Andy Joseph is CEO of Apeks Supercritical. Andy and his team make advanced extraction machines. Listen in as he talks about how the industry is evolving and how businesses appetite for specific methods is evolving.
– Andy’s background on Navy submarines
– Creating extraction machines while moonlighting
– Business owners are more interested in terpene preservation
– CO2, Ethanol, Butane, Propane, which extraction method is better?
– Why your finished product should drive your extraction methodology
– Monitoring and controlling extractions in real-time
– Fractionating, what is it and what does it matter?
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It was only a short time ago that cannabis oil extraction was an esoteric practice that people had little interest in. As the market for edibles, vape pens and infused products grow, cannabis oil as an ingredient has really taken off. Here to tell us more about it is Andy Joseph, founder and CEO of Apeks Supercritical. Andy, welcome back to "CannaInsider."
Andy: Thanks, Matt. I appreciate you having me on the show and looking forward to our second conversation.
Matthew: Yeah. Well, give us a little refresher. Where are you located again?
Andy: We are in Columbus, Ohio.
Matthew: Okay. And I'm in Paris today. Now, Andy, Columbus is becoming a hipster paradise. And for people that are in California or in Brooklyn, they'll say, ''Surely you jest, Matthew Kind. Nothing happens in Ohio," but people are moving from other cool places to go there. What is going on there and are you responsible for it?
Andy: Yeah, I am definitely not responsible for it, certainly not for the hipster influx into Columbus. But, you know, the Midwest in general has a lot of favorable things. But I have to put a disclaimer out first. The most unfavorable thing that nobody has control of, that no one has changed is the weather. So while it's not Columb-, it's not California, it's not the beaches that you're gonna find, the East Coast, it's Midwest and, you know, summers are kind of nice. They get a little hot, winters are terrible and, you know, the gray skies for two or three months kind of make it unbearable. Nonetheless, the lower cost of living, the jobs [inaudible 00:02:03] manufacturing, you know, [inaudible 00:02:06] renaissance that you can almost call it, you know, the rebirth of manufacturing jobs is Midwest. But you just don't find that kind of resurgence of jobs and economic boost in some of the other places where cost of living is just so ridiculously high that, you know, regular guys can't get a job.
Matthew: Yeah, and, you know, as I have gone around Ohio and especially Cleveland and spent time there, bicycled around the different emerging neighborhoods there, and one thing I notice is that all the infrastructure's already built for a manufacturing renaissance there, it just has to be, flip the switch and there's people there that know how to use it, too, which is, you know, other places, it's not the case. It's like this can just be turned on if we can make this happen. It sounds like it is happening there, but why are...?
Andy: It is.
Matthew: But, you know, I grew up in the Midwest, in Chicago and you cannot underestimate the soul-crushing nature of about a hundred days of granite gray skies and no sunshine. It's absolutely, I say "soul-crushing" because it is, it's just, you feel like you might be in purgatory and then the sun comes out and it's like, you're in the Emerald City from "The Wizard of Oz" or something. It's like everybody, like, rips their clothes off and runs down to the nearest body of water. Like, "What? What is this light that's coming between the clouds?"
Andy: Some folks will take the positive aspect on that light deprivation anxiety problem and say when the light does come out, you know, it makes you appreciate it that much more. The Midwest does have some beautiful seasons and we got all four seasons coming through and, you know, the price to pay of having all four seasons is that, you know, there's about a hundred days of gray. It's rough.
Matthew: Yeah. Well, I could reminisce about the Midwest all day, but I will say here in Paris, I've actually had a couple people ask me like, ''Hey, I've heard Detroit's cool now, is that true?'' And I was like, "Wow, I don't know where you guys get this information from," I guess it is rebuilding, but I think it's funny that more than one person has said that to me. And how does this information trickle over here?
Andy: Well, and it's downtown. You know, what they don't realize is that as soon as you get about maybe a mile away from the downtown of Detroit, it's still the same crappy Detroit it's always been, but the actual downtown area itself has really been revitalized. It's pretty impressive up there.
Matthew: Yeah. I know that the billionaire guy from Quicken Loans and is it the Cleveland Cavs? He's really taken it upon himself to turn that city around and I think it's fantastic. But let's jump into extraction here. What are we doing? We're just joking around, so. Okay, let's jump into extraction. And I like to welcome everybody into the conversation, not just people that are already familiar with it. So tell us what "supercritical" means and what "extraction" means so we can understand it.
Andy: Well, supercritical, and I suppose to be clear, it should be supercritical fluid that we're talking about. And, you know, basically supercritical is a phase. It's a matter of state. So everybody knows there's a solid, there's a liquid, there's a gas. Supercritical is sometimes called a fourth state of matter. [inaudible 00:05:23] just a combination of liquid and gas properties, so it acts like liquid. When we talk about extraction, it acts like a liquid and can dissolve oils from the plant material and has solvency capabilities. But it acts like a gas at the same time from the standpoint that it's gonna expand to fill the container that it's contained within. It's not affected by gravity. It also gives it a very, very low, what's called surface tension. Surface tension, if you think about it, it's like the meniscus in a glass of water. It's the force...
Matthew: It's what the water bugs float on when you see them on top of the water.
Andy: Yeah. Exactly, exactly. That surface tension, right, is the force and, you know, it's very, very hard to break that surface tension. If you can imagine, you know, a droplet of water trying to get into a very, very small groove, say, for instance, a piece of plant material, you know, it's gonna have a hard time getting in there because of that surface tension. Supercritical fluids have extremely low surface tension. And so they can get way, way deeper into these little nooks and crannies that are in the plant material that allow it access to essentially act like a solvent, dissolve out those oils. So supercritical fluid is really kind of this unique combination of gas and liquid properties that happens not only with CO2, with lots of other things. But because it can happen at such a lower pressure and lower temperature for CO2 compared to, say, like nitrogen and oxygen and other kinds of gases, you know, it's typically the gas of choice for supercritical fluid extractions.
Matthew: Okay. And give us a little about your background. You were on two years ago, and I think even people that heard that episode probably don't remember exactly your background. How did you get into this field and come to start this business?
Andy: Sure. I started, I guess to start, my career started in the Navy. I spent six years on nuclear submarines stationed out of Pearl Harbor. I was an enlisted nuclear mechanic so I essentially ran all the mechanical portions of the power plant and the propulsion systems on the submarine. And spent six years doing that, got out of the military. And went to college at Ohio State. And needed to make a few extra bucks, right. The GI Bill pays for some of your college but doesn't pay for all of it. So I started a fabrication business. I was in the welding engineering program and met a customer who needed some botanical oil extraction equipment manufactured. So I really came at the extraction industry or the botanical oil industry from a manufacturing approach. Not so much from I was already extracting these other things and decided to build the equipment because I couldn't find one. That was on me, right?
There was definitely a hole that needed to be filled. I approached it from a manufacturing standpoint. So that was all the way back in 2001. And from 2001 until 2012, Apeks was a part-time job for me. I did it on the side at the same time that I was a director of a engineering group for a consulting firm. And 2012 came legalization of both Colorado and Washington. And, you know, just the kind of the massive growth of the cannabis industry, they all came together and I was so busy at that point in time. I essentially had two full-time jobs at Apeks and I had this, you know, my real ''job.'' So I made the leap. 2012, I decided, you know what, I'm gonna focus on Apeks full-time and here we are, six years later. And just about a year ago we shipped our 500th CO2 extraction system.
Matthew: Wow. And were you on the submarines then when they would go out at sea or when they came back, you'd work on them?
Andy: No. I was stationed aboard the submarine. So I would go out and go under the water and, you know, maintain essentially all the mechanical propulsion and kind of the life support systems, the water and different elements like that.
Matthew: Do they give you some sort of screening to see if you have a good fit for this type of, like, understanding? Because I think of this stuff and it just sounds like all Greek to me in terms of nuclear propulsion and all the stuff that you are comfortable with.
Andy: Yeah. There's definitely initial screening, you know, way, way back in high school, they give you a test called the ASVAB. I have no idea what it stands for, but that basically is a preliminary screening to show that you have the intelligence to get into some of the more challenging programs within the military, not just the Navy. But then, you know, going on submarines, there's some additional psychological screening that says, you know, "Are you gonna go nuts when you're in this steel tube underneath the water?"
Matthew: Yeah. Does any crazy stuff go on down there after you're underwater for that long? I mean, I guess being in the Midwest with the gray skies for 100 days of gray gets you used to it a little bit more than people from California or Florida or something.
Andy: Yeah. A little known tactic that the military, at least the submarine service anyway, generally tends to take when you're out under what's called underway for a long period of time. My longest was 56 days. They typically run the oxygen at about 18% or 19% as opposed to 21%. And you're running the oxygen lower, basically it keeps everybody kind of, you know, a little more even-keeled and a little less active.
Matthew: Okay. That's kind of how they like put saltpeter, I think, in the water in prisons to keep everybody kind of chilled out.
Andy: Exactly, the same concept.
Matthew: Okay. Okay. Now, why did you choose CO2 as the means to extract oil from plants instead of a different medium like ethanol or butane?
Andy: I suppose it's worth pointing out at first that we manufacture equipment. So, you know, we don't do the actual extractions themselves, at least not yet. Now we were fortunate enough to win a processing license here in Ohio to start with the medical marijuana market. And so our processing entity, which is called Ohio Grown Therapies, will obviously utilize Apeks Supercritical equipment. But, you know, it's important to note that I don't believe that any one of the three main extraction methods that are commonly being used in cannabis, CO2, ethanol, and hydrocarbons of butane and propane, I don't think any one of them is better than the other. There's pros and cons, right? And I would argue that most of them are complementary, but all of them are ultimately driven by not the extraction technology, but rather what you want at the end, right? What's your final product?
As an example, hydrocarbons, butane and propane, they're fantastically efficient at making water or more commonly, more and more popular dabbing products, recreational type of dabbing products. Very, very efficient extraction method and just not very much post processing to be able to create those popular types of products. CO2 and ethanol can make them, but it can't do it as well, ethanol, certainly. On the flip side, CO2 does a fantastic job of extracting not only the bulk extraction of the cannabinoids that are there, but also doing a terpene extraction. And so, the ability to what's called fractionate, or start to separate some of the elements that are found in the plant material get the terpene separate from the cannabinoids, for instance. That gives the ability to do things like come back in and reconstitute a vape pen cartridge. In other words, you do an extraction. You get those terpenes, you set them off to the side.
Then you finish your cannabinoid extraction, you do a process like winterization, you do a distillation, and you can take those terpenes and put them back in to create a distilled cartridge that's got the full flavor of the terpenes that came from the original plant, right? CO2 affords those kind of possibilities.
Matthew: Do you find that more people are asking you about terpenes now than they were a couple years ago?
Andy: Then they were six months ago, let alone a couple of years. But you know, ethanol, and I'll address the terpene thing here in a second. Ethanol, you know, has its pros and cons as well. The biggest problem, the biggest pro about ethanol is, it's fast. I mean, it does a really great job and it's widely utilized in other industries like flavorings and essential oils. The problem with it is it's not selective at all, right? And so you have to either get really cold to prevent it from grabbing all the chlorophyll out of the plant material. And no matter what you do, you're never gonna get terpenes from it because of the fact that you have to expose it to so much heat in order to separate that ethanol and alcohol.
That being said, ethanol is a fantastic feeder. If your end product is just straight distillate, sorry, straight distillate, essentially, you know, high, high purity THC or CBD products. That's a good feedstock for edible products, for instance. So ultimately the choice between propane, butane, CO2 and ethanol really isn't about the technology. It's more about what you're trying to make at the end. And most of our customers have both, right? They're complementary. Some of them will even have all three of these different technologies. CO2 does a great job with extracting terpenes, but ethanol can be faster at extracting cannabinoids. We'll find most of our customers actually use both. And for our processing facility here in Ohio, that's what we intend to do as well.
Matthew: Interesting. So that's a great way of framing it is that, you know, "Tell me what your end product is and I'll describe to you what might be the best extraction solution."
Andy: Exactly. That's exactly right. And anybody who says, "CO2 is the best for everything," or, "Butane is the best for everything," I would run away from that because that is, it's just not true. It's not reality, it's not how it works. There's pros and cons for everything.
Matthew: Now you talked a little bit about how people are asking more about terpenes, but how have the customers that approach you, since we last talked two years ago, how has it changed? Are they more sophisticated? Are they looking at things more holistically, have they different preferences?
Andy: Well, I think that the market's changed. You know, there was this race to the maximum amount of THC that we could possibly get not too terribly long ago and, you know, how much more pure, how much more closer to 99% can we get. And I think, you know, it sounds kind of cool, but people missed the rest of the puzzle, right? Just having THC, 99% THC means that there's nothing else left. And so all of the other elements, whether you're looking for an entourage effect, whether you're just looking for flavor in a vaporizing pen, it doesn't really matter. People started to say, ''Hey, you know what? This 99% thing's not so cool. Number one, I just get so stoned, I can't do anything and it's not even fun. And number two, it doesn't taste good. It's not an enjoyable experience overall.'' And so the term "full spectrum extract" has really started to take hold in the last year, which is a combination of extracted oils and terpenes and cannabinoids from the plant material that most... How do I say this? That are very similar to or most closely replicate what was originally in the plant material to start with.
Matthew: Okay. Okay. And what type of businesses are your prospects, would you say in the last six months, the majority creating? Are they dispensaries that are vertically integrated? Are they processors selling only to other businesses? What are you seeing the most of?
Andy: Well, it really depends on what state you're in. You know, unfortunately you can't just kind of generalize the entire industry because of the licensing structures that have come across in different states. If you force me to generalize it, I'd say, you know, the West Coast and/or recreational states, you know, those are, our customers tend to be what we refer to as processors. Fewer and fewer of them are becoming vertically integrated. I would actually say that they're moving away from being vertically integrated. But the processors are a combination of either wholesalers, where they'll take oil and sell that as crude or even do some secondary or tertiary refinement and sell that as a wholesaler to other companies like edible manufacturers, for instance. And so you're starting to see kind of this segmentation of the industry start to come forward where, you know, not everybody's doing every single piece of the vertical integration, but rather just their own little piece and getting really, really good at it, getting really, really efficient at it.
Now contrast that with other states, and Ohio is a great example. Pennsylvania and New York, right? Some of these other newly medical states with new industries that are extremely, highly regulated and have licensing structures that preclude "business as usual," right? Those ones are a little bit more difficult to predict because the license structure really drives the economy of things, not so much just, you know, free market. And so those ones are a little bit stranger and you can't necessarily say that they're doing it because it makes sense. They're more doing that because that's the way the license structure was put together.
Mathew: Okay. So it sounds like there's more specialization happening. The field is subdividing and people are specializing. The specializations you're seeing is there's more interest in fractionation in terms of... It's fracturing, right? I'm saying that correctly. I feel like I always say that wrong.
Andy: No, it's fractionation.
Andy: Yep, fractionation, or fractioning.
Matthew: This is happening to preserve terpenes or to get a different desired outcome for a specific product.
Andy: Yeah, absolutely. And that's one of the pros of CO2 is its ability to fraction the initial bulk or crude extract. Whereas ethanol, butane may not necessarily have that ability to fractionate, or be selective is probably a better way to say it. CO2 is tuneable and you can make it selective as a solvent and say, "Okay, I'm gonna run parameters that aren't going to get all the fats and waxes out. I'm gonna get just the lighter oils and the terpenes." And then you can change the parameters that you're operating at to make it a more powerful solvent and pull out more from the plant material, right? So you can start to get these initial fractions. What you can't do, and this is kind of a misunderstanding why a lot of people wanna talk about fractionation, what you can't do is just say, "Okay, I wanna select just the THC," or, "I wanna select," even more popularly, "I want to select just the CBD." It doesn't work that way. You can select kind of ranges of molecular weights, but you certainly can't select individual compounds, at least not in this initial bulk extraction stage.
Matthew: Okay. Now you'll notice at the commodity exchanges, you know, a pork belly or a bushel of corn or wheat, all of these commodities are kind of defined exactly what they are, so then traders and farmers and speculators can all kind of can trade on something they understand what it is. Do you think we're moving into any kind of standard buckets in terms of what oil is? So it can be, so you don't have to go into some huge spec sheet on what the oil is that you want created? You could say, "I want this grade," and it's understood what that means.
Andy: I think that the industry is in the very early stages or the infancy of something like that. I don't know that, certainly not the medical marijuana industry and maybe even the recreational marijuana industry. I don't know that you'll ever have volumes that are big enough like corn to justify, you know, kind of trading like that. But you're certainly gonna have qualities and/or standards of quality for different refinement levels of the extracted oils, right? Now, an area where you might go to look to here in 5 or 10 years that might be closer would be more hemp CBD. So to get out of the marijuana side, start talking about hemp and CBD, you know, they're growing that in fields. They're using agricultural equipment to do that kind of stuff. I think if there was something that was gonna happen in the ''marijuana industry,'' it would probably be more hemp CBD-related.
Matthew: Okay. Yeah, I agree with you. Hemp is much more agricultural. It's just gonna be a vast farmland dedicated to it. That'll be probably more fitting. Okay. And now when a customer or prospect comes to you and says, "Hey, how do I define the return on investment or ROI?" or, "How can I put my business person hat on and look at this?" What do you tell them?
Andy: Well, we've got return on investment schedule...we actually started putting out return on investment schedules for our equipment...geez, I wanna say that's four or five years ago because that was a lot of the questions that we're getting. And today, we still publish all return on investment propositions for every one of our pieces of equipment. So it's right on the back of our price sheets and, you know, very transparent. Where people tend to fall a little bit short, though, is that's the return on investment on the equipment, just the extraction system. And, you know, if there was a pressure point or a failure point that we would see startup companies in particular going through, it's the lack of recognition that the extraction is just one piece of the puzzle, right? There has to be an entire business process that has to be put together all the way from supplying the feedstock or securing the feedstock to the extraction to refinement, to branding, to marketing, to packaging, the distribution agreements, cash management, profit and loss.
There's, you know, all of these extraction companies are businesses. And if you don't have every single piece of that business in place, you're gonna fail. And that's where talking about return on investment in the equipment is a little bit narrow-sighted. It isn't the full picture. But nonetheless that, you know, taking the return on investment from our equipment that we publish, combining it with return on investment and/or cost modeling for a business, that's really the total picture.
Matthew: Now you mentioned you're just shipping your 500th unit. Congratulations on that. Now you come across a lot of different business owners and I have, too, and businesses are just like people. They all have different styles, different strengths, some have trouble answering the phone while others seem like they're capable of accomplishing anything. When you think about the experience you've had with different businesses entering this field, is there any common trends you see amongst the ones that succeed and the ones that fail that you've kind of noticed like, "Hmm, they trip up here," or, "They're successful in navigating this"?
Andy: Well, yeah, and it varies. You know, that's one of the challenges of being in this industry. You know, there's so many people that are attracted to the green rush that they come from all walks of life and all experience levels, but very, very few of them come from the processing or manufacturing of consumer goods. And when I say "consumer goods," I mean more like food stuff or edible products. It's amazing to me still how few people have any kind of industrial manufacturing experience in a food environment. Just very, very few of our customers have that type of experience. And, you know, today the FDA isn't playing. The FDA is not involved, but it's only a matter of time before those kinds of regulations start to come in and that's gonna be a huge hurdle. The people who've had the foresight to see what's coming down the road, whether it'd be, like I said, FDA, have the foresight to understand cash management, especially in these new states like the East Coast states that are passing medical marijuana laws with extremely strict regulations.
The ramp-up time is long, right? It's not like a medical state that went recreational and there's already an established patient base and/or consumer base. Just take Ohio as an example. There are zero patients today in Ohio. And, you know, the amount of time it takes us to get from zero to 200,000 patients is a huge unknown. If you don't have the cash reserves, if you didn't have the business chops essentially to be able to manage and/or mitigate the unknown which is how long is it gonna take us to go from zero to 200,000, you're gonna fail or you'll run out of money because there aren't enough patients there. Those are the kinds of things that have to be thought through. There's definitely a technical aspect from the extraction. There's certainly a formulation aspect, but I think probably more important is understanding the long-term business aspects and also the marketing and branding. I mean, that's a really, really important element. You can make oil the best oil in the world, but if nobody knows about it, you're not gonna sell it.
Matthew: Yeah. Great points, and make it consistently so they know what to expect every time they open up a package from your business.
Andy: Exactly. Exactly. And that's not easy, right? So it doesn't mean just running the same parameters. It means knowing how to adjust to changes in incoming feedstock, right? So remember we're talking about a plant here and those plants aren't gonna be the same every single time no matter how much you want them to be. But understanding how your equipment extracts, you know, the different incoming feedstocks and then ultimately being able to modify your manufacturing process to produce ultimately the same product at the end, that's the real skill.
Matthew: Now how about throughput and maybe you could talk a little bit about how big of an extraction solution, how people get the right fit for their need. How does that work? Do you say like, "How much plant material you're planning on processing?" "Are you gonna be running 24/7?" I mean, what questions do you typically run through?
Andy: Yeah, let me tell you what a common conversation that we're having here recently will be as, you know, somebody will call in and we'll just say, ''Hey, this is Apeks Supercritical, how can I help you?'' And they say, ''I'm a hemp farmer. I've got 5,000 acres or 50,000 acres of hemp. I need your biggest extractor.'' And we say, ''Oh, okay. Have you done any extractions yet at all?'' And, you know, we typically hear a long, long silence at the end there. And then they finally come through. ''Well, no, I've never done an extraction.'' And that's a huge red flag for us. Right. That's a major problem. Bigger is not better. There's a huge misperception in the extraction space that the bigger the system is, the better it is and the more throughput that it's gonna have, and throughput and size can be unrelated. Right. The bigger the system, think about it from a volume standpoint, right? You gotta you got a 55-gallon drum and you've got a 500-gallon drum. Right. You can put significantly more material in that drum, but it doesn't necessarily mean that material's gonna be extracted faster unless there's a way to get solvent in and solvent out faster.
Right. So just the volume of the container, the "size" of the extraction system isn't the way to judge throughput. Throughput is really how much CO2 flow rate can go through, how much ethanol flow rate can go through. Right. And then it's also the secondary processing side. So how long does it take to do the secondary processing or the refinement of those oils? So bigger doesn't necessarily mean better and they're also, you know, smaller pieces of equipment have advantages over bigger pieces of equipment when you're talking about throughput and processing operations.
Going back to the submarine days, you know, submarines have two of everything, right. There's two turbine generators, two propulsion generators. There's two life support systems, oxygen generators. There's all these different systems that are onboard a submarine, have duplicate systems on them. And the reason for that is if one of them fails, our submarine can still maintain a one to one surface-to-dive ratio, right? To make sure that if we go down, we come back up every single time. If we didn't have two of everything and there's a failure, we're down, right? And that's life and death in a submarine.
Manufacturing doesn't have that life and death thing, but it can sure be a pain in the butt if your piece of equipment goes down and you don't have a backup. And so the scaling approach or the production throughput approach that we always recommend for our customers is not don't go by one of the biggest giant things you can get your hands on. It's start small, do some test extractions first, then scale to the next size up. Pick a manufacturer that has a scalable technology so you can make sure as you buy the next piece of equipment that it isn't gonna change the operating characteristics or the quality of the output.
And then once you get to a point where you just need the capability, further capability, you don't need to do experiments and trials anymore, get redundant systems, right? Buy two, buy three medium-sized systems as opposed to one large system. What that does is it gives, you know, the backup capability. And it also does things like spare parts. Right. Now you've got one kit of spare parts as opposed to three. And those spare parts can be used across all three of those different pieces of systems. Generally the systems are smaller, so the spare parts are cheaper.
And one other really, really critical point, especially if you're talking about CO2, smaller systems, smaller vessels in particular mean thinner walls, and who cares how thick the wall is of the vessel? Well, thinner walls, most of these systems are stainless steel. Stainless steel does not conduct heat very well, so you don't get good heat transfer or thermal properties. Thinner walls are able to overcome that better, faster because there's not as much material that had to transfer that heat through. So we always recommend going with smaller vessels because you can go from subcritical parameters to supercritical parameters much faster than having one giant vessel that you essentially have to think of more of a startup, it's like starting up a power plant, right? You've gotta get it going, it takes three, four hours to get the thing heated up and get it equalized. And then you have to run it for a long, long time, right. And making changes to it on the operating characteristics are very difficult. So these big systems that people are considering purchasing, that have the capability of one system doing all the throughput that they need sometimes isn't the right solution.
Matthew: Yeah, I agree with you. Mentally, I think I would make that mistake, too. Just always throw more horsepower, more cow bell at every problem. So that was a good distinction there. I appreciate you making the, like, you know, teasing out those nuances because I hadn't thought about it that way.
Andy: Yeah, and my wife is actually the one that points this out to me frequently. I tend to say, and I think men in general are like this. If a little of it's good, a lot's better, and it doesn't matter what the application is, if a little is good, a lot's better. That's really not a good way to think about extraction and manufacturing throughput.
Matthew: Good points. Now I know that this tax plan that went through at the end of 2017 has more depreciation or, you know, 100% depreciation the first year on a lot of capital equipment. I haven't talked to you about this, but is that something that transfers to the equipment that you're selling?
Andy: Yes. I mean, so this is a capital acquisition. For our customers, buying the equipment is a capital acquisition. And so the ability to do a section 279 write-off is there, but that's been there for quite some time. You know, the bigger challenge for our customers, particularly in the marijuana industry are the 280E tax hits. And so, you know, being creative about taking a financing structure as opposed to doing a capital acquisition is generally the approach that we'll see more savvy companies and/or more financially-smart companies will take, if you finance it, if you rented essentially. So develop a secondary corporation or a leasing corporation that acquires the equipment outside of a marijuana license and then rent or lease that piece of equipment to your marijuana licensee. That rent becomes a cost of good. And so that's a way that a lot of people will try to minimize that 280E burden.
Matthew: So they created their own financing vehicle, another company. Do you offer financing or do you have a third party financing company? How does that work?
Andy: Yeah, you know what? My financing story's kind of funny. But we don't currently offer financing. There's too many other people out there that do it. But it wasn't too terribly long ago that there wasn't anybody out there that was offering financing. Back five, six years ago when I decided to focus on Apeks in a full-time capacity, I had this piece of equipment and I had customers, and the equipment costs $100 grand, but they didn't have $100 grand to throw with the equipment. Now they could make $100 grand on it in a matter of days, but they didn't have a way to get the $100 grand in the first place. So I was basically forced into self-financing a lot of these systems that we produced in the early days. And, you know, I'm not a finance company, don't ever wanna be a finance company. But nonetheless, that's the way it had to go in order for us to survive back then. You know, nowadays there's plenty of other financing companies out there that specialize in doing financing and are much more well-equipped to do it than we are. But nonetheless, that's kind of my history of the financing.
Matthew: So you point prospects to these financing companies as you go through the process of introducing them to your solutions, I take it?
Andy: Yeah. And we've been through, you know, unfortunately, we've chewed through a lot of financing companies. It's disappointing, but as you might expect with most everything else in the marijuana industry, there's some unscrupulous players that are just trying to take advantage and make some quick bucks. The best financing companies have long-term careers and provide support. Brokers tend to be a giant pain in the butt. We try to work directly with financing companies themselves and not really involve brokers because they really tend to muddle it up.
Matthew: They delay the process and just introduce some complexities that don't need to be there?
Andy: Well, yeah, they're looking for their fees. And so, you know, the challenge with a broker is if they're shopping your deal across four or five different banks or private equity firms or whatever it might be, they're doing that. They're shopping it. While they're trying to get a good rate, they're also looking for the best deal for them. And so sometimes they'll say, ''Well, these guys are gonna give me a better deal. They're gonna give me a bigger cut of this. And while the rate may not be quite as high, I'll get a better deal. So I'm gonna push everybody towards these guys.'' When that may not be the best solution for the end customer. I look at consultants kinda the same way. You know, consultants, they should be third party, unobjective, unbiased. Any consultant who says, "Yeah, I get a kickback or I get a cut from different manufacturers, different vendors." And that subsequently is what I recommend as a solution. There's a conflict of interest there and, you know, so the financing brokers, consultants in the marijuana industry, you know, those are red flags to look out for.
Matthew: Interesting. Now, if you could wave a magic wand and solve one problem in extraction technology or take the technology to a new level, what would you do?
Andy: So real-time control is how I would probably answer that one in a short answer. One of the biggest challenges with, with any of the extraction technologies that are being deployed right now in the marijuana space and/or even hemp CBD is, it's kind of this black box, right? You load the material in, push start, it runs for a little while and makes some noise and does its thing. And then at the end, you open up the cup to see how much was there. Right. And there's really no way to tell while the extraction's happening, you know, how efficient it is, what's it bringing out, what rate of throughput is it running at, what efficiency is it utilized at and, you know, are you utilizing all of the power and energy that's been put into the solvent as it's passing through the material.
Those real-time controls and this real-time monitoring of parameters just hasn't made its way into the industry yet. And that's what we're super excited about. You know, we started doing some testing on this almost four years ago and I've kind of struggled to figure how to get it in, but just last month, we had a tremendous breakthrough on real-time processing analytics and monitoring that is gonna revolutionize the automation platforms for us.
Matthew: Wow. That sounds cool. Okay. Now, when you put on your x-ray vision, future vision here, what does the extraction industry look like? How is it different in three to five years than it is right now?
Andy: Well, one, it's bigger. You know, I think you're gonna see a delineation between recreational and medical markets, especially if there's some kind of a change at the federal level. But even without that, you can already start to point to medical companies look more like pharmaceutical operations, whereas recreational companies tend to look more like, you know, alcohol and even, to some degree, tobacco companies. And, you know, the way that they produce their products is different. Pharmaceuticals, you know, clean, pure, single compounding and, you know, taking the approaches to get things approved through the FDA, whereas recreational tends to be more about branding, logos, brand recognition, and a lot of times, cost. You'll have a smaller connoisseur market, you'll have a larger bulk market for what is a lower-quality, cheaper product.
So I think that's the way you're gonna see the market go. The extraction companies are gonna follow suit and support those things. So I don't think you'll see this combination of both, an extraction company providing both medical and recreational products. You know, I don't think the cleanliness standards for the medical side are gonna be low enough to support doing it in recreational efficiencies.
Matthew: Right. So you get a lot of customers asking you the same questions over and over, and probably they're not thinking about things the right way. Like as you mentioned, they're like ''Give me the 10,000 horsepower and one that's the size of a sperm whale.'' And they really need one that's much smaller and much more focused to the task at hand. Are there any other questions you feel like prospects should be thinking about, but they just don't even know how to frame what they're doing yet because they're new to the industry?
Andy: Yeah. You know, the scale... There's two pieces there and we've kind of touched on both of them, so I'll reiterate them here just briefly. But scale is one of them for sure. You know, if you've never done an extraction, you get no business modeling out a million-dollar or a multimillion-dollar extraction platform. There are so many things that you just don't know about the extraction parameters and the response to your feedstock without doing smaller scale testing first that...it's irresponsible. Right. You're not doing your investors or your money guys any favors by taking that approach. Start small, scale up and, you know, find a scalable platform that's been proven over time.
The other one is, that we touched on earlier, is the fact that, pay attention to what your end product is. I can't stress that one enough. Making sure you understand what you wanna make rather than what extraction equipment you wanna start with. It's so important and vitally critical to the success because you have to think through, before you start, you have to think through all of the different steps that it's gonna take to get to your end product. One of the huge, as you mentioned, lots of people call us and we get a lot of first-timers calling us, which is fine. We enjoy talking to them. We enjoy helping them through this process, but, you know, one of our qualifying questions is, "Have you done an extraction, yes or no?" And, "If you haven't done an extraction, what do you want to make? What's your end product gonna be?" When the response is, "I want to make everything, but I've never done an extraction," that's a huge red flag. Pick something. Focus on it. Start on whatever, you know, whether it's vape pens, whether it's dabs, whether it's edible products, whatever it might be, pick one, focus on it, get really good at it, then start to expand your product line. And those are the guys that we ultimately see succeed.
Matthew: That's funny that you mentioned that. I was a reading a story about how Bill Gates' mom, before she passed away, got Bill together with Warren Buffett for a dinner and they're all sitting around and Bill Gates' mom said, ''You know, what do you two attribute your success to?'' And they both at the same time said, ''Focus.'' And then laughed because it was, you know, it's not what they're doing so much as what they're not doing or, you know, however you wanna look at that. So that's interesting.
Andy: Yeah. I, for a very brief stint in my career, I did a little bit of work for Apple, and then talking to the guys who were deep-in with Steve Jobs back in the day. That was their one thing that they always went back to, on what Steve Jobs was good at and that was saying "No." He was really, really good at saying no.
Matthew: Yeah. They said there's another saying there that "Genius loves constraint." Like, if you have no constraints and everything's wide open to you, like all the permutations and possibilities, it's just overwhelming and then you can't focus.
Andy: And if you're smart enough to be able to deal with all of those possibilities and can actually think down the tracks of the different possibilities of what you could produce, you know, next thing you know, you're off in outer space someplace. I've got a partner who's kinda that way actually. He's just brilliant and if you put something in front of him, he will have 17 different ways to utilize it and different solutions for how to do it. And by that point in time, we're so far off track of where we should be as far as an operational program that it doesn't even matter. So, you know...
Matthew: But at least it's entertaining, though, right?
Andy: I mean, it's fun to watch, it's fun to listen to and it's impressive just because this guy's just so incredibly intelligent. But, man, oh, man, the herding cats saying is, that's exactly what it's like. When we're trying to have an operational conversation about how we're gonna move efficiencies from 1% to 3%, that's not the guy you want in the room.
Matthew: Right. It's good to have the dreamers, though. It's like, "Hey, this is a whiteboarding session. Nothing's off." So it's good to have both. I guess that's what makes humans so interesting.
Andy: Yep, and it takes all types.
Matthew: Yeah. Well, let's turn to some personal development questions here. Is there a book that's had a big impact on your life or your way of thinking that you'd like to share?
Andy: Yeah. I got turned onto a book called ''Extreme Ownership'' by one of my advisors about a year, maybe two years ago now. And it's a book by Jocko Willink and Leif Babin. Jocko and Leif are Navy SEALs and they spent a lot of time in Afghanistan and in Iraq and places like that. Recently, I guess not recently, a few years ago, got out of the military and kind of wrote a book about the SEALs and what it's like being in the SEALs and how that translates into business and, you know, kind of...the title really gives it all away. It's extreme accountability. But if I was trying to summarize it in my words, ''Extreme Ownership'' is just that anytime anything ever goes wrong, and there's always lots of opportunities for stuff to go wrong, think of it not in terms of why it went wrong and who someone else or what someone else did or what extenuating circumstance happened that ultimately came down and bestowed this problem upon you. Think about what you could have done differently in terms of extreme ownership. Take full accountability for it. Whether you really think you do or not, doesn't even matter. Think about, put yourself in the context of extreme accountability. What could you have done differently to affect the outcome?
And if you put yourself in that situation and you start thinking about all of the different reasons and all the different things that you could have done different, right? Sometimes it's tough to swallow, but when you start thinking in that context and taking extreme accountability, the outcomes start to become different. And that's the real key. If you think, "Hey, you know what? Everything that happened is my fault, right? I could've done this better. I could've done that better," things start to fall into place. And from a culture standpoint, right, your employees, your directors, the guys that are working for you, they start thinking the same way as well. "Hey, you know what? I could've done better on this, so the next time we go do this, I'm going to do this differently, right?" That culture starts to really grow and that extreme accountability or extreme ownership really starts to play out in every aspect of the business, right? It's not just producing or, you know, the individual product, it's engineering, it's customer service, it's cashflow, it's finance. When everybody starts operating at an extreme ownership mentality, you get significantly better results. And that's ultimately how the, that's how the SEALs are as successful as they are. Every one of those guys operates under extreme ownership. Every problem is their problem and they're the cause of that problem and what can they do to fix it? Never place blame on anyone else. Always place blame on yourself.
Matthew: That's a great idea because if you don't take ownership and you project blame onto outside circumstances, you can never improve because you can't control outside circumstances.
Matthew: And it also happens at an executive level where you're saying, "I make mistakes, but I own the mistakes." That's a great thing that, you know, can then radiate out to everybody that's like, "Hey, you know, we're gonna make mistakes, but we're gonna take ownership for them and we're gonna improve." I've had the displeasure when I was younger to work at businesses where the person in the highest ranks did not even acknowledge that they ever made mistakes. And that is, it's so uncomfortable. It's like, "What are you talking about? Everybody makes mistakes. We're human."
Andy: Right. Exactly. So this particular book, this "Extreme Ownership" book, you know, Jocko and Leif do a real nice job of breaking it down into 10 or 11 sections that are all applicable to business. And they tell a story, you know, from their time in Afghanistan where, you know, it's a life and death situation. And then they translate that story to a business situation that they're working with, you know, as consultants on and tie the two together and it's very entertaining. It's engaging. And at the same time, it's an opportunity to learn. I really enjoyed the book.
Matthew: That's a great suggestion. I haven't heard that one before. Now, is there a tool that you consider vital to your company or your individual productivity that you'd like to share?
Andy: Yeah, that one's a tough question. There's about a million different things that I would share. But trying to keep it contextual to the marijuana space, which is in the cannabis industry, cash is probably the biggest tool. As strange as that may sound, you know, a lot of people might say, ''Well, yeah, duh. You know, if we had more cash, then everything would be fine.'' Cash is king, and in an industry where financing opportunities and financing options are limited even for us, I mean, we've had our bank account shut down, you know, multiple, multiple times. We struggled to get banks to give us a loan for even building expansions for our business and we don't touch the plant. You know, our accountant shut us down because we got a processing license now that we do touch the plant. Lots and lots of constraints that ultimately all flow down to cash, right?
And making sure that you got enough cash on hand to be able to survive good months and bad months, but also keeping in mind that the industry is growing and evolving and getting so much bigger so fast that if you're not innovating, you're dying. And so you gotta have cash not only to support your business operations, but you also gotta have cash to be able to invest in your future, your company's future, your business's future. And if you don't do that, and you could do it by getting an investor, right, you can bring on investment. That's what a lot of people do. But if you're like me and you bootstrapped the whole thing, you gotta have a lot more cash on hand than you would normally have for any other business where you can go get things like lines of credit. And, you know, I think there's lots of business systems and processes and accounting software and all that kind of crap, but I really think cash is the tool that can make and break businesses. It does, for that matter.
Matthew: Yeah, it's funny. It's like the oxygen in the room, like, you need that just to continue. You notice when the oxygen starts to get low. So it's vital. There's a book about, I can't remember the name of it, but I'll try to link to it in the show notes that talks about that principle of cash first. And my experience has been with my own businesses and others, is that most businesses fail not because they have a bad idea, but then they run out of cash.
Andy: Yep, exactly. And that's going back to where I was talking about financing, that absolutely almost put us out of business. So we were the 24th fastest-growing private company in the US, back in 2015 on Inc. 5000, and we almost ran out of cash because I had financed so many deals that, you know, I was at a point where I was like, "Yeah, I got all this back order, we got all this stuff, but I don't have enough money to make payroll." And, you know, a huge, huge, huge problem. So that was a big eye opener for me.
Matthew: Now, where are you in the capital-raising process? Are you raising capital? Are you done with it? Where are you?
Andy: So I currently still own 100% of Apeks and I've never taken on any investments. That being said, we're actually looking for opportunities for investments. And, you know, in an ideal world, it's not so much private equity and just coming in and shoveling a bunch of money into it. In an ideal world, you know, we would look for an acquisition strategy. Whether we're the acquirer or whether we're the acquiree doesn't really matter. But as you start to see consolidation of our customers, you know, the plant-touching folks, whether they're processors or whether they're cultivators, doesn't really matter. There's a ton of consolidation going on. That consolidation is gonna carry through into the ancillary supply side, you know, the manufacturing businesses and service providers and things like that. You're gonna start to see consolidation and that's really what we're looking for. Not so much of an investment strategy, more of a longer-term growth strategy to allow us to combine with other similar-sized and complementary extraction companies and/or manufacturing companies to ultimately get into a consolidation area and become one giant company.
Matthew: Very interesting. You're looking ahead. That's great. Well, Andy, as we close, how can listeners reach out to you and learn more about Apeks Supercritical if they're interested in investing or if they're interested in becoming a customer, how do they do that?
Andy: Our website's the best place to start. And that's apekssupercritical.com. And Apeks is spelled A-P-E-K-S, supercritical.com. You can always call us, 740-809-1160. And if you wanna get a hold of me directly, feel free to email me. I am andyj, A-N-D-Y-J, @apexsupercritical.com.
Matthew: Well, Andy, thanks so much for coming on the show today. And as the winter approaches, I'll be thinking about you as you go through a hundred days of gray skies and all the best to you. And when you start to get patients in Ohio, we'd love to have you back on to hear about how you're doing as a processor.
Andy: Yeah, we're super excited about it. You know, Ohio's program has been stalled a couple of times and delayed a little bit more than certainly anybody wants. But it's coming around. You know, we expect that we're gonna open our processing facility in the March of next year timeframe. And, you know, we're really eager to provide medicine to patients. But we're not just gonna make our own stuff, we're also gonna take a opportunities from our 500-plus customers to white label and do what's called commercial kitchen manufacturing where we'll manufacturer things in our facility here in Ohio. But we'll do it according to the formulations of our customers and put it into the customer's brands and packages that might be in California or Colorado or Oregon or other places like that.
So we really see this as not just an opportunity for Apeks and/or Ohio Grown Therapies to succeed, but it's an opportunity really for all of Apeks's customers who've developed brands in other states to have an opportunity to play in Ohio without having to put up the million-plus dollars that it cost us to get this license.
Matthew: Very cool. Well, you'll have to come back on and tell us as that evolves how things are going, because I haven't heard much from an Ohio market because there's no patients, but I can't wait to see what evolves there.
Andy: Definitely. I'd be happy to come back on.
Lars Meijer from Codema Systems Group shares how the top cannabis companies are using automation to radically increase efficiency and profit. Cultivators not thinking this way will be left behind soon.
– Mapping out the lifecycle of your plants
– Creating a workflow
– Building automation around your workflow
– How moving and flying tables enable efficiency
– Reducing input costs
See Codema’s Solutions Videos Here
Matthew: The lion's share of profit in cannabis cultivation will go to the producers that make top shelf cannabis efficiently while maintaining profit margins. So, how does a cultivator become more efficient? It starts with automation and process planning. Here to help us understand more about efficiency in the grow room is Lars Meijer of CODEMA Systems Group. Lars, welcome to CannaInsider.
Lars: Thank you. So now, I got to be a guest on CannaInsider. Matt, thank you.
Matthew: Give us a sense of geography. Where are you in the world today?
Lars: Well, our company is based in the Netherlands and in a small town called Bergschenhoek. And for most people more aware with the Netherlands is near Rotterdam.
Matthew: Okay. And I'm in Lisbon, Portugal today.
Lars: Oh, wow.
Matthew: Yeah. Probably a little bit sunnier than the Netherlands.
Lars: It is, yeah.
Matthew: Yeah. There's a lot of people from Sweden visiting Portugal right now. They said it's already like late autumn there. So they're getting their final sunshine in before returning to the Great White North.
Matthew: But I know you're in the Netherlands. Okay. So let's go here. What is CODEMA Systems Group at a high level?
Lars: Yeah. The CODEMA Systems Group provides automation every essential part inside the greenhouse. So this means for the cultivation systems, logistical side in the greenhouse, water treatment/irrigation, but also software for growers.
Matthew: Okay. And we'll get into the details of that in a minute. But first, tell us a little bit about your background, Lars. How did you get involved in this industry?
Lars: It's actually a quite funny story. When I was young, I studied to become a pilot. I am licensed. But in the past, it was very difficult to get a job in the aviation industry. But in, yeah, where I grew up in a notorious area called Westland, and that's a big part in the Netherlands with a lot of greenhouses. So when I was young, I also worked inside the greenhouses. And therefore, I really liked the business since I was already young. So that's how I...yeah, Instead of flying, I got into cultivation.
Matthew: Oh, cool. I guess there's a lot of similarities because there's a lot of checklists and details that have to be just right. And with what you're doing now with cultivation, there's a lot of details and things that need to be just right in order for takeoff of the plants to happen, a little slower process, but [crosstalk [00:02:48].
Lars: Yes, the growers are getting more and more sophisticated and more higher level than from the past. So, yes, there's a lot of similarities, yes.
Matthew: Well, let's go over how this type of automation improves things. Let's start with energy. How do CODEMA's tables reduce energy cost? And maybe before we do that, maybe just...I'm saying tables and you might say tables or containers, maybe just make a visualization of what you're talking about exactly when we were talking about tables, and why it's important for a cannabis cultivator to think about having tables or containers in their grow operation?
Lars: Yeah. I think, first of all for every grower, you wanna get the highest efficiency for your square meters as possible. And with our containers, that's what we call them, could be completely automated. And when you want a high-level automation, we can create it with containers. It can be moved automatically throughout the grow zone of the greenhouse or a multilayer grow zone. It doesn't matter. And our containers are like an aluminum frame and they can hold like a plastic bottom tray, which can be filled with water like an ebb flow system. So the water rises a few centimeters, and it flows out automatically of the container again. And this way, the crop on the container can retrieve its water through its roots. And there are, like, three options you can handle these containers: manually, semi-automatic, or fully automatic.
Matthew: Okay. And so they're kind of like manageable workspaces, these tables. And how big is your average table?
Lars: Yeah. Like it says, we are a custom-made company. So we can do whatever the customer wants but it mostly depends on the base size of the greenhouse. So for example in the base like eight meters wide, we usually take a container a little bit less than half of the base. So we get two tracks of containers inside one bay.
Matthew: Okay. Yeah. So you have these, I will call, manageable workspaces in the table or container, we'll just call them tables. And then there's a design automation where you plan out the whole seed cycle process, and these tables kind of move along like a conveyor belt or an assembly line in an auto manufacturing where the whole process has been thought out and these tables go where they're supposed to when they need to, sometimes even being picked up in the air and moved from one place to another. Do I have that correct?
Lars: Yeah, that's completely correct, yeah. And there are like lots of different ways to handle those containers. But, yeah, those are a few examples. Yes.
Matthew: Okay. Okay, now that we know what the tables or containers are, let's start with why they're important. And maybe talk a little bit about energy. How do CODEMA's tables reduce energy and cost, energy cost specifically?
Lars: Well, I think energy cost isn't the most drastic one because, of course, energy is very important. But those can be more being achieved through solar panels or other ways. And I think the reduction of our system...I think implementing our system is a reduction in the labor cost. I think this one is the most important one, because you don't want any employees or workers inside the grow area.
So handling the containers or, yeah, what you said, the tables or the moving working areas, they can just handle the...they can move inside the greenhouse by itself, and then they go to the work zone where the employees can work on the tables. So they can harvest, they can remove anything, they can clean the containers, and whatever. So I think the reduction of labor is the most important one.
Matthew: Okay. So reduction of labor, keeping people out of a working area is important because humans bring in spores, and bacteria, and all these different variables that are hard to plan for. So when you say labor cost is the most important, how do you walk through a prospective customer on, like, how much less labor they need once they implement a system like this?
Lars: It's very difficult to make it like a hard number. But sometimes, we try to make a calculation with the customer how many plants he is handling at the moment when he's doing it by hand or by a forklift truck. And then we calculate with our capacity how many plants we can handle with our system. And sometimes this may even triple the amount of plants he can handle. So that differs for every greenhouse, and every project, and we calculated each time again.
Matthew: Okay. Okay. So it's very customized. There's no one answer. Maybe, has there been a client in the last year that has told you how much they've been able to reduce labor cost, like any specific examples?
Lars: Yeah. He said, I think it reduces workers, which is hours for like 60% or 65% of his workers, yes.
Matthew: Wow. Wow. And not just that, it's just that it's so repeatable and predictable. When you give like a request to employees, "Hey, go do this, or this." Or, "Start to plan harvest," to do, or that, it's just not as predictable because all these things for human to human communication, there's a lot of things that are lost, interpretation. And when you boil things down to a physical automation process, there is an objective way of seeing how your seed to harvest is gonna happen in a very predictable way that takes some stress and anxiety out of the process, I think.
Lars: Yeah, yeah. And like you said, machines don't make mistakes because we program them the way we want them to work. So yeah, for example the plants are on the table and you always want like, for example, five centimeters apart of each other, a robot always does the five centimeters. And if an employee does it, it might be six centimeters, or four and a half, and it maybe doesn't give the right uniformity in plant growth. So yeah, that's totally correct what you were saying, yeah.
Matthew: Well, let's talk a little bit about error rate like you just mentioned, you know, getting the right measurements. What other measurements do humans make that are then replaced by CODEMA's system? So water, movement, what other things? What kind of measurements and error rate is there that you could talk about at all?
Lars: Yeah. So with our also the climate computers and automation of watering, you can always give the same amount of liters of water to every table. And whenever there's like an employee walking around with a hose, he has to count for himself and see with the eye. But that's never so precise as a machine. And that's the same for everything also with climate, temperature, also walking around inside the greenhouse, the employee might not be paying any attention, and he's walking against plants, it falls over, it breaks down, and especially with the cannabis plants they're really sensitive. So that's why you only want the robots, or the drives, the automation to move the containers around. So, yeah, to keep your crop safe.
Matthew: Yeah, okay. How about yield here? I mean, are you seeing increased yield after one of the systems is put in, or is it just more of a uniform yield because you're doing things in such a predictable, methodical way?
Lars: Yeah, I think it's a combination of both because, like I said, you can plan easy ahead because you know how many plants a robot or a system can handle. And an employee might differ because he's sick or he's not so feeling well on one day or the other. And I think also with the uses of square meters increases with our container system. For example, if you're just growing on the ground, you always need some walking space for your employees to walk inside the greenhouse and to work on the plants. Well, that's not needed anymore because the plants come to the working area, to the people.
Matthew: Right, right. That's hard for a lot of people to visualize. Like, "What are you talking about?" Like, these things are connected like on a conveyor belt, and the workers are standing there, and then a table arrives in front of them to do their work.
Lars: Yeah, yeah, it's fully automated. So it's just, you press a button or you sit behind the computer, and you're like, "Okay, this container needs to be harvested." And they're like, and I know two, three, four people standing on a position and the container or table steps by with the plants to be harvested.
Matthew: Wow. Okay. Now, what about if I want to add nutrients to the water for the roots to suck up, is there a way to automate that process too, or does it just have to be done at the water before it's delivered to the table?
Lars: Yeah, that's mostly in combination together with a water company. So yeah, you can store your clean water, you have a fertilizer, or a mixing machine which can clean the water as well, and that's all before it's transported to the tables, yeah.
Matthew: Okay, okay. And how do your systems work with the track and tracing of plants because it's really...you know, in North America, cannabis plants are like plutonium. They treat it like it's the most scary and harmful substance to society. And so everything has to be tracked and traced down to the tiniest detail, while you look at something like alcohol and you can just walk into any store and there's no safeguards, whatsoever, but somehow, this plant it's on lockdown. So what about the tracking and tracing because people are very interested in making sure that, you know, everything gets tracked and traced properly?
Lars: Yeah. I think we got a lot of questions from our current customers for the track and tracing. And in the past, of course, it was needed and it was asked for the growers. But like you said, for now in the cannabis industry, it's way more detailed than it used to be. And what we try to work with was with barcodes. So, in every table, so in every aluminum frame, usually there's a barcode. And in the PC, so in the PC control, you can see wherever the container has been.
So for example, in week five, it was located in bay five, and in week six, it's was located in bay four. And therefore, you can always see what happens to the container. So for example, one of the crop experts walk inside the greenhouse, and it's like, "Oh, wow, this batch isn't good anymore." He can just scan the container and sit behind this computer, and checks, "Okay, well, this isn't a good batch. Just remove it from the greenhouse," and this way, you can track and trace whatever happened to each plant.
Matthew: Okay. So that's software you said that, for example, the person sitting behind the computer, that software comes with CODEMA, with the whole system when you purchase it?
Lars: Yeah. Yeah, it usually does. We always ask the customer what he wants. If he has his own software, it's also fine. But yeah, of course, when you can place it in one company, the whole package, yeah, why wouldn't you?
Matthew: Yeah. Okay. And then how are the systems installed? Is that something that you do together with the customer, the customer does it, how does that typically work? How does that breakdown?
Lars: Yeah, differs per every project actually because each customer has his own wishes. Like, one customer has a lot of employees and technical guys. And he's like, "Well, I can do most of the installation by myself." But some others, they want nothing to do with it. So they just say, "Okay, you got all the responsibility and you have to install it." Well, and in most projects when we are overseas, we use local installation companies which have been working over decades. And so we know that they have our high standards. But in order to check everything, we always send a supervisor. So if we make an installation, for example in North America, then we use local companies to install the system. And then our smart guys for the electrics and the supervisor, they go ahead, and test the system, and check everything is done.
Matthew: Okay, that makes sense. Now, if a business owner was thinking they wanna have one person on staff that has the skills to maintain a system, an automation system, what's a good skill set to have? I mean, electrician fixing vending machines, a robotics engineer, mechanical engineer, what's the type of person, the skill set that's usually most helpful for maintaining these type of systems?
Lars: Yeah, I think you need two. So one mechanical, and one electrical. Those are the two most important ones. And usually when we are done with a project, we try to train two or three people who need to work with the system every day. So for example, like a company leader or one of the management's which has to work with the system every day, we train them as well.
Matthew: Okay, okay. And maybe could you talk about the most common application because there's a lot of growers that will be listening that they have anywhere from, let's say, a 500 square foot grow to a 5,000 square foot grow. And then there'll be some that have much bigger too. But what can you kinda tell them in terms of how this can really help their business, you know, and if they make the decision in the next six months? Because most people have to budget forward, go through the decision-making process. I mean, can you tell us what they get on the other side, what's the biggest benefit they'll feel?
Lars: Yeah, I think the biggest benefit is, like, you get the highest efficiency of your growing area. And for example, if you're just a small grower which is, like you said, a few hundred square meters, we also have other solutions. You don't need the moving tables around. We have lots of other ways for also small growers to increase yields, to raise up the plants so you can work on them with walking heights. And like you said, when you have a lot of square meters, well, then you do it fully automatic. So again, especially in a medicinal cannabis, you don't want a lot of people working, cross-contamination, whatever. So therefore, I think mostly the hygiene and the efficiency of the routing in the plants is the biggest benefits, yeah.
Matthew: Okay. And so when you're spec'ing out what system makes sense with a customer, what does that initial consult look like? How do you map the needs of the customer to then the capabilities of CODEMA systems?
Lars: Yeah, I think when we first start whenever we get a customer, or a potential customer, we ask a lot of questions. And then there'll be like 5 or 10 questions heading to 50 questions. So for example, "What's the floor gonna be like? How big is the greenhouse? What's your automation level you want? What type of crops? What's the crop cycle?" And I think we usually spend half a day just discussing with the customer. And then I go together with engineers, we make first draft of the drawing. Then we go back, I don't know, maybe two or three weeks after. And we have another discussion, so okay, maybe something has changed, he talked with another grower, and he wanted to change the cycle. And this way, depends on how much changes, we make a final plan. And whenever the final plan is ready, then we go into a quote, and etc.
Matthew: Okay. Now, is working with cannabis growers much different than working with the other type of indoor farmers you work with?
Lars: Yeah. It's quite different. Of course, it's...yeah, because it's a medicine and just like with vegetables as well, the hygiene level is way more important than we are used to. Our companies originated from potted plants, so like from the orchids, and other stuff, and green plants. And then a high-level of hygiene isn't very important. So that's I think the most different from our current customers. Yes, the hygiene levels, yeah.
Matthew: Okay. And are there any companies in North America using your tables now that you can mention?
Lars: Unfortunately, due to NDA's signed between us and the companies, I'm not allowed to mention any names. But what I can say is that there are few of the largest growers in the top 10 who are using and are going to use our systems in the future.
Matthew: Yeah. And I do know a few names myself. That's how you came on my radar. So there are some good ones doing that. Okay. Now, where do you see automation and indoor growing in the next five years going...where is it gonna go? Can you kinda tell us where that you think the future is? And I mention that because, you know, in talking to people from the Netherlands, it's funny, there is almost like a...everybody really thinks about cultivation or a lot of people do. You know, most adults I talk to from the Netherlands maybe because they see greenhouses everywhere just kind of have a low-level understanding, just everyday person of indoor growing, and so forth. And then there's, of course, a lot of experts there.
So I think the culture you come from is...you know, in Colorado, we say, "Oh, you know, people from the Netherlands, they're 10 years ahead in terms of their technology." And that's why a lot of times, they go to the Netherlands to try to get solutions. I think it's interesting how the cultures evolve that way. I think it's because...or maybe I should ask you why you think that is, is it because, you know, there's a ton of people in a very small area? And that area is below sea level. And there's just a lot of risk factors that need to be mitigated. So it's something that you're very aware of. Why do you think that is?
Lars: I think that that's a big issue, like we're below sea level, and we're a pretty crowded country here in the Netherlands, and we have always been a very picky or needy people, we're very critic, and also to ourselves, and to the food we eat. So we need food to be clean but it also needs to be good and you're not allowed to use any pesticide. So we're very needy as Dutches [SP] as well. And I think with the multilayer and indoor growing, it's still quite new. But for us, as a company, as CODEMA, it's not new. We've done it over decades. For example, in the tulip industry, we have done it's already several times with, I don't know, seven levels high of multilayer growing indoor.
And also for lettuce as well, we have done also seven-layer high with LEDs, etc. So for us I don't think it will change a whole lot, but I think the growers, they need to change their mindset and that the technologies for climate control that they are evolving really fast. So the lighting, humidity, air flow, I think that's where the evolving needs to take place in the indoor growing multilayer.
Matthew: Very cool. So everything is gonna just get whatever it is now, it's is gonna be more so. I mean, I keep on thinking there's gonna be a process where plants are, as they move through these tables, they'll be observed by cameras that can look for pests, and diseases, and recognize that, and then call attention to it through software or some other means, and maybe even predict that before it happens. So I think, you know, hopefully that's the way we're going. And then maybe even integrating automated trimmers right into the process, curing and trimming, all into the process. Now, I mean, a human has to intervene now, I imagine, you know, to cut the plant and then go through the drying and curing process. But do you see that all merging into one from after harvest to trimming, curing, all that happening in an automated way?
Lars: I think so. Yes. But it's not like it is already done by tomorrow. Just for example, take the bell pepper industry, and no one would have thought 20 years ago, that it'll be in robots, automatically harvesting bell peppers. And see now, I think you see one year ago there's robots automatically harvesting bell peppers. So I think there's an...of course, there's a possibility to automate everything. But I think for the cannabis it's gonna take a while because it's very sensitive crop and it's also very expensive. You don't wanna waste anything. So I think for now, people are a bit scared to automatically handle the plants and rather do it by themselves by hand. So just, yeah, to be more gentle with the plant.
Matthew: Yeah. Yeah. This automation is also kind of a consequence of higher and higher minimum wage. I mean, when companies see that the cost of the minimum wages are going up, they say it's better to invest in automation and save on those costs. Unfortunately, it's an unintended consequence of some policies in certain countries. I noticed in Europe, for example, whenever I go into McDonald's which is not that often, but I do like to just poke my head in and see what...and now, it's just all screens. You place your order on a screen at a kiosk and there's just no people, particularly you see that in France but elsewhere too.
Lars: Also in Netherlands, yeah.
Matthew: Yeah. And then a person does give you your food, but they've cut back massively. And now, if you go onto YouTube too, you can see that there's burger-making robots and machines, you know, work 24/7. So I don't know what the answer is and how we're gonna help reskill and retrain these people as they kinda get replaced. But I don't think those are jobs people really want to have anyway. So I think that's an opportunity to kinda bring them up to another level.
Lars: Yeah, I completely agree. And what you're saying with the minimum wage, that's why our systems aren't viable in every country. For example, in the past in Asia, their minimum wage was really low so they were like, "Well, why would we invest millions of Euros into a system when we can just hire a few cheap Chinese people?"
Matthew: Right, right. Yeah. And that's changing now though too. China is not necessarily a low-wage country at least in the big cities anymore, it's not, but certainly in the countryside, yes. So Lars, let's go to some personal development questions. I like to ask guests 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 way of thinking that you'd like to share?
Lars: Yeah. I was thinking about it. And during high school, I had a special programs called IB, International Baccalaureate. So it's for Dutch people who want to improve their English skills and just continue with flow. We had to read a book, it was called, "Nineteen Eighty-Four," and was written by George Orwell. I don't know, have you read it?
Matthew: Yeah, very familiar with it. Yeah.
Lars: Yeah, yeah. It's just so amazing. It was written in 1948. And it just showed the thought of a possible totalitarian society in the future and how scary it may seem. It looks so accurate nowadays. Big Brother is still watching us. And technology is amazing, don't get me wrong. After reading that book, I now always think twice before I put something on the internet.
Now, let's move on to a tool. Is there a tool web-based or physical that you consider vital to your day-to-day productivity apart from CODEMA tables?
Lars: Yeah, apart from CODEMA tables, yeah. I have sort of a calendar at home. And I don't think it's very funny for you guys, but they're like with a lot of Dutch sayings. If you translate them into English, they sound really weird.
Matthew: Okay, let's hear one.
Lars: Yeah. For example, you have the English saying, "It's raining cats and dogs." Well, that's perfectly normal. If you translate the Dutch version, it's called, "It's raining pipe steels." And for us, it's like, okay, Het regent pijp staal, it's raining pipe steel. So for English, it sounds very funny. And also for example, "Maak dat de kat wijs." This is a very common Dutch saying, but it sounds really funny in English.
Matthew: What does that mean? I didn't catch that.
Lars: Make that the cat wise. I think it's like, if you say something and I don't believe you, then I'm like, "Okay, make that the cat wise."
Matthew: It is weird. It is weird how like sayings and expressions, you know, you just have to understand their meaning or it's just crazy. But then when you try to pick it apart and dissect it, it's like it really doesn't make sense.
Lars: Yeah, that's really funny.
Matthew: You just have to know how to use it in context. Well, cool. Well, great talking with you, Lars. As we close, I'm sure there's a lot of listeners that will wanna reach out and find out if CODEMA is a fit for their grow. How can they do that and learn more, and maybe watch the videos and see what the tables look like?
Lars: Yeah. I think it's first, you could check our website, and it's called www.codema.nl. It has a lot of videos. So also for our other projects all over the globe, for example in China, Europe, but also the states, yeah, there's also our contact information over there, in need of questions, so you can always email or call us. So our website is www.codema.nl.
Matthew: Great. And how do you spell CODEMA? Can you do that, just letter by letter?
Lars: Yeah. CODEMA is C-O-D-E-M-A.
Matthew: Okay. Well, thanks so much. I really appreciate it, Lars. Good luck with everything you're doing. This is really exciting time and just an amazing opportunity to streamline the workflow. I mean, I get tingly looking at an automated grow like this. It's just an amazing thing to behold. So I encourage people that have an inkling to move in that direction to check out CODEMA. And best of luck to you, Lars.
Lars: Yeah, thank you, Matt. It was an honor and a pleasure to be on CannaInsider. And good luck with everything as well.
The days of informal commercial cannabis growing are coming to an end as governments, wholesale buyers, and consumers want next-level growing standards that many would refer to as Pharmaceutical grade standards.
To tell us about pharmaceutical grade cannabis growing is Tjalling Erkelens Founder and CEO of Bedrocan.
Learn more at:
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James Slatic is well known and respected pioneer and thought leader recognized by the Huffington Post as one of top five Cannabis industry movers and shakers. As the former CEO of Med-West, James led and grew to be a $12M a year California infused products company. James is an active industry advocate and has sat on the boards of the California & Nevada Cannabis Associations and the Marijuana Policy Project providing James with a deep understanding of regulatory markets and frameworks.
Listen in as James discusses his most recent move into automation and robotics in the cannabis industry.
See robotic automation video
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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. Robotic automation is making its way into the cannabis industry. Here to tell us about it is James Slatic of Todaro Robotics. James, welcome back to CannaInsider.
James: Thanks, Matt. Nice to be with you.
Matthew: Give us a sense of geography. Where are you in the world today?
James: I'm in Carlsbad, California, beautiful sunny San Diego area.
Matthew: Oh, that is a beautiful town. And I am in Lisbon, Portugal today. Tell me, what is Todaro Robotics at a high level?
James: At a high level, it's automation solutions for laboratories and biotech companies. We are specializing in laboratories that handle cannabis testing.
Matthew: Okay. This is really cool because it's finally we're starting to see some applications of robotics and automation in the cannabis industry. But it sounds like you're also dovetailing with some adjacent industries. I wanna dig into more of that. But first give us a little background on what you've been doing the last few years. I know you have had a run-in with the authorities on something and you've got a deep history in the cannabis industry. So why don't you tell us a little bit about that.
James: Sure. I started back in 2009. I stumbled into the industry and did packaging at popbottles.com and then that morphed into the V-pen business and O-pen and then I was a California licensee for O-pen and Bang and built a large distribution company and had 35 employeesMatthew: Yeah. Let's talk about what you're doing with robotics, and specifically, what's the problem that you're trying to solve with the use of robotics here? Maybe you can frame the discussion for us.
James: Sure. In any other industry in biotech and pharma, they would come up with automated solutions to the most repetitive and time-consuming tasks just because of efficiency and preciseness. Cannabis by its nature has been undercapitalized and as testing protocols have developed, it's been easier to throw say a technician at the sample prep part of testing as opposed to automated.
Matthew: Okay. So for a business owner or someone that might be in need of a system like you have, your automation system, can you describe what it would look like if they were looking over your shoulder and you are showing them how it works?
James: Sure. This is also... we have YouTubes on our website at Todarorobotics.bom. But basically, it is to automate the preparation of the samples. There are many things that are being tested. But if we were gonna talk specifically about flour, which most people are familiar with, it's going to take the sample and it's usually in a 50-milliliter conical tube and it's going to take that. It's going to put in some solution into it. It's going to agitate it with what's called a bead shaker and then it's going to pipette that into a... it's called a 96-hole plate. And then it's gonna barcode that and have that ready to go into the actual testing equipment whether it's a high-pressure liquid chromatography or gas chromatograph. So it's a sample prep system.
Matthew: Okay. Is this being used a lot by... or the idea being welcomed by brands that say, "Hey, wouldn't it be great if we could do some testing preliminary before we even send it out to a lab?" Because a lab is really just something for government officials or for the public to see like, "Hey, we have a third party in between us that verifies." But it's nice to know where you stand just in-house. So is that...or are you seeing labs welcome this where the labs are the ones doing this all day long?
James: The testing is mandated by state law. You have to use the third-party lab. Our systems which start at about $200,000 are more geared for commercial testing labs that are doing large volume of samples. So even a large edible manufacturer, they might be doing a preliminary test to see what things are on potency and so forth. There are other ways to do that to get sort of some preliminary data. Ours is for real sort of high volume and needing very precise measurements. So ours is more geared for the commercial market, which is between Canada and the United States, is probably about 100 testing labs right now.
Matthew: Okay. And for listeners, I'll put a link in the show notes for this video so you can see how this works. But essentially, it's like an articulating arm that's moving around taking samples and putting in places. James, you mentioned about a 200K initial investment. Where's the ROI come in for, the return on investment come in for a business owner or a lab or a brand that's looking to invest in this type of thing? How do they kind of pencil out how they make their money back?
James: Well, that's a great question. And the reason, there's two really sides to it. One is the cost and the other is the time. At best, we can estimate there's gonna be about 350,000 tests needed this year in California. And the license testing labs now in California, which I believe the last time we checked, there were 33 licensed labs but only 21 operating. They only had the capacity to do about 150,000 or a 175,000 tests, so roughly half of what we're projecting or needed to just support the California cannabis industry.
So we went to the regulators and said, "Hey, there's not enough labs and these tests are required. How are they gonna get them?" And they looked at us and they go, "Yeah, we don't know." And so we see that there's a real capacity issue. So a regular technician doing a sample and grinding it up and pipetting it and putting it in a plate and bar coding it and weighing it and doing the steps necessary, you know, they can do maybe about five to seven samples per hour sort of at best. The robot can do about 50 samples an hour.
So just from a capacity standpoint, it's a productivity tool that heretofore the labs have just thrown labor at the issue of getting samples ready because the machines themselves, the actual testing machines, they can handle quite a bit of volume. But getting the sample ready to go into the machine is really the linchpin of capacity. So having 10 guys sitting there on tables grinding samples and putting them in solution and pipetting them into the arrays to be tested has been the...besides the other things, which is it's kind of grunt work so to speak and people get repetitive stress injuries and it's actually they tell me the least desirable part of the lab work that people are least enthusiastic about doing.
Matthew: Yeah. And can this be done then with no humans there like say throughout the night? Can you leave the robot running or how does that work?
James: Yeah. So could you do it? No. The nice thing about it is you would have one person here. You have to sort of load it and you would actually have to take the trays at the end and put them into the next part of the daisy chain. But let's say you're working a dayshift and you had 10 guys working versus having the robot running all night. You could say have one person that was checking it, moving the trays to the HPLC or the other part of the thing or loading the cannabis for the next batch of samples. These things do run 24 hours a day. And as the CFO for one of the lab companies said, "We love the robot because it doesn't call in sick and doesn't mind working weekends and holidays." There is that efficiency side to it. I don't think it's designed to work autonomously. Its procedures are. It needs to be sort of loaded and unloaded.
Matthew: Okay. Yeah, you could probably reduce turnover somewhat here too because people don't see much future in just doing that type of labor. It's kind of grunt work. I remember in high school stuffing envelopes and doing things like that and like you go into like a quasi, like a twilight sleep just doing it because it's so repetitive.
James: And the other thing is that the repetitive side is also where your mistakes and your imprecision come in. The robot does it exactly the same way every single time. There's no variance. And this is used in DNA and all sorts of very precise things. It can do a level of quality and exactness that is really not replicatable by a human. So that allows the protocols and the measurements and the TQM procedures or whatever to be done and documented at a very high level. So this thing doesn't get sleepy and put in an extra half a milliliter of solution or something like that. It's very precise. And as we do these volumes of testing and the results being so critical for sales, you know, if you were to mess up a test and show somebody positive for a pathogen or something under many of the state's laws that the product has to be destroyed. You're really talking about a very high-value product and you wanna be as precise as possible.
Matthew: So how long does it take to get the robotic solution kind of programmed and ready for the specific use case of a lab? I mean, you're already working with some customers so I guess it's just kind of customizing it a little bit. But how long does that take from taking one of these units and putting it into a lab type setting before it's ready to roll?
James: Well, the installation and training part is about seven days. So we usually do like a Monday through Friday. We do what's called a factory acceptance test. We get the unit installed and start running it, that it's getting the measurements that everybody's agreed to and what we call the statement of work, the labs measurements, because what we have found is that everybody does it at least slightly different. And so the way that we actually handle the samples has been different for each person. So it's about a week inside. So from the ordering, it's about four to six weeks for us to assemble and get the various components in. Put it together in our San Diego facility then shipping and then about five to seven days there, which two days would be training of the personnel on site.
Matthew: And what about maintenance? Is there routine maintenance and what does that look like?
James: Yeah. So these system are unbelievably robust. My partner, the technical guy, Tom Todaro is the former chief robotics company for a biotech company here. He's been doing it about 20-25 years. And he tells about robots that he's had that have worked 24 hours a day, seven days a week for eight years without maintenance. So these things are unbelievably robust. Yes, things can happen, but they are not maintenance intensive.
Matthew: Okay. And how about financing because I know for some businesses, that $200,000 is a big chunk to swallow. What do you have to say there?
James: Yeah, that's something that could be done over time. But we still have this issue that when we're going to CannaTech Solutions or whatever, people are reticent to provide financing, banking and all the other problems that we know about cannabis. So right now, we're doing a 50% down, 25% on shipping and 25% on signing off the site acceptance test. So right now, you have to have your own ability to finance, which most of these labs have been doing it with outside investors.
Matthew: Yeah, I was gonna say there's an opportunity there for someone that wants to provide maybe some higher interest rate type of financing. I could see where that would be attractive to certain accredited investors perhaps.
James: I think it is a good idea. We've seen this in the extract business that people will finance, you know, CO2 machines or alcohol extraction machines or qualified companies. And they just provide a higher interest rate sort of private financing for these. And we have seen that going on.
Matthew: Yeah, because it's a little different there because it's collateralized with the robot.
James: Actual machine, yes.
Matthew: Yeah. Okay.
James: Yeah, the machine itself has got a lot of value just in the equipment.
Matthew: Have you tinkered with the idea of like creating a machine that could maybe give you a shoulder rub or something like that?
James: Well, it's certainly a variable machine. So let's just say it does lend itself well to some good joking around the office.
Matthew: Okay. And how do you see the robotic solutions helping the cannabis industry more in the years ahead and even outside of lab testing?
James: Well, there are so many other applications. So whether it's cultivation, we've spoken with some of the big clone manufacturers and then we've also spoken to some of the companies like Phylos Biosciences and Rev Genomics that are doing a lot of genetic research and marker-assisted breeding. These are things that need very precise, very measured tests, and even output. So we expected it to kind of dovetail into the general growth of the cannabis industry and to other scientific applications. Right now, those are in small volumes to where they're only doing 20 a week. They don't need a 2 or $250,000 robot. But once they're doing 200 a week or 2,000 a week, then these type of automation systems, you know, it's just part of the general evolution. When I got into packaging, people were vending their cannabis at dispensaries in baggies or all kinds of stuff. And we came up with professional packaging. And it wasn't really prolific back even 10 years ago. And so just like this industry in general, you're going to see it absorbing the methods of what's gone before them, which is pharma and biotech where they look at an automated solution wherever possible.
Matthew: So I just wanna circle back. You mentioned Phylos Bioscience, and so they do genetic research and also gender or sex, they test the sex of plants, I believe. And so something like that you're saying like perhaps tissue samples of a plant for the cannabis biome type projects and also for perhaps even the sex of a plant. You think that's a possibility?
James: Oh, absolutely. All you have to do is go into the pharma side of the industry or biotech, with San Diego as a big hub for that and you see all of that being done with robotics. We're going to be the same thing as the industry goes from the roughly 7 billion that it is now to the reported 20 billion over the next two or three years, all of those ancillary supportive. A lot of these companies are raising money. A lot of the Canadian pubcos are investing. One of the big lab companies in Canada, Anandia Labs was just purchased by Aurora Cannabis, the second largest public Canadian company. And so they're investing hundreds of millions of dollars into the technical side of cannabis. And so you just see that proliferating, not just in here in North America but also in Europe and South America.
Matthew: I think one of the leaps that might be coming next too is you can create...you can have a camera, a high-fidelity camera and look at flower as it goes by, connect that to an AI algorithm that looks at flowers, looks for patterns of mold ,or even just organizes flower by premium flower versus non-premium flower, over-cured flower, and then the robotic arm moves these things into different batches as they pass by. So it's kind of combining the AI, machine learning, pattern recognition with the robotic arm. I can see those things, that mirroring happen too.
James: Oh, absolutely. The whole AI world, machine learning AI world is changing all of our lives and it's going to do it in this industry as well. That's like almost a whole another discussion to get into where that's gonna go. I mean, I heard yesterday of a grow being done in Canada that's 800,000 square feet. Now you're getting things into the size and scope where you're gonna have to do automation. Some cultivators have already talked to us about sort of robotic systems that will go down sort of from a gantry almost down their line of plants and do things like that, infrared photography of the top of the plants and getting data points and so forth. You know, because of the high value of this crop per square foot, you're gonna see that more and more. I mean, these investments are just unbelievably big. So you're gonna need to support it with the technology.
Matthew: Yeah, it's really fascinating. You're a serial entrepreneur. You started a lot of businesses and had a lot of success. I mean, this is obviously a really interesting project. At the same time, if you had to do anything else in the industry and couldn't be involved in robotics, I'm sure in the back of your mind you're like, "Oh, this would be a good business. This would be a good business." They probably just fall out of your pocket all these ideas all the time because you have a good vantage point on the industry and a very entrepreneurial mindset. What kind of businesses do you think are gonna thrive in the years ahead either ancillary or even touch the plant?
James: Well, I'm involved in other companies and cannabis besides robotics. And one of the areas that I really like now is what we call the special events side. And I'm an investor, an advisor in another company called Regulated Solutions, and it has a special events license and is partnering with concert promoters and music venues to provide sort of the beer garden concept of cannabis. This has now been allowed by a new law here in California called AB 2020 that just passed and is on the governor's desk for signature now. So imagine going to your...say we have this festival coming up here in San Diego called KAABOO this weekend, imagine a tented-off area for 21 and over where instead of having Corona beer, you have say five cannabis brands and you're able to be educated, learn about them, be exposed to them, purchase and consume cannabis products just at a concert venue, so no more sneaking in your joint in your sock. You can just come in and enjoy adult-use cannabis just like regular people in this adult-use legal market.
Matthew: Yeah, I've actually used the shoe technique myself a few times in the past. I'm glad.
James: Who hasn't?
Matthew: Yeah. You think, "Oh, this is such an original idea." It's like, no, it's not original.
Matthew: Well, James, I wanna ask 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 or way of thinking that you'd like to share?
James: Well, I'm a meditator so I picked up the book by Paramahansa Yogananda "Autobiography of a Yogi" many years ago and along with people like George Harrison and The Beatles and so forth that had been transformative to me. That's something that I started meditating and espousing this type of philosophy. So I'd recommend "Autobiography of a Yogi" to anybody that want to sort of look at the other side of life and consciousness.
Matthew: Yeah, that's interesting. Did The Beatles go visit, was it Ramana Maharshi? Do I have that right or it is the one that you just mentioned, the gentleman they want to go visit in India?
James: No, they did go to Ramana Maharishi in India. Yogananda had left his body off when the Beatles were little kids way back in 1952. So he wasn't available to visit with them at that time.
Matthew: Okay. I've, over the years, looked at YouTube clips of Yogi's and see translations where they talk about it. And it almost seems like universally, there's this idea that were this reality or is not. It's like a projection or something like that. These really enlightened beings seem to say that. And then we have Elon Musk on the Joe Rogan podcast recently that said kind of a simulation theory as well. Do you ever get into the deep states of meditation and ponder things like that?
James: Well, I've been meditating for about 30 years. They call it practicing meditation for a reason. It's like the rubber band that can be stretched to infinity so you never go. Certainly, at times, you will get into a state where you really are 100% convinced in the heart of mind and soul that the senses aren't giving us the truth that there is something deep, something eternal, something beyond this physical body and our five senses that maybe some people would call the soul or the inner being and you can actually do techniques and see that light of the spiritual eye. When you see that or you hear the great Om vibration or the Amen in Christian religion, when you do that, then you're pretty convinced that there's something beyond these little bodies and our day-to-day lives.
Matthew: That's cool stuff. Is there a tool you consider vital to your productivity you'd like to share?
James: Well, I'm as low-tech as they come. So the only thing that jumped out at me is that I recently switched over from 18 years of the hell of Verizon to Google Project Fi. So my cell phone, my internet, everything has been switched over and I'm paying $30 a month instead of $180 a month. And I'm getting better service and quality and then last month I got a $20 referral bonus for referring a friend. And so my monthly data phone, everything was 10 bucks. As an entrepreneur, the fact that I'm saving like $2,000 a year and with a better thing, I thought that was kind of...our tech guy here at work said, "Hey, you should try this." And I did and it's been really, really good. So, Google gets another feather in their cap and I was able to tell Verizon to get lost.
Matthew: Yeah. In the circles I run in, that Google Fi is really popular too because you can go anywhere in the world without roaming charges. Did you know that?
James: Well, that's the reason I left Verizon as I went to Canada, and I even had the international plan and they still gave me $397 worth of international charges. I was like, "Wait a minute. This was supposed to be in my regular plan," and took hours and hours on the phone and they wouldn't take the bill off. They just have these duopolies and there's just no other choice. And now Google has given us a choice, and I was very happy to make that switch and it's been working out well.
Matthew: Well, that's great. That's a great suggestion. I encourage more people to do that because we need to give AT&T and Verizon the message that that model is not really friendly anymore.
James: Boy, I'll say.
Matthew: Well, James, thanks so much for coming on the show and telling us about robotics in the cannabis industry. That's really a fascinating subject. And when you have more applications, feel free to come back on the show and tell us more. And before we close, can you tell listeners again how to reach out and connect with you if they're interested in robotic solution for their business.
James: Sure. Just go on to our website Todaro, T-O-D-A-R-O robotics.com and take a look and hit our Contact Us if we could be of any assistance and we're happy to talk to you.
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