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Bringing Cutting Edge Science to Cannabis ­- Dr. Jon Vaught

dr jon vaught fronrange bioscience

With the recent global surge in industrial hemp, scientists are moving into the hemp and cannabis space to provide cultivators the technologies and best practices of other industries.

Helping lead the movement is Dr. Jon Vaught, CEO and founder of Front Range Biosciences, an agricultural biotechnology company that specializes in tissue culture cloning for cannabis and other high-value crops.

In this episode, Dr. Jon shares how Front Range Biosciences is revolutionizing cloning methods to not only produce robust, healthy plants but also create new varieties that could disrupt the dietary and pharmaceutical industries.

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

Key Takeaways:

  • A breakdown of Front Range Biosciences and the revolutionary biotechnology it’s bringing to the cannabis industry
  • Dr. Jon’s background in biotechnology and what led him to start Front Range Biosciences
  • The differences between cannabis and hemp
  • A deep dive into Front Range Biosciences’ services, including its Clean Stock Nursery Program
  • The ins and outs of tissue culture laboratories and the benefits they offer researchers and cultivators alike
  • How to avoid common mistakes in cultivation, including exposing plants to disease
  • Dr. Jon’s goals to create new plant varieties and cannabinoid profiles for the purposes of dietary supplements, nutraceutical products, and even pharmaceutical products
  • Our current understanding of the cannabis genome and the exciting new discoveries Dr. Jon anticipates in the years to come

 

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 C-A-N-N-A insider.com. Now, here's your program.

Matthew: Scientists are moving into the hemp and cannabis space to help cultivators enjoy the technology and best practices from other industries. Here to help us understand this is Doctor Jon Vaught of Front Range Biosciences. Jon, welcome to CannaInsider.

Dr. Jon: Thank you Matt. Glad to be here.

Matthew: Jon, I know you've got a voice issue because you've been traveling and speaking and so forth. You may sound like the villain, Bane, from Batman, but we will forgive that if it's a couple of octaves lower, don't worry about that. This is not how Jon normally sounds and I'm not distorting his voice in any way.

Dr. Jon: Thank you. Yeah, it's definitely a couple of octaves lower right now. But it still works. So, we'll move forward.

Matthew: Jon gives a sense of geography. Where are you in the world today?

Dr. Jon: So I'm actually back at home in Colorado, on my farm. I live in East Boulder County, not too far for most of our locations and our headquarters here in Lafayette, Colorado. But I just got back from a trip to Virginia at the Industrial Hemp Summit where we had a collection of farmers from Virginia, North Carolina, South Carolina, Kentucky, who were all going to be adding industrial hemp as a new crop to their rotation. So, just got back there late last night...from there late last night and I'm happy to be home again.

Matthew: Great. And I'm in Charleston, South Carolina today. Jon, tell me what is Front Range Biosciences at a high level?

Dr. Jon: Yeah, Front Range Biosciences has been...we've set it up to be an agricultural biotechnology company for high value crops. And we currently focus really on two crops. The first being cannabis, which we include hemp, which is actually the majority of our work in cannabis. But then also the high-THC version as well, through some relationships that we have in California. And then the other main crop that we work on currently is coffee. And there's really two parts to our business. And the first part is our clean stock nursery program, which is pretty similar for all of the crops. We use a process called tissue culture to produce clean, disease-free, healthy, vigorous young plants, and then we put them into the greenhouse and then we ship them to customers. So we basically sell young plants, seedlings, clones, rooted cuttings, lighters, these are all words for young plants and we sell those to farmers.

The other part of our business is our variety development in our breeding program where we're using advanced technologies like next-generation sequencing, bioinformatics, the combination of those things called marker-assisted breeding to improve our ability to breed new varieties. And we're particularly focused on hemp in this area, so looking at a unique cannabinoids and agronomic traits so that we can grow this crop and domesticate it in new growing environments. Not only here in the United States, but around the world.

Matthew: And Jon, can you share a little bit about your background and journey and how you came to get involved in this business?

Dr. Jon: Yeah, certainly. It's a little bit of a long story, but I'll try to keep it as short and sweet as I can. My formal training is in organic chemistry, so I'm a synthetic organic chemist by training. I did my PhD work at the University of Colorado at Boulder. And I started my career in biotech while I was at the University of Colorado at Boulder working for a startup company here in Colorado that was focused on human diagnostics. And I spent actually about 15 years in the molecular diagnostics worlds after completing my PhD. And what I mostly worked on was the development of new technologies for laboratory tests. These were things, tests for early detection of diseases like cancer and heart disease and chronic inflammation. And I worked a lot with pharmaceutical companies to help support FDA clinical trial submissions and really improve what we call personalized medicine, where we better understand the side effects of certain drugs and can predict them better so that we can improve treatment and outcomes for patients.

I also spent a couple of years in food safety, similar technology platforms. But we were focused on a different application, which was the detection of food pathogens, or food-borne pathogens. So things like salmonella, listeria and E. coli in large scale food production. During this 15-year stint in molecular diagnostics, I got really engaged with farming. I started a 501(c) three non-profit. It's actually a small goat farm called Mountain Flower Dairy here in Colorado. And we were really focused on helping bringing the community closer to agriculture and help giving them a chance to understand where their food comes from because it's shocking how removed we are today from where our food comes from. So we did summer camps and workshops and I spent actually nights and weekends in between building these biotech companies setting the farm up.

And it's turned out to be a hugely successful here in Boulder over the last seven years. And so all of that combined, I fell in love with farming and agriculture. And, you know, when I looked at this emerging industry and cannabis and this new crop here in Colorado about four years ago, I thought, "What an incredible opportunity for me to move my career more into agriculture and combine all of these things that I care about." Because, you know, cannabis is a crop, has implications and applications in nutraceuticals or dietary supplements and nutrition and obviously pharmaceuticals and then agriculture and the growing, the production of the crop. And so that was really what motivated me. And I ended up stepping down from one of the other companies that helped start and went out to start Front Range Biosciences.

And it's been quite a journey ever since. And I don't regret it at all. I love moving my career into agriculture and, you know, and I think at the end of the day, when I look at human disease and human health and food production and all these things that I spent my career, you know, working on, you know, it all comes together in this new crop and in agriculture really. I think the root of many of our problems that we face in health care are due to poor nutrition and challenges in food production and things like that. So, yeah. That's kind of how I got here.

Matthew: I want to dive into this more, Jon, but before we do, can you just clarify for people that are still unsure about the difference between what cannabis and hemp is. They're the same plant, but different genotype and what that means exactly for a lay person.

Dr. Jon: Yeah, definitely. So cannabis is really the genus of a plant. And traditionally it's been thought of as three different species, indica, sativa, and ruderalis. The reality is that over the last 60 years due to prohibition and lack of access to modern breeding practices and characterization, everybody has been crossing all of these different varieties. And we kind of have a mixed up gene pool right now, meaning it's not really clear what's what, and you can use next-generation sequencing to track things back to some of the original, what they call landrace strains. But the reality is that right now they're all basically the same plant, and they can be hybridized or bred together. And so their only real difference between hemp and cannabis or marijuana is really a regulatory difference, which is the amount of THC that's present. And so currently in the United States, hemp is defined as having less than 0.3% THC whereas marijuana or cannabis is considered everything that's above 0.3% THC. And so from a scientific perspective, they're the exact same plant. They, you know, there's some unique differences in the different varieties, but it's not necessarily related to whether they're hemp or cannabis or marijuana. It's more about the region that they came from or how they're grown that makes them different.

Matthew: Now, could you tell us a little bit more detail about who your primary customers are at Front Range and what you're doing for them right now in terms of your clean stock nursery program and what problems? That's all.

Dr. Jon: Yeah, absolutely. So we're a B2B business and so our primary customers are all growers and farmers. They're our target audience and they're the folks that we support. You know, we work with all different types of farmers. So in hemp, for example, the majority of farmers are growing outdoors. Some grow in some greenhouse, but generally speaking, they're growing outdoor acreage and it's starting to look a lot more like the production of corn or wheat or soy although it's still just a very small fraction of the footprint that those crops make up worldwide. But, so we support farmers there on the hemp side. In California we have some partnerships with some cannabis companies and so we work with cannabis growers there that grow indoors and outdoors and in greenhouse conditions.

And then for their coffee growers, we're currently focused on growers in California, so we've been working with a group...our partner in coffee, Frinj Coffee. And they're out of the Santa Barbara area in California. And we work with them to distribute coffee plants to the coffee farmers throughout California. It's a new crop for the state and it's an exciting project to be a part of. And we have a significant production agreement with them to produce millions of coffee plants for farmers at California. And coffee is generally grown outdoors in California and in other climates as well.

Matthew: Okay. And then when you talk...when you say the word tissue culture, can you just explain what that means exactly?

Dr. Jon: Yeah. Tissue culture is a tool and there's a lot of misconceptions about it, I think especially in the cannabis industry. You know, but it's really just a tool, and it's one of many tools in our toolbox that we use to produce healthy plants. The processes really...it's not that different than growing in a greenhouse in some ways only it's growing in a sterile environment instead of the greenhouse where you have pests and pathogens and exposure to environmental conditions. In a tissue culture lab, we're still growing the plant. So it's still does things like rooting. It still produces new leaves and can even flower. And you know, but you're growing it in this unique environment. It's sterile. It's kind of like a clean room for production of plants. So tissue culture, it really can be used in a variety of different ways as a tool to support agriculture.

It's used as a research tool where groups use it to transform the plant, do things like genome editing and use it to research the underlying biology of the plant. And then it can also be used in the production setting, which is really how we use it in our clean stock program where we produce pesticide-free, pest-free, virus-free plants. And we're able to do that because of the sterile environment that we grow them inside the tissue culture lab. So, you know, we, we can use it to produce much more healthy, vigorous and cleaner plants for our growers. And the end result is a higher quality product going out of the greenhouse. So when farmers go to or come to pick up their plants from us, you know, our goal is always to have the highest quality plants and tissue culture is really just a tool that we use to do that. You know, there's other tools that we use as well. Like next-generation sequencing or an integrated pest management program, these are all really tools that we use to improve the quality of our plants that we produce for our growers.

Matthew: Okay. And the term tissue culture is thrown around a lot. But since you're in this business, can you tell us what misconceptions there are about it?

Dr. Jon: Well, I think a lot of people see it as this holy grail of how you can produce plants and you no longer have to have the mother stock and you don't you don't have to do cuttings anymore. And the reality is that when you use tissue culture in production, that's not really how it works. I mean, you always have to have plants. You always have to have stock plants and other plants and, you know, and you really...the production of plants through tissue culture includes both the tissue culture lab as well as the greenhouse. Because plants that are grown in the tissue culture lab can't just be immediately put into a greenhouse or into a field. They wouldn't survive. They've been grown in this very isolated climate-controlled environment. And you can't just simply put them out into the real world. They don't have the ability to survive.

And so, it's quite a delicate process to take the plants from, let's say the greenhouse to the tissue culture lab, clean them up, then produce them in the tissue culture labs and back to the greenhouse, and then from the greenhouse to growers. That process can take quite a significant amount of time. And it's also labor intensive and expensive and requires a specific set of expertise that can be hard to come by in today's labor environment. And so, it's really a little more complicated that I think a lot of people realize.

And I think the other misconception is that, you know, a lot of people have experience using tissue culture and plants as a research tool, you know, whether it's in graduate school or even an undergraduate and working in research labs and using it to understand the biology of the plant. And that's certainly an important use of tissue culture. But the difference between doing tissue culture that scale and using it to mass produce plants is significant. It's a whole different world when you go from a small isolated, you know, tissue culture lab, you know, with maybe one or two scientists that are highly trained, it might have PhDs and working very carefully in the lab to being able to produce millions and millions of plants on an annual basis with a team of people in a tissue culture lab. So it's just two very different worlds. I think there's also the idea that it's a quick and easy solution and I think I've heard people say, "Oh, we're just going to build our own tissue culture lab and, you know, we're going to start producing plants in less than a year."

And the reality is, and I've been very fortunate to assemble a team that's been doing this work for decades in large commercial, you know, settings. Places like Driscoll's and Syngenta and Ball horticultural. The reality is that to put a new crop into a clean stock program and tissue culture, it takes years. And, you know, it takes a minimum of six to nine months to get a new variety clean and stable and the tissue culture process and then to get it from there into production. You know, it can certainly take a years and especially to get into the large scale production of millions of plants. So, I think these are all a set of misconceptions that are out there in the industry. We've watched a lot of companies try to do this on their own and spend millions of dollars and not be able to execute. It's a little more challenging, I think, than people realize.

Matthew: Okay. And you mentioned, you know, you have virus-free, bacteria-free, all these different things did you do to keep the environment clean. How does the less sophisticated cultivator typically introduce disease to their plants?

Dr. Jon: Yeah, so the most common thing we see in cannabis is because it's so easy to vegetatively propagate, people find a plant that they really like and they take cuttings off of it and then they transfer it to their friend or their friends' friends. And, you know, they move these plants around and if proper clean stock processes are not put in place, then those cuttings in those plants simply carry along whatever might be present on the mother plant. So these could be pests like thrips or mites or aphids. There could also be viruses that people aren't aware that are, you know, residing inside the tissue of the plant. There can be bacteria and fungus and molds and all of these different pests and pathogens. They're out in the real world. So if you have a plant, whether it's growing in the field or in the greenhouse or an indoor grow, if it's...unless it's in a tissue culture lab, it's not in a sterile environment.

So it can be exposed to any number of these different pathogens. And so every time somebody transfers it from one environment to another, they not only bring along the pests and pathogens that were in the first environment, they also introduce the new ones and the second environment. And then you end up over time, as people move these plants around different facilities and different growers, you introduce more and more and more of these pests and pathogens. You know, and I think simple precautions like, you know, sterilizing your tools that you cut your plants with and making sure that you've got clean plugs that you're going to root your plants in, and just having a strong integrated pest management program in place in your grows so that you're constantly on top of your pests and pathogens. I mean, the reality is that in agriculture, when you go to a place there's pests, there's no way around it.

I mean, you know, we unfortunately have to live in the real world. In the real world, there's things like thrips and aphids and mites and they're just there. And so the idea that, you know, you don't have to pay attention to that is not a good one. You have to constantly stay on top of it and be proactive and take preventative measures to make sure that you don't get huge outbreaks. And especially in the spring when, you know, everything kind of comes back to life and all of the bugs, you know, kind of break out and start to attack the plants again. So, you know, it's really important that people take preventative measures. But yeah, I think that's a shortlist of the ways that we see folks introduce pests and pathogens.

Matthew: You have a goal of creating new plant varieties and new cannabinoid profiles. Can you talk about that a little bit?

Dr. Jon: Yeah, definitely. You know, when I look at this plant cannabis from the organic chemist perspective, you know, I see it as a treasure trove of unique small molecules. There's really not so many plants in the world like it. There's over 500 small molecules that are produced in this plant. Things like canabinoids, there's I think at least 110 or 115 unique cannabinoids that have been identified. I'm sure there's a few more that haven't been identified. There's terpenes and flavonoids, which just all of these unique small molecules, it's a pretty diverse, you know, a diverse group of compounds in this plant. And so, the two that everybody knows the most about are THC and then now CBD, which really just happened in the last few years. And I think we're really just at the tip of the iceberg.

I think there's a lot more cannabinoids and combinations of these small molecules that are going to be effective and in human disease and preventative health measures. And then, you know, and then even as a dietary supplement, when you start to look at hemp grain, as a protein source, you know, it's got to balance fatty acid profile and it's got fiber and has got a balanced amino acid profile. So, from a crop perspective, you know, whether it's cannabinoids or any of these other components, it really has the ability to produce a lot of unique things that I think are going to be beneficial to both humans and even animals and pets. You know, we're starting to see that now as well. So, we're certainly focused on trying to breed new varieties that can produce some of these unique canabinoids that hopefully will become a part of either dietary supplement or nutraceutical products or even pharmaceutical products or even nutritional products.

Matthew: Now, how do you think about the future of patenting cannabis plants and what that holds?

Dr. Jon: Well, it's a very interesting question. I mean, you know, the reality is that when you look at agriculture and just like any other industry, intellectual property or IP is often the foundation for a company's value. It's certainly the case in biotechnology, whether you're talking about diagnostics or agriculture or a drug development. And, you know, for better or worse, the only way to protect that IP is through patents. And so we've already seen some patents issued for cannabis plants. And I think we're certainly going to see more. You know, the reality is it's the only way to protect somebody's hard work. So, for example, if a plant breeder spends years breeding a new plant variety that has some very special trait, you know, the only way they can protect that hard work and recognize value would be to get some type of patents on it.

And, you know, while that might scare some people off, you know, I think you have to look at it from the breeder's perspective and say, "Wow, if they spend years in typically...in traditional plant breeding and even in cannabis breeding to create a new stable variety, you know, it really does take years of hard work." You know, if you look at it from their perspective, it's really the only way they can truly capture the value and protect the hard work that they've done. You know, and so, I think we're going to see a lot more of that. And, you know, and I think it's, like I've said, for better or worse, it's really just the way the world works in terms of intellectual property. Now, that being said, you know, I think it's important that growers and farmers have access to these plant varieties and, you know, and I think there's ways to develop intellectual property and create that value, but then also to provide access to farmers.

There's generally enough money to go around. And so, you know, while some groups of farmers may get early access to some new variety over time and traditional crops, you know, the folks that might have developed these unique varieties will make those varieties available and then occasionally, you know, they get...can get deposited and in public banks or made available to the public. And so, you know, I think we'll see that as well. And, you know, just because there's a patent on something doesn't mean it's not going to be available. It just means that somebody has a legal or they has the legal ability to generate revenue through a royalty off of the use of that product. And so, you know, I think as long as those royalties are not, you know, overly greedy in terms of, you know, limiting folk's ability and farmer's ability to grow these plants, you know, I think the system can work quite well so that everybody wins. The farmers get access to these new varieties and the breeders that develop them get the ability to recognize and create value from their hard work.

Matthew: Yeah, I think about things like that when I bite into like a honeycrisp apple and it's like, there's just something about those. And I know they've kind of been designed for the human mouth, mouth feel and taste buds and the crispiness and the sweetness level. Like everything has been engineered to perfect satisfaction and they're not too expensive. But I'm really glad they exist at the same time.

Dr. Jon: Yeah. And I think that's a great example. I mean, that, you know, that took a lot of hard work to create that variety and other varieties as well. I think the companies that invest the money, you know, you look at an agricultural company, you know, let's take Driscoll's, for example, that creates all of these unique strawberry and blackberry and raspberries and, you know, I mean, they invest millions and tens of millions of dollars, you know, to develop these varieties and produce them in a way that consumers trust and believe in. And they know that when they go to the supermarket and they buy that strawberry, it's going to taste the same. It's not going to be funky or weird. It's going to taste just like the strawberry that they were expecting it to. And, you know, I think that's an important thing to keep in mind.

Matthew: Where are we in sequencing the cannabis biome or genome? And what are your thoughts around that, in general?

Dr. Jon: Yeah, I think there's actually two parts to your question there. You mentioned the cannabis genome and then also the biome without considering the microbiome. And so when we look at cannabis, actually when you look at any organism or any plant, it's actually a combination of those two things. It's actual genome, so the genetics that make up the DNA that makes up that actual plant variety or even an animal or whatever it might be. And then you've also got the microbiome, which are all of the microbes and things like bacteria and yeast and fungus and all of those things that coexist with that, you know, with that plant. And so, with next-generation sequencing available in the technologies have been developed over the last really 10 years especially. You know, we can look at both of these genomes. We can look at the microbiome and all of the unique genomes there and the bacteria. And then we could also look at the plant's genome.

Cannabis, we're still very early in our understanding of the genome and it's...there's a few groups around the world that are working on it. There's been a few great papers that have been published over the last, even the last six months, a few papers had been released. You know, and I think there's...it's good to take a collection of research groups around the world to fully develop our understanding of the cannabis genome. I know we're working on it with University of California at Davis, you know, we hope to release some results or professor that's running that study is going to release some results over the next 6 to 12 months. There are other groups that are working on it as well, but when you look at a crop like corn for example, you know, I think the first fully annotated genome map didn't really come out until around 2012 and it took around 30 labs and over $30 million.

And so, you know, there's...we're still a far cry from being at the...our genomic understanding that we have and in other crops. So there's still a lot of work to do. I think the same is true for the microbiome. The microbiome is even more complex. When you start looking at that, you're talking about, you know, many, many different species of bacteria and yeast and microbes and it's, you know, it's going to take a long time before we understand how each of those play a role in interaction and growing of the cannabis plant. So, you know, I think to summarize, we're certainly working on our genomic understanding and hoping to make contributions to the broader scientific community, but also leverage some of that for our own internal breeding program and how we develop new plant varieties.

And I think there's a lot of other groups around the world, but I'd say it's still early. And I think, as I mentioned earlier in the interview, the complexity of this plant is significant. And the biological pathways does it make up the production of all of these unique small molecules, things like cannabinoids and terpenes and all the other components of the plant. They're very complicated and it's not as simple as, you know, "Oh there's a gene for this cannabinoid or that cannabinoid and you can turn it on or off. They're often interrelated. And so, you know, if one changes, it doesn't necessarily mean that, you know, you're going to wipe out that effect or, you know, you're going to change the production of that compound. A lot of these pathways are, you know, they intersect in different ways. And so, you know, biology is pretty amazing, if one pathway gets shut down, it will often open up another pathway. So I think it's still very early in our understanding of the cannabis gene

Matthew: Can you explain what CRISPR-Cas9 is for listeners that are unfamiliar and maybe what you think is great about the future with that and then maybe what you don't like about it or you think is not yet ready to do anything with? That makes sense?

Dr. Jon: Yeah, definitely. So CRISPR-Cas9 is really a tool that was discovered. It exists naturally in bacteria and archaea. And it's...these are microbes and it's a natural system that evolved to help these microbes fight off viruses that would come in. And without going into the weeds here, it's basically a complex set of molecular machinery. So things like enzymes and short pieces of DNA and RNA that all kind of work together to achieve a certain purpose at the, you know, at the molecular level, if you will. And so, you know, the bacteria use it naturally to, you know, go in and cut out pieces of DNA or RNA, you know, to basically cure itself of a virus that might have invaded the organism. And so what sites is they've done over the last 10 years is they've isolated this molecular machinery out of these bacteria and then they use it to go in and do similar types of molecular work.

So you can think of it as scissors, cutting DNA and going in and stepping out pieces and even inserting pieces. And so people have started to develop this tool both in plants and animals. And even folks who are looking at it for treatment of human disease, but they use this molecular machinery to go in and do what we call genome editing. And it's really, a lot of people, once again, a lot of times with science there's misconceptions, people, there was an article I think that came out and people said, "Oh, you can do CRISPR in your garage." And one of the guys that I always love the saying that, when the guys that did a lot of CRISPR work and runs a team for a company, which I won't even mention, but anyways, they, you know, he said, you know, "If somebody knows that guy, please tell him to send me his resume because, you know, if he could do it in his garage, he needs to be on my team."

It's actually a lot harder than everybody realizes it. It really can take years to use CRISPR genome editing to effectively accomplish a goal such as, you know, removing a target or inserting a target. And it also takes millions of dollars. It takes the right types of facilities and people and, you know, and I think in plants, we're certainly seeing the use of CRISPR-Cas9 technologies in a lot of different crops. But I think, you know, a lot of those crops are crops that have already been pushed to the limit in terms of what can be accomplished with breeding. So when you look at things like corn and, you know, how many bushels per acre you're yielding of corn and things like that, you know, minor increases are hugely valuable for these very large commodity farmers. You know, in cannabis, you know, the margins are still pretty high in terms of what you can generate for revenue from this crop.

So, you know, the need to employ these advanced technologies, I'd say it's still a little bit early for it. And there's certainly a lot of folks talking about it and wanting to do it, but I think you'll find that, you know, just like everything else, it's a lot harder than it might appear based on what you hear in the press and, you know, the internet. And I think it's going to take quite some time before we see, you know, true CRISPR genome edited, you know, cannabis products out on the market. And the last thing to keep in mind is there's also a big regulatory component. You know, I think there's...whenever you do anything like that, especially in the United States, but around the world, you start doing genome editing or even things like genetic modification, you know, there's regulatory concerns that come into play.

So a lot of these crops are highly regulated and to, you know, it's one thing to make it work and it's another thing to get it to the marketplace. And then obviously, there's a big public concern with GMOs right now in the United States and around the world. And so, you know, so I think most companies approach, you know, product development with those technologies with some caution because of market reaction and then also the regulatory hurdles that have to be overcome to actually get those products in the marketplace.

Matthew: I mean, just putting on just my conjecture hat, I mean, when this CRISPR-Cas9 technology more stable and well understood in the future, what's possible. I mean, could you combine elements of the coffee and cannabis plants to do something interesting? Because, you know, you mentioned you're in coffee and I'm always thinking, you know, coffee's great, but like if you have just a little bit too much coffee, it's like it's not so good. I think like chocolate has a little bit better onset of that, like a little bit and fed, I mean, I think it's the theobromine they call it. Like, is there a way to tweak that or do something? I mean, what do you think is possible there in terms of customizing our experiences with these plants?

Dr. Jon: Oh, that's a fun question. I mean, I think realistically, you know, the ability to combine two very different plants like coffee and cannabis, you know, that's science fiction at this point. You know, it's really, you know, coffee is like, it is a tree. It's a perennial plant. It takes years. And it, you know and cannabis is more like a...it what's an annual and it's a grass. It dies every year. So there's big differences biologically that make it kind of hard. It's like saying, you know, it's kind of like looking at my livestock guardian dog that takes care of my goats. And then looking at the cute baby goats and thinking, "Gosh, if only we could combine those two into this new little creature, it'd be the cutest thing that ever walked the earth." The reality is it's not going to happen as much as...as much as they might try, it's just not going to happen.

So, you know, but I think, you know, I think there are going to be opportunities as we better understand that the genome of both of these plants and improve our breeding practices and everything else that we will see some interesting traits come out of them. You know, and the ability to develop, you know, whether it's new flavors for coffee, which is, you know, kind of one of the things that we're working on or that Range is working on in terms of their breeding efforts. How do you produce these truly exquisite flavors in the coffee bean that are, you know, that you don't get from other types of coffee. And I think we'll see the same types of things and cannabis and, you know, there's certainly the potential for it to have unique effects as well. You know, you mentioned something like theobromine or, you know, obviously there's caffeine in coffee and then there's THC and CBD and all these other cannabinoids in cannabis today. I think we'll certainly see the fine tuning of some of those small molecules and end each of these plants which might produce different effects, definitely produce different flavors. But, you know, I think for sure we'll see some customization of the user experience, you know, directly from planet breeding.

Matthew: Okay. And thanks for letting me down easy there. You told me very gently I was being crazy, but I think, you know, I think I read an article about how like some tomato cultivators used a gene from a spider. Do you remember that story and what that's about?

Dr. Jon: Yeah, definitely. So there are certainly, I don't remember the specific one about tomato and a spider, but the one that I'm thinking of was actually from a goat and a spider where they actually...the goat, they insert some genes from the spider that produce the web that spiders spin. And then it came out inside the goat's milk and then they actually extracted that fiber and we're using it for different processes. So there are those examples out there where you can, you know, you can take a piece of biology from one animal or one plant and put it into another one. Those things are certainly possible with the technologies today. But, you know, there comes a lot of concerns and questions that go with that that those types of applications, I mean, you know, is it fair to, you know, to animals or whatever it is? Is it safe?

And are there other effects that we don't recognize? So, you know, it definitely is possible, but I'd say those are, are generally outlier situations and not the norm. Generally speaking, when you start playing around with the biology of an organism like that, you know, it doesn't survive. You know, nature kind of has done things better than we do still. And there's a reason for that. And, you know, I think these things evolved to function in the way that they do in their existing environment. And when we'd go and play around too much with that, the outcomes are not always as good as we'd like. So, you know, so I think it's possible, but I don't think it's going to be the norm. And I think it's a lot more challenging than, you know, than people realize.

Matthew: What footprints do you operate in besides Colorado? How can different people listing, "We want to work with you in different geographies. Reach out." How does that work?

Dr. Jon: Yeah, so our largest footprint is currently in Colorado. It's where we manage all of our hemp operations out of. We have a tissue culture lab here. We have indoor breeding facility and research facility. And then we also have several greenhouses that we use for production of young plants and seed production as well. We also have a greenhouse facility in Wisconsin that we use to distribute young plants to farmers in the Wisconsin area and also the Midwest. We also have some partnerships in California. So, we have a tissue culture lab and a greenhouse for our coffee plants in Gilroy, California. And then we have some partnerships with some licensed cannabis companies in California so that we can implement our clean stock technology to produce clean plants for growers in the regulated California Cannabis market. So, you know, so those are the geographical areas. We're working on additional areas which I can't talk about right now, but there'll be some announcements in the near future about that.

Matthew: Damn it, Jon, don't give us teasers. We want the meat.

Dr. Jon: I know, I know, but I have to keep some things for later. So yeah, so we're working on expansion and trying to get our varieties as well as our technology, you know, out throughout the United States as well as internationally. So, you know, so people can reach out to us on our website, frontrangebio.com. There's a lot of information about us there and email addresses and order inquiry forms and requests for services and things of that nature. So I encourage people to check us out there.

Matthew: All right. Just a couple more questions before I let you go. Where are you in the capital raising process?

Dr. Jon: So we just closed a $10 million series A last fall of 2018, and so we're in pretty good shape currently, but given the rapid growth of this market and the demand that we're seeing, I anticipate that we'll probably raise some more money this year. We certainly have a lot of interest on the investor side, and I think given the fast pace that this industry is seeing in terms of growth, and then especially when you look at the growth in hemp from the passage of the Farm Bill this year, I think there's a huge opportunity and a huge need for what we do in the marketplace. And so, yeah, so I'd say stay tuned. And we're certainly considering...we're planning our strategy for our next round of fundraising. But I would anticipate that that happens at some point this year.

Matthew: Okay. And is there...I want to ask you a few personal development questions to help listeners get a better sense of who you are personally. Is there a book that's had a big impact on your life for your way of thinking that you'd like to share?

Dr. Jon: Wow, that's a great question. There's probably a couple that I would point out. The first was one that I read a long time ago in the early '90s. I'm a book called "Ishmael" by Daniel Quinn and it's really about...it's really interesting book. It's an interaction between a young scientist and a gorilla who's lived for quite a long time. And they actually have...the book is basically an entire conversation or dialogue between these two. And the gorilla, you know, from the gorilla species standpoint, his view of the human race and civilization and it really brings up a lot of interesting points about how, you know, modern technology and human civilization and how it's evolved. You know, over thousands and thousands of years. And it looks at it from, you know, from the gorillas perspective. And so that was really, really interesting. It definitely made me think a little bit differently about our world and modern technology.

And the other one I think there's really interesting is the four agreements. It's a book. It's a very short book, but it's about kind of a set of guidelines that come from a tribe called the Toltecs, a pre-Columbian tribe out of Central and South America. And, you know, and it's really about just how to live your daily life. It's a...I think the four agreements are being impeccable with your word, don't take things personally, don't make assumptions and always do your best. And I think it's a great set of a daily guidelines to live by. And they certainly have had a big impact on my life. And I certainly try to achieve that on a regular basis.

Matthew: Is there a tool you use that is helpful for your or your team's productivity that you'd like share of?

Dr. Jon: Yeah, you know, I think one of the things that I've done over the last year, I have a great CEO coach who's been around for quite a long time. I won't mention his name or his age, but, and he gave me a book about a year ago called "Traction." And it's really been a great tool for me in terms of helping grow the company effectively. And they have what they call the entrepreneurial operating system. And it's really a set of guidelines and in a structural way to view your company as you grow it, and how to build your management team and how to effectively hire and manage people. And so I highly recommend that book to any entrepreneurs or aspiring entrepreneurs. It's really a great tool for management and for building a successful company. It's a lot of work being an entrepreneur and being in the driver's seat for a startup company is really, really tough. And I think that book has a lot of great insight in order to execute effectively in the entrepreneur endeavors...entrepreneurial endeavors that somebody might go through.

Matthew: Here's a Peter Thiel question for you. What important truth to very few people agree with you on?

Dr. Jon: That's a pretty funny one. I don't know, the thing that that comes to mind, you know, is a lot of people might say this, but I don't know that many of them truly believe it or are actually truly live it. But it's what doesn't kill you, makes you stronger. I think I've experienced this throughout my entire life and, you know, a lot of times things that might seem like an unfortunate situation or things that are really hard or challenges that you feel like you're never going to be able to overcome. You know, I think if you stay patient and you stay focused, and you overcome them, I think it does make you stronger and I think it opens up new doors and new opportunities. And I think that's certainly been true in my life and there's been a lot of moments where I wanted to give up and, and not live that out. But I have, and I think it's how I've gotten here and I'm going to continue to take that approach and I've certainly heard other people say it, but a lot of times it's a tough one to actually live. A lot of times you can get discouraged and give up or turn away from sayings just because they're challenging or they're not going the way you want them to. And I think that it's important to push through those things.

Matthew: Yeah. It sounds like this cold is going to make you stronger, this deep voice.

Dr. Jon: Absolutely. Absolutely.

Matthew: John, as we close, can you tell listeners how they can learn more about Front Range Biosciences? How to connect with you or...and also for accredited investors that are interested in learning more about your next round of capital raise?

Dr. Jon: Yeah, definitely. So our website is the best place to start. www.frontrangebio.com. We're on Facebook and Instagram as well, in LinkedIn, so you can certainly reach out to us that way. And depending on what the person's interest is, you know, we've got folks that will direct you to the right person. You know, investors, you know, are certainly welcome to reach out to me directly through any of those channels. And I'm always happy to speak with folks. We also are out at conferences on a regular basis. We have a big one coming up here in Colorado, the NoCo Hemp Expo. It's going to be in Denver this year. We're going to have a big booth and a lot of our staff will be on site. We're probably gonna even offer some tours of one of our facilities. And so, I think that's at the end of March. I can't remember the exact days, but it's a Friday and Saturday last weekend of March. So we'll certainly...I'd encourage people to come out there. And then stay tuned, we'll be announcing some other conferences that will be out at as well, both in California and some other places as well to share.

Matthew: Jon, thanks so much for coming on the show. We really appreciate it. Keep us updated as these developments continue to evolve. This is really exciting stuff.

Dr. Jon: Absolutely. Well, I appreciate the opportunity to do the interview and hopefully it was helpful and the folks out in the audience learned a thing or two and yeah, I hope we get a chance to speak again. I'm always happy to do this.

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 email at feedbackatcannainsider.com. We'd love to hear from you.

Please do not take any information from CannaInsider or its guest as medical advice. Contact your licensed physician before taking cannabis for using it for medical treatments. Emotional consideration may be provided by select guests, advertisers or companies featured in CannaInsider.

Lastly, the host or guests on CannaInsider may or may not invest in the companies, entrepreneurs profiled on the show. Please consult your licensed financial adviser before making any investment decisions. Final disclosure to see if you're still paying attention. This little whistle, jingle you are listening to, it'll 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.

Dixie Brands Using Fresh Capital To Expand

chuck smith dixie brands

American cannabis companies are starting to go public in Canada, using the fresh capital to further fuel their growth.

One of these companies is Dixie Brands Inc., one of the most recognized consumer brands with a portfolio of over 100 products across more than 15 different product categories.

In this episode, Dixie CEO Chuck Smith shares his insight on the future of cannabis and discusses the company’s goals to become the leading global consumer packaged goods company in cannabis.

Learn more at http://dixieelixirs.com

Key Takeaways:

  • A breakdown of Dixie Brands and its expansive array of THC and CBD products
  • Chuck’s background in the cannabis industry and his journey to CEO of Dixie
  • Dixie Brands’ state-by-state growth and its plans for expansion within the U.S. and beyond
  • How differences in regulation dictate Dixie’s go-to-market strategy in Canada versus the U.S.
  • Why Dixie focuses on building brands instead of cultivation
  • How Dixie competes against new companies entering the cannabis industry
  • The importance of packaging and how Dixie successfully creates packaging that distinguishes their brands from others and achieves consumer trust and engagement
  • A walkthrough of BDS analytics and it offers cannabis industry market trends and consumer insights
  • Chuck’s outlook on the global future of cannabis over the next decade

 

Read Full Transcript

Mathew: Hi. I'm Matthew Kind. Every Monday. Look for a fresh new episode where I'll take you behind the scenes and interview the insiders that are shaping the rapidly-evolving cannabis industry. Learn more at cannainsider.com. That's C-A-N-N-A insider.com. Now, here's your program.

American cannabis companies are going public in Canada and using this fresh capital to fuel their growth. One of these companies is Dixie Brands. Here to tell me about it is Chuck Smith, CEO of Dixie Brands. Chuck, welcome to CannaInsider.

Chuck: Matthew, I'm so happy to be here with you and your listeners.

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

Chuck: Well, I laughed at... Lately, my office has been a row 10, seat A of United Airlines, but today, I'm in our headquarters here in Denver, Colorado.

Mathew: Okay. And give us a very high-level understanding of what Dixie Brands is for people that aren't familiar.

Chuck: Sure. Dixie Brands is really a consumer package goods company, a CPG company. We have one of the largest portfolios of infused products both for THC as well as CBD wellness in the industry. We've been around for about 10 years starting here in Colorado. And we've now built the company to a portfolio of over a hundred different products across about 15 delivery vehicles or different product types. Think of a drink is a delivery vehicle or a chocolate bar as a product type. And then we also have two other companies Aceso Wellness, which is our hemp-derived CBD human supplement product line, and then Therabis, which is our, again, hemp-derived CBD pet wellness company.

Mathew: Okay. Can you share a little bit about your background and journey and what brought you into the cannabis space and specifically Dixie?

Chuck: Oh, sure. Well, I'm one of the older guys in the room, so I've been around for quite a while. I've been both in corporate America running finance organizations and then moving into more sales, marketing, and internal management and then became very entrepreneurial later on where I started with other folks building companies and, you know, really having that kind of entrepreneurial bug.

And about 10 years ago, my business partner Tripp Keber and I decided to make an investment here in the green rush, if you will, of Colorado. That was the very early days during kind of the caregiver model and before Amendment 64 was passed. And that investment, that kind of passive investment, turned into very active investing and then active management. And here we are today with Dixie Brands, a publicly-traded company with the operations really globally now.

Mathew: And I've watched Dixie grow quite a bit. It's been an amazing thing to see and I've been fortunate to go on a couple tours inside the facility in Colorado in Denver there. Can you tell us a little bit about the evolution from just Colorado to where you sit today?

Chuck: Yes. And I would say one of the best things that probably happened to the company in terms of building this great foundation is that we did start here in Colorado. So, even though California was a much bigger marketplace and we probably, from a revenue standpoint, would have been a bigger company in the early days, we really built a foundation of strong intellectual property, strong compliance, regulatory compliance, and Colorado continued to evolve its industry here by really putting in strong, again, regulatory compliance or legislation that caused the industry to really evolve to the highest level.

So, if you look at Dixie's products, we've always triple lab tested our products, even in the early days, for purity, potency, and consistency. We also have always developed the highest level of compliance for child-resistant packaging, and for labeling, and for other information that would really allow the patient, and now the consumer to know what they were getting. And what that really did is put us in a great position to take all of that learning and all of that intellectual property that we developed over the 10-year period and really now take it out on a state-by-state and really soon country-by-country basis, and it gives us a good foundation to really be that global CPG leader.

Mathew: Yeah. And for context and the investors listening, when did Dixie go public?

Chuck: On November 29th of 2018, we went public on the Canadian Securities Exchange. I had said it was probably one of the worst days of all to go public because starting in December, the entire industry sold off as a sector. But fortunately, that's all started to turn back around and the company and the stock is moving really in the right direction.

Mathew: Okay. So, can you talk a little bit about your footprint in the U.S., Chuck? I know I've been to very small towns' dispensaries. I'm thinking of Crested Butte in Colorado, a great ski area and mountain bike area. And I did notice... I happened upon your products there. Can you just talk about kinda your distribution strategy and your footprint in the U.S.?

Chuck: Sure. So, Dixie Brands now manufacturers, and produces, and distributes through affiliates or licensed partners that we have in each state in five states. So, we are in Colorado, which is where the company was originally founded. We also have operations in California, Nevada, Maryland. And we just announced our most recent operation that's opening in Michigan, which we will be building and producing products and distributing those, hopefully, by the end of March.

Mathew: Oh, great.

Chuck: And our stated goal has been to really be one of the largest infused products or brand owners here in the industry in the U.S. controlling our manufacturing and distribution. We'll have between 8 and 10 states up and running by the end of 2019.

Mathew: Okay. Okay. And how is the strategy different in Canada than the U.S.? I mean, you have a different go-to-market there. There's different regulations. It's federally legal, but how do you think about Canada differently?

Chuck: Yes. In Canada, we have a manufacturing and licensing agreement with a company called Auxly Cannabis. It's a publicly-traded company. Some of your listeners might know it as Cannabis Wheaton Income before they changed their name. They're a great partner of ours. They have a licensed production facility on Prince Edward Island called Dosecann. And so, we are starting the process of really developing our manufacturing protocols, our regulatory compliance review. As you probably know, Health Canada just came out at the very end of the year with their guidance on which products were gonna be allowed. But still those regulations and rules are still forming up.

So, our teams are working together to understand our compliance against that and determine which products we're gonna launch. The one thing I will say to you is there's not a product that Health Canada could have approved for infused products consumption that Dixie doesn't already make. So, I'm very comfortable that we'll be able to have a very fast time to market with Auxly, that we've already run a lot of the traps in terms of formulations, and packaging, and labeling. And so, we're just eager to get started up there in Canada.

Mathew: So, you've mentioned in the past you view cannabis as an ingredient and don't wanna be in the cultivation business. Can you go into detail on why that is?

Chuck: Sure. We just long ago decided to focus our efforts on where we thought we had the highest value and where we thought was one of the highest values on the value chain. And that was really building brands. But it's more than just a logo that looks good on a hat. It really has to have all the foundational elements of repeatability, consistency, quality formulations, strong packaging. And, of course, the brand appeal to the consumer is critically important. So, I think we really focused on being experts at that. And when I've talked about cannabis as an ingredient, I do make the joke that, you know, we're just a commercial food manufacturer that happens to use a funny ingredient called THC or CBD.

One of the reasons we aren't really interested in the cultivation game is that we know we don't have the infrastructure or the capabilities to be a high-quality farmer. We know that that's a commodity-type industry. And the ones that are gonna win on that are the ones that are the most efficient and have put the amount of capital involved or required to really be able to be a low-cost producer because we can see where that's going. We have great relationships with cultivators across the country. We're developing those relationships with cultivators in other areas now as we move into Canada and other areas of the world. And so, we wanna really work with them to have consistent supply chain. And then on the other side, wholesale distribution to all the retailers that are out there serving consumers or patients across the country.

Mathew: Dixie is about, as a mature player in the cannabis space as I've come across, particularly in drinks. How do you use that maturity to help you as new entrants come in and try to compete?

Chuck: Yeah. As I said a minute ago, Matthew, we have this broad portfolio of products. So, really for 10 years, we've been developing formulations. We've been developing the really intellectual property and know-how, and it's one thing to say as a, you know, a new entrant, "Well, we're developing drinks or we're developing a product and we're gonna bring that to market." There's no substitute for having done it for 9 or 10 years. And understanding not only just how to make 1 or 100 bottles of a drink, but you have to make 10,000 of them.

And you have to make 10,000 of them a day in some markets in order to meet demand. And they have to be exactly the same. They have to be consistent. They have to have high quality. They have to be homogeneous, meaning the very first sip of that drink is gonna be the same as the very last sip of that drink. And, again, there's no substitute for the time, and effort, and investment that it takes to be able to do that on a consistent basis, and I think Dixie has a big a head start on that, having been in the industry for so long.

Mathew: Yeah. That emulsification and homogamy in the drink is really a key thing. Did it take a long time to kind of crack the code on that to get it just right?

Chuck: It certainly did. It takes a lot of trial and error. It takes a lot of brainpower. And it takes a lot of resources to do it. And you're all also doing it in a kind of highly-regulated environment. And so, it's not like we can go out and tap a couple of universities and their food scientists to come in and help us. And if you think about it, you know, in the world, we've been cooking with vegetable oil and olive oil for, you know, thousands of years. We've been really cooking, if you will, with cannabis oil for, you know, 20 and 30 maybe, and commercially really for the only last, you know, 5 or 10 at the most. So, it's a very immature science and it's one that has really taken a lot of time.

And you mentioned emulsification and the homogeneity part of it. Really, the Holy Grail now that all producers are looking for is to make the cannabis product no different than any other consumer products. So, if you talk about the analog being a drink, a glass of wine, or a bottle of beer, we wanna make your experience with drinking a cannabis-infused beverage exactly the same as what you predict or what you know it as when you drink wine or you drink beer or an alcoholic beverage.

We want that onset to be very similar so it's predictable and you're comfortable with it. And then we want the experience and the longevity, if you will, of the experience to be similar. So, again, you get very comfortable with the format. And here at Dixie, that's what we've really worked on and we have some exciting news coming out soon in terms of really our water-soluble THC and CBD products that really help move us along that line of predictability and consistency.

Mathew: Okay. And talk about packaging because it's definitely a strength for Dixie. How do you think about packaging and, in particular, you know, when you see a Dixie product, how do you want that to register with consumers as this is part of the Dixie family, like look, and feel, and something about it?

Chuck: Yes. I think the packaging is no different than what's inside of the package, frankly, in the way we think about it. And that is, I want consumers to look at Dixie or patients in those markets that are still medically-oriented and I want them to trust the brand. I want them to trust that there is a consistent product there that's built to the highest level of quality, and care, and testing and that every single product that they buy of Dixie's is gonna be the same.

And it's incredibly important when you think about now this ubiquitous world that we live in and this growing industry because very soon, you know, a consumer will be able to get on a plane in Boston, and fly to Chicago, and then on to Denver, and then on to San Francisco, and eventually, up to Toronto. And they're gonna be able to buy cannabis products in every one of those cities because they're an adult 21 or over, and the product is legal in that state.

And I want them to pick Dixie because they're familiar and comfortable with the product and they know it stands for consistency and quality. So, part of that is the outer packaging. It's gotta be attractive, but it's also gotta have the right information, compliance, and safety measures. And then as importantly, it's the product inside that they trust and have come to rely on.

Mathew: You talked a little bit about how you don't wanna be in the cultivation business because it's a commodity business and the winner-take-all there is gonna be the one that's the most efficient. You're in the brand-building business, but there's still economies of scale you want and efficiencies you want. Can you talk a little bit about how you think about the logistics and operations there and bringing down expenses?

Chuck: Of course. And that's, obviously, very important to us as a manufacturer. We always want to try and drive as much efficiency and economy of scale as possible. A little bit of the challenge is still here in the United States, we're very much a state-by-state-regulated industry. So, where a package may look one way in the label and the information may be portrayed in one way in Colorado or California, for example, that package is entirely different in Maryland because Maryland is a medical state and it has its own list of regulatory requirements there. So, we aren't getting true economy of scale by being able to have one package or one label fits all, but we do our best to make that as efficient as we can.

Where we drive the efficiencies is really in our manufacturing and our standard operating procedures and really understanding what it takes to make each widget and learning and continuing to learn how to do it better and better and drive efficiency. So, as an example, we have a program in place for 2019 where we'll be doing significant lien management manufacturing training where we're bringing outside consultants that really understand lien management or what's it called, Kaizen Training and focusing on certain aspects of our business to really increase that efficiency. Once we know how to do it in one facility, then we just pick that learning up and we take it to all of our other plants and all our other facilities and implement it there.

Mathew: Yes. Kaizen is the Japanese word for continuous improvement, I believe.

Chuck: That's right.

Mathew: Is that a... It's like a Peter Drucker maybe philosophy it sounds like in there, the guy that...the efficiency and management experts and the lien manufacturing is something you're kind of borrowing from there. So, it's interesting to see how that all ties together.

Chuck: Well, you know, I look at this industry and our company, in particular, as just another industry. Again, we have a little bit of a weird ingredient. We have certainly a lot higher regulatory hurdles to jump over, but I view Dixie as a CPG company and it wants to be the best of breed in terms of manufacturing, distribution, and brand management.

Mathew: So, if I'm a product manager and I put that hat on, this is how the model seems to be, and correct me if I'm wrong. I look at a tool like a BDS Analytics or Headset that tells me what's selling in dispensaries now, what's trending, what's falling in favor or out of favor, craft a thesis of how I wanna bring a product to market, perhaps put a new spin on there on an existing product, work through the cost, do a benefits and drawbacks analysis of the product, craft the packaging and the brand, get feedback from the ecosystem, launch to a limited geography, iterate, and expand to a larger geography. Is that how you look at it or is there things I'm missing or what would you add or change?

Chuck: Matthew, it sounds like you've been sitting in our management meetings. That's exactly how we do it. I think the complexity there, we use tools like BDS and data sets that we get from other providers like Ed said. I think that that data is still evolving though as you go into each new market. You know, that data is just starting to be developed. It's only as good as the either the point of sale systems that are collecting it or the state-mandated seed-to-sale tracking systems. So, we're still continuing to evolve that data set. And I think what makes it even more complicated is that the consumer is expanding at such an exponential and rapid rate in terms of not only the sheer numbers, but all also the preferences.

So, you're probably aware that, you know, the fastest-growing segment of consumers today in the industry are adults 50 years and older. That's a much different demographic and a much different a consumer profile than it was even, you know, just a couple years ago when those consumers really weren't comfortable coming into the industry yet. Either they felt there was still a stigma or there wasn't a product set that was broad enough for them. So, as they're coming in, we have to kind of anticipate what they're looking for because we don't have a good data set to draw on in terms of their habits.

The female consumer is also, you know, now a much faster-growing demographic. And so, again, we have to make sure that our products are approachable or if it's not, you know, a specific Dixie-branded product, it's brands that we've either purchased or that we've innovated that are really speaking and targeting those new consumer preferences. So, it is a very evolving and dynamic exercise right now and it's exciting to be part of it.

Mathew: I think one thing I'd love to see is that, you know, we get the dispensary data from BDS Analytics or Headset. But I'd like to see, like, as someone walks out of a dispensary, just ask them like, "Why did you buy that?" and just understand how they walked through that decision because we've got the hard objective data, but we don't know exactly what the decision process was. I mean, it could be something as simple as like, "I liked the color. I like the aftertaste of this." But, I mean, it could be something we just don't anticipate that we could be wildly off and don't even know it.

Chuck: That's right. And I think that's where consumer research really is important. And so, at Dixie, we're in the middle of several consumer research projects. We really are trying to understand the consumer as they walk in, you know, what their impressions are, how they're influenced to make buying decisions. Do they come in with a preconceived notion or idea of either what they are looking for in general or a product in specific, or are they really coming in and putting their selves in the hands of the budtenders who are very powerful, if you will, at the point of purchase because they have a lot of knowledge and they have certainly their own preferences. So, we're trying to educate and understand consumers as they walk into the door. And we're also trying to understand and educate and work with budtenders to be a good point of contact for us as a house of brands.

We're also looking at that in new markets. So, you may be aware that we entered into a term sheet for a joint venture with Kyron, which is one of the largest infrastructure companies in Latin America for cannabis. So, it's a perfect marriage of Khiron with their infrastructure for all of Latin America and Dixie with its broad portfolio of products. But we don't really know what the Latin American customer wants. And they vary from country to country. Chileans are much different than Colombians, much different than Mexicans. So, we need to understand what each of those consumers are looking for in their products and then working with our partner Khiron to really start developing products that appeal to them.

Mathew: Well, I lived in Chile for a year and I can tell you they put avocado on everything. And if you love avocado, you'll love Chilean foods. So, I think I'm gonna say an avocado vape pen. They call it avocado palta, but I think that would do really well there. And I'm not kidding. It's on everything, smashed avocado. So, I'm gonna throw that out there, a little secret weapon for you.

Chuck: Well, I appreciate that and I'll tell you when we're ready to start testing different products for Chile, we'll ask you to be one of our testers.

Mathew: Oh, great. Great. Great. Well, Chuck, a lot of people talk about what is the cannabis industry gonna look like in three to five years. Let's go a little crazy here and take some risk and say, "What's it gonna look like in 2030?" This is a totally speculative exercise. You know, usually we ask, you know, CEOs to be conservative and not to do things like this, but let's go crazy here. Let's take a controlled risk and just say what do you think it's gonna look like, what is gonna surprise most people about what the cannabis industry is gonna look like? And we could be totally wrong, but what do you think is coming?

Chuck: Well, I do think it's gonna be a global industry at that point. I think that if you look in the U.S. and really 2030, we're talking about 11 years from now or 10 1/2, I still think that we're gonna have a state-oriented mandate. I do think there'll be federal legalization. In fact, I've called... That there'll be a form of federal legalization by the end of this year or early in 2020. I think coincides with the elections that are coming up. I think it coincides with some incredible policy that's being promoted at the federal level, like the STATES Act, which has really good bipartisan support. But even in the STATES Act, which is, I think, you know, a good solid piece of legislation, it still calls for treating cannabis like alcohol. And if you look at even the current alcohol model, while it's federally illegal, it still has state control.

So, I think we're still going to...even 10 years from now we're still gonna see state by state by state control because that allows distribution. It allows our taxes to be controlled at the state level and some nuance, you know, that that are really up to the state legislators. But I would predict that every state in this country will be legal in some form or fashion by 2030. I don't think that's a wild prediction. I think that we will be able to ship across state lines. I think we'll be able to carry product across state lines. And I think we'll be able to carry product globally. And so, this will be much more of a global economy. And you can just see it forming up now in every country. Even in the most conservative countries are or looking...you know, France is a credibly conservative country and they're still looking now at some form of medical marijuana or at least medical CBD-oriented products.

And then finally, I think that we've only scratched the tip of the iceberg on this plant. There are so many other cannabinoids that we know with research are gonna provide incredible benefit to people, whether it's CBG or CBN and many of the other ones that we haven't really even uncovered yet. So, I think with research, we're gonna be able to target some very, very high-quality products or medicines that are driven out of this plant. And that's really gonna continue to fuel the global use of cannabis as a broad-range subject or product.

Mathew: Do you think that lighting the flower and consuming it that way will fall below 10% of all consumption of cannabis by 2030?

Chuck: Now I'm gonna be making somebody in the industry mad with my answer probably.

Mathew: That's okay. That's what we're here for.

Chuck: Well, given the fact that we don't cultivate nor do we actually sell dry flower, I guess I'm probably safe to say I think so. I think, look, if you look at just even smoking, I mean, you know, normal smoking is reduced to a small level or a much lower level than people probably predicted. I think you're seeing the industry really moving to more normalized consumer products. So, you're seeing a lot of people both ingesting it as well as using it topically, which doesn't even provide that much euphoria. It's more from a medicinal or wellness perspective. So, yeah, I think... I don't know if it's gonna be 10%, but I think the actual combustion of dry flower is going to be the minority and the majority will be, you know, more what I would say traditional uses of wellness and recreational product.

Mathew: One thing I think's gonna happen is that there is gonna be genetic profiling married with a cannabinoid profile to create the perfect synergy for each individual consuming. In fact, I'd love it if Dixie created, call it 23 and D for Dixie, and somehow find a way so I could, you know, give a hair sample or [inaudible 00:27:48] or something and I can find out like, "Oh, this has the most impact for you for this reason. And it's supported by the genetics." I think that's too expensive probably do now, but the price is coming down so much on genetic testing that it's just... I see it in the next three to five years and I'm hoping that I can try something like that soon.

Chuck: Well, I hope you're right and I think that as, again, the industry gets a little bit more normalized and the stigma of it goes away, we're gonna see a lot of dollars going into research and I think research is gonna drive the very thing that you just suggested.

Mathew: Chuck, I wanna ask you a few personal development questions to help listeners get a better sense of who you are. Is there a book that's had a big impact on your life or way of thinking that you'd like to share?

Chuck: You know, it's funny you asked because I was just thinking about this the other day. I've read a lot of books in my life, you know, trying to always find ways to improve. And I was given a book a few years ago and, again, I entered the cannabis industry initially as a passive investor and then an active investor. And then this crazy thing happened to me. And we started getting testimonials from people that we're talking about how cannabis changed their lives and how they went from, you know, being hooked on opiates or, you know, drinking and using painkillers to ward off pain.

And one was, in particular, a veteran. A Vietnam vet had terrible PTSD and they started using cannabis products. And in one case, you know, in particular, they started using our Dixie drink. And over a relatively short period of time, they were able to wean themselves off of their opiate use and really control their alcohol addiction. And I realized, you know, this was not just about making money. This was about really changing lives, and ending prohibition, and ending, you know, the silly war on drugs. And this is coming from, you know, a conservative Republican, frankly, and someone that worked in the Reagan White House. So, hopefully, your listeners aren't turning me off right now. But I read a book called "Chasing the Scream" by Johann Hari.

Mathew: I've had him on the show.

Chuck: Oh, that's...

Mathew: He's great.

Chuck: Well, then I don't need to tell you too much about how the book changed my life.

Mathew: No, please summarize what it meant to you because it's been a couple of years.

Chuck: Well, you know, it's just an incredible expose on, as he called it, the first and last days of the war on drugs. And what I found about it, you know, liking and really liking history was how, you know, what is now the version of the DEA was originally created under Henry Anslinger and how that really evolved to this terrible persecution of people and now, certainly, people of color on trying to eradicate drugs when there was a much better solution.

And, you know, he goes through, you know, really the whole history of it, even almost up to modern day to where Colorado and Washington both approved in 2013 their or the election of 2012 the recreational use of cannabis. So, that book not only made an impact on me just to understanding it more and, you know, helping be...really embrace what we were doing here from, you know, a non-capitalist point of view, but it's one that I give out. So, somebody gave me the book and now I buy the book and give it to people that I meet and ask them if they like it to pay it forward. So, hopefully, I've helped Johann make a few dollars himself on selling the book.

Mathew: Oh, that's great. Is there a tool that you or your team use that you consider valuable to your productivity?

Chuck: There is. And, in fact, that would have been the second book that I would have told you that has an impact on me. We use a philosophy, a goal-setting philosophy, here at Dixie that we put in at the end of Q4 and really have embraced it company-wide now in Q1 of this year. And it's called the OKR theory or the OKR process. That stands for objectives and key results. And it was actually a goal-setting tool that was invented by Andy Grove of Intel and was then more professionalized by John Doerr who's a legendary venture capitalist from Kleiner Perkins.

And Google, for example, credits the OKR process with their success and they use it to this day, even as big as they are. So, there's a great book called "Measure What Matters." And I would recommend it highly to you. It's a great read, but it's also a foundational element of how we here at Dixie set goals, create transparency in those goals from the top of the organization down, and really get everyone aligned on how we move this company forward and how we take accountability for meeting the objectives that we set.

Mathew: That sounds great. I'm gonna have to check that out. I have not heard of that one. So, thanks for that recommendation.

Chuck: Of course.

Matthew: This is a Peter Teal question. What is one thought that you have that most people would disagree with you on?

Chuck: Yeah, that's also a really good question. That's a thought-provoking question. I think that people disagree with me on a lot of things probably because I'm opinionated but I'm opinionated because I'm trying to drive results. I think that there... You know, I have long advocated that we don't have to sacrifice the qualitative side of what we do for the quantitative side and vice versa. So, you know, maybe it's that, you know, my capitalism meets my altruism, if you will, and even as it goes to this industry.

And I think it's okay to make money in this industry, but I don't think that you have to sacrifice the other side of it, the human side of it. So, you know, again, as an example we have put a lot of money into philanthropy here. One of the biggest surprises that I actually had over the last few years is we've tried to give money to a lot of organizations and they wouldn't take it from us because we are in the cannabis industry and it's kind of crazy. You know, we're putting that money, we think, to good use, but there was such a stigma about it.

But I think as this industry evolves, we need to look to increase the diversity in the industry. We need to look for ways to support people that are disenfranchised or have been disenfranchised and bring them into the industry, whether that's minorities, or women, or folks that just haven't had, you know, the opportunity that this industry now is portraying and providing. I'll give you a great example. We have a person that works in our lab. And, you know, she graduated from high school, didn't go to college.

She works on a piece of equipment that's probably worth a quarter of a million dollars. She's heavily involved in formulation work. I mean, she's literally learning how to be a scientist here. And if it wasn't for this industry, I don't know that she'd have had that opportunity. And so, I take great pride in the fact that we're trying to empower and grow people and bring other people into an industry that deserve to be here.

But I also have a focus on the bottom line and we need to make money because if we don't ultimately make money, then we're not able to support that more altruistic side or, you know, positive human side of what we're growing. So, that's probably something that some people would disagree with me on that you can serve both masters, but I think you can.

Mathew: Now, is there something that's not taught in school or you didn't learn in school but learning it has added huge value to you personally and professionally?

Chuck: Oh, for sure. There has never been... I went to graduate school and all through all of my education, even including that, there was never a course or a chapter of a book that said, "Never give up even though you know that the end is near." And I will tell you, I've personally stared in the abyss many, many times. Part of that is from being an entrepreneur. You know, sometimes things don't work out and you've got to figure it out. And even in this industry, I mean, it's been such a difficult industry for many with the regulatory changes, and the high taxation, and the lack of access to capital and all of those things.

But, you know, if you give up, then you actually don't get a chance to ultimately succeed on all the hard work that you put in. And so, I would say that, you know, I never was taught that, you know, you could just power your way through things. I had to learn that. And I would suggest to anybody, you know, when it looks darkest, just give it one more chance because there's a good opportunity you'll crack through and it'll be dawn on the other side.

Mathew: Well, Chuck, I also wanna give you a thank you because a lot of people don't know all the help you've given the industry at Dixie because when I've gone through on tours, there's been regulators, politicians, and people that are in key decision-making roles. And Dixie has kind of opened up and said, "Come through. Do a tour," and, you know, taken away a lot of the stigma and the worry that these lawmakers have. And that has really lifted the tide for all boats. And a lot of us are riding that tide and don't even know how we got here. And it's because, you know, behind the scenes, there are people that are trying to help the whole industry. So, thank you very much for that.

Chuck: Matthew, thank you. I really appreciate that. That's means a lot to me and I'm glad that we can play our small part in what we're doing.

Mathew: Chuck, as we close, how can listeners find more about Dixie Brands, and find products, find dispensaries, where the products are available and find your ticker as well?

Chuck: Sure. Well, thanks for that. And, again, thanks for your time and thanks for the thoughtful questions. I really have enjoyed the chance to speak to you today. Dixie is traded on the CSC under D-I-X-I.u. Very soon, we will be listed in the U.S. on the OTC, so just look for that. I can't tell you the exact symbol yet because we're still waiting for final approval. But I hope that's gonna be imminent and that'll make it much easier for folks certainly in the U.S. to trade the stock. Our products are available in the states I mentioned earlier, Colorado, California, Nevada, and Maryland, and soon, Michigan. You can go to dixiebrands.com and then we have store locators on the website as well. So, you can get a lot of information about the company both from an investment and a product standpoint on dixiebrands.com.

Mathew: Well, Chuck, thanks so much for coming on the show today and educating us and good luck to you and Tripp and the whole Dixie team.

Chuck: Thanks very much, Matthew. I appreciate it.

Mathew: 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.

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Have a suggestion for an awesome guest on Canna Insider? Simply send us an email at feedbackatcannainsider.com. We'd love to hear from you. Please do not take any information from Canna Insider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments. Promotional consideration may be provided by select guests, advertisers, or companies featured in Canna Insider.

Lastly, the host or guests on Canna Insider may or may not invest in the companies' entrepreneurs profiled on the show. Please consult your licensed financial adviser before making any investment decisions. Final disclosure to see if you're still paying attention. This little whistle jingle you're listening to will get stuck in your head for the rest of the day. Thanks for listening and look for another Canna Insider episode soon. Take care. Bye-bye.

Oaksterdam University: The Harvard of Cannabis for Entrepreneurs and Growers

dale sky jones oaksterdam university

With the worldwide cannabis market projected to hit $32 billion by 2022, better training and information sharing will be paramount for industry newcomers in the years ahead.

Enter Oaksterdam University, widely known as the Harvard of Cannabis.

Since 2007, Oaksterdam has been the forerunner in providing the highest quality training offered in the cannabis industry and the first institution to address the growing needs of the marijuana movement, from patients to regulators. Such a focus has established Oaksterdam University as the first and only cannabis college with a comprehensive curriculum in cannabis business and horticulture.

In this episode, Oaksterdam Executive Chancellor Dale Sky Jones joins us to share everything the university has to offer for those looking to achieve success in the cannabis industry.

Learn more at https://oaksterdamuniversity.com

Key Takeaways:

  • Dale’s background in the cannabis industry and how she became executive chancellor of Oaksterdam University
  • The crippling federal raid Oaksterdam underwent in 2012 and how Dale took over to ensure the university’s continued success
  • Oaksterdam’s extensive curriculum and how the school determines its core programs and electives
  • How the university’s student population has expanded beyond the U.S. to 40 different countries since it was founded in 2007
  • Oaksterdam’s online versus in-person programs
  • How the university utilizes augmented reality in its courses
  • Examples of students who have gone on to achieve great success in the cannabis industry following their time at Oaksterdam
  • Dale’s advice to those looking to leave behind their current careers and enter the cannabis industry

 

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. With the worldwide market for cannabis expected to hit 32 billion by 2022, one has to wonder, how are we going to educate all the people entering the industry? Here to help us answer that question is Dale Sky Jones, Executive Chancellor of Oaksterdam University. Dale, welcome to CannaInsider.

Dale: Hi there, Matt. Thank you so much for having me on.

Matthew: So great to have you. Give us a sense of geography, where are you in the world today?

Dale: I am in beautiful Oakland, California, in what is known as the Oaksterdam district.

Matthew: Oh, great. And I am in Austin, Texas. Dale...

Dale: Fantastic.

Matthew: ...tell us a little bit about Oaksterdam, background, history, what it is?

Dale: Well, the university itself was actually founded by a Texan. So throwback to where you are. But the original area was founded by Jeff Jones. And this was a 20 plus years ago, harkening back to trying to help the original medical necessity patients, and trying to just educate them on how to be safe with law enforcement encounters, what we call successful law enforcement encounters, as well as just how to grow your own garden. And that has blossomed over a decade plus. We founded an official school in 2007, we've trained over 40,000 students from 40 countries, and we're now online. So we're international.

Matthew: Oh, great. And can you tell a little bit about your personal background and journey and what brought you to become Executive Chancellor of Oaksterdam?

Dale: Well, quite by accident, I must say. It started out just as a volunteer. I was working with doctors in Southern California who were in mainstream medicine and wanted to do medical cannabis recommendations. And they needed someone to help them figure out how. And so it really just started as a business endeavor to help doctors be safe within the guidelines of a very conservative area. In the process, I learned that patients really walked out of the doctor's office into what amounted to a black hole. They weren't allowed to talk about what to consume or how much or where to find it. And so Oaksterdam University was really a passion project based on education, which is where I come from in corporate America, was as a corporate trainer. I think I always had that hankering to be a teacher. And then when I got old enough, I realized that it wasn't feasible, but never did I imagine running a pot college as [inaudible [00:02:52], I must admit.

But it started with Pot 19 [SP]. This was the blueprint to legalize cannabis. It was the first statewide initiative and we certainly bit off more than we could chew with California to start. But I was a pregnant woman talking about legalizing cannabis, and talking about putting family first and putting an end to the criminalization. And this is where it became a moral imperative. It wasn't just about patients trying to access their medicine, which in and of itself felt like a pretty important thing to work on. But it was also about the criminalization and specifically of our youth, of people of color, that this is actually the most important civil rights revolution of our time. And so I realized that my little sliver of trying to save the world was actually through cannabis policy reform. And I became an accidental spokeswoman for this campaign because I was first a teacher on the subject, and it was my students asking really good questions in my science class, of why and how, that I had to get pretty quick and short to the point for Fox News. And here I am now a decade later, after a rather horrid federal raid in 2012, I wound up taking over the school and expanding it from there.

Matthew: Can you just talk about that raid a little bit, because I remember reading about it and hearing about it, but just give listeners an idea of what happened, what it was all about?

Dale: Sure. Well, based on the segue from the political events that we triggered, we basically took money from cannabis, both the campus college, and the dispensary that our founder had and put it into politics. And so the Fed didn't like that very much. And in 2012, on April 2nd, we were visited by four different federal agencies. They took everything but the office furniture that day, and our founder was forcibly retired. And each of the employees that were longest serving in each of the businesses, myself in the school, another individual, Tim, took over the dispensary, and a third took over the gift shop. Eventually, I wound up rescuing the gift shop and the museum in addition to the school, and Tim, actually, recently just passed.

Matthew: I'm sorry to hear that.

Dale: Yeah, we also lost Big Mike this year, who was our horticulture technician, our lead hort tech for a decade. So it's been a tough year but our founder still meets me for lunch every month, at least I drag him out and he still signs wet ink signature on every certification that our students earn.

Matthew: Oh, great.

Dale: Yeah, he's still Professor Emeritus. He's still around, but he gets to spend more time with his mom in Texas. And in the meantime, you know, we've really had to just bootstrap it. You know, when they take everything but the office furniture, they take all your records too. So even if I had wanted to attract funding at the time, I couldn't have. And so now we're poised with some really exciting legacy projects. As I mentioned, we just went online. Our horticulture program is already available so it's easy to take from anywhere in your underwear at 2:00 in morning if you like. Although, if you do come to campus, we do require pants, and you can take it in one of two different ways. We have two different programs, a canna-business program, which starts out with all the basics that you really need to understand. We do have prerequisites and this is part of our moral imperative. We teach you what you need to know before we teach you what you want to know. And this is something that a lot of folks don't understand that's been carefully crafted based on our student body and their needs over the decade-plus that we've been doing this and the 150 plus faculty that contribute to the curriculum each and every week. We're having new updates and new additions, whether it be electives or core programs.

The second program is horticulture. And this is where we've really discovered those folks that just, you know, court hort and more hort. Well, we force legal upon you, because you have to know what not to do. But once we teach you what not to do, we teach you how to be compliant. And then we go on a deep dive with horticulture. And we just recently added an additional seminar option so that you can even take outdoor horticulture in a five-day "weekend," it's really a work week so to speak, where you can get hands on. And this is the only place in the world where you can plant a seed or harvest a plant from start to finish, and if you pass all your examinations, you will receive a certification.

Matthew: And how do you arrive at what exactly is needed, and then electives for what's wanted? Do you talk to businesses, kind of the ecosystem and say, "Hey, what exactly do you need?" Or are they coming to you and telling you? How does that work?

Dale: Yes, yes, and yes. We have a multitude of different ways that we determine our curriculum. And first and foremost, we speak to the regulators. One of the things that we started doing first was training those that regulate us. We actually received an award back in 2009 from the city of Oakland for teaching them how to tax cannabis. And then we went on to teach the second largest tax collection agency in the world, the Board of Equalization for two intensive days of training. So I joke with my students, you're welcome. I taught them how to audit you. But the thing is, is I taught them how to audit you in a way that doesn't put you at risk. We taught them about open book audit, so that they can go and learn the information that they need without taking copies that can then be subpoenaed and used against you in a federal court of law.

So there are ways to interact with the cannabis industry that's not only fair, but safe for all players. Such as, you know, which glasses to wear if you walk into a grow room? Where are the pinch points where you can either divert product or money or invert product or money? Inversion is just as concerning and bringing in black market product that perhaps hasn't been tested. So it's also who's regulating you from The Department of Health in the State of Florida or Maryland State, or we're talking with Jamaica, various government entities, as well as, of course, California entities up and down the state from municipal to the BCC and above, we worked on the Blue Ribbon Commission. And so part of it is also working with our law enforcement partners, working with our community partners or municipal partners to understand what's most important for the public health and safety and the public trust that we've developed. And of course businesses. Some of our most exciting success stories are the businesses that then come back and even teach for us and help us develop new curriculum. I get cream of the crop here.

And so I invite people to dip into the cool clear waters of Oaksterdam, because these are the students that have self-selected to be the best. And then they get to network with one another as well as the instructors that are often inherent in writing the very laws that they operate under.

Matthew: And where are most of the students from?

Dale: Pick a state, any state. I mentioned earlier, it's 40 different countries now are represented with Oaksterdam University. And so what I've learned, everywhere I go, man, and this is what just...it blows me away and I invite...I hope people, when they see me out about, come up and say, "Hi," and tell me what you've been up to. Because every time I walk into a room, any room, a conference room, a business room, an advocacy event, a patient event, somebody who's working on changing the law to somebody who's working just to pull up her own bootstraps at an equity event, a third of that room is Oaksterdam University alum. And it blows my mind. And this is what I charge them with is you need to now go back and change the world in your neck of the woods, because all politics is local, it starts with your city council. And I charge them with showing up, showing up to vote, showing up to be involved in their local community events. I charge them with leaving their community better than they found it.

And to ensure that they continue to advocate not only for the cannabis industry because we are all in the same boat together, and a hole on your side of the ship or my side of the ship, we all sink together, it's not your problem or mine. And we have to practice that collaborative competition, that we're all still focused on descheduling. At the same time, we're focused on figuring out our next business plan, because you can just put it in the shredder if we have this go the wrong way. Right now, 2EDE is something that affects us all. And so there are certain things we can agree on to advocate for. And I charge my students with doing that. And I think if we just demand that of one another. I ask people, before I go into business with them, are we intellectually aligned? Are we gonna help leave it better than we found it as we make money? Can we save the world? The answer is yes. And we can demand that of each other in this industry. We can demand more of one another and only do business with one another when we are intellectually aligned. And I think demanding that of one another is something that we can do to actually raise...not only raise the industry up, but advance the industry's needs as well as those of the patients that we serve.

Matthew: Now, can you give some color and context around some of the differences between the online learning and the in-person learning? I know you mentioned, you know, you have that five-day program where you can go on, plant a seed and so forth. But in what other ways does the online different from the in-person?

Dale: Well, and I also wanna mention for in-person, you have an option for semester where you're coming for 14 weeks and every week you come and you get more comprehensive training, additional horticulture if you're in the business program, additional horticulture if you're in the horticulture program. Now, the online learning, of course, you don't have the same hands-on experience with the cannabis plant that you would coming to the campus, but we also realized that it's expensive. In fact, it's more expensive to come to campus than it is to take the classes.

And so for people that are in a state, even where cannabis is not legal, you can still work with basil or rosemary or lavender and experiment and practice with things like manual extractions or, you know, planting any seed, because ultimately, you can learn how to pH water and understand the concepts of nutrients and practice this in a way that you can apply it to a work environment. If let's say, you're trying to figure this out while you live, you know, in Vermont, but you're planning on moving to another state where you're trying to get a job, you can still do a lot of these things. And one of the focuses that we have moving into 2020 that we're gonna be working on this year is augmented reality. Additional ways that we can have not just information but also infotainment. You know, we have to keep it fun.

I've been very impressed with the feedback that we've gotten from our online students. I've had some students take a couple of months to finish the course within the course of their normal lives and the responsibilities, their children and their other jobs. And I have...it blew my mind, I had people sit down and crunch it out over a weekend. But the response has been really fantastic, whether it's online or in-person. We have instructors and facilitators and student services that are willing and interested in...sorry about that, that are willing and interested in helping students to the next step.

And I wanna point out that regardless of whether or not you take Oaksterdam University at a seminar in Las Vegas, on campus in Oakland, or online from Italy, that when you do make it to Oakland, you're always one of our alum. Whether or not you even graduate, we wanna hear back from you. We wanna understand what you're doing with your education and how we can take the next steps with you.

Matthew: I've always thought that augmented and virtual reality have a real place in education, but just wondering how that's gonna come about exactly. I mean, how do you visualize something like that happening with like an Oculus Rift or something like that? Or how does that work?

Dale: Well, you know, there's a couple different things that we've looked into. And, you know, you can even look to these cardboard where you fit your phone...Yeah, really relatively inexpensive. There's different ways that you can use your phone to...then we've actually looked into virtual reality first. And notice I didn't say that, that that's something that I'm working on because I found that it might be prohibitively expensive, and part of what we try to do is keep our education accessible to as many people as possible and we found that just the production cost alone doesn't seem to offer the same return on investment that augmented reality is. Now, augmented reality is gonna have its place, and it's not gonna be every place. It's best when we're talking about things like machinery, when we're talking about specificity and repetition, because these are things that the augmented reality can help you with. It can also superimpose parts of the cannabis plant over what it's supposed to look like or what you're trying to do, whether it be detailed trimming activities, manicure and things along those lines, there's different ways that we might be able to do that.

And I think that there's also something to be said for visual learners. So maybe there's a different way that we can approach genetics that is not just your straight, you know, reading from a paragraph, and that I think is also really key with what we've tried to do with our online. This is not just dude on a whiteboard. This is professionals that we've hired from the world of academia that are taking subject matter experts who aren't necessarily, you know, trained professors in student learning outcomes, but these academics are. And we're finding ways to convert this information in ways that's not only applicable but retainable. The question that I ask my team all the time is, "What are our students gonna do with this?" This has to be actionable information. I don't just want them to have to come back to me over and over again, to figure something out. I wanna bridge them to the source so that folks can figure it out for themselves. That's truly teaching people how to fish, yeah? Or grow.

Matthew: And I wanted to kind of explain for people the difference between virtual reality and augmented reality. So virtual reality is a totally digital world that's fictional to some extent. You might be teaching something but doesn't exist in reality, whereas augmented reality, you actually have maybe transparent or semi-transparent glasses and you're looking at reality, maybe a real plant and then there's an overlay that's describing things about that actual real physical object or objects. Is that...how do you explain it, Dale?

Dale: Well done, Matt. And I would say that in application, let's say that you are working with a complicated extraction machine and you have a new employee. And that's a million dollar machine. You can have that employee put on a specialized set of goggles, where the augmented reality overlays a map of that machine and is training them step-by-step. And look, pilots and doctors, the people that we entrust with lives are the ones that use checklists. Yeah, so I think that there's also best practices, real-world practices. And this is what excites me most about our student-base. You asked, who are my students? Everyone. We have from 18 to 96-year-old graduates. They come as masters of their own universe, whether it's real estate agents, or teachers or firefighters or retired law enforcement officers. We have colored priests sitting next to nurses and doctors. I have MIT graduates and literal rocket scientists and heart surgeons sitting next to people that never graduated high school, because they were criminalized for actually being good at something that used to not be okay. We just changed cannabis from being contraband to commodity. And I believe very strongly that Oaksterdam was who ignited the debate.

Matthew: Yeah. Now, can you tell me what some of the most popular courses are right now? I'm sure that changes over time, but what are students asking for?

Dale: Right now, I would say that one of the...the two big ones are outdoor. We used to teach outdoor cultivation for a long time. And then all of a sudden, it was banned everywhere. And so we kept it in our semester course, but pretty much stripped it out everywhere else because we found out the students just didn't show up. They're like, "I can't grow outdoors, and why bother?" So all of a sudden, outdoor is allowed, thank goodness. I've been having this discussion on policy for ages, because I've had, for instance, regulator say, "Oh, well for a 'green industry,' you people sure are not, you know, carbon footprint sensitive," right? Well, for one thing, they're comparing illegal growers, you know, stealing public lands, who are just trying to pop off the largest harvest they can and then get the hell out. You know, so they're not worried about how many fish they kill, or pesticides they use. They're trying to get the best biggest bud.

Now, when you put them next to somebody who's trying to achieve a permit, you're talking about two entirely different people, but under prohibition, they're both the bad guy. So now under permitting, we're finally allowed to differentiate somebody who's doing it well and even give them points on their license when it comes to things like green practices, gray water reclamation or solar or just plain outdoor growing. This is a crop for goodness sake, you know, it's just a leafy green theory, likes the sun.

And I would also point out scientifically, you're gonna get a slightly better crop, because part of just even teach sea production, for example, you know, this plant is producing THC to repel insects as a sun-protected and an insect repellent. It's anti-bacterial, anti-microbial. So the more hardy that that plant has to be, the more it's going to produce in order to respond to environmental events. So I would say that we're starting to get there with LED technology, and that's, you know, part of their research and development that's fun and exciting.

The other thing that's really in demand right now is extraction. And we just added actually an advanced extraction class here on campus that we're working on promulgating online as well. So I'd say extraction and outdoor are the two that have been most exciting for us to work on new projects. And then, of course, the dredge is compliance. You know, we started teaching people how to operate safely and responsibly in the gray area. Now, we're having to teach them how to be compliant. So it's a bit different concept. But, you know, it's remarkable to realize, too, the differences, because we have some people say, coming from Texas where it's not legal yet. And then we have other people coming from Colorado where, you know, been there, done that. So it's having to keep everyone on their toes simultaneously when they're sitting side-by-side has been some of the greatest challenge. But taking the best practices from these folks and the knowledge that they bring, whether, like I said, it's a chef or a medical professional, they're making our industry better.

Matthew: Now, how can students successfully leverage their training at Oaksterdam into careers? Have you seen or do you have some examples of students that have successfully built that bridge and now are kind of in a zone of excellence that you could highlight?

Dale: Sure. And, you know, some of our students are investors who are making sure that they're not, you know, using what I call damn money, you know, they're putting their money on something that they don't really understand. They don't understand how to mitigate their own risks. And they've gone on now to, you know, conquer whether it's various aspects of a region in capturing multiple licenses and vertical integration all the way through training their staffs. I think what's most exciting for me to watch is the equity applicants. We have a lot of scholarships that we give out to both veterans and equity applicants, and watching them come in and just finally be put on the same footing and receive that same education. I've had students with resumes on, you know, Indeed or one of the...you know, monster.com for months and months trying to find a job. And then they come through our classes and they just add two words, Oaksterdam graduate, and all of a sudden, bam, job offers.

And so it's as simple sometimes as networking with one of the instructors that also happens to be usually either a business owner or a professional, you know, whether it be an attorney or CPA, you know, we try to put the experts of each particular subject matter in front of you. And oftentimes, they're hiring. We also have job boards, and we are about to launch Oaksterdam Business Association. So there's ways whether you are a small business trying to network with other businesses and just get a realistic good deal on insurance. Which on a side note, Matt, professional services that have been just taking advantage of the cannabis industry have been pissing me off for entirely too long. So I'm finally doing something about it. And using those 40,000 students as leverage to say we demand better, we demand better service, we demand better deals. And I know for me, insurance is our second line item every month. And so if I can get a better deal on insurance, that means I can pay my employees better, getting better quality health benefits, do other kind of flex spending plans or just even offer a vacation.

Matthew: Yeah. And do you see a lot of students from other industries or buckets of industries where you say, "Wow, that's kind of a lot of students that are coming from this other industry? That's like, at least, you know, a light bulb goes off in your head, like, "That's a pretty big chunk." Do you see that or is it just totally diverse?

Dale: It's pretty diverse. I would have to stretch to say that there's one over another. I will say that I've noticed one giant trend and that's the overarching what the students are doing with it in the sense of the first couple years, they were all patients. They were people just trying to figure out how to obtain their medicine or how to cultivate their medicine and how to do it safely and responsibly. And then all of a sudden, dispensary started popping up. And then it was, well, how do I get a job to a dispensary? And so we started training, you know, budtenders and then procurement and allocation, you know, which cannabis? And, you know, I joke, it used to be magic marijuana because the only thing we were regulating where the storefronts, but the growers were trying to figure out the extractors, the folks trying to make edibles or topicals.

And so we started to specialize in teaching people how to specialize. And then we had an investor class pop up and that didn't exist prior to, I would say, 2011 at all. And then poof, they disappeared. And then bam, they came back and then poof, they disappeared and bam, they're back with Canada. So it's been more observing the waves of investors and people wanting to start, own, become entrepreneurs versus people that are just flat out trying to get a job or start a career, versus those who are just DIY. Like, you know, I can do it myself, I grow my own tomatoes, I can do this too.

And one of the ways that people can interact with us is also with our affiliate program. If you have any one of these things, especially if you're an advocacy organization, anyone that purchases an online class through your link, we not only give you 50 bucks, we donate a matching 50 bucks to the nonprofit of your choice. And so if you're a nonprofit, that's 100 bucks every time you help somebody take an online class through us. And that's a way that you can actually fund your own nonprofit activities, whether they be political or advocacy to help patients or just, you know, your local YMCA.

Matthew: Yeah, that's great. And for listeners that are considering getting a certification but they're a little bit nervous about transitioning from a, you know, "safe career," can you offer any words of encouragement or talk about how some people make that transition, and it's not quite as scary as they might think?

Dale: Absolutely. Well, first and foremost, we are just good old fashioned first amendment organization, education is legal, knowledge is legal. And so whatever it is that you do here with Oaksterdam, not only do we honor your privacy, but you can come learn amongst like-minded individuals that are actually very similar to yourself. And so it's kind of nice, realizing that you're not alone, that there are other people out there that share the same interests as you and that you can not only bond with them, but work with them, whether it's, you know, for fun, for free, or as something that you're building towards a career. The other thing that you can find when you network are opportunities you never even thought of, and this was, you know, I joke that it was just a failure of my own imagination, as a young girl that I didn't imagine myself as running a pot college as a grown woman with a family of three kids. It never occurred to me that this is where I would be, but I couldn't be happier. And it's because I found myself doing what I was passionate about. And I didn't know what I didn't know until I got here.

And I realized that I spent my entire life preparing myself for this very expertise that I never could have imagined myself being so good at, and I would invite anybody else to try that too. You know, valor is not the absence of fear, it's what you do in the face of it.

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

Dale: I struggled with this question, Matt, because there are three books and I can't pick my favorite. So my favorite personal development books is "How to Win Friends and Influence People." And I'm talking the throwback from the field.

Matthew: Yeah, I read it. I know what you're talking about.

Dale: [Crosstalk 00:30:06] not even the new one. I don't even like the new one. I'm talking the classics here. This is something...you know, cliché is cliché for a reason. And it's just a new...it's a different way to think. And I first read this book as a teenager, and I wound up...I read it every time I'm on the plane, of course, now with three kids. I have it on the little audible because I can't...you know, if I look at a book, a kid will fall off the table. So I, you know, read it differently now, but you have to remind yourself of some of these good habits and "How to Win Friends and Influence People" is just simply a good way to live your life in a way that everybody wins. It's not a...life is not a zero-sum game.

The second book that really I think shaped my sense of humor, and is my fun place is "Hitchhiker's Guide to the Galaxy," and, frankly, anything from Douglas Adams. And those of you that have read it will just simply understand, and, you know, ultimately just don't panic. The third book, well, really anything by J. R. R. Tolkien. I lived in the world of "The Hobbit" and "The Lord of the Rings." And I think at a certain point, you know, fantasy and being in love with fictional characters when you're 12 instead of real people is maybe a good thing. So maybe diversity is also the name of the game, is just read a lot. I fear the man that only read one book. I look forward to conversing with the one that's read many. I think there's a quote about that.

Matthew: How about a tool? Is there a tool that you consider vital to your productivity or your team's productivity that you'd like to share?

Dale: My team uses two tools religiously. One is the Google Suite, just Google Docs, I discovered working on policy to have a lot of disparate people work simultaneously on one document once you get over the feeling that somebody is watching everything. The other tool we started using this year that I'll share my team has really enjoyed is called Asana, A-S-A-N-A. And it's a productivity tool that we use to keep people on track, on production, and on task.

Matthew: And I have a Peter Thiel question for you. And that is what important truth do very few people agree with you on?

Dale: This is the toughest question I think I've ever had anyone ask me that. And it's evil and wicked because I'm one of those folks that will talk you into thinking like I think. So if you don't agree with me on the face, you will by the time I'm done with you. I would say two things, once more, because I can't just stick with one. I would say recreational. It's a word that I battle all the time. And words are really powerful. And now that I have three kids, and I am a soccer mom, I realized that when you call cannabis recreational, moms think of their eight-year-olds and then it freaks them out and they vote no. And so, I shout from the mountain-top, especially towards like Colorado, please stop saying recreational, because you're freaking out the soccer moms and I don't want this to sound fun for kids. This is not what this is about. We have a responsibility as an industry.

The second is my philosophy towards life that, you know, like my CFO, will cringe at me when I say it out loud, but it's worked for me so far. You set out for success, you prepare for the worst, and then you wing it.

Matthew: Okay, that's good. That's good. I like that. You've got a little bit of yin and yang both in there. So makes sense.

Dale: Yeah, you just got to find your guard rails and then hope for the best. And sometimes you're surprised by what you don't expect. And you have to make sure that you're open to that too.

Matthew: Well, Dale, thanks so much for coming on the show and educating us. Can you tell listeners how they can learn more about Oaksterdam and connect with Oaksterdam?

Dale: Certainly. I'm hoping that anyone can just simply go to oaksterdam.com. Now, Oaksterdam is an amalgam of Oakland and Amsterdam. These are the first two cities to not only legalize but regulate the sales of cannabis. So oaksterdam.com. And you can find us on Facebook, Instagram, and Twitter. You can #Oaksterdam and of course, we are @Oaksterdam or @OaksterdamUniversity.

Matthew: Great, thank you, Dale, for coming on the show today.

Dale: Thank you, Matt, so much, and I do hope that listeners will check us out. You can actually take a free sample class online. Anyone can do it, you just give us your email address. And you can take a class by yourself, check it out, see how you feel. And hopefully, we will see you soon, if not here, at an event upcoming.

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 email at feedback at cannainsider.com. We'd love to hear from you. Please do not take any information from CannaInsider or its guest as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments.

Breakthrough: Hemp Oil Extracted Using Only Air

russell thomas vapor distilled

Extraction is considered the most profitable segment of the cannabis industry, but what if we’ve been thinking about extraction all wrong?

Is it really necessary to use large CO2 or butane extraction systems when there’s a way to extract oil from hemp and cannabis using just air?

In this episode, Vapor Distilled Founder and CEO Russell Thomas explains how this revolutionary, all-natural extraction method produces stronger, ultra-pure oil.

Learn more at http://www.vapordistilled.com

Key Takeaways:

  • Russell’s background in the cannabis industry and how he came to start Vapor Distilled
  • What constitutes “cleantech” or clean technology
  • A deep dive into traditional extraction methods, including CO2 and hydrocarbon systems
  • How the Vapor Distillation process uses heated air and a proprietary condensation method
  • The evolution of Vapor Distilled and what it took to turn it into a large-scale, commercial product
  • Consumer responses to the ultra-pure taste of Vapor Distilled oils
  • Vapor Distilled’s cost efficiency versus that of traditional methods
  • The future of Vapor Distilled and its all-natural extraction method

Read Full Transcript

Extraction is considered the most profitable segment of the cannabis industry that touches the planet. But what if the way we've been thinking about extraction is all wrong? Do we need to use large CO2 or butane extraction systems when there was a way to extract oil from hemp and cannabis using just air? Here to tell us about it is Russell Thomas, Founder and CEO of Vapor Distilled. Russell, welcome to CannaInsider.

Russell: Thank you, Matthew. Excited to be here.

Matthew: Give us a sense of geography, where are you in the world today?

Russell: I am in Boulder, Colorado.

Matthew: Great, and I am in Austin, Texas. Russell, what is Vapor Distilled at a high level?

Russell: So at a high level, we're a cannabis technology company. And we're the only company in the world to develop a process where we extract cannabis using only heated air. We also are the only company in the world to develop a process where we can activate cannabinoids to where they're usable by the body in less than two seconds. Usually, that process takes 45 minutes to several hours.

Matthew: Wow. Okay. And Russell, can you tell us more about your background and journey and how you came to start Vapor Distilled?

Russell: So I came from the cleantech industry originally. I went to MIT and I dropped out to develop a gasoline engine that had the fuel economy of a hybrid with the torque and power of a diesel. So this was a very small engine with very, very high horsepower and yet it was also fuel efficient. We had 40 patents in that company, some of the brightest minds in the industry. One of the founders of the Carlyle Group, we had an inventor of a Honda VTEC, former president of Chevron Russia, former governor on our board, CEO of a major automotive company, automotive supply company up in Michigan. So it was a very exciting business.

And after I exited that company, I was looking at the cannabis industry growing up around me here in Colorado, and just kind of saw pretty quickly that the pinch point of that whole industry was centered around extraction, you know, started to kind of look at what you take cannabis and extract that into an oil, it's something that can, you know, retail, at least at the time, for more than gold. And so, had to be something special about that, that type of a point.

And so looked at the other technologies being used to extract. They're very chemical intensive, use hydrocarbons, you know, propane, hexane, butane, or they used CO2, which was cleaner, you know, and healthier for people to consume, but just didn't really taste that good and very slow, very expensive processes. And so, you know, everybody already knew about vaporizing, you know, it's the cleanest, safest, healthiest way to consume cannabis. And, you know, started thinking, "What if you could take that vapor and condense that directly back into a concentrate and use that as a method to extract?" And so came up with a few ideas.

My wife and I, we're in this together, put everything we had, built a 1200-pound machine actually in our living room, but we never broke any laws. That was one of the things we did from the beginning, we wanted to do everything by the book. So built this machine in there over a period of about a year, you know, did the test work in the house using rosemary. So went down to Whole Foods and just emptied out their entire bulk isle of rosemary, you know, several times a week actually. So I'm sure they thought there was something bizarre going on with a...

Matthew: It probably smelled great.

Russell: Oh gosh, the house was...the neighbors knew something was up, especially when you turn this thing on and the lights would dim, literally, because it's 12,000 watts. We had our stove slid out in our kitchen with a giant marine power cable going, you know, out of the kitchen, over the counter, into this machine in the living room. But yeah, that's kind of where we started with this. And it's just been a journey ever since.

Matthew: What a conversation piece to have a 1200-pound machine in your living room.

Russell: Well, we tried to not have anybody see it while it was there for a while. Too many questions, you know, but rolled it out silently in the night and never brought it back in the house, and did all of our testing for actual cannabis outside of the house and around Denver in different, you know, legal facilities. So it was fun.

Matthew: So can you just give listeners a background of what cleantech means exactly?

Russell: Yeah. So, cleantech is, you know, kind of the industry of, you know, different kind of fuel-saving technologies, cleaner engines, cleaner cars, you know, solar is cleantech. So, you know, not necessarily automotive, but just kind of this industry of, you know, saving energy, I guess is the best way to say it.

Matthew: Yeah. And what do you think like in terms of alternative automobiles, vehicles? Do you think we should be doing more hydrogen or liquid natural gas? I mean, obviously electric has got a lot of upside and we're seeing that kind of built out right now too, but what about the other kinds of cleantech?

Russell: So, you know, not to dwell on electric but, you know, I think that the engine is dead, you know. And this is a person who invented an engine and put, you know, the earliest part of his life and everything into it, never thought I'd actually say that. But I think that battery technology is getting so much better so quickly, you know. The amount of power and acceleration you get out of these electric cars and, you know, more and more, we're gonna see more infrastructure, you know, available to charge. I really think that's where it's going.

The hydrogen fuel cell technologies are just so expensive. They haven't really gotten to the point that they could make it into the mass market, you know, hybrids you know, they definitely are great because you don't need to hunt down a plug. But again, batteries are just getting so much better. I think if you fast forward 10, 20 years, everything will be electric, and as I think we all know, we probably won't be driving cars anymore. They'll be picking us up when we hail them. May not even need to own them, you just buy a share.

Matthew: I'm looking forward to that.

Russell: Yeah, definitely, it'll be fun.

Matthew: Well, let's kind of paint a picture here of what traditional extraction methods look like so people can get a foundation for the way most extraction is being done. Can you kind of describe how traditional extraction occurs and what that looks like?

Russell: So traditional extraction, at least the commercially viable, you know, scalable versions of it, they all center around solvent extraction, and there's really two flavors of that. There's your hydrocarbon, you know, based solvents like butane, hexane, propane. There's CO2, which is, you know, actually a gas, but when you compress it, it becomes a solvent. It can dissolve cannabinoids. And then you have also, you know, ethanol extraction, which is another, you know, solvent. And so with hydrocarbons, you can get a great tasting oil. It's a very efficient process, you can get good yields with it, but you can't really call it organic.

You know, if you really, really do it right, you can get a good extract. But most companies cut some corners. They don't use pure hydrocarbons. And so you have kind of nasty chemicals that can get in the abstract and we still don't know entirely, you know, how bad health consequences could be from those. With CO2, you can definitely, you know, make a safe extract for consumption, and it's also safer to do the extraction because you don't have the same, you know, fire risk that you do with hydrocarbons, but they just don't taste very good. You know, they end up having a little bit of a sour kind of bitter taste, and the process is usually pretty slow, and the equipment is very expensive.

Ethanol extraction, you can do that organically. It still is a flammable liquid, but it's a lot safer than, you know, hydrocarbons, but you tend to get...you pick up chlorophyll and other things that come along. Ethanol doesn't just dissolve oils, it dissolves water-soluble compounds in the plant as well. It can make your extract taste very grassy, kind of bitter, kind of like you're eating a plant. So that's kind of the traditional methods that are out there, and all of them can be, you know, you always have a consumable. You have a solvent that you're using, that you have to replenish, you have to purchase.

Matthew: Okay. And now describe the way that you do it with just air, which seems futuristic to me, and I wanna understand this better?

Russell: So I mean, in its simplest form, you know, you're taking plant material and you're driving heated air through it. And that heated air is at a temperature that's just high enough to essentially distill the cannabinoids directly off of the plant material. You know, that in itself is not that new. You know, if you've ever bought a personal cannabis vaporizer, that's how it works, you know, you're driving air through plant material. But, you know, the hard part is taking that vapor after you've removed it from the plant material and recondensing that in a concentrate quickly and effectively where you're not damaging the oil, you're not losing the vapor. That's the hard part. And that's really what most of our technology centers around, is recapturing that vapor.

Matthew: Okay, so instead of a solvent, it's heated air. Is there any other part of the process that looks different at all or any other way you'd describe that?

Russell: Yeah, so I mean, I guess that's a simplest, you know, way it works. But these machines are actually, you know, really large, you know, scale commercial continuous feed machines. So, you know, you have on the side of the machine is you have a big giant hopper, you fill that hopper with ground cannabis. And inside the machine, you have this hot, fast-moving air stream. And so that hopper, it starts to...it has an arder [SP] at the bottom, it feeds, you know, essentially, powdered cannabis material. We actually grind down a powder into a fast, hot, moving air stream. And pretty much the second that that plant material hits that air stream, it starts to distill the cannabinoids out.

So you have this air stream with, you know, cannabis vapor with plant material, and there, you know, moving through this machine, we separate that plant material out of that air stream and there's just this big giant receptacle area where the spot [SP] plant material goes, and then that air with the vapor in it continues on to the back of our machine and it gets condensed directly back into a concentrate. And this is continuous, it just keeps on going. So one of the things that's very special about this is even though it's continuous, if you look at the actual period of time that it takes for us to extract, it's less than two seconds. So from the time that cannabis material hits that air stream to the time that it's condensed in a concentrate is less than a two second period in time.

And during that time, we've also developed techniques to ensure that it gets fully activated so we call it flash extraction and it actually...so for those of us that are in the cannabis industry, we're very familiar with that but, you know, the need to activate the cannabis before you consume it. For those of us that aren't, you know, the THC and the CBD that have the therapeutic effects in cannabis, they come in an acid form in the plant, so you have THCA in the plant you have cannabidiolic acid in the plant. They don't really do much for you.

To make them usable by the body, you have to heat them for a period of time. That process normally takes with conventional extraction 45 minutes to several hours. You're either taking plant material, you're putting in an oven at a controlled temperature for quite a long period of time to heat activate it, or you're taking oil that's been extracted with another method and your heating that oil for a long period of time. And the unfortunate thing about that oil, when you activate it, is the temperatures required to activate it also are hot enough to actually break down some of the cannabinoids, it breaks down the turpenes, the flavonoids, other beneficial compounds in the oil.

And not only do you lose some of the efficacy of the product when you do that, you also get a rather offensive taste. It starts to taste very bitter, very nasty, for lack of a better description. Because we're doing this in literally less than a two-second period, extraction, activation, condensation, you end up with an oil that is not only, you know, more effective, it tastes much better than other products.

Matthew: Yeah, definitely the taste is there. You were kind enough to send me some samples and it does taste very clean and totally different than a lot of oils I've tasted. So, now how much tinkering and planning and iteration does it take to get to this point where you have this working process?

Russell: Gosh, it was a lot of work, you know. So really, I kind of skipped over, before the machine in the living room, there was one in the kitchen that was smaller. And from the initial proof of concept, which, you know, worked surprisingly well, I thought it was gonna be easy, you know. We did the first test and it was just a perfect oil that came out of it. Taking that from a small scale experiment to a large scale commercial machine was just a gulf of work, and I don't know how to say it any better. I'm really, really glad I didn't know how hard it would be before I started.

Matthew: Common thing I hear from entrepreneurs, including myself, is like, "Wow, I'm glad to know what this would take." But you got [crosstalk [00:15:10]...

Russell: Yeah, and aren't we glad?

Matthew: Yeah. A little bit naive and optimistic, you need that as the fuel.

Russell: Yeah, you know, you gotta love what you're doing on the journey though, because, you know, it's always gonna be a marathon. And if you're not enjoying the journey, itself you're just not gonna have, you know, the staying power to stay in it. But yeah, it was several years, thousands and thousands of hours of experimenting and, you know, different generations of machines to get it right. It really for economies of scale, for cost of production to go down, to have everything come together, we really needed that continuous feed system and that's when the technology really, really took off for us. And we've done, you know, tens of thousands of pounds of hemp, is what we've done most of our RND and testing on. So yeah, it's a process, always is.

Matthew: And we talked a little bit about the oil and how it tastes, right? And I mentioned my personal experience, but what are most people saying when you hand it to them for the first time and they're using it as a tincture and they taste it, what's kind of their reaction?

Russell: I mean, at risk of sounding like I'm trying to, you know, promote our own products, usually the first impression people give is, "Wow," you know, their eyebrows go up and they're like, "Wow, that actually tastes good." And the reason I guess that's unique is most full spectrum oils, because they all have to have that activation step, that decarboxylization step to make them available to the body, they just don't taste good. They almost all taste planty, they taste sour, they taste bitter. And this oil, it's like a hazelnut kind of sweet, nutty kind of molasses flavored oil. So it actually tastes good, and that is not normal of full spectrum oil.

Matthew: That's true, that is true. You kind of learn to tolerate the kind of grass clippings taste, but I definitely enjoyed not having to experience that. And this is kind of a strange question, but how come nobody's thought of this process before? I mean, does this type of...is there something similar from another industry that you drew on here? You know, how come no one else is thinking about? Is there like a herd mentality? Or is this just, you know, a thought from outer space that entered your mind? I mean, how did this...I mean, I'm just trying to think how, how did this happen?

Russell: So I think a lot of people were really approaching this more as a chemistry question. I came from the cleantech industry, you know, I've done a lot of work on efficient engine technologies, making engines run cleaner. So I really was looking more at, you know, how do you capture something out of air, you know? And so I think I just came at it from a different angle, more of a mechanical angle than a chemistry angle. But, you know, like I said, I mean, vaporizing something, you know, driving air through a material to volatize out, you know, the essential oils and compounds, that's not new. Being able to capture that out of a moving air stream, that is very new.

Matthew: Yeah, yeah.

Russell: And we actually have right now, we just went past 39 patents, or just got to 39 patients. We actually have an in-house patent attorney now because we're so IP-centric with what we do. And so, we have several patents around the core technology to actually...you know, this flash extraction, vapor extraction technique itself, we have that from the machines that do it to several different versions of that, the methods to do it, many patents on the chemistry. We also have a very, very exciting water-soluble compound that we're creating that is super stable forever. It's been a real challenge for the industry as well. So we do have a PhD chemist in-house as well who's also our patent attorney. So we're very aggressive in that IP space. You know, really, again, at our core, we are a technology company. Our first technology just happens to be this extraction technology.

Matthew: And how much is the cost per gram to extract with your method versus a traditional method?

Russell: So I have to be careful giving exact numbers, because I'm sure competitors would love that. But what I can say is we have...you know, every solvent system, it always has a consumable, always has something you have to replenish, something you have to purchase. We use air. That costs a whole lot less, you know. So, I mean, it is literally an order of magnitude less to extract using our system than any other method. You know. And when you combine that with, you know, the automation, you know, we're taking several steps in the extraction process, we're combining them. You know, we also have developed this much, much more efficient faster, you know, decarboxylization or activation step as well. And, you know, getting that right was another key part of this process, you know. And so, we have a fractional cost to extract, that's the best I can say.

Matthew: Sure. And so what's the business model here? People are wondering, like I've been to your website and you can't, as an individual, purchase the oil, so how does that work?

Russell: So, you know, the model we've chosen to adapt is really, you know, if you think about Qualcomm as a company, nearly every cell phone in the world has a Qualcomm chip in it, you know, it's kind of in the background, it makes the best phones work. Same with, you know, Intel, they're the microchip...they're the chip inside of the computers and whether the brand is an Apple or a Hewlett Packard or, you know, a Dell, a lot of consumers, you know, they want that product because of that Intel chip. So that's kind of the core model we're adapting.

So we take, we source, you know, really, really good industrial hemp from good farms, we test it, we make sure it has no trace of pesticide-heavy metal. Make sure that it was grown legally. It's also very important in this industry, this is really a compliance industry, it's not just the cannabis industry. You gotta do it all right. And so we take this well-grown hemp from farms, we extract it using our technology, and we wholesale kilograms of CBD, cannabidiol. And so, we essentially...you know, the companies, we support the best brands in the industry by giving them what we believe is the best oil in the industry. And that's our business model.

Matthew: And just for North American listeners, that's 2.2 pounds is a kilogram. So what about terpenes here. Now, this is something, you mentioned flavonoids and terpenes a little bit, but the preservation of terpenes, creating a terpene profile is something that's becoming increasingly important, and the ability to affect experience is really driven a lot by terpene. So, you know, the vaporization is happening, the heat element is there, how do you look at when the terpene gets affected? Like is there some critical threshold where the terpenes are affected from heat or other processes in traditional extraction?

Russell: They most certainly are, you know. A lot of people when they first talk about, you know, they ask us, "Well, wait, this is a heat process, you know, how hot is it? Is it gonna damage the terpenes?" And what the other side of that is, you know, any edible oil or any oil that's even going in a vapor cartridge, because, you know, like a little vapor cartridge, they don't get hot enough to fully activate the oil, so you need to activate it before you put it in the vapor cartridge. And again, that activation step takes 45 minutes to several hours and traditional methods of decarbing oil, they annihilate the terpenes. The best way to say it is they annihilate. They break them down, they volatize them out of the oil, because you're talking about, you know, well over, you know, 200 to 250 degrees is a typical decarb temperature for a long time. The terpenes just boil out of it.

Our process is like pasteurization of milk when it comes to activating. It's so fast that it doesn't...there's not enough time to damage the terpenes, there's not enough time to drive them out of the oil. So if you have actually measure our oil compared to other activated oils, you're going to have many, many, many more times terpenes by weight in our oil than you do in other activated oils. And that's on the first pass without adding them back in. So we get the original terpene profile that's in the plant, and that makes it all the way through our extraction and through our decarb process and into the final product. Whereas other activated oils usually what they'll do is they'll actually add terpenes back in to boost them back up. So we don't have to do that.

Matthew: Right. Now, there's nothing necessarily wrong with that, but it's just exogenous, it's not something native to the oil that was extracted, so...

Russell: Yeah, nothing wrong with it. It just costs...you know, you're not gonna get the original strain profile the same way you would as if you just keep all that intact from the beginning. But it also costs money, you know, so from a business standpoint, you know, the more things you have to do to kind of reconstruct that oil after you go through this, you know, traditionally brutal, you know, decarbing process, it makes the oils more expensive. You know, again, that's one of the reasons that we can do this at such a lower cost is we don't have to do all these extra steps.

Matthew: Yeah, this is fascinating subject. So let's rewind just a little bit again. So the chlorophyll, can you just describe what happens to that again? And for people listening, chlorophyll is the green planty material that's a color in the oil. Just go over one more time how the heat element is just never there to begin with. That's why you don't have to remove it.

Russell: Yeah, yeah. Absolutely. So, you know, traditionally, if use ethanol, for example, that's one of the extraction processes that really picks up a lot of chlorophyll. Solvents touch the plant, you know, and it really it happens even with hydrocarbons, even with CO2 to a lesser extent than ethanol, but it happens with any kind of solvent. You're touching the plant material. Therefore, you're not only going to extract cannabinoids, but you're also gonna get things that you may not want in the oil that affect the flavor. Chlorophyll typically imparts a grassy kind of plant taste in the oil. And some people really don't like that. They find, you know, it really affects the flavor. We don't extract chlorophyll at all because we don't touch the plant with a solvent. We only touch the plant with air. And so our oil has zero chlorophyll in it. And so you get zero grassiness in it.

Matthew: Okay, would you compare this to sterilization or pasteurization of milk?

Russell: I think that that's really just the perfect analogy for our flash activation. You know, when you're pasteurizing milk, you're trying to sterilize it, you're not trying to cook it. So what you're doing is you're taking milk, you're running it through these thin tubes that heat the temperature up above the boiling point of the milk really quickly, and then they immediately cool it back down. And it just kills any bacteria in it, but it doesn't cook the milk, it doesn't alter the flavor. And it's a very, very fast process. That's the same thing we've applied to activation.

It literally happens in seconds. We have over 99% activation in less than 2 seconds. And so it's so fast that you don't damage your turpenes, you don't break down cannabinoids and, you know, it's hot enough. It's done just the right way for just long enough and with enough, you know, other things going on in our machine. I can't say everything we do because we had to nail that too, you know, that wasn't just something that came along with, you know, just the way we extract. We had to actually tweak things to get that activation right. But it results in the same thing as, you know, uncooked milk, sterilized but not cooked.

Matthew: Okay.

Russell: Not that cannabis and milk are quite the same thing, but yeah. You know, one other thing that I wanted to touch on that, you know, with terpenes though, and solvents, so, if you think about a plant, you know, you think about hops, think about mint, you know, think about rosemary, think about other herbs, the terpenes, the essential, you know, flavors and terpenes in those oils, they're locked down in the plant material. They're not just on the surface of the leaf, the surface of the plant. You know, cannabinoids, on the other hand, they tend to be on these long trichome glands that make marijuana and hemp, you know, look kind of crystally and shiny when you look at it.

So with a solvent, it's very easy to just kind of melt those cannabinoids off the outside, but if you really want to boost your terpene content in your oil, you have to dive down into the plant. If you dive down into the plant, there's other things in there like chlorophyll, you know, other things that impart flavors in the oil, to make the oil darker, lower the quality of the oil. So you kind of have this dilemma, if I want a higher terpene level my oil, I gotta dive in the plant, but I'm gonna pick up chlorophyll, I'm gonna pick up things I don't want.

So one of the things that we really do differently is, we grind to the powder, you know, before we extract. If you do that with a solvent extraction, you're gonna get a terrible tasting oil. So we're opening up the plant, exposing more of the terpenes to the extraction process. And we also...you know, when you take, you know, even at the cellular level, you take this plant material over the boiling point of the terpenes, it literally ruptures out of the cells. We get all of them, and we don't get any chlorophyll. So we don't have this trade-off. So we end up extracting more terpenes, and then we take better care of them when we activate them, when we activate the cannabinoids. So it's two things going on.

Matthew: This is great. So, will you be licensing this technology to other companies at all? Or is it gonna all stay in-house and be the kind of Intel inside model or where do you see this going long term? So, I mean, how do you wanna extend your brand?

Russell: So really, a lot of people wanna buy our equipment. We get calls literally from all over the world, even Australia and New Zealand. You'd be surprised at all the people who want our equipment. We don't sell our equipment. We don't rent it. But what we do do is we source material and we sell kilograms of oils. So we are keeping it in-house right now and, you know, there's a lot of reasons for that. We know we have something very special. And, you know, we wanna be the only source of this oil in the world. And we also wanna make sure that, you know, it's the thing about CO2 extraction, about butane extraction. There's companies that do that well, there's companies that do that very poorly.

With our process in a way, you know, it is a brand. You know, we're the only company in the world that extracts with heated air. And so, by us controlling our equipment, we make sure that it's done right every time, you know, that nobody's cutting corners on quality, consistency, you know. And so, when people say, "Wow, that was a, you know, vapor extracted or vapor distilled oil, that was a flash extracted oil, flash activated oil," we don't want them to associate that with somebody who just didn't run the equipment right. And so, we're taking better control of our quality, for lack of a better way of saying it.

Matthew: Okay. Very fascinating. And where are you in the capital raising process?

Russell: So we just closed around a few months ago. As a company, we're very well funded. We have very big customers, we get more customers every day. It's been a very exciting, you know, fun process. This is one of those right kind of the launch point when the company is starting to really, really come into its own. So, we're not really raising capital at the moment. However, you know, as we look at how fast this industry grows, you know, how big it's getting so quickly, you know, we are contemplating, you know, potentially a large raise in the near future to build even larger capacity equipment out, you know, in particular, to serve the hemp and CBD side of the industry.

Now, the difference with, you know, the marijuana side of things versus the CBD, you know, industrial hemp side is, you know, just the amount of pounds that people extract in the CBD space, you'll literally be harvesting, you know, hundreds of thousands of pounds that need to be extracted in a short period of time. And so we do want to, you know, continue to expand our abilities in that and be able to grow faster than we could organically. So potentially, we may be looking at that over the next year.

Matthew: I love what you've done here because it reminds me of the blue ocean strategy where there's an existing marketplace in a segment seems totally defined and there's leaders. But you've kind of splintered off and created your own segment which you can lead, and with your intellectual property, it's almost impossible to follow unless there's a significant change. So what an exciting way to do things to maintain profit margin, do things your way, and innovate the marketplace, so well done.

Russell: It's been fun, you know, and it's...But yeah, fundamentally, we believe we have by far the lowest possible cost way to extract cannabinoids. And if you just think about it, fundamentally, heated air just doesn't cost the same as solvents. You just don't have those costs. And by the way, just because we haven't touched on it, we're definitely going into, you know, the marijuana space as well. Right now, we're focusing most of our efforts on hemp and CBD because it's such an amazing market. It's been so much fun to just watch this, you know, come into its own over the last few years, but we also are in both sides of the spectrum, you know, marijuana and hemp.

Matthew: Okay. And we'll get the details from you on how accredited investors can reach out to you at the end. But first, I want to go to some personal development questions, Russell. Is there a book that's had a big impact on your life or way of thinking that you'd like to share with listeners?

Russell: So I guess, you know, I read a whole lot. I typically just when I need to know something about a subject, I dive into it until I figure out what I need to and then I go onto the next thing because I'm just so busy. So I guess, you know, I do read a lot of "Harvard Business Review" articles, you know. Right now, I'm going through, you know, their 10 best reads where they just condensed their best articles on everything from sales to change management, things like that. And it's these nice little condensed, you know, nuggets of information. I guess I still love, you know, it's an old classic, you know, "Good to Great."

Matthew: Yes.

Russell: It's an old book but, you know, those principles of just, you know, hiring truly passionate people who just love, you know, what they do for the sake of doing it, you know, everything from our extractors to our engineers, to our chemists that we hire, truly just love the journey of what they're doing, you know, that's influenced me from the beginning. It's still a good book, even though it's old book.

Matthew: Gotta get the right person on the boss, right? That's the motto there.

Russell: Yeah. And, you know, that's kind of what I've really focused, you know, it's like recognizing somebody's spirit, you know, that entrepreneurial spirit, you know, it's like every day when you're in this new industry, in this new company, like you have to be in the space to know like, hey, I don't actually know all the answers of how to do this. I'm gonna throw my hat over the fence, and I know I can get there. I don't have the answer today, but I know that I can figure it out, I know I'm gonna get there. If you look for that when you hire people, my gosh, you know, it's like a feedback loop where you have all these people who are excited about what they're doing, they know that they can get it done, they're okay with existing in the space of hey, yeah, new industry, new company, new technology, new market, but I know I can figure it out.

And even when you come to work and you're having a bad day because, you know, it's a marathon, not every day is good, you know, if you surround yourself with that kind of a team, man, they lift you up even when you're having a bad day. And so, I guess, you know, it's not just coming from that "Good to Great" book. There's just you have to learn to recognize that in people, and that's when your company takes off.

Matthew: Is there a tool you consider helpful to your team's work or productivity that you'd like to share?

Russell: You know, this is gonna sound kind of nerdy, but man, I gotta say, I believe in the almighty power of spreadsheets, you know, Microsoft Excel to answer every question in business, you know. So we actually...you know, everything from purchasing hemp and what potency and what price, you know, to, you know, all of our pro formas, to even, you know, improving the processes of our machinery and engineering, you know, calculators, we do very intense spreadsheet work, and it really helps us answer the questions. So, you know, nothing exciting there.

Matthew: No, yeah, I agree with you.

Russell: I don't know how people used to do business without spreadsheets. It's just, you know, you can think that you have the answer, sometimes intuitively, but until you actually let the numbers answer it for you...you know, let the numbers be your guide.

Matthew: I think the web-based, shareable spreadsheet is one of the biggest advances for me, because I remember before they were shareable and you'd always be, "What version do you have?" I don't see that. It's like, everybody's using a different version of the spreadsheet. Just making that web-based has been huge.

Russell: That we definitely use a lot of, you know, cloud-based sharing, version control. Definitely a lot of that. You know, I guess in terms of other tools too, you know, our machines are...we program our own equipment, we had our own user interface. Everyone who's in our extraction department carries around a tablet that it actually shows all the parameters of our machine running on it. We monitor over 60 different data points, literally some constantly, some every few seconds. And so every part of that process we have our eyes on it at all times. So we use a lot of, you know, kind of web-based or, you know, web-based, cloud-based controls. Have to make sure you keep all those very secure, though, because you don't want somebody hacking your machines.

Matthew: Sure. Sure.

Russell: So yeah, those two things really help us a lot.

Matthew: Now, I'm gonna ask you a Peter Thiel question. If people don't know who that is, he's the founder, one of the founders of PayPal, first investor in Facebook, and just a really well-known VC and deep thinker. And one of the questions he asks people is, what important truth do very few people agree with you on?

Russell: So I am a big believer in social enterprise. I think a business needs to be a business for the business sake but I think that you can do it the right way. You know, a lot of people say that, you know, you can't have a business that is profitable, that makes us money, you know, and also make quality product at a good price. You know, also take care of your employees, respect your employees, give them good benefits. You know, create a work environment where people actually look forward to coming to work. In fact, you know, we sometimes have to almost lock the doors on the weekends. I am not kidding, people love to work in our company. You can have both. And I think that, you know, as a company gets bigger and, you know, becomes really profitable, I think it's important to set an example that you can do things right while you're making money. You don't need to cut corners with quality to make money. You can solve a lot through better technology, better automation.

Actually, I don't know if people would disagree on that part, but I really have a lot of respect for companies like Ben & Jerry's. You know, they tried from the beginning to do things right. Still had a great exit, still made a ton of money. You know, Patagonia, great company, makes great products, very profitable, but they also are very...you know, they also try to do good in the world as they grow. And, you know, I think as we create businesses in the space, as we create, you know, great businesses in general, why not set an example? You can take care of employees with benefits, you can pay people better than minimum wage and, you know, the kind of performance you get out of people when they know that you appreciate them, you acknowledge what they do, people just, they take a bullet for the company, and it's not that hard. I don't know if I'm putting that in the right words, but...

Matthew: No, no, that's very helpful. Maybe you could talk a little bit more about how you create a culture like that. Like what are the specific steps you do to create a culture like that? Because a lot of business owners realize there's a huge advantage to that, apart from just good karma, it helps the business, everybody's excited to be there, it's a place that just feels, you know, like your work home.

Russell: Yeah, I mean, I think that one of the things we found is most important is when somebody, you know, goes beyond, puts effort in, make sure you really authentically acknowledge them for that. Don't just say it's great, you know, say why it's great. Give them a few examples of what they did and the difference it made, you know. Then they really know that you saw what they did. That you appreciated what they did, you know. And, you know, we really try our best here to make a very collaborative work environment. You know, we encourage everyone in the company from every department, "Hey, if you see us doing something dumb, if you see management do something, please speak up, you know, and don't be afraid to speak up. And, you know, if we disagree with you we'll still disagree with you."

You can't take everybody's advice all the time. But giving people that ability to know that, you know, they have a safe space to walk into my office and say, "Hey, I think we could do this better," is really important. We believe in employee ownership here. Everyone in our company has a...they get a small, you know, bit of equity that vests over time and, you know, they really view it more as their company. You know, as we get big, eventually we will have to stop giving out equity, but we always wanna do some kind of profit sharing so everybody feels like they have some ownership. This isn't just a job, it's not just a company they work at, it's their company.

Matthew: That's great. Thanks for that. Well, Russell, as we close, can you tell listeners how to find out more about Vapor Distilled, and connect with you? And for, you know, potential investors or people that are interested in buying oil from you, how can they reach out to you and find out more?

Russell: So I would really love customers to reach out to us more than anything. But yeah, so our website is vapordistilled.com. And you can also email us at info@vapordistilled.com. So both of those are good ways to get to us.

Matthew: Great. Well, Russell, thanks so much for coming on the show. This is really educational and it's really fascinating what you're doing here. I'll be curious to see how fast this grows and how much it's adopted. But I've definitely enjoyed the samples you sent me. So thank you for that, and I wish you well in 2019.

Russell: Well, thank you, Matthew. And I know it's getting a little late, but Happy New Year.

Matthew: Happy New Year.

Russell: Let's all make it a good one.

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