have, you know, your material acquisition, your new supply chain. You have your compliance, your testing, your cartridges, your consumables, you know, your sales, marketing, packaging, distribution. That can quickly, you know, go from a small scale of, you know, 10 people up to hundreds of people from that side.

And, you know, the other side being is, or, "I wanna be, you know, an oil house or a toll processer," or you actually are just making bulk oil and/or doing contract processing to hire. That's a much simpler business model, and it's a very needed businesses model for a lot of either...You know, there's a lot of great farmers that wanna have their own product lines, but they don't want to be an extractor.

Matthew: Right.

Jonah: And so they look to some of these third parties to use their award-winning flowers and strains to make oil that complements that. Or there are some companies that want to have end products, but don't want to make the oil, and they want someone to make oil to their specifications. That's a much simpler, smaller business model, but it's also still very profitable and you can still make a lot of the same margins that you'd be making, you know, versus going to a full-scale cartridge line as well, too. And so there's needs from both those sides. That's kinda where we wanna talk to people and see what their goals are, what they want to do. And some of it too, just comes down to what's gonna be the most profitable for them and the least amount of headache potentially too?

Matthew: Okay. And let's talk, what's the typical cost for a gram of oil right now?

Jonah: So I guess, I can answer that three ways, is, you know, if you look at the retail side, you know, with compliance and testing now and everything too, in Oregon...I'll use Oregon and California right now, as kinda the metrics for that. But typically, a gram of oil is gonna end up costing somewhere typically between probably $50 to $80 a gram, typically, is what that would sell at a dispensary to the end consumer.

Matthew: Okay. And if you were to say, "Hey, my average client, they're..." I mean, I'm sure it ranges wildly, but kinda the middle of the bell curve, it's being sold at $80 a gram at the dispensary. What does it cost to make that same gram on average?

Jonah: You know, so as it goes through the supply chain, you know, from your side as an extractor, a lot of it depends on how much you're getting your biomass for. And that's where it's incredibly important to be able to do your own quality control testing before you even buy products, buy biomass to extract, if you're buying it. Because, you know, you can't just have a blanket price like, "Okay, I'm gonna get everything at $100 a pound, or $200 a pound." There's a big difference between something that tests at, you know, 8% THC trim or kind of B-buds, versus something that's like 12% or 15%. And that's directly gonna affect your yield primarily. It won't so much affect the quality of the end product. You'll still have a great product. It's just, "How much yield are you gonna have come out of there?" is gonna be directly dependent upon your starting cannabinoid percentages. And so if you're buying product at $200 a pound, it typically costs about $5 to $6 to produce a gram of full-spectrum oil.

Matthew: [inaudible 00:32:27]

Jonah: Yeah. If you're closer at buying trim, you know, at the $100 a pound, you're closer to that kinda $3 to $4 a gram, is what it costs. And then what a lot of these companies do is they will actually then sell to other distributors or people that wanna make their products, and they'll typically sell that, you know, between $8 to $10 a gram. And so that gets sold to then someone that's gonna take that oil, and that's bulk oil. And that's where people are moving a lot of kilos or pounds doing that. And then other companies will then take that oil and put it in a cartridge, package it, brand it, market it. And then, you know, that will typically then go to a dispensary or a distributor, depending on, you know, what state you're in. And then that will typically then get sold, you know, in that $20 to $40 a gram. And then, so once it gets in the dispensary, then that's where then, it goes to, you know, that maybe $50 to $80 a gram, is typically how that works.

Michael: Okay. And how do you preserve terpenes as you go through this process? I mean, is it a matter of temperature and pressure? 'Cuz I'm kinda boomeranging all over the place here but, you know, you talked about how critical it is for the experience and for the end product. And also, end customers are getting much more savvy about this and they talk to each other, and you really wanna make sure you maintain terpenes. What's the art and the science of doing that just right?

Jonah: So the biggest thing is having control over your process. And you hit pretty much two of the most important parts when it comes from a CO2 site is terpene preservation is maintained primarily per your temperature control and control over your pressure. And so temperature is so critical to your extraction process. And I feel like sometimes that's an afterthought. Sometimes people will just use an off-the-market kinda chiller or hot water bath. And, you know, if you look at the specifications on some of those, you know, off-the-shelf kinda chillers, sometimes they're +/-5 degrees. And we have built for us, heater/chiller combinations that are exactly specified per machine specifications. So when we set our temperature, this stays typically about 1 degree. And so we have really tight control over our temperature.

And then from the pressure standpoint, see, a lot of times people will just want...they'll try to do more throughput. And they can achieve more throughput if they go through 3,000, 4,000, or 5,000 psi. But what happens is, at those higher levels, if you look at, you know, like a whitepaper, typically anything over 1,800 psi, you start to degrade some of the cannabinoids, the terpenes, you pull on additional plant material and chlorophylls. And so you really start to degrade a lot of the great therapeutic benefits of some of those things. And then you have to spend a lot of time in your post-processing and cleaning up. And so where we increase throughput without sacrificing the quality is with temperature and then also what we call "flow rate," which is, you know, essentially, how fast CO2 or a solvent moves through your product. And so that's how we're able to preserve, you know, the majority of our terpenes through the extraction process.

Matthew: Okay.

Jonah: I will say too, you also do have the ability, terpenes you can actually run very low, like almost like a subcritical, in the very beginning of your extraction run. But some customers like to try to pull those terpenes in like that first half-hour to hour, and then they'll just change the settings. You don't have the stop the machine to change the settings. And they'll take a pull and pull those...Especially, if their goal is to go to distillate later, they'll just pull those terpenes, and then set them aside and use them later, either reintroduce them or use them for a different product, because they're very valuable.

Matthew: Now, we touched on this briefly, but I just want to be really clear for listeners about the most common business paths for people buying extraction machines. So you get to create your own brand or line of products, there's a toll processer, which you mentioned, and then there's the bulk oil house. Are those kinda the big buckets you would say exist?

Jonah: Yes. Those are the three that our customers really focus on. There's incredible opportunities to be a toll processor or kind of a bulk oil house. And primarily that's because the extraction site, you know, there's a capital investment that comes with it, and also I think sometimes people are just like, "Well, I don't know anything about extraction." You know? Even amazing growers that are great growers that know cannabis better than [inaudible 00:37:16] anyone, they sometimes are just like, "Well, I just don't know about extraction or what to do."

Matthew: Okay.

Jonah: So I think some people are kind of, maybe [sounds like] a little nervous just thinking of, "Can I do that?" You know? And so a lot of times there's not enough processors, or toll processors to handle the amount of extraction that needs to take place. And so that's where there's been these industries that have stepped up to where, I had one customer here in Oregon, a company called "Tosmos" [sp], that was initially gonna do their own cartridge line. And then they got offered a pretty lucrative contract to do toll processing for one of the biggest cannabis companies out there that just wanted them to toll process. And so they did that and they started with a 20-liter. They added a second 20-liter, and then a third 20-liter, and then a 100-liter, and they just kept adding more equipment. And they've really found their niche in doing toll processing extractions.

Matthew: So toll processing, again, is just taking other people's trim or your own trim and extracting it, and then selling it to another business, not a...

Jonah: That's correct.

Matthew: ...retail operation? Okay.

Jonah: Yes. But now, on the toll processing, it's more you're specifically extracting it to that customer's needs and specifications and wants. And that's where you have to have good quality control and repeatability to satisfy the customer there. And so, yes, a lot of times, they'll provide their trim or product, and then you extract it and turn it into, you know, a full-spectrum oil or a distillate.

Matthew: Okay.

Jonah: And then, the bulk oil side...And a lot of our customers will do a combinate of one, two, or all three of these businesses too. Because when you're doing the toll processing, it's also just natural that you could be almost like a bulk oil, like a Cisco, that kind of thing, to where you're even sourcing your own trim or your own...And here in Oregon, too, I mean, now with the cost of flower, the overproduction, a lot of the extraction companies are now running flower because they can get outdoor really good A, B-buds, or $200, $300 a pound, which really change the...

Matthew: Whoa.

Jonah: Yeah.

Matthew: I've heard about the overproduction. It was overproduction. It was kind of a subjective term. But I've heard that there's a big supply in Oregon. So that's amazing, $200 or $300 a pound.

Jonah: Oh, it is. And it's really changed even the whole quality of your yields. You know, so now instead of maybe historically getting a 10% to 12% yield, you know, of full-spectrum oil, now some of our customers are getting closer to, you know, 13%, 15%, which really changes your financials modeling, when you're getting that kinda return in yields. And so a lot of the customers will also then just make bulk oil and just sell that to edible companies, you know, sell it in pounds or kilos at a time to edible companies or vape companies that don't wanna do their own processing, but wanna have oil made that meets their standards and quality.

Matthew: Okay. So the toll processor already has in mind exactly what they need, and they have specifications. And when a company comes to a toll processor, they say, "Make x, y, and z for me with these specifications." A bulk oil house has like a menu you can pick from of extracted oils and products. Is that right?

Jonah: That's a great analogy. Yes. You got it.

Matthew: Okay. And then, of course, before that we mentioned creating your own brand. So we just went through creating your own brand, the toll processor, and a bulk oil house. I think it's amazing how these niches are kind of evolving. They overlap, but its kind of fragmentation with industry is we're starting to see specialization. So that is really amazing. And just to review those numbers again Jonah said...And we won't quote you on that, Jonah, just because, you know, the market's always a moving target. But you said sometimes...

Jonah: It is. Yeah.

Matthew: ...the input costs were $1 a gram or $3 or $4 a gram, but oil was selling for $80 a gram at a dispensary. So you can get a sense of how profitable this can be for a mass that's very small. I mean, a gram is a tiny, tiny amount of a mass. So that's really just incredible. And one of the reasons I'm so excited about it, it's also exciting too because compared to cultivating, extraction is kind of an esoteric thing still. People really, they don't know how to get into it. It seems really opaque. It's just, you know, "What do I do?" There's all these insiders, and they don't wanna really talk about it because it's going so well from them. Not uncommon to hear from people to pay for their extraction machines in a week, and these are expensive machines. So it's really something that's just remarkable. We're in a remarkable spot in history here. And actually, it was 2 or 3 years ago, I was talking about this, but this opportunity still exists.

So I want to just move forward with some other topics here. So we've talked about the three different types of businesses most of your clients operate under. We talked about preserving terpenes. But I want to talk a little bit about your partner's background and what he's brought to the business. Because in talking to you earlier, he sounds like an interesting character and has brought a lot of cool things, just kinda cool skills to the extraction realm. So if you can talk about him a little bit?

Jonah: Yeah. I'm very blessed. I couldn't ask for a better partner. His name is Paul Tomaso. He's my partner and our CEO of our company here. And when we decided that we were gonna set up an analytical testing laboratory, he was back on the East Coast doing some of the largest solar rooftop and fuel cell installations in North America. And he was the very first call because we knew with his background that, once he got into the cannabis and hemp industry, not only would he help us set up the most professional lab with quality controls and standardization, and new methods, but we knew once he got in the industry, he would identify bottlenecks and deficiencies and come up with better solutions. And that's exactly what he did. And his background is really unique in the sense that, it's like his whole life culmination has come together to develop the best extraction equipment, which he never, ever would have expected. You know?

And so, you know, he came from actually a military background, joining the military when he was 17. And then he actually ended up working for John Fluke, doing Fluke multimeters up there in Seattle area. And then he did, like, the TERCOM [sounds like] section of the Tomahawk Missile, the layout for that. He did some stuff on the NASA space shuttle, some contract work. And then he developed some of the fastest laser technology in the world for laser marking and engraving. And then he even developed some robotic pick-and-place equipment that you could take any image, any photograph, any customer logo, and it would pixelate it into, you know, 1/2-inch by 1/2-inch or 1-inch by 1-inch tiles. And it would robotically go grab those tiles, place them, and then you'd have like a beautiful mural. Like he did the D-Day Map in the Eisenhower Building, back in Washington as well.

And so he's had all these...Everything he's ever done, he's developed new technology. And I don't know. When it comes to extraction, you know, and the fact that we do automation on everything which is unusual, a lot of equipment's just not automated, whether it be CO2 or ethanol, or butane, and we automate everything to have control over your process and also, you know, reduce the cost of labor. And so the fact that I don't know of any other person that has the electrical, the mechanical, the controls, the pressure to have all those knowledges over his life experience to bring them together to build extraction equipment. Yeah. So I've very, very fortunate to have someone like that as a partner, because he's really the driving force and the genius kinda behind all the technology that we build here.

Matthew: That's great. Now, he went from military applications to cannabis. That's a huge divergence.

Jonah: Oh. Yeah. But, you know, Paul, he's a big believer in the medicinal benefits. You know, he's even seen that himself in a sense, where he loves CBD, in particular. You know, his mind never stops, and also he always has to be very alert. And so he doesn't really partake so much on the THC side. But the CBD side, he's a big believer on. And, you know, he's taken some full-spectrum CBD capsules, just goes to bed, you know, let's the mind shut off for a little bit, and just wakes up refreshed. And that was one of the biggest changes for him is realizing, "Wow, this stuff really, really works."

Matthew: Yeah.

Jonah: And so he's just incredibly passionate about helping people. You know, and him being a veteran too, you know, he really likes to help a lot of the veterans. And that's been one of the biggest things, we've enjoyed helping and seeing how many veterans that cannabis has really helped and saved their lives even. And we also like to hire a lot of veterans as well. And so anyways, that's been special to him as well, from that side.

Matthew: How do you see the extraction business changing and morphing, evolving, in the next 3 to 5 years as the industry just...I mean, there's more and more demand. There's gonna be more and more biomass coming in. Where do you see it going?

Jonah: Yeah. It's gonna be higher, faster, more efficient throughput with maintaining the best, highest quality, and repeatability is really where it's gonna go. And you'd hit on part of that, is it's gonna become even more standardized to where your product lines, even by a state-by-state basis, are gonna be repeatable. And so there's gonna be just more and more quality control. There's probably gonna end up being more requirements for good, you know, GNP kinda stuff too, for good practices for manufacturing. It's really gonna turn more, I think, into somewhat of a pharmaceutical environment with some of the production of stuff, whether it be edibles and oils. But just having that repeatability and quality control over your product.

Matthew: Yeah. It's funny because, you know, I've met some people from the pharmaceutical industry that have come over to the cannabis industry, and they're kinda bringing their best practices. But I don't think it'll be long before the cannabis industry is giving other industries their best practices. Because so much capital is moving into cannabis, and there's not any legacy architecture or systems. So it's all being built fresh. So we don't have to, you know, rely on kind of sclerotic processes. But with that, talk a little bit about your ISO-certified processing center. What is ISO? Why should we care about that? And what's important to know about it?

Jonah: Yeah. Well, you know, ISO is actually International Organization of Standards, who publishes quality standards or just good manufacturing processes.

Matthew: Okay.

Jonah: And it's really important because it helps, you know, answer the question, "You know, what is the best way to do this when it comes to manufacturing and to uphold certain standards as well?" And, you know, our background is in engineering, and you'll find that we created a lot of the standards to achieve, you know, high-quality extracts. And also, too, it's going into different jurisdictions, or even countries for that matter, or different states. You know, they all have different standards, but things like ISO or CE and things like that, those are all accepted. And so it's important for our customers in whatever jurisdictions or states, or cities, or countries we go into, that we have really high-quality engineering and documentation so that they can get through a permitting process as well, too. And so that's been incredibly important from our customer side.

Matthew: Okay. And so how long does it take? If someone's listening and they're like, "Hey, I want to reach out to MRX and find out if they have an extraction machine that works for me," how long does the whole process take from initial order to completion? And is there any sense on cost that you can give us, so we can kinda get an idea about this?

Jonah: Yes. So typically, you know, we build everything to order.

Matthew: Okay.

Jonah: And, you know, we require a 50% deposit, and we start building. And, you know, we have machines priced anywhere from the $150,000 up to $850,000, and then kinda anywhere and everywhere in between. And so typically, you know, on some of our smaller systems, a 6 to 8-week build time is fairly typical. Then, some of our bigger systems, like our 100C or our ethanol processing center, those are typically gonna be closer to the 12 to 16 weeks. But it usually works out really well timing-wise. Of course, every once in a while, we get the guys or existing customers that need another machine right away. And we're usually able to accommodate that in some way. But typically, that lead time is the right lead time in the sense that, once they put their deposit down, we start working with their team, helping with facility layout and design. And because what we see with a lot of our customers too, is not just their needs right now, like, "Okay, I need, you know, two 20-liters." "Okay. But what about your second phase or your third phase?"

And you can do a lot of infrastructure stuff up front with not a lot of additional capital but make it a lot easier to win. Because we've seen it over and over, where every 3 months, 6 months, our customers who start from a machine, and then they need more equipment. And then if they don't prepare for that on the front end, you know, they're moving things around, trying to bring more electrical in. And so we try to help in the beginning with a lot of their facility layout and design. That's not something we charge extra for. That's just part of kinda the value-added working with us. And we just kinda help them through their facility readiness, as well, making sure their facility is ready so when the equipment arrives. And a lot of times, too, we'll even have our customers come in and do training. We always go do training onsite, as well.

But a lot of times, we'll invite our customers to come in before their equipment even ships and come spend, you know, a few days here at our facility, learning about the equipment, you know, learning the extraction process. And that way, they have a good foundation, and it really shortens the learning curve when their equipment arrives.

Matthew: Well, that's good. Those are helpful services. I mean, just quickly, when's the most appropriate time to...When you're designing an extraction facility, maybe it's adjacent to a grow or part of some business planning, when is the ideal time to bring in you? Like when the architect and the general contractor have kinda been picked and blueprints are being drawn, be like, "Hey, we wanna bring in, you know, MRX to talk a little bit about this facility and just to make sure that we're implementing the best practices?" 'Cuz I've seen a lot of people and a lot of businesses doing that, like wondering when to pull in who in the planning process.

Jonah: That's exactly it, is we like to typically be involved in that at least at 4 to 6 out before you want to be processing. And we work more and more now with architects, designers, engineering firms, from the very beginning, just helping spec in the equipment, and then also with, like I said, the facility layout and stuff. And so, yeah. You know, that 4 to 6 months is usually when we get involved.

Matthew: Okay. Well, Jonah, I'd like to ask some 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 way of thinking that you'd like to share?

Jonah: You know, the one book that I really took a lot from was a book called "From Good to Great," I think the author is Jim Collins.

Matthew: Mm-hmm.

Jonah: And as an entrepreneur, you know, when you start a company, you know, it's usually you and two or three other crazy partners that start to build that company. And there's only, you know, so much you can do and keep taking it in yourself and pushing forward. And, you know, I can't stress the importance and need of getting good, quality people in building your team. And what I reference about that book is that it took a bunch of case studies from different companies that were good companies, and built to a certain part, and then took them to the next level. And one of the things I really took out of that was identifying the right people to kinda hire. And a lot of times though, too, you don't always sometimes just hire for a very specific position, which is common. It's what you usually do, like, "I need this position." And we still do that a lot of times. But a lot of times, you know, I'll just meet somebody or talk with them, or have some informational interviews, and you'll find someone with a really good work ethic, hungry, they want to learn, and they have unique skill sets, and you kinda almost find a position for them. And that's one of the things...

Matthew: Get them on the bus, right? Is that what they call that?

Jonah: Yeah. Yeah.

Matthew: Get them on the bus.

Jonah: Yep. Exactly. And so that's one of the things I really took from that book and I thought was really helpful to me, as far as a book like that.

Matthew: Okay. I should also ask, you know, you're a growing business, what's the type of skill set, like degree, are you looking for chemists, mechanical engineers, electrical engineers...I mean, what's the type of skill set for the employees of your company now? Like what does it look like? So I wanna, A, give young people listening or people looking to make a career transition, looking for what skills are, like, in demand. What would you say is in demand?

Jonah: Yep. You hit two of my top ones right there, is kinda that chemistry background and then that mechanical engineer side. You know, people with kinda [inaudible 00:56:46] HVAC kind of experience or refrigeration experience is very helpful to us from that side.

Matthew: Okay.

Jonah: But, you know, we're always just looking for just good, talented people that are hard workers, that are not afraid to get their hands dirty and work hard. And, you know, we do a lot of training in-house too. And so we don't necessarily have to have a degree, but those are two degrees that we do tend to hire a lot of.

Matthew: Yeah. And one more personal development question. Is there a tool, web-based or otherwise, that you consider vital to your business or productivity individually??

Jonah: Yeah. You know, one is something that everybody already knows, but it's amazing the amount of texting that now happens in this industry. And just being able to use, like, voice text, I use that. I never thought I would use something like that to that level, but the amount of texts you get in a day can be 50, 100 texts.

Matthew: Yeah.

Jonah: And so that's something I use a lot of. But then, more on our side, specifically, we use a program called like, "Vtiger," which it's a little more than just a CRM, which is a, you know, customer relationship manager. And from our side, it's incredibly important to have to keep track of the data and your customers. I'm not just talking about sales leads, per se, but your existing customers. And we even have a whole customer portal built in for when our customers get equipment. You know, they have their own login, their own [inaudible 00:58:25]. So we can communicate with them through that...

Matthew: Well, that's cool.

Jonah: ...and track everything through the whole entire process.

Matthew: Yeah.

Jonah: And so that's been a very valuable tool for us, Vtiger, because it kinda ties in the potential new sales opportunities, it ties in our existing customers, and it also kinda syncs and manages all the calendars and stuff too, with visits and things like that. So that's been a pretty good tool that we use a lot.

Matthew: And how do you spell that?

Jonah: V as in Victor, and then just tiger.

Matthew: Okay. Cool. I've never heard of that one. Well, Jonah, this has been very educational. Thanks so much for coming on the show and teaching us about everything you're doing. This sounds like just an incredible business opportunity, not just for you, but for also your clients. And so I wish you all the best, and I hope you come back on and tell us how the industry is evolving.

Jonah: Oh, I'd be happy to do that. I really appreciate you taking the time. And I sure enjoyed getting a chance to speak with you.

Dutch Scientist Creates Interactive Tool To Help you Find your Ideal Cannabis Match

linda klumpers

Linda Klumpers Ph.D. is a scientist from The Netherlands. Listen in as she describes how she has built an interactive web-based tool that allows you to find the best cannabis product for your specific need.

Learn more at:
https://www.cannify.us/

Important:
What are the five trends disrutping the cannabis industry right now?
Find out with your free cheat sheet at https://www.cannainsider.com/trends

Read Full Transcript

Matthew: 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 cannainsider.com. Now, here's your program. In the quest to find ways that natural botanical solutions can help us with different symptoms and general health, we often find ourselves without a compass, unsure where to turn for quality, scientifically-backed information. Our guest today, Linda Klumpers, aims to help us use science to arrive at the perfect customized cannabis solutions using her online tool Cannify. Linda, welcome to CannaInsider.

Linda: Thank you, Matt.

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

Linda: I am sitting in the Art District of Denver, Colorado.

Matthew: Okay, great. And I am in Edinburgh, Scotland.

Linda: Hey. That's really nice.

Matthew: Linda, can you tell us a bit about your background and journey, and how you got to this point in your career?

Linda: Of course. So I have always been interested in many things, and mainly in the brain and in biology. And that is actually why I started neurosciences at the University of Amsterdam. And after that, I'm keeping it really short now, I started a PhD in Clinical Pharmacology, yeah, of Cannabinoids. And I also have a degree in Clinical Pharmacology. I'm also a registered clinical pharmacologist in the Netherlands. And I've been doing cannabinoid research since 2006. After my PhD, I mainly did consulting for various life science companies and, at some point, I just decided to start for myself. Yeah. If I would make it really long, it would include a lot of different activities with music-making and what not. But I think that this is...

Matthew: Yeah. That's okay.

Linda: ...more relevant for the interview. Yeah.

Matthew: Yeah. And what is Cannify?

Linda: Cannify is an online tool that can be used for patients and also for others that are interested to find the scientific information that you can use to educate yourself for making better product decisions. And it's also useful for companies to make products better. And what we also want is to contribute to the improvement of the science of cannabinoids and of the endocannabinoid system.

Matthew: Okay. Can you paint a picture of the problem here, so listeners can understand what Cannify does exactly? I want them to understand, like, if they were looking over your shoulder, like, what problem it solves, so they can understand as they can use it online then.

Linda: Yeah. Yeah. Sure. Because this is the important part for me, I think. So there are a lot of problems. So what I encountered myself is people have a very curious nature, and they try to find information all the time about what they want. But the problem that I found is that it's very tough to find this information from very reliable sources. Because if you go to the internet, there's information everywhere about cannabis and cannabinoids. And you can talk about a lot of people who call themselves "experts" or people with passion. But if people say that they are a specialist, what do they actually know and where did they get their knowledge from. And I think that it's very important to marry the two areas of academic knowledge, but also people with experience in the field.

And that is exactly what I try to do, but with as little bias as possible. Because a lot of people have a particular agenda, in terms of trying to get cannabis legalized or trying to get cannabis prohibited. And I see myself as a scientist without any agenda like that. What I want is to bring the knowledge that we have from studies, etc. to people so that they can have this objective source to get this information from. So my problem, in a nutshell, is really that there is a lot of biased information out there often without any references. And I try to make it transparent to people where the information that I give comes from. So I hope that's clear. Yeah.

Matthew: Okay. So I'm gonna pull up your website right now, cannify.us.

Linda: Yes.

Matthew: And I just wanna paint the picture of what people can see. So when you go to cannify.us, it says, "Are you interested in learning more about the potential of cannabis and cannabis product? Use our tool for customized educational information." Then, you click a button that says, "Start the Cannify Test," and it asks you a bunch of questions, "Where do you live?" And then it goes into detailed questions to help you arrive at what might be the best solution for you. Can you just talk about that aspect a little bit?

Linda: Sure. So do you mean how the tool works or...

Matthew: Yeah.

Linda: ...what we t-...

Matthew: Yeah, how the tool works.

Linda: Yeah. Okay, sure. So maybe there is a little bit to add to your previous question with regards to this one. And it is that there is also a lot of information on the internet that is very interesting. But what do you do with it? It's not really actual-...It's nice to learn about genes. It's nice to learn about pharmacology. But how do you actually apply this information?

Matthew: Right.

Linda: Yeah. So to be very up front, it is very hard to apply it because everyone's different. But I also think that if you do not start, at some point, with trying to apply this information, you will never know how well it works and you will never know how to improve it. So how this tool works is you click on this button, you start the test. The test will ask you various questions about, for example, the symptom you're looking for or the effect you're looking for, and also about yourself, who you are. And every question is made for us to make a better prediction, let's say, what to potentially use for your particular indication and personal characteristics.

Matthew: Right.

Linda: Yeah. So it will tell you information about the cannabinoids, the dose, and also the administration methods that has been used in previous studies with people with your symptom, for example, that worked for them. So this is really to give you scientific information about people that are as much like you as possible. And this information can be that someone with your symptoms or personal characteristics have been helped in the past. It can also give you the information that there was never evidence or that there's not enough evidence. And these are potential outcomes as well. The whole goal of this is to bring the science closer to the people with a nonscientific background to help them understand better what research has been done and, potentially, how this could apply for them.

Matthew: Okay. So it's like a bridge between the desired outcome people want and what medical research exists between the outcome they want, and that medical research kind of builds that bridge between the two things?

Linda: Exactly. Exactly. And then there is this extra step, what I just mentioned with regards to the actional part. So once you have this scientific information, and we try to present that in an easy-to-understand report where every different element is mentioned separately, so with regards to, "Have there been any studies that showed beneficial effects or maybe mixed results? What compounds were involved in those studies? What administration method? What dose?" And there will be scientific reference. So it's a little report. But then the next step, if there actually turns out to be a potential beneficial effect, will be the comparison between your personal report and the products that are out there on the market.

And then we try with algorithms to make a matching score between those products and your personal report. So for example, this product will be 83% relevant for your report, and the other product might be 20% relevant. So it is not, let's say, an advice or anything. But it is to try to give people insight in the elements that are important for the science that is out there, for potential decision-making, etc., etc. But we're not making any claims. We really hope that people can use this information and bring to their healthcare provider, for example.

Matthew: Okay.

Linda: Yeah.

Matthew: So I'm on, like, Question 6, just to give listeners an idea. And it says, "Choosing only one option, what do you want to use cannabis for? I want relief from nausea, pain relief, sleep, anxiety, appetite, PTSD; I want to feel euphoric, more creative; I want to reduce the number of epileptic seizures; or other." So just to give people an idea, it's kind of narrowing down what you're looking for, and then try to present a scientifically-backed reason what product or service. It's kind of like a web-based smart guide to help steer you to a product that would help your particular situation, I think, might be the best way...I'm just trying to introduce this because we're talking about a website and people can't see it. So I'm trying to make it as clear as possible. But let's...

Linda: Yeah. So maybe, I can also give comments about that, if you don't mind?

Matthew: Sure.

Linda: Because there are a few things I want to say. First, a very tiny-detail thing. You mentioned Question #6. I just want everyone to know that depending on what question you fill in and how you fill it in, you might be brought to a different question than someone else. So maybe this is Question #6 for you, but maybe #5 or #7 for someone else. But that is just a little detail.

Matthew: Yeah. Sure. Sure. So it has dependencies built in. Based on your answer, it might show you a different question next or so forth.

Linda: Exactly. That's right.

Matthew: Okay.

Linda: So that's the one thing. But maybe a more important thing is that the symptoms that are listed now is the first selection. We already have added more symptoms for people because we have not been online for such a long time, and we are still improving and expanding. But we wanted, rather, to have a small number of indications worked out really well and then expanded, rather than having a lot of questions with a little bit of information about all of them...

Matthew: Sure.

Linda: ...a lot of symptoms. Yeah.

Matthew: Makes sense.

Linda: Yeah. And then the other thing I wanted to mention is, okay, that I know that there are quite some people out there that try to do the same as us, and some are doing a good job. Other people I'm less impressed by. But what I want to say is that what distinguishes us is that we take the science, the data, the clinical science to make it very clear, so that means research on people, and then we make a predictive model. Rather than, what a lot of other people do is gather a lot of data from the field, from people using cannabis products from dispensaries and so on, then try to do statistical analyses on them, and then try to make a matching tool.

And I think that what I'm doing is way better as a start, and we should integrate the data from other companies maybe or the data-gathering method that we use ourselves and make the questionnaire better. But I think that this starting point of starting from clinical science is very important for the quality of the predictability.

Matthew: Okay. And can you tell us a little bit...You talked a little about your background in clinical pharmacology. Can you just introduce what a clinical pharmacologist does, just a quick summary, so we can understand that at a high level?

Linda: Yeah. I love that question. That is very important because a lot of people just use all these terms without even realizing that other people might not understand what it is. So pharmacology means "the study of drugs," and clinical means that you are doing that study of drugs on humans. So it's studying drugs on humans. Yeah. I think that that's the important part.

Matthew: Okay. Okay, good. And tell us about what an antagonist drug is, or an antagonist drug - I think I got that right - what those type of drugs are and what they mean for a cannabis user?

Linda: Yeah. Yeah. So the study of drugs means drugs are...They go into a body and, in that body, they give effects. And there are many different ways that these compounds, these drugs, can give effects in the body. And one of those ways is that they bind to a particular binding place, after which, something happens. And in the case of an agonist and an antagonist, a drug finds the binding place that is suited for them and then, at the binding place with the compounds combination, is giving a particular effect. Something is going to happen. That is an agonist. What can also happen is that a compound finds a binding place, sits there, and decides, "I'm not going to do anything." That is an antagonist. You have a compound binding to a binding place, a receptor, and nothing is happening. The receptor can be blocked from other compounds that want to bind there.

Matthew: Okay.

Linda: And then you even have more variations. To keep it very simple, I will give just one more example that is that a compound goes to the receptor and gives an inverse effect, and then we are talking about inverse agonism.

Matthew: Okay. Talk a little bit about that a little bit more so we can just understand the difference.

Linda: Yeah. I'm trying to mention that last thing because a lot of people confuse antagonism and inverse agonism. Because antagonism sounds like "anti," so we think that there's...

Matthew: Right.

Linda: ...yeah, an anti-effect of the agonist, but that's not true. There's just nothing happening. And this has been a very important...Let's say, yeah, 15 years ago, around the time when I started my PhD, when the pharmaceutical industry was very interested in this antagonism for various reasons.

Matthew: Okay. And tell us about the munchies and what you know about that coming from, you know, a clinical pharmacology background, and how we might be able to mitigate the munchies effect from cannabis?

Linda: That's an excellent bridge.

Matthew: Is that a scientific term, "the munchies?"

Linda: Not really. But I understand what you mean. We're more talking about energy balance than the munchies. Energy balance and reward, of course. Because a lot of people nowadays, they eat...well, especially, here in United States, I see them eating hamburgers and so on, and other things that do not necessarily have the nutritional value that their body really requires. So if I take a chocolate, I do that not because otherwise I starve, but just because I like it. So there is a lot of elements that are not necessarily related to the real nutritional value, but also to reward.

But yeah. The reason why I said that's an excellent bridge is that the pharmaceutical industry interest in the antagonism and inverse ag-...So the pharmaceutical industry that was interested in antagonism exactly had to do with this idea of the munchies. So let me explain. When the endocannabinoid system was discovered...So the endocannabinoid system is a physiological system in the body where these ligands, these agonists, for example, you were talking about, are being produced by our own bodies, and we have binding sites for these compounds to actually have effect. And there is a whole system involved with these agonists, these binding sites, with transporters, with enzymes that make these compounds and break them down. And all these elements together are called the "endocannabinoid system."

And when this system was found, scientists thought, "Okay. So if we are able to induce the munchies with, for example, THC, which also binds to this endocannabinoid system, then we should also be able to block this effect in a way."

Matthew: Right.

Linda: Yeah. And that is when many different pharmaceutical companies started developing compounds that might block this effect because they thought, "This might be a blockbuster. This might actually fight obesity." And they went even a few steps ahead, "Maybe this can fight addiction, like nicotine addiction or dependence." And what was very interesting is that after that, a lot of pharmaceutical companies were trying to get this to the market as soon as possible because there's various reasons for that. You want to be the first, and you want to help people as fast as you can. And well, these motivations are different for different people, of course.

But anyway, yeah, the company who brought it to the market first, I think they might have done this way too hasty. Because why do a lot of recreational cannabis users use cannabis? This is a question for you, Matt.

Matthew: Okay. I think they use it for mostly wellness, pain, fun, relaxation...

Linda: Exactly.

Matthew: ...all the above.

Linda: Exactly. So for wellness, fun, relaxation. People use it recreationally because they like it. It gives a pleasant effect. So you can maybe understand that if you give something that antagonizes these effects, it might not just inhibit the munchies, it might also block these fun effects. And that's exactly what happened. So in this case, people who were vulnerable to it did not only lose weight, but they also got depressive feelings and suicidal feelings. And eventually, the drug had to be taken off the market. But this is, yeah, the whole story about trying to block the munchies in...well, it was in the noughties of this year...

Matthew: Oh, okay.

Linda: ...of this century. Yeah.

Matthew: So long story short, when you try to take away some effects, you end up taking others away as well that you may not have wanted taken away, it sounds like?

Linda: Exactly. And that is, especially, likely for the endocannabinoid system. Because if you look at other physiological systems in the body like the serotonergic system, there are so many receptor subtypes. And every receptor subtype, every binding site that is just a little bit different from the other binding site also regulates slightly different systems. And with the endocannabinoid system, the problem is that, for example, there are two different binding sites now that the scientific world has a consensus about, let's say, too. So you have type 1 and type 2 that are their glorious names.

And type 1, for example, is present in so many places in the body. So if you want to target type 1, then you are...It's very easy to just block all of them at the same time if you want to block them, or to activate all of them. So you have to use all kinds of tricks to not let that happen, but that's not easy.

Matthew: Yeah. And you've mentioned that sometimes experiments on rats and mice may lead to misleading results. Can you talk about that a little bit?

Linda: Yeah, of course. So how I typically explain it to people, "Matt, would you like to take a drug that has been tested on me as a model for you as a person?"

Matthew: Right.

Linda: Yeah.

Matthew: I mean, I don't know. If you're a human, that might sound okay to me.

Linda: Yeah. But you don't sound convinced either.

Matthew: Right.

Linda: [inaudible 00:23:16] You were like, "Yeah, right." Exactly. So can you imagine if someone develops a drug based on a mouse, a rodent?

Matthew: Yeah. That's different. I would prefer a human. But not if it hurts them. So I don't know what I'm saying anymore.

Linda: Okay. No. So there are various problems with the translation or extrapolation from a rodent to a human. I mean, well, they're a different species. They have a different size. They have different mechanisms in the [inaudible 00:23:47] For example, they break drugs down differently. There are so many differences. But then there are other differences as well. You cannot ask a mouse, "How are you feeling?" And that might sound funny, but it's actually a big problem for drug development. So let's take an example from cannabis research.

Matthew: Okay.

Linda: Yeah. So if we look at a very famous example of people suffering from multiple sclerosis. Multiple sclerosis is a disease by which, let's say, neurons get damaged, and that has horrible consequences for people. That can result in a lot of pain. It can result in loss of muscle function. People can get paralyzed. It's horrible. And people with multiple sclerosis have reported that they have beneficial effects when they use cannabis. They report a decrease in pain. They also report a decrease in muscle spasticity. And the fun thing is...well, it's not fun at all. But if you try to measure to what extent the spasticity of these people actually decreased, you will not measure anything. But these people will report fewer spasticity.

And what is important here, whether their spasticity really decreases or whether they feel like it decreases, well, I personally would rather feel like it decreases than maybe I don't feel anything, and it does decrease. And if you would test things like this on a mouse...I'm not saying that it is the case in this particular story or particular example. But you can imagine if you try to measure something and you don't measure a change in animals, but you do measure a change when you talk to people, then that is something that's very important that you might miss. And the other way around too. You can measure particular things in rodents that you would never measure in humans. And therefore, I think that it might be necessary in many cases to use animals for particular studies but, in many cases, not.

Matthew: Yeah. Good point. I think sometimes we say like, "Hey, it was tested on a rodent successfully, and so just extrapolate that it will be successful on you, the same product." But it sounds like it might not be, even though we're both mammals. So well said. I wanna transition to a couple personal development questions, Linda. Is there a tool you use that helps with productivity in your business or personal life that you'd like to share?

Linda: Yes. It's actually a very, very simple tool. But what I use regularly, and I've also used this year in my PhD, that is a website, mytomatoes. And it uses the Pomodoro Technique. And it is a very simple idea that you work in blocks of 25 minutes. And after 25 minutes, you have a 5-minute break. So you can get your cup of tea or whatever you're interested in, and then continue working. And for me, this really helps planning my day better and also focusing. But there is actually another tool I would also like to mention, if possible.

Matthew: Okay. Yeah.

Linda: Yeah. And that is a project management tool.

Matthew: Okay.

Linda: Because what I see people doing a lot is making lists of things they have to do. And for me, making lists, that helps on a daily basis, so for example, if I plan mytomatoes on a day. But it also often does not really help because you lose the dependencies between activities. And therefore, I use casual.pm. I really like that tool because you see kind of a block model and you see the relationships between those blocks. So for me, that really helps.

Matthew: Well, that's good. Yeah. I use the Pomodoro Method occasionally too. Not every day. But the app...I think I just got it from the App Store. It's just called "Pomodoro," which just means "tomato" in Italian is "pomodoro." And it is a great system. I mean, it really does incentivize you to work in kind of strong blocks, then take a break and stand up. Which they're really saying now is really key to help physiologically just to stand up once an hour and kind of move around. So we don't turn into, like, Monty Burns from "The Simpsons" and, like, this old, decrepit person. So well said.

And now, being from the Netherlands and now living in the U.S., can you share some of the differences between the cultures you find interesting or you've had to adapt to? I'm particularly keen on your answer because I've been going around to a lot of countries the last couple years and taking it all in, and kind of want to get your take on what it's like to live in the U.S. and how it differs.

Linda: Sure. And I would like to hear your thoughts as well, of course, at some time. So there are many differences. And one big difference here is that, once a decision needs to be made, it's really made with a much bigger speed than Dutch people make decisions. Because Dutch want to involve everyone in their decision-making process. They don't want anyone to be felt left out. And here, people, they just take the decision because they have the authority to do so or so. And I think that that can work really well.

Another big difference, I think this is the biggest difference I would almost say that I would have to get used to, but I probably will never get used to this. That is that the Dutch have a very direct way of communicating. And in United States, it's a very indirect way of communicating.

Matthew: Okay.

Linda: So yeah. We just say what we think, and the Americans are more cautious to say what they think. They try to stay really friendly and polite. And the funny thing is that what a lot of American people don't realize is that this politeness, by not really saying what you think, is being perceived by the Dutch as very hypocritic. They think it's not fair if you're not telling me what you thin. And that is something...I notice by hearing it from other people that I insult people here regularly without my...Really. I have no intention to do so. I don't mean it that way. But if I don't like something, I'll just say it. I try to be more cautious and careful about it, but it's still pretty tough.

If we don't like each other's work and you want to see how you can improve it, you just say, "I don't like this and this, and this is how I think you can improve it." And trying to talk around that, I think, is very inefficient. But it's just a matter of what I'm used to.

Matthew: I think, it didn't used to be quite that way so much. It's the last couple decades with the onset of political correctness is that you always kind of have to hedge what you say because someone might get offended. And I don't know if I like that. But I mean, how can you...Everybody's spectrum of what might offend them is not something we can all agree on. So I understand where you're coming from. And there's a tradeoff there. It sounds like it's a little bit...It's interesting because you speak directly, but then there's this consensus that needs to be driven, so everybody in an organization needs to decide together. So those two things are...You wouldn't think about those two things going together, but it's an interesting combination.

My observation just - I don't know, I think it's been 12 countries maybe in the last 2 years, maybe a couple more, I'm kind of losing count...

Linda: Wow.

Matthew: ...is that, I think, outside the U.S. in developed countries outside the U.S., there's maybe a little better quality of life, in terms of balance and not being so stressed out. And people can walk to more places versus driving. And there's just a little...There's less stress. So they have the work-life balance figured out better. But then, in the States, it's the States taking...Most of the ideas that will change the world seem to come from the States. And I think that is gonna start to get distributed to other countries, you know, China in particular. But that's kinda my sense is that these huge moon shots come from the States. But the rest of the countries have kind of figured out how to live better. And it's hard to say which one is better. I wouldn't say one's better than the other. It's just that they're different.

Linda: Yeah.

Matthew: I like walking around a lot more. I like not having a car. So I kind of appreciate, at least in Europe, that quality of life.

Linda: Yeah. I think it also gives very different social interactions. If you're inside your car, I always feel locked up. But when I take a train or a bus, I meet people I know. It has a very different social feeling.

Matthew: Well, Linda, give out your website and tell people how to visit and interact with Cannify.

Linda: So the website is cannify.us. So that is C as in Charlie, A as in Alpha, N as in November, N as in November, I as in India, F as in foxtrot, Y as in Yankee, dot U as in Uniform, S as in Sarah. So cannify.us.

Matthew: Okay, great. Well, Linda, good luck with that. And I encourage everybody, go take the questionnaire and see what cannabis products pop up for them and for their particular desired outcome. And I'm gonna give it a try myself. So thanks, Linda. Really appreciate you coming on the show and educating us.

Linda: Thank you a lot, Matt. This was a fun interview.

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

Lastly, the host or guests on CannaInsider may or may not invest in the companies or entrepreneurs profiled on the show. Please consult your licensed financial 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.

This Artificial Intelligence is Disrupting Cannabis Plant Care

Max Unfried Deepgreen

What if cannabis cultivators could use artificial intelligence (AI) to help them automatically identify a problem with their plants before the problem is even visible? Our guest today is Max Unfried chief AI officer for Deepgreen.ai. Max walks us through how AI is being leveraged in the cannabis space for the maximum benefit of growers and business owners.

Learn more:
https://deepgreen.ai

Important:
Get your free cheat sheet “The Five Trends Disrupting The Cannabis Industry” here https://www.cannainsider.com/trends

Read Full Transcript

Matthew: What if cannabis cultivators could use artificial intelligence to help them automatically identify a problem with their plants before the problem even starts? Max Unfried, Chief AI Officer at Deep Green is here to tell us how sophisticated cultivators can leverage AI to help their grow. Max, welcome to CannaInsider.

Max: Thanks for having me, Matt.

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

Max: Well, at the moment we're, like, based out of beautiful Boulder in Colorado. So, next to the Rocky Mountains.

Matthew: Okay. And what is Deep Green at a high level?

Max: At a high level, Deep Green is an AI platform that uses computer vision to give plant analytics. And, specifically, we do diagnostics of diseases and pests and detect those on crops and we also do yield estimation.

Matthew: Okay. Can you share a little bit about your background and journey and what were you doing before Deep Green and where you're from and how you got to this point?

Max: So, by trade, I'm a scientist. I studied physics and branched into artificial intelligence at university. After that I did, like, some guest research in Taiwan about, like, detecting facial expressions in humans with the help of computer vision. And then, after that I landed my first job out of university in Vietnam where I worked for a Swiss FinTech start up. And I was building machine learning systems and algorithms to analyze tweets and news, and try to extract insights from them about what the crowd is thinking about certain stocks and help investors in a way make, like, a choice based on those tweets. And that's actually where I met my co-founder and our CTO, Maxine.

Matthew: Okay. Okay. And where are you from originally, Max?

Max: I grew up in a small, small town in the German countryside close to Stuttgart.

Matthew: Okay. That's nice. Cool. And let's dig in here. Can you tell us how most cannabis cultivators are looking for problems with their plants now, and what you're doing differently with Deep Green to help them get a sense of what the problem is and then what's possible with Deep Green?

Max: Of course, I'd love to. So, I mean, everybody who has been, like, in cultivation so far, they see all those plants. Like, thousands of them, right? And, currently, like, cannabis cultivators walk through the rows and inspect each of those plants manually, like two or three times a week, and check if there's, like, any kind of disease or pest or, like, nutrient deficiency. And just imagine how much work it is, like, just checking every plant and every leaf.

Especially, now there is, like, double stacks become more popular that you actually have, like, a stack of cannabis plants above each other. So, you have to move your ladder all the time if you wanna check it properly. And, obviously, cannabis cultivators, they have their hands full, they have, like, other things to do. They cannot spend all the time working through those rows. And that's where Deep Green is coming in.

The problem is with the diseases in plants, they usually start very small and, like, are often hard to capture for the human eye. But they can grow rapidly in a grow room, right? And it can be devastating. And what we do at Deep Green, we help cultivators to monitor their plants more efficiently. What we, in a way, provide is imagine that you have a master grower with super-human vision that has an eye on your plants 24/7. And the way we do that is we put, like, cameras on the ceiling of a grow or we attach them to LED lights and those cameras, simple [inaudible 00:04:15] cameras taking a picture an hour.

This picture is then sent to the cloud and it's analyzed by our artificial intelligence. And if we detect any issue we will send a notification to the grower with the exact information about the room number, the plant, and the issue we detected. So, instead of walking the entire room, the grower can go to this location and check if everything is okay or what is wrong. And if anything is wrong he can just do the next steps to prevent damage.

Matthew: Okay. So, is the camera in the ceiling or on the light, does it, like, auto-focus to what it needs to see and then it just snaps a picture? Is that what happens?

Max: Exactly, it just snaps a picture.

Matthew: Okay. It sends it to the cloud and that's when your algorithm kicks in and starts looking at the pixels and going deep into the pixels, and saying, "Okay. Is there something that matches a pattern I have in my database?" Is that pretty much what's happening?

Max: Exactly.

Matthew: Okay. Okay. That makes sense. What's writing an algorithm like? I mean, this is just a mathematical...I mean, do you get to...is there, like, an open source library of algorithms that gives you a starting point where you can kind of take ingredients and make your own algorithm?

Max: So, I mean, the technology we use is, like, called Deep Learning. And it's, in a way, a technology that brought out the most breakthroughs in AI in the recent years. And, obviously, we're like any other research company, right? I mean, Google, Facebook, they have, like, hundreds of AI scientists that already do a lot of research and provide some of those...the idea of those algorithms. By the end of the day, we code them ourselves. We, obviously, use inspiration of what comes out of the research. But at the end of the day, it's like we're, like, sitting in front of a computer and, like, putting the mathematical equations into code that the computer can understand.

Matthew: Did you see that news headline where Amazon's technology, in kind of a publicity stunt, confused people in Congress for criminals? They wanted to show how that could be misused.

Max: I actually did not see that, but it doesn't seem too far away that people in Congress could be criminals, right?

Matthew: Oh, gosh. You got to host a show, Max. That's great. Well, I'll include that in the show notes so people can see that it was kind of a publicity stunt though, because the...it was kind of big in the news for a couple days. But then Amazon said, "Hey, they didn't have the reliability set to 99% and they didn't do all these things right when they used our facial recognition and so forth." But I could see where there's a potential for abuse at least on the human side in terms of, you know, using it to control people. But, in this case, it seems like it's really super useful. Can you tell us what some of the most common problems in the grow room you find with plants?

Max: So, the largest issues that we find when we speak to cultivators is, like, they have usually powdery mildew, which is like a fungal disease. And it attracts spider mites, which are like some very small insects, and then obviously nutrient deficiencies, because I mean, it's just super hard to get the perfect nutrient combination for every single plant or strain. But the biggest pain point is really powdery mildew, because it can spread rapidly through the air and it's a fungus and fungus like a humid environment. So, they're having probably a really good time in those cannabis cultivations.

Matthew: Yeah. Okay. Right. Right. Right. So, how long does it take after the picture is taken? You take a picture every hour, it goes into the cloud, and how long does it take before you get an e-mail or a text message or whatever the grower that you've detected an issue?

Max: Usually, like, our algorithms they can, like...if we take an image, like, it's processed within four seconds. And then we can directly send it back.

Matthew: Okay. So, it's happening almost instantaneously it sounds like.

Max: Yes.

Matthew: Okay. And we talked a little bit about how, you know, the human eye is not necessarily trained to see this until it's a problem that's, you know, manifest large enough for us to say, "Holy crap, there's powdery mildew or spider mites." But how much earlier can a camera recognize this with the algorithm that you have?

Max: So, at the moment we're that far that we can, like, recognize the earliest signs that are visible on a leaf. So, still before a big outbreak is on the way and you can still control the damage and prevent it. The good thing, obviously, about computers is if they look at an image they are good at seeing things human eyes cannot see on photos. And we're currently working really on detecting what is invisible to the human eye.

Matthew: Wow. There are so many applications here. It's unbelievable when I start to open my mind to this. And how about coffee, have you ever tried this with coffee?

Max: Well, it's actually quite funny. I mean, when I spent, like, two years in Vietnam, and Vietnam is like the second largest producer of coffee in the world behind Brazil, so I like running and I've been sometimes running, like, through coffee plantations and I was obviously looking at those plants, like, just out of curiosity for agriculture, because in Europe, usually, we don't have coffee plantations. And sometimes I saw something odd, they're like weird yellow spots and, like, some things that could be powdery mildew outside on there.

But I have no idea how big those coffee plantations are affected by that. I mean, it's like an outdoor crop, right? So, they obviously have, like, a different immune system than, like, the plants indoor. But as long as there's a medium to capture images outside, we can use them and analyze them. And honestly, I expect that coffee farmers of the future will use drones to fly over their plantations. Because, I mean, they're massive, right? I mean, you just cannot walk them. You can run several marathons through them and probably still not be done.

Matthew: What type of plants do you think lend themselves to working with Deep Green the most? Do you think cannabis, any others, hemp? I mean, hemp's outside usually, so...I mean, have you thought about hooking this up to a drone or is that not what you're working on right now?

Max: We have thought about it, and it's on our roadmap, but it's probably, like, two years away. Just because, I mean, farmers not adopting drones that quickly yet. But the way we think about it is like that cannabis is, in a way, the black swan of agriculture, right? You have, like, the young people, you have young farmers compared to general ag and they have a quite large affinity to technology. And you also have, like, a mode from big agriculture, right?

Like, John Deer is not gonna move any time soon into cannabis given its legal status. And that actually allows for great innovation that is driven by, like, smaller startups, and use innovation to transfer to general agriculture. So, we had in the mind from the beginning that we develop this technology in the cannabis industry, given that, like, it's a high-value crop and [inaudible 00:11:53], but then move to general agriculture.

And, actually, we moved quicker to general ag than we would have expected. At the moment, we still do mainly cannabis, but we started out our trials with center pivot irrigation systems that are like those large circles that run over cornfields or alfalfa fields. And we mounted cameras on those, and currently we're detecting on corn and alfalfa fields, we detect weeds. And you brought up hemp and the company we're actually working with, with the center pivot irrigation systems, they just sold their first pivots to hemp farmers. So, that is coming. So, we're looking into putting cameras on pivots that run over hemp fields to help analyze what's going on there.

Matthew: So, you say you also recognize weeds for the general ag farmers?

Max: Yes.

Matthew: And then, once they see that there's a weed there, is there an automated way to remove the weed or are they just like, "Oh, I know there's a weed and I have to go remove it by hand," or what happens?

Max: Obviously, like, removing of it by hand in the alfalfa or cornfield is not scalable, right?

Matthew: Right. That's why it's like. what do I do with that information? I've got a weed, but as long as there's not too many weeds I guess they just look at the picture.

Max: Exactly. That's fine. Obviously, if we have, like, large patches of weed then they probably consider spraying. And that's still good, because they can just spray an area where they know the weeds are instead of, like, laying a carpet of pesticides over the entire field. In a way that saves them money, but it also helps the environment to do, like, in a way, precision agriculture and, like, precision spraying instead of going brute force and, like, just putting chemicals everywhere.

Matthew: Gosh. I could see a future very soon where, you know, there's little automated robots just going through and picking and doing things like this, just general maintenance. That doesn't seem crazy to me at all.

Max: No. I mean, it's getting there. I mean, there are already robots out there that can pick some fruits like strawberries or like apples or just go through and look at the plants and see what's going on, on the fields. I mean, you have, like, robots in cannabis that try to help with the trimming. There's, like, a lot of cool technology coming up in the next few years.

Matthew: Yeah. So, if there's a grower or a business owner that's listening right now, and they're like, "How do I get started with this? I wanna integrate something like this and get notified, you know, before a disease really manifests or a pest causes a problem?" But they're like, "Is this cutting edge, is this bleeding edge? Like, how much learning curve is there?" Can you tell us what would it be like for a business owner or a grower trying to onboard this technology?

Max: So, the first thing would probably be to reach out to us. But, in general, it's like very, very few work for the business owner. Usually, we just come, we put in those cameras, we install them, we need, like, a few sockets where we can plug it in, and then we start automatically taking those images. And the business owner, or like the grower, will be notified of anything is wrong. So, it's, like, not a big barrier to entry. Everybody has a ceiling or, like, usually lights where we can monitor. And yeah, then they're good to go to receive the notifications. And the only thing they have to do is to open the e-mails or the text message to see if anything is wrong.

Matthew: Okay. It'd be really cool to have a way to have this where a security camera tells you if there's an unidentified person in the grow. That would be kind of interesting too, but I guess most grows have so much security now just to get in that I don't know if that's necessary. But it would be nice to know. Do you think that would be pretty easy to make or does that sound difficult?

Max: Compared to what we are trying to do, detecting a person in the room is, like, very easy.

Matthew: Okay. Okay. What do you think? Can you tell us something about someone's mental state, you think, with a Deep Learning algorithm where you could say, "This one matches a profile of being high and wanting to eat Ben & Jerry's ice cream?"

Max: I mean, can you as a human?

Matthew: Not as a human, but, like, is it...I think as a human, sometimes I could, but I mean, is that something you think you could program into an algorithm or does it sound too crazy?

Max: I mean, as a human, you can certainly say if somebody is high, right? If they wanna eat Ben & Jerry's ice cream, that's probably, like, a harder part. But, I mean, given on the facial features you can certainly detect, like, emotions, what they're feeling, what kind of state they're in. And then there's, like, cool stuff coming up with, like, EGs. Like, sensors that measure your brain activity or, like, your brain waves. And, obviously, if you hook together imaging plus brain wave reading you might actually be able to figure out that he really wants to have Ben & Jerry's, because every time he wants Ben & Jerry's, or she, there's some certain part of the brain that's gonna be activated. So, let's see what the future holds.

Matthew: Yeah. Speaking of the future, I mean, I don't know, it seems like in the last five or seven years, technology has just gone on a tear where there's, like, an accelerating acceleration. Like, it used to be where you could kind of see, "Oh, you know, here is another development, but it makes sense that it was a while since the last one." Now, it just seems like it's just absolutely, you know, stage-five "Star Trek" and there's just craziness happening every day. What's your kind of plan to keep iterating this so three to five years from now it'll still be relevant, and still be, you know, top-of-mind for a grower?

Max: So, the way we see this, like adopting our technology, is not a question of if, it's a question of when. AI is disrupting every major industry. Like, it already started. In the next few years, it will only, like, become more and more...it allows for more automation and it found its way into agriculture. And like you mentioned, I mean, these last few years this changed rapidly, right, it's people starting like about self-driving cars and automated weapons and all those things.

Which some of the technology is good, some of that technology is not that good. But the tech we're currently using, some of it didn't exist three, four years ago. Some of it didn't exist, like, even in January this year. So, it's, like, really state of the art and cutting edge. And every few months, like, significant improvements are made on algorithms research and AI research. And that's gonna accelerate more and more, because, like, more and more money is flowing into the AI world, right?

I mean, like, corporations invest heavily in it. All big governments of the world create, like, the AI strategy plans. It's becoming a race and this technology will only become better. And I think it's not gonna become better linearly, but exponentially. Like, so, the algorithms we use today, in 3 years they will not be 3 times better, they will be 30 times better. And, obviously, we can reap the benefits of that and it's gonna be exciting.

Matthew: Oh, yeah. For sure. And what does your family back in Germany think about you being in the cannabis space?

Max: Well, my dad was an entrepreneur. He's, like, in his 60s now. He had his fair amount of experience with cannabis as well. Quite funny, actually. I am a very bad roller. So, when I was actually living in Germany sometimes I actually went down to my dad and asked him if he could roll me a joint. So, he's okay with that. And my little sister as well.

Matthew: Okay. And so, you got to Boulder by way of the Canopy Boulder Accelerator Program. Can you tell us about your experience with that?

Max: Of course. I mean, I'm a scientist by trade, right, so I have barely any business experience. And in that way, like, Canopy is, like, one of those life-changing events if you want. We went there, like, from Vietnam on a very short notice, like, within two weeks we quit our job in Vietnam and moved to Boulder and attended Canopy. And they teach you so much about how to build a business and give you, like, the insights and the knowledge about American cannabis industry, which I didn't know much about.

They bring in all those people from the U.S. and abroad that are, like, in the cannabis industry. Like, business guys, CEOs, investors that you can chat with and you can learn from and pick their brain, which is obviously, like, super helpful when you're, like, just at the beginning of a journey. And they really help you to prepare to pitch investors to...you learn speaking the investor's language, you learn what they wanna see, and how the world of venture capital is actually working.

So, it was, like, super helpful. It's, like, the last year or, like, even through that I just learned so much from different things of business and life that I didn't know even that they existed. And, I mean, Mike and Patrick, they are, like, obviously, through Canopy, our investors, but they also became like mentors and friends during the process. And the great thing is we can always count on them if we need some help or need introduction they are directly there to help us. If we need some mentoring they are there to chat with us. Currently, they actually still let us work a little bit out of their office, which we really appreciate. So, it's, like, a really, really great program to get started in the cannabis industry. And I would definitely do it again.

Matthew: Great. And where are you in the capital raising process?

Max: So, we raised two rounds of capital so far from Canopy and a couple of angel investors. And, you know, as a startup you are, like, always in the fundraising process.

Matthew: Yeah. If there's investors, accredited investors listening and that would like to reach out to you if they're interested, what's the best way to contact you about that?

Max: The best way is probably, like, per e-mail. It's max.unfried@deepgreen.ai. And, yeah...

Matthew: Yeah. And for people that are...people are wondering how to pronounce Max's name, we were talking about this before I hit the record button. And it's, like, unfried chicken. That's how I would describe it. U-N-F-R-I-E-D. So, Max, I want to roll into some personal development questions here to help listeners get a better sense of who you are personally. Is there a book that has had a big impact on your life or way of thinking that you'd like to share with listeners?

Max: Sure. I'm actually, like, an avid reader. And, actually, one book or one group of books I read a few years ago and currently are re-reading is the "Incerto" by Nassim Taleb, which consists of "Fooled by Randomness," "Black Swan," and "Antifragile" and "The Bed of Procrustes." And what really meant for me or helped me, in a way helps you to make smart decisions in a random world full of non-linearities and asymmetries so that you think about randomness and risks.

And, in a way, what I take from it that you wanna make decisions that if things change rapidly and things come that you cannot control, like uncertainty, like probability, that you're not getting crushed by those events. And, certainly, as like an entrepreneur, you have to have, like, an affinity towards risk. But you obviously don't wanna be, like, the sucker of events that can endanger your company or, like, yourself. So, I really appreciate that book in the way of thinking about risk and how you can, in a way, hedge against it.

Matthew: Is there a tool besides Deep Green that you consider vital to your productivity?

Max: For a tech guy, I'm probably not much of a tool guy. I'm actually more, like, the guy who takes away tools to not getting distracted.

Matthew: Ah, focus.

Max: But the focus, actually, like...focus, exactly. And two things come to my mind. One is actually, like, I changed my IDE, my integrated developer environment, to Atom, like by the recommendation of our CTO. And it actually really helps me, it's somehow better or it feels better than the other ones I used before. And it helps just to clean up data quicker and work better. And another thing which I usually do is, like, skipping breakfast. The thing is, you obviously have more time because you don't have, like, to prepare your scrambled eggs and your bacon in the morning. But also it helps me to be more focused, because you just don't have, like, those mood swings based off food until afternoon, which is very nice.

Matthew: Okay. Now, let's just rewind for a second there. What was the first thing you said, because I'm not really familiar with Atom or what you were talking about there? Can you give us a little context of what that means?

Max: Sure. Pretty much, in a way, it's a program on your computer that helps you to write code.

Matthew: Okay. Got it. Got it. It's like a code compiler or something like that?

Max: A compiler is integrated, but it's, in a way...just imagine it a nerdy version of Microsoft Word where you can write code and execute code.

Matthew: Okay. Got it. That makes sense. And as long as, you know, we...I think you might be the...well, maybe the first or second German on the show. I just wanna see if you can translate a couple of words for me.

Max: Of course.

Matthew: What does rumspringa mean?

Max: Rumspringa is just this Amish thing.

Matthew: I wanted to see if you...but what does that literally translate to in German?

Max: Like, a person who jumps around.

Matthew: Who chums around?

Max: Yeah.

Matthew: Okay. So, for people that don't know is that the Amish, before they decide if they wanna continue as an adult in the Amish community, get a period of time where they can go out and drink and smoke and cavort, do what they want. And then they can decide if they wanna live in the world of sin or go back to the Amish. And that period's called rumspringa. And so, I wanted to know what that exactly translates to because I haven't been able to find that at all. And then, one more. What does schadenfreude literally translate into, because I know what it means generally, but what does it literally translate to?

Max: My German is a little bit rusty. How will I translate that? Literally, the translation is like damage happiness, probably.

Matthew: Okay.

Max: So, it translates although the meaning is that you're happy about something that happened to someone, but it's a bad thing that happened to them.

Matthew: Yeah. Yeah. So, schadenfreude is kind of like taking pleasure in the misfortune of others and I'm glad to get the literal translation there. So, thanks for that, Max, for that random trivia.

Max: You're welcome. That was a funny random thing. Yeah. I enjoyed it.

Matthew: Well, as we close, tell listeners how they can learn more about Deep Green and connect with you and find out more.

Max: Sure. So, we have a web page, which is www.deepgreen.ai, where you can get more information. Then you can contact me by e-mail at max.unfried@deepgreen.ai. You can find me on LinkedIn at Maximilian Unfried or if you are gonna be for the MJ Biz Con in Toronto in mid-August, we're gonna be around there as well.

Matthew: Okay. Max, thanks so much for coming on the show. Good luck with everything, and keep us updated.

Max: Thank you, Matt. I really appreciate it. That was, like, a really joyful talk.

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 to you. Learn more at cannainsider.com/itunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at cannainsider.com/trends. Have a suggestion for an awesome guest on CannaInsider? Simply send us an e-mail at feedback@cannainsider.com. We'd love to hear from you. Please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments.

Male: Promotional consideration may be provided by select guests, advertisers, or companies featured on CannaInsider.

Matthew: Lastly, the host or guests on CannaInsider may or may not invest in the companies or entrepreneurs profiled on the show. Please consult your licensed financial 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.

Cannabis is Eclipsing The Alcohol Industry with Torsten Kuenzlen

torsten kuenzlen

Torsten Kuenzlen is CEO of Sundial Growers in Canada. Torsten’s background is the alcohol industry, and he has been very outspoken saying that cannabis is going to outgrow alcohol soon. Learn why and how he thinks this will play out and why the cannabis industry is poised for paradigm shifting expansion.

Learn more:
https://www.sundialgrowers.com/

Key Takeaways:
– Torsten’s background in the alcohol and soft drink industry
– Why Torsten left the alcohol industry
– Bringing best practices from the alcohol industry
– Why measuring your grow in square feet makes no sense
– Why brand matters and how to create a great brand

Read Full Transcript

When cannabis prohibition initially started ending, many people said, one day cannabis could be as big as alcohol. Today that is no longer a conjecture, as tectonic shifts are happening in alcohol and cannabis industry, especially in Canada and soon the rest of the world. Here to tell us about it is Torsten Kuenzlen, a former alcohol executive and CEO of Sundial Growers. Torsten, welcome to CannaInsider.

Torsten: Thank you so much. Glad to be with you today.

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

Torsten: I'm actually in a small northern Moroccan fishing village called Cabo Negro and I apologize in advance for any audio quality issues that might bring with it.

Matthew: Oh, no problem. No problem. Tell us at a high level, what is Sundial Growers?

Torsten: Sundial Growers is one of the largest cannabis companies in the world actually these days. We're based in Calgary, Canada, and with Tilray having gone public last week, I think we're now the largest private licensed producer in Canada.

Matthew: Okay. Can you tell us a little bit about your background and journey and how you came to get involved with Sundial and what you were doing in the alcohol industry prior?

Torsten: Sure, so I spent 25 years in the fast moving consumer goods industry specifically with Coca-Cola and Molson Coors. I was in senior management roles around the world, worked and lived in North America and Asia and in Africa and now I've come to cannabis here really through alcohol because the distribution system through the provincial boards and actually many of the retailers, it's very, very similar in cannabis as it is to alcohol. So the Molson Coors experience in Canada has been particularly helpful.

Matthew: Okay. And having been both in the alcohol industry and now in the cannabis industry, at a very high level, can you orient us on how you think about where we're at right now in terms of where cannabis is at and where alcohol's at and how the alcohol industry might be reacting or investing or getting involved with the cannabis industry?

Torsten: Yeah, of course. I think in general, I see cannabis and alcohol actually being in a very similar stage in terms of development and if you look at the consumption in many geographies and many segments, consumption of cannabis and alcohol are actually already very similar. The obvious difference is that alcohol is largely legal around the world where cannabis is just beginning that journey. So in many ways, I think the parallels are clearly there and I think what we're going to see here in the next decade or two in cannabis is going to eclipse the pace with which alcohol has developed over the last 80 years, especially since prohibition in North America.

Matthew: Okay. And, as you entered the cannabis industry, you kind of had some best practices in mind. Just the way things were done in the alcohol industry. I mean anybody that's been to a brewery or something knows how automated all is. How do you think about bringing consistency and automation and brand building from the alcohol industry over to cannabis?

Torsten: I think that's ultimately going to be the competitive advantage of the largest brands and companies in the cannabis industry. There's no doubt that cannabis, like alcohol, really like any fast-moving consumer goods industry, is based in a brand promise. And that brand promise starts really with a superior quality product. I think that's something so far from what I see in the industry is being a bit overlooked. I think there's a bit of a danger that many of our competitors are going to go in with a non-advantaged commodity product and we're going to take a different route. At Sundial we strongly believe that the overall brand promise starts with a highly differentiated quality product and that that needs to be paid off in every step that the consumers and the retailers touch our own brand and consistency and quality stand out. One of the reasons why we at Sundial are building what's the largest modular purpose built cannabis facility in the world, we'll be able to produce ultimately over a 100 million grams of highest quality cannabis. And we really think that that sets us apart in being able to formulate and then deliver on very differentiated brand promises to cannabis consumers.

Matthew: Okay. So you think cannabis has an edge over alcohol because it's not a liquid. Can you talk about that a little bit?

Torsten: Yeah. When you think about which choices do you have to consume alcohol, it's liquid, liquid or liquid. And in the fast-moving cannabis industry, it starts with combustibles and that probably here in the first year in Canada will probably be 80, 85% of how consumers can consume it. But then that's gonna rapidly evolve. So in three to five years, we believe it's going to be a third combustible, a third concentrates, and a third edibles and drinkables. So in that sense alone, cannabis has an advantage because it can be consumed in so many different ways. Whereas in alcohol, there's only one form and that's drinking it at this point.

Matthew: Okay. And how long do you think it will take for those three categories you just mentioned to eclipse alcohol in terms of revenue in Canada?

Torsten: In Canada, It'll be interesting. I'm sure it's going to be within the decade. I wouldn't be surprised if it's actually within the next five years. So as we look at the trends and the demographics and how the age profiles are moving and reacting, we think it's gonna be fairly quickly. I think there is the famous example in Aspen in Colorado where within four years, in 2017, cannabis actually outsold total alcohol, so that's beer, wine and spirits combined on a revenue basis. So I'm pretty confident that it's not going to be too long before cannabis is gonna be at least as big as alcohol.

Matthew: Yeah. How do you see the alcohol industry responding to this threat or opportunity?

Torsten: It's interesting. We've obviously seen some of the big alcohol players already respond and many others looking at the opportunity. What is interesting for me coming from the beverage world is not surprisingly beverage companies respond with cannabis as a beverage and I personally think that that's gonna be a bit short-sighted. I think the great versatility of cannabis, of being able to consume it in different formats is something that sets it apart from many other product categories. So, therefore, I think the alcohol companies, or maybe beverage companies in general that only see cannabis as the liquid, are gonna have a hard time building a brand that really is going to spread itself against the different formats. So what I mean by that is, one day the consumer might want to eat a chocolate to consume the cannabis, on another day, they might want to smoke it. On a third day they might want to use oil or an infusion. So I think that versatility, if the beverage companies are not careful that they're at full linear, is something that they might miss out on.

Matthew: Okay. And we talked a little bit about brand, but in the alcohol world and the soft drink world, there's more opportunities to advertise. How do you go about getting in front of prospective clients or customers and building that brand? It seems a little bit more of a challenge compared to the other industries you've been in.

Torsten: For sure it's more challenging, but at the same time it's, of course, a great opportunity as well. So we think that the regulatory environment is gonna start off very tight and that's probably the right thing to do. And the final regulations have actually not fully been released so it's still evolving, but we will clearly look at all opportunities that present themselves. I think the line between education and marketing needs to be carefully considered and that's a big opportunity for the industry as a whole, but also the major players. Because as consumers that might even be new to the category enter the category first time, there's a big need for them to be educated about the differences between different products, how to consume them and to make always sure that all consumption experiences are positive experiences. So we believe that in store, in partnership with our retailers and the provincial boards we'll have a great opportunity to tell the story and to educate the consumers to the difference between the now legal alternatives that they have versus what they might have experienced in the dark and the gray and black market before.

Matthew: Okay. Can you tell us a little bit about your products? Calm, Ease, Flow, Lift and Spark. What's important to know here?

Torsten: What's important I think in general for the industry is that we need to be careful not to get stuck in the past and that we speak a language of THC and CBD and the strain names that are off-putting and non-self-explanatory to consumers. And that we really enter a new realm in the cannabis industry where we're talking about the benefits that consumers could derive from the product and then we have the education so consumers understand which of the cannabis products in which format might be best suited for their specific needs. So our five brands basis are really built around need states and motivations and therefore underneath each of those need states are more detailed granular spaces if you want. So if you take a brand like Calm. Under Calm, they will be subspaces that might be more for consumers that are looking to be less anxious and are looking for a product that might help them in that regard. There might be other consumers that are really looking for help with sleeping better. So I think the five brand spaces as we've defined them today, are really just opening spots to tell stories and educate consumers so they can make educated choices.

Matthew: So even though you're in Morocco right now, you're based in Canada and that's where Sundial Growers is. Constellation brands which many people would probably recognize as being the parent company of Corona beer invested in a Canadian cannabis company, Canopy Growth. And recently they said that investment has already paid off to the tune of $700 million. I am, I think that's on paper. What do you think about Constellation's strategy here? Are investments in cannabis companies enough for these big alcohol conglomerates?

Torsten: I think Constellation was obviously very smart. They were the first large player to go into aggressively. And by buying a large stake of Canopy and being part of the increased share value of the company, they've been able to participate in those gains. I think more importantly though, what they have is they have access to an industry that they didn't understand and through partnerships with cannabis companies, I think alcohol companies and by the way completely other vectors, pharmaceutical companies and a non-alcoholic beverage companies, cosmesceutical companies. I think all of them have an opportunity to buy themselves in or create partnerships in other ways with the leading cannabis companies to understand this new industry and then come up with product and solutions that create whole new markets that expand for them into additional opportunities and leverage the know-how that the cannabis companies are building.

Matthew: Okay. Now, this is one thing that I think about a lot in terms of the cannabis companies in Canada. We've talked about brand and the reason I keep on bringing it up is that essentially the LPs, or licensed producers, to protect their profit margin over time will need to have a brand that resonates and otherwise it's just gonna be a race to the bottom on price and people will just be comparing on price and no one wants that if you're the cultivator. So you're looking for something and that's like a loyalty of a Coca-Cola or a Budweiser. I mean, I don't think that exists yet. Is there a brand that people are asking for or it's done through the mail still in Canada, but I mean, where are we on that journey? I mean, how does one even achieve that because you're getting the cannabis through the mail. I know there's dispensaries coming soon, but I just don't see the bridge on how that's going to happen right now. That probably can only happen once the dispensaries open up or if it's word of mouth when people make their decisions online before they order. Tell me what do you think I'm missing there?

Torsten: That's a great question, Matthew. I really think we're just out of the starting blocks of what's going to be a marathon. We literally haven't even passed the 100-meter mark, especially as it comes to brand building. You mentioned examples, Coca-Cola, Budweiser, Absolut, [inaudible 00:13:11]. They are often great brands, and when you close your eyes for one second and then you think forward 10, maybe 20 years, what do consumers really want? They want to have a consistent brand experience and they want to have that not only in every city in the country that they might be in but also in other cities that they go to. That's probably nowhere more true than for cannabis, so I have no doubt that 10, 20 years from now there will be brands, hopefully Sundial being one of them, that will be like the Marlboro and the Budweiser. So as consumers transcend countries and continents, they can always go to the brand that they trust. So how do we build those brands? I really go back to the point of it all has to start with a superior product.

If we end up in a situation where the consumers can tell the difference between a really bad cannabis and really good cannabis, then I think will be a struggle for the industry. But we at Sundial are doing everything we can to make sure from the look, the smell to the consumption experience and the taste and the aftertaste that all of those things are optimized so that the consumers have a great experience. I believe the way that brands are going to be built as the industry really opens up in Canada on October 17th, is that consumers that have consumed will go to a dispensary or they might order online, five, six, seven different brands and they might just order a gram and they're going to compare them all and they're going to try them. They're also going to compare them to what they might have used before. And ultimately I am convinced that consumers are going to be willing to pay a premium for legal over an illegal product and more importantly, for great product over a mediocre or bad product. So I think for the cannabis industry in the next years, it will be absolutely essential to ensure that every consumption experience will be a superior experience and that the consumers can tell the difference between the non brands, the commodities strains, and those brands that are going to be the Coca-Colas and Budweisers of the future.

Matthew: It's a funny thing because I remember the Pepsi Challenge back in the day where consumers were blindfolded and John Scully, who later became CEO of Apple after Steve Jobs started this and he blindfolded people and said, "Hey, you know, take a sip of this drink and this drink and which one do you like better." And most people said Pepsi yet Coke had much more market share and still does. So there's something about the resonance of a brand we're already familiar with. It's like there's a tremendous gravity or inertia to the brand that gets there first and just so cements that product category in the mind. I mean, I know that Pepsi did take some market share from Coke during that Pepsi Challenge. And people blindfolded I think still think it tastes a little bit better. But they just don't want to... They're just so loyal. When you think about that Pepsi Challenge and then you know, think about the cannabis industry, is there any lessons to be learned there?

Torsten: I think that's actually a great comparison Matthew because what happened in the Pepsi Challenge was that two very well established brands really tried to change the tone and to be fair, it worked for Pepsi. Now I will say Pepsi did cheat a bit, so the product that they used for Coke was a bit warmer and a little flatter, whereas the Pepsi was very fresh out of a glass bottle. So I think there was a little bit of tinkering going on to make sure that the results went Pepsi's way.

Matthew: Never.

Torsten: But in a new industry like ours, I think that's why I am so convinced that product is going to be the great differentiator in the beginning that's gonna drive brand loyalty because that brand awareness does not exist.

And we asked consumers across Canada or the world for brands, they can't play back any brands literally, it's a white canvas. So the opportunity for us to clearly define a differentiated brand promise with the delay that you mentioned earlier and then ensuring that the consumers get exactly what it is that they are hoping to get and that that is better than anything that they might be able to get from other brands. I think it's gonna be a tremendous opportunity for us to get a foot up on the competition.

Matthew: Okay. One thing that you kind of challenged people to think about is to stop talking about the size of a grow in terms of square feet and that makes a lot of sense. Maybe, how do you talk about the productive capabilities of a grow if you don't use the square footage?

Torsten: No, I think the only thing that really matters is the yield, the amount of product that you can produce and if you are able to produce more product on a smaller square foot basis, then obviously you know the yield is the important metric. There are obviously new growth trends developing, vertical grow, multiple tier grow, so maybe the square foot is going to be replaced by the cubic foot. But I think in addition to quantity, when you really want to understand the potential of different licensed producers in cannabis companies around the world, you would be amiss to not mention quality. It's easy to produce a lot of bad cannabis, it's somewhat harder to produce a little bit of really good cannabis. It's really hard to produce a large quantity of highest quality cannabis. So what we are attempting to do at Sundial is really have the most premium cannabis and have better at scale and I think that will set us apart from many of the other cannabis companies that exist today.

Matthew: What do you think the optimal growing environment does look like? I mean, you mentioned cubic that talks about going vertically. Are you considering modular grows, purpose-built grows? What's your kind of vision for how it will look for you?

Torsten: We are experiencing clearly with not just the provincial boards, but also the retailers and the consumers, that they are beginning to differentiate the licensed producers, the cannabis companies, depending on how they grow. We do know that that a modular purpose-built facility, fully indoor, no exposure to light, it's going to produce the highest quality cannabis and then comes to details like the quality of the irrigation system, the nutrient mixes, how good your recipes is, the quality of your growers to really curate those different strains that you either have or develop over time as we continue to breed better strains. It's a combination of those things that I think are going to make the biggest difference and deliver those superior products.

Matthew: Okay, and then as a CEO, how do you balance short term, medium term, and long-term goals to ensure you're not wasting your time, but you're also not being short-sighted and focusing on the things that really matter?

Torsten: Matt, that's another fantastic question. Of course, in the short term, all of us in Canada are focused, fixated on October the 17th, which is the day that it's gonna become legal for adult use cannabis in Canada. At that point, as many of us as possible want to get as much product out there as possible, but we all want to be 100% sure at Sundial that that first product delivers against the brand promise that we're going to make. So we are keeping an eye on the near term. Obviously also for financial purposes as we have a burn rate until we get to revenue and profit, but we're going to be really cautious in putting our brand name on product until we're 100% sure that's gonna deliver against the promise. Ultimately, the Coca-Colas and maybe the Budweisers and the Absolut Vodkas, they never took the shortcut on quality and neither will we, so it will be a long-term game. I think the biggest LPs almost over the hump here with three months away from being revenue and profit generating and then I know that Sundial will take the long-term view, always do the right thing for the brand, never compromise and therefore ensure that we consistently deliver a superior cannabis experience.

Matthew: Torsten, I like to ask some personal development questions to help listeners get a better sense of who you are. With that, is there a book that's had a big impact on your life or way of thinking that you'd like to share?

Torsten: One book that I keep rereading every time I take on a new challenge, it's called "The First 90 Days." And "The First 90 Days" is really set up as you change roles or change companies or maybe both that you reground yourself and really stay open to learning a new industry. And it's been quite humbling for me to enter the cannabis industry that I literally knew nothing about when I started working here in the first quarter. So I've been patient with myself and I encourage everyone that makes the transition into cannabis or really from any industry in any other industry or a big change in responsibilities to read that book and just follow some of the guidelines and be conscious with what we do because nowhere more than in a new industry I think is it dangerous to come in and think we know because we've been in Fortune 500 companies, we've seen similar issues around the world. It was really important for me to get grounded and to speak to our growers and to speak to industry experts and to listen to the provincial boards and the retailers and the competitors in the way that they were framing it up to then take my time in the first 90 days to figure out what of what exists will be helpful and I should embrace and at the same time what might be the areas to challenge so that we at Sundial have an opportunity to take cannabis to a new level and differentiate us from our competitors.

Matthew: And what kind of fish are you going after there in Morocco?

Torsten: Unfortunately very small ones so far. So this morning I was out with my son, it's his 15th birthday today, and the biggest one we call it wouldn't make it even into an appetizer, so we're still gonna go back out and try and catch that big one. But the change is the challenge of course.

Matthew: Yeah. Well, at least in Canada there's some big fish to be caught when you get back.

Torsten: We will try and put our best fisherman on it and get the boats out there and we're sure we're going to pull some big ones onto our boats.

Matthew: Well, Torsten, thanks for coming on the show with us. Tell our listeners how they can find Sundial Growers and find your product and connect with you online.

Torsten: You can find us at sundialgrowers.com. Go to our website and then if you have any questions, there's multiple opportunities and contacts there to get in touch with us. We'd love to hear from you. Always open to ideas. Your listeners are a very educated audience, so all feedback is always welcome now and in the future as you'll be able to enjoy our products when they come to market.

Matthew: Well thanks Torsten. Good luck fishing and good luck with adult use or recreational use in Canada and we look forward to hearing from you in the future.

Torsten: Thank you very much, Matt. All the best to you and your listeners.

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