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The Young Mavericks Disrupting the Cannabis Tracking Software Space

Flowhub

Kyle Sherman and Chase Wiseman are poised to disrupt the cannabis seed-to-sale tracking software space with their software company called FlowHub.

Important: What are the five trends that will disrupt the cannabis industry in the next five years?  Find out with your free report at: https://www.cannainsider.com/trends

Key Takeaways From This Interview:
[2:09] –  Kyle talks about how FlowHub was born
[5:05] –  The software development process
[10:00] – Kyle talks about the importance of FlowHub’s customer service
[11:58] – Is FlowHub hosted or installed on a local server?
[13:48] – Chase talks about FlowHub’s research
[15:57] – Kyle talks about the iPhone function for FlowHub
[18:25] – Frustrations in the market with the existing software
[21:28] – Other uses for the software besides the Nug
[23:09] – Kyle explains the process in migrating to FlowHub
[23:54] – FlowHub’s price point
[24:55] – Where is FlowHub available
[27:17] – Contact details for FlowHub

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Click Here to Read Full Transcript

Matthew: Hi I’m Matthew Kind. Every Monday look for a fresh new episode where I will take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at www.cannainsider.com. That’s www.cannainsider.com. Are you an accredited investor looking to get access to the best cannabis investing opportunities? Join me at the next ArcView Group event. The ArcView Group is the premier angel investor network focused exclusively on the cannabis industry. There is simply no other place where you can find this quality and diversity of cannabis industry investment opportunities months or even years before the general public. If that’s not enough, you will also be networking with the top investors, entrepreneurs and thought leaders in the cannabis space. I have personally made many of my best connections and lifelong friendships at ArcView events. If you are an accredited investor and would like to join me as an ArcView member, please email me at feedback at cannainsider.com to get started. Now here’s your program.

As the legal cannabis business grows in the billions the market for software that can help cannabis cultivators and retailers grows with it. Up until recently there have only been a small amount of companies in the seed to sale software needed to run day-to-day operations in the cannabis space. However, there are new entrants doing very exciting things. One of those new entrants is FlowHub. I am pleased to have the co-founders of FlowHub, Kyle Sherman and Chase Wiseman with us today. Chase and Kyle, welcome to CannaInsider.

Kyle: Thanks for having us Matt. It’s awesome to be here.

Chase: Definitely.

Matthew: Now to give us a sense of geography, can you tell us where you are in the world today?

Kyle: Sure yeah, so actually I was in L.A. for almost ten years. Saw the industry there and then about a year and a half ago my wife and I we located to Denver. So now FlowHub is Denver based from the get go.

Matthew: Great. Kyle tell us a little bit about how you got into the industry and how you connected with Chase and how FlowHub was born.

Kyle: Sure so yeah you know about a year and a half ago my wife and I moved from Los Angeles to Denver. We just kind of wanted a change of pace. You know we were in the entertainment business out there, saw the industry really grow out there, and I just… man there was kind of this thing about Denver that was just really appealing. So we, you know, we saw Weed by Sanjay Gupta. That was like one of the last things we did in L.A. We also got married, you know before we left and we just kind of were like okay cool this is the next chapter you know. So we saw the Sanjay Gupta special. It was like you know oh my gosh I want to be a part of this movement. I really want to be a part of legalization.

So let’s go to Denver. Let’s figure it out, and so when we got out here you know because of my entertainment background I was quickly able to get involved with Dixie Elixirs, help them with some of their marketing stuff, did some videos for them. I helped Weed Maps out with some stuff and just kind of got connected in the industry. And at that point I had met someone who was putting together his vertical supply chain. Literally he had a marijuana infused products facility. It had a store. It had a retail location and had a grow facility. So really I saw that whole thing come together and while working at this grow facility, you know we were doing stuff on a clipboard and piece of paper because there was no great software platform out there that could actually do the things we needed to get done. No one was doing it.

And so I spent all this time there trying to figure out how could we manage our plant easier? How can we manage our compliance easier? There was nothing there. And so I was like man we have an opportunity to create something. And so I reached back out to Chase. We grew up together and we actually, it’s funny. Chase and I we went to elementary school and we were, gosh Chase we were like 11 years old when were like penny trading stocks.

Chase: Yeah not very successful, but yeah we were penny trading stocks.

Kyle: I mean we were just such a mess, but we’re trying to figure out you know how to do business together back then. And so it was funny because we kind of split off. You know I was in L.A. Chase was doing some entrepreneurial stuff, and we were just kind of doing our own things. Learning you know like building up this kind of like I don’t know just inventory of awesome stuff, all these experiences. And so we came together. I reached out to Chase and I said look dude there’s an incredible opportunity and you know Chase was, yeah, he had been looking at cannabis as well. And so it was just great timing. And yeah I mean the rest is history right. We started this company and now you know Chase was in Chicago at the time. He’s now moved out here with his wife and kids. That’s just kind of how we are now in the industry. This is probably it right Chase.

Chase: Yeah that’s pretty much it. That’s pretty much the creation of the beginning of FlowHub yeah.

Matthew: So Kyle you had this frustration first hand where you’re seeing hey there’s no great way to manage the plants that I can see. I’m doing it pen and paper. This could be the 1800s you know. We got to bring this up to speed from a technology point of view. So how did you make that leap from frustration to actually giving birth to a product that’s going to solve problems?

Kyle: Sure, wow, that’s a deep question, but I like it. So you know it’s funny because you know I think being there I started prototyping out kind of things that I thought would be really useful tools to have in a system you know. So while I was kind of simultaneously looking for a platform to fill this issue, I thought there was one out there honestly. I really thought I would find one. So in just playing around and developing stuff I think I started to really see that there was an opportunity here to scale this to be like I could help all these people. You know my thought was I mean gosh if we can help you know 10 growers you know help them get 2 more harvest out of the year, we could lower the price of cannabis in our state which means patients could be getting cheaper medicine, which means people who want to come out here as tourists and you know come try recreational cannabis for the first time, they can do that cheaper.

I mean it’s just so cool to be able to affect these things. So I saw the big picture of where you would go with it and really how much impact we could have if we did it right. So I think in that very beginning part it was just prototyping and figuring out where we could go with it with that bigger picture thing. And then in terms of like how we actually executed that, I think it was I mean a lot of I mean gosh we’ve talked to well over 100 different business owners at this point especially very early on especially. We spent a lot of time you know researching and talking to people in different states and what their needs were and what they were facing. You know and just realize there’s all these parallels across the board, and so with all this research I mean really FlowHub was born in talking to people and our customers. You know this is not stuff we just made up. I mean this is all really built from the ground specifically for regulated cannabis. And it’s built really by growers and people who’ve worked in this industry now and who’ve pioneered the industry. So it’s really incredible what we’ve built. I mean it truly is an incredible product and you know we have gone from zero to sixty very quickly.

Matthew: So there is a few other software companies out there that help the seed to sale tracking that we’ll say they’re more the incumbents there early on. The industry has changed a lot since they started their companies. You’re coming in now. Do you feel like you’re somewhat leap frogging where they started and going right to the second generation?

Kyle: You know look man, here’s the thing. These guys, these previous players that are out there already we’ve needed them. They’ve been fantastic. They filled the void. They’ve brought our industry where it is today. You know and I think what’s really important now is we’ve had that experience. We’ve been able to build this regulated market. We figured things out and they’ve pioneered that. I mean this was stuff that they did early on. You know these are the players. And I think, you know, we can’t forget about that. They really helped us get to where we are today, but I think looking ahead we’re looking at a really big industry.

We’re looking at an industry that’s going to scale very quickly. I mean there needs to be tools that are written really well from scratch for this business because if you don’t have tools built from scratch, you will never be able to scale them and optimize them the way that you could you know if you do it right from the get go. And so I think you know with that opportunity in mind you know Flow Hubs come along and it’s taking these great you know sensibilities that these other players have come in and said hey you know we need to track these products from seed to sale. We’ve taken that to the next level right. FlowHub says now we’re going to track these products from seed to sale and we’re going to do it so well and it’s going to be so ridiculously easy that someone can come and start working at a dispensary and within hours know exactly how to use our software. It’s incredibly simple.

And so I think you know when you compare us to kind of these players that have been around for a minute you know you’re looking at a company that’s using the latest, greatest technologies and bringing that into a package that’s just ridiculously easy to use. So we’re empowering these small business owners. I mean to run at extremely efficiency. I mean this kind of efficiency you wouldn’t typically get as a small business. You may get it at an enterprise level, but we’re giving these tools down to the smallest of growers and I think that’s really exciting. We’re going to be optimizing small businesses at incredible amounts. And so you know again it’s just like about using you know using this modern technology and kind of bringing it into the hands of these people who just want to grow weed. These guys love cannabis. That’s why they’re in this industry. They don’t love compliance, are you kidding me. You know let us take care of that. That’s what we’re here for. I mean we’re technologists. We love building this stuff. We’re also activists. We love the plant, but let us take care of all this really annoying computery stuff because we’ll do it. That’s what we love doing, and you guys love growing weed. So it’s like this kind of cool like thing right that we come together on. I think all of our clients really feel so taken care of because of that kind of thing. So I hope that answers your questions.

Matthew: It does.

Kyle: Chase do you think there’s anything we should add to that?

Chase: No I think it was perfect.

Matthew: I love the enthusiasm here guys. Now let’s dig into the nitty gritty a little bit.

Kyle: You know what, can I add one more thing? I’m so sorry to interrupt.

Matthew: Sure.

Kyle: One thing that’s so important to us at FlowHub, I don’t want to let people down something by not being able to hear this but it’s like one of the key factors that I found was customer service is number one in this business right. If you don’t have great customer service, you’re going to fail. Our industry right now, I mean, other entrepreneurs that are out there building businesses, customer service 150%. To us at FlowHub it is almost more important than our product, but our customer service is just so vital to us. I just want to make sure that everyone out there who is you know listening to this understands that how important customer service is and especially to us at FlowHub. It’s vital. So you know really whenever anyone is using our platform and they want to get a hold of us they can, and that has really been the key thing we found. You know there’s very few cannabis companies out there with fantastic customer support. You know one that comes to mind is Pax. You know they make the little Pax vaporizer. They have an incredible customer service department and I just wanted to add that.

Matthew: Yeah Pax is awesome but it’s officially just for tobacco. It’s not for anything else right?

Kyle: I know that’s what they say. It’s ridiculous you know, but I mean their customer service Matt is incredible because my Pax broke down gosh a year into using it, and they replaced it within like four days. I mean it was like I sent mine back. They overnighted me one. It was awesome. This was while I was in California and I mean that kind of customer service I mean the trust is great right. I’ve sold my friends on gosh I’ve probably sold ten of those just because of that instance of having this incredible experience with their product. So for us it’s the same way we want to offer our customers the best service possible. And it’s really just as important as your product experience.

Matthew: Now is FlowHub a hosted solution? How does it work? So just for people that don’t know hosted would mean that it would be, the application would be on FlowHub’s server versus a local client. Can you walk us through is Flowhub hosted, how does that work?

Kyle: Sure. This is a really funny conversation right because we’re kind of now coming up into a point technologically as a society where it just doesn’t make sense to house your own infrastructure. Why? Well because people put billions of dollars in infrastructure now, and then share that technology with smaller businesses and subsidize that cost across all these small businesses right. So instead of spending millions of dollars on infrastructure and building this crazy data center with our redundance we can provide incredible redundancy across the United States and across the world using a Cloud based host right. So for example we’re built on Amazon’s AWS, Twitter is built on AWs, Netflix is built on AWS. You have world class applications built on Amazon’s AWS servers. Look if Amazon goes down, the internet goes down. The internet is done right. There’s so many websites and web applications hosted on Amazon’s AWS Cloud services.

So for us it’s really important to provide super redundant servers and we keep it all in the Cloud because that ‘s where data is safest. You know people will try to tout you know hey we work off the cloud. We work on independent little servers. You know what, what is this, 1995 right. That’s not how things work anymore. It’s 2015, and we’re able to provide a way lower cost application with way more security and way more redundancy being in the Cloud. And so we’re very very proud to be a part of Amazon’s family in AWS Cloud for sure.

Matthew: Chase, the story of Intuit and the gentleman that started that he sat with his customers as they use the software for the first time to understand how they use it an how they want to use it. What kind of research is FlowHub doing to ensure that you really understand the problems and opportunities on a granular level?

Chase: Yeah definitely so the whole thing with this is like our initial customers have told us time and time again that it’s very hard to get problems they come across you know in their current systems that they’re using resolved. And many times they don’t even get, you know, any replies for weeks or maybe even months at a time. Our whole philosophy is, Kyle kind of went on earlier was you know when starting it we have to have the best customer service, the best customers overall experience and you know it’s a prime motivator for us. It’s you know parallel to as he was saying you know our end product. But you know the whole thing with us is we rarely ask ourselves what feature we believe we need to help the end user. You know our attitude has always been to work alongside a diverse clientele to ensure that the daily frustrations that everyone, you know, up the levels of a small grow to a large grow are met first before we start putting in the bells and whistles. You know this obviously kept our feature below really low, and you know we never have a confused user because it will increase productivity on the day-to-day operations ten-fold if not more and that’s more important than having a special tracker that no one’s going to use.

Matthew: Kyle and Chase you had me into the office in Denver a few months back and what you did left a lasting impression on me because I think about something called the Cone of Learning. And if you can visualize a cone at the top of it people learn in different ways but when someone tells you something you can kind of learn it. When they show you, you learn it deeper and when you’re involved in the process you learn it the deepest. And when I came into your office one of the first things you did was hand me an iPhone I believe with an exoskeleton on it and said Matt, move this plant from here to here and you didn’t give me any instruction. You just said do it and I did. I walked through doing it using a handheld device exactly as it was designed to do. What did you have me do there? How can you explain it to people that are just listening? You know they can’t see this. So tell them what we did there.

Kyle: Sure so you know it’s funny working in a grow facility and dealing with compliance and moving hundreds of plants around in a day and having to report that back to state and then report it into internal systems. You know we really early on I found there’s this huge headache and disconnect between really what tools were available and what you actually had to do right. I mean it’s pretty labor intensive tracking thousands of plants around a facility every day. I mean it really becomes you know quite the headache. And right now you know you have people because they can’t rely on their current software solutions, you know, you have people writing things down with a pen and paper and you know wheeling around desktops on carts that are plugged in with extension cables trying to figure out ways to you know log all this stuff with laser scanners.

And so we early on said you know let’s throw all that away. We need to deliver something that just makes these operations so much easier. So easy that someone like you Matt could come in right and start doing thing right away. No reading a manual or having to take webinars. We want to get rid of all that. It’s 2015. You know it’s incredible the things you can do with computers now. And so what we did is we created the Nug, and the Nug is a really cool handheld scanning device that lets you scan in you metric tags here in Colorado. So what you can do for example is in bulk say you have a room full of 500 plants that you need to move from veg to flower in a single day. You could go scan 500 tags and press move on the device and it’s going to log that move, time stamped with the particular user with their badge number that moved it.

So it’s incredible. Our transparency and the level of detail that our software goes into is incredible. And it’s just so, I mean, it is so easy anyone can do it. And we always say it’s always fun is like you know even the most medicated individuals can use our software and it’s true. We designed it for growers and cannabis users and people who are just obsessed with cannabis across the board. Everyone can use the Nug and can use FlowHub. So we’ve just made it very easy to do some of these simple tasks that use to take forever.

Matthew: It was very simple. Extremely simple. Now what’s the number one complaint you hear from perspective customers about their existing software where you’re like hey this obviously, I mean, we touched on customer service, but is there any feature or is it moving plants? Like what are the things you hear the most where it’s just like goddamn we’ve got to fix this.

Chase: Yeah so that’s a pretty easy one, but I mean the most obvious problems I mean every grower knows about it’s the loss of inventory, sometimes even gaining inventory at random. I don’t know how that really works. Consistent server crashes leaving the customers to resort to pen and paper, you know, sometimes for days losing thousands of dollars. Overall confusion you know really just navigating through the process to stay compliant I mean you know sometimes you’re going through these programs and there’s dropdowns and you can do five to ten different you know workflows or five to ten different ways that you would have never you know no one knows which one you know the right one to do so they just kind of start clicking around and hope they stay compliant.

You know look we’re over a decade into the 21st Century they shouldn’t be worried about monotonous tasks and data verification. I mean give us the computers, you know, people shouldn’t be (19.13 unclear) anymore. I mean as I said it’s a decade into the 21st Century. You know we like to think of our product acting like Siri. It’s intuitive enough to recognize what our customer is trying to do and it has rails like a railway of saying hey just go down this path. You’ll get there. You’ll stay compliant and you know you’re not going to get fined. And that’s kind of like you know our whole philosophy and we get rid of that, all those complaints pretty much right away.

Kyle: Yeah I think Chase hit it on the head. I think like the biggest complaint is like easy to use and trustworthy right. I mean like when you’re using a piece of software you want to trust that it’s working. Right now you’re recording this conversation we’re having and you’re just hoping right that your software is recording the conversation. I mean imagine doing these podcast recordings and then only maybe 80% of the time it’s actually you’re getting a full recording and the other 20% you’re just unsure. And so that’s kind of where the state right now, right, where people are not even encouraged to use their current software, even encouraged to try to take time to learn how to use it because it doesn’t even work that well anyway.

And so I think it’s all about really addressing the usability of software in general right. Chase said we’re a decade into the 21st Century here. I mean software should be dead easy to use right. I mean a grandmother can use an iPhone now. it’s incredible right. I mean Joe Schmo should be able to use a Nug and should use our web app without much training. So really it’s about making things so easy to use and the user interface is just so simple and intuitive, and it’s about creating the backend codes so that it’s guaranteed to work every time. You know our software is trustworthy. You know that it’s going to have the same output every time no matter what you throw at it right. I mean our software works and that’s what we set out to do early on is we spend that extra time developing rock solid software where a lot of other players just try to scale fast, but our platform when you use it and you seen it. It’s solid as heck. I mean it’s like, and that’s really what it’s all about for us and we’re going to evolve from here. It’s really, I’m excited about our future.

Matthew: And how do you use it besides the Nug, I mean, is it tablet, desktop? I mean how do all the people in a grow or a dispensary, how do you envision them using it apart from the Nug.

Chase: Yeah so I will kind of break it down real quick. So currently we have the IOS app which we call the Nug and really that’s just the employees that are in the garden kind of walking around. They’re not really at a computer most of the day. Then we also have the web app, and this is for inventory and compliance employees, administrators, owners, pretty much anyone that’s going to be at the desk most of the time or outside the grow. And we also actually have a view app that we’ve been creating that can be downloaded on any smartphone and the business owner or administrator can use it and just get quick stats on their grow, you know, how many more plants they can have on a license or you know how many plants are in their grow, how many are in veg, how many in flower. I mean just quick things that they can just get you know right in the palm of their hand. So that’s kind of how our system works.

Kyle: I just want to add to that just to kind of clarify for some of the listeners here, you know, you don’t have to provide your own IOS device. You know what we do with Flub is really unique, and we actually give you guys that device. So essentially what you’re getting is a Nug with an IOS device built into it. You don’t have to worry about sourcing that. We literally give that you so that headache is not yours to deal with. Again it’s all about making things dead easy. So we have the web app, our Nug which is a standalone hardware device. Again that’s one unit that we give away and then we have a review app by Flub like Chase mentioned. It’s a really powerful offering.

Matthew: So if I’m an existing cannabis cultivator and I’m like hey this FlowHub software sounds great I want to move over or migrate to it, what is integration or migration to FlowHub look like?

Kyle: You know it’s really cool. Right now we can actually sync our grower’s account with metric which the government system here in the States. So literally the onboarding process is wildly fast. Oftentimes on average we find that we’re able to set up a grow and have them off and running using our platform within three hours. People knowing exactly what to do and how to use it. It’s incredibly fast and simple to use. I mean for people that haven’t seen it yet I encourage you to reach out to us and we will absolutely give you a little demo because I’m just so excited to be able to help so many people at such a kind of a large scale.

Matthew: What about price point? Is it variant on the size of a grow or number of users? How does that work?

Chase: Yeah so we’re finalizing our exact price point now to stay competitive with our competition, but our goal from the beginning, you know, we don’t want anything to be confusing. You know the price point’s really simple. You know we try to make it as simple as possible. There’s no contracts. There’s no setup fees or necessary hardware you need to buy for it to work. You know it’s pretty much we just give you one of the Nugs and you have full access in the web app, unlimited computers, a small monthly subscription. And you know if you want another Nug, which a lot of customers will. For every thousand plants you should probably have one Nug. You can add it on for an additional monthly fee. So it’s just really simple.

Matthew: And when will FlowHub be available?

Chase: So FlowHub’s compliance and workflow accelerator, so for their grow is available now actually. You know we just released it a couple of weeks ago and our POS system will be available towards the end of the year.

Matthew: Okay. And what about geography. I imagine Colorado is ground zero and then you go out from there or how does it work?

Kyle: So you know look right now we are so focused on providing the best products for our Colorado customers. We are talking to people all over the country. I mean it’s amazing how many people have reached out to us too. They want to try our stuff, but right now we are very focused on Colorado and we are going to make everyone’s life easier here first. When we do that we can talk about moving on, but really it’s all about addressing the needs right here right now because there are a lot of them. And that’s what we’re about to do and we’re in the process of doing. So you know it’s just we’ll deal with Colorado first and we’ll go from there.

Matthew: Good plan. Now in closing how can listeners reach out to you or I should ask are you still looking for investors for FlowHub?

Kyle: To date we’re fully funded, but we’ll possibly raise capital in 2016. We’re just not 100% sure yet.

Matthew: Okay and….

Kyle: We’re getting real nosy there Matt.

Matthew: Well I got to give you guys a complement. You’re really energetic. You’ve got a lot of enthusiasm. I can tell everybody over in your office is borderline obsessed with making this successful and that’s really the place you want to be.

Kyle: I mean Matt our team is incredible. I mean we have, and one of our guys was at NASA for eight years. You know we have another that was with the Department of Defense doing software in surveillance aircrafts. I mean we have a diverse group of guys. One of our guys dropped out of a PhD economics program. I mean these guys are brilliant people and they’re also activists and people who believe that we need to make some social change happen here really as soon as possible, and they want to be part of the movement. So I mean this software is written with love. It’s written with passion. It’s written by guys who want to see change and it’s written by guys who are going to be around a long time to see this through, and it’s just… waking up in the morning Matt and coming in here and working with this incredible team is a dream come true. I mean we are doing some of the coolest stuff right now and it is an incredible experience. This is a dream come true for our entire team.

Matthew: I think you just came up with your tagline there, you know software infused with love.

Kyle: Software infused with love products, yeah, that’s it.

Matthew: Yeah love infused.

Kyle: Love infused, I love it.

Matthew: So guys please let the listeners know how they find FlowHub online.

Kyle: Surely yes. You can find us at www.flowhub.co we’re not .com. We’re .co so we’re www.flowhub.co. You can also find us on www.instagram/flowhubco, www.twitter.com/flowhubco and by the way we have some great pics of Nugs we put up there. We put pics of shatter up there. I mean we get all sorts of cool goodies from our customers. So we love posting pictures on Mass Roots. You can find us on there. We’re at FlowHub on Mass Roots. You know gosh join us on our social media it’s fun. We have a good time on there.

Matthew: One just side not there. Now I remember reading a press release or something. You have a relationship with Mass Roots. Is that something you can talk about?

Kyle: Sure I will go into it real briefly. So we’re doing some really exciting stuff with Mass Roots. Our visions are very much aligned. We both see the same things in the future. I think Mass roots has some really incredible things in the pipeline. I mean you know they are organizing a very large group of cannabis consumer. And from that there’s some pretty incredible metrics you can get and gather. And we can deliver some really incredible metrics back to business owners. What we’re developing with them is going to be really exciting. I cannot wait to show you what we do with them. We will have more on that in the coming months, but it’s going to be really exciting and retailers and grow owners are going to be very excited about some of the stuff we have to offer them here in the near future.

Matthew: Awesome. Kyle and Chase thanks for being on CannaInsider today. Again everybody that’s www.flowhub.co you can find them at and you can hear the energy and enthusiasm over there. It’s a crazy party and I wish you guys all the success in the world. Thanks for coming on.

Chase: Thanks so much Matt.

Kyle: Thank you so much Matt this has been a pleasure. Really appreciate it.

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

Some quick disclosures and disclaimers, me your host works with the ArcView Group and promotional consideration may or may not be given to CannaInsider for the ads placed in the show. Also please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments. Lastly the host or guests on CannaInsider may or may not invest in the companies or entrepreneurs profiled on the show. Please consult your licensed financial advisor before making any investment decisions.

Locating the Perfect Real Estate for your Cannabis Business

Matt Chapeldaine, founder of Herb Front

Matt Chapdelaine is the founder of HerbFront.com. HerbFront.com looks to help cannabis cultivators and retail dispensary owners find real estate in desirable locations where landlords and ordinances are friendly or at least tolerant of cannabis businesses.

Learn More at:  http://www.herbfront.com

Important: What are the five trends that will disrupt the cannabis industry in the next five years?
Find out with your free report at: https://www.cannainsider.com/trends

Get the Free CannaInsider Podcast:
https://www.cannainsider.com/podcast/

Key Takeaways:
[3:32] – Environment of the Merchandise Mart
[4:13] – What is Herb Front
[5:16] – How cannabis real estate is unique
[8:38] – Matt talks about the response to Herb Front
[9:43] –  Are there abundant lease opportunities?
[10:27] – The number of properties listed on Herb Front
[11:02] – Matt talks about how he got into the cannabis real estate space
[12:19] – Matt discusses Herb Front’s business model
[13:13] – Where are most of the properties located
[14:45] – Matt gives a walkthrough of the workflow of Herb Front
[17:00] – Matt talks about problems getting loans for business build outs
[19:07] – Matt discusses common questions he receives
[20:14] – Matt talks about signage regulations
[21:14] – What’s the typical size space that potential customers looking for
[22:56] – Contact details for Herb Front

Click Here to Read Full Transcript

Matthew: Hi, I’m Matthew Kind. Every Monday look for a fresh new episode where I’ll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at www.cannainsider.com. That’s www.cannainsider.com. Are you an accredited investor looking to get access to the best cannabis investing opportunities? Join me at the next ArcView Group event. The ArcView Group is the premier angel investor network focused exclusively on the cannabis industry. There is simply no other place where you can find this quality and diversity of cannabis industry investment opportunities months or even years before the general public. If that’s not enough, you will also be networking with the top investors, entrepreneurs and thought leaders in the cannabis space. I have personally made many of my best connections and lifelong friendships at ArcView events. If you are an accredited investor and would like to join me as an ArcView member, please email me at feedback@cannainsider.com to get started.

The ArcView events take place quarterly and do have capacity restrictions based on the overwhelming demand to attend, as well as the venue capacity restrictions. As a CannaInsider listener, you will get connected with other investor members prior to your first ArcView event. Again if you’re interested in becoming a member, please email me at feedback at cannainsider.com. Now here’s your program.

It’s right to celebrate when you win a cannabis cultivation or dispensary license, but shortly after the celebration it becomes evident that there are many difficult tasks ahead. One is finding real estate for your dispensary or cultivation facility that is properly zoned in a good location with a landlord that welcomes cannabis tenants. Today we’re going to learn how Herb Front solves these problems. I am pleased to welcome Matt Chapdelaine founder of Herb Front to CannaInsider today. Welcome Matt.

Matt: Hey Matt it’s good to be here. Thank you.

Matthew: Matt to give us a sense of geography where are you in the world today?

Matt: Today I am in Chicago in our home office here in the Merchandise Mart. We are located within 1871 which is a real estate, sorry, technology accelerator based right on the river in downtown Chicago.

Matthew: Yes and what a massive facility that is. You could probably see it from outer space. It’s just so immense. Now the Kennedys owned that for many years. Is that owned by them, do you know?

Matt: In some levels yes. To your first point it’s the largest office building in the world after the Pentagon, that one point was so big it had its own zip code. And you’re right, the Kennedys did own it. They eventually sold. A couple of years ago they sold their interests to the Vornado Real Estate Trust, but they took shares in that company. So while they don’t own it directly anymore they’re large shareholders in the entity that does own this building and it never ceases to… I never cease to miss the irony that this building was entirely built on bootlegging alcohol and here we are revolutionizing, at least the real estate portion, of the cannabis industry.

Matthew: Right. Now before we jump into Herb Front, you’re kind of an interesting technology accelerator environment there in the Merchandise Mart. And we always hear about California and even sometimes here in Boulder and places like Boston, but maybe you could just give us a high level overview of what kind of environment you’re there in the Merchandise Mart.

Matt: Sure. Sure. We were 1871 which is the working space that we’re in is filled with about 500 different technology companies from around the country. It’s a massive facility. And then within 1871 we’re part of an accelerator called, sorry, an incubator called Elm Spring. And what Elm Spring does is they’re the premier real estate technology company, sorry, accelerator in the country. And that’s where we got our start about six months ago, and it has really helped us grow our business over the last six months.

Matthew: So let’s get into it. What is Herb Front exactly and how should we think about it?

Matt: Sure. Herb Front is a technology company first and foremost that has also built a national network of commercial real estate brokers that handle and specialize in the cannabis real estate transaction. When you buy a home you probably want to find the best deal online on a site like Zillow or Trulia, and then you want a good real estate agent to help you find the property and give you a smooth and seamless transaction. We thought why not do the same with cannabis real estate. There’s some very different protocols involved which is where our technology comes in, but in its simplest form that’s what we are.

Matthew: So what are the big challenges? I mean in other ways with real estate a tenant or a prospective buyer and seller meet and they go through a number of different variables or different talking points to try to understand if they’re a match. How is that different in the cannabis space?

Matt: Sure well the human component is obviously a big piece of this industry. There are some owners and landlords and sellers that are more than comfortable to sell within this industry and there’s some that are not which is why we built this national network of brokerages, of brokerage companies that actually specialize in this transaction and have experience in this transaction. So there is the human element which is why our human network is so important to what we do, but beyond that there’s certain technical components that our technology solves that go into making a property compliant or non. And there’s really three main areas, technical areas that the transaction is focused on that can make a property good or bad.

The first is zoning. The second is the sensitive uses that are near it, and then the third is the debt that may incumber a property whether it’s FDIC insured, and I will go through each one of those kind of step-by-step. Each state and each municipality has their own zoning requirements. So on the most basic level you have to find a property that is zoning compliant, and our software takes care of that. The second piece you’re going to have to look at is the sensitive uses that are around that specific property. They vary state to state and municipality to municipality. You know in Illinois, I will give you an example because it’s the one that I’ve dealt with the most at this point personally, is the distance between your property and a school and the distance between your property and a daycare. Schools are a little bit easier to identify, but home daycare centers can exist in someone’s home and you may not even see them.

So you could get down the road very far in a transaction only to find out that there’s three or four children being babysat in a daycare, a registered daycare facility across the street or down the street and you know that property all of a sudden becomes noncompliant. And then the third piece we had talked about lending. If you choose to lease for your dispensary or your edibles manufacturing, you’re in cultivation, a property that is incumbered by FDIC debt, like say Bank of America has the mortgage on the property. They can call that loan and while your state may say hey listen this dispensary is legal the Federal Deposit Insurance Corporation of America might not see it that way. So it can put the dispensary and the landlord in a very tricky position.

So just all of those technical pieces we developed our technology which we call Predictive Mapping, and it takes all those data points and it’s displayed in a very interactive map that shows in any community across the country which properties are compliant and which properties are not. And they’re less than one percent of the properties in any market we found are actually compliant for this industry.

Matthew: Wow.

Matt: So it’s really like finding a needle in a haystack and it can be very time consuming and very inefficient without our technology.

Matthew: What’s the response been so far?

Matt: It’s been fantastic. You know we launched here in Illinois at the same time that the licenses were being issued. So applications had already been submitted, the review process had gone through. So we didn’t think that there would be any need for us Illinois. We immediately started looking at other markets, and about six or seven dispensaries were given their license and told hey here’s your license but you have to find a new compliant property and you’ve only got a few months to figure it out. It took them a year the first time and now they have a couple of months to figure it out. The most common response is where were you guys six months ago? We really could have used you, but you know we were able to help the people that were in distress here in Illinois and now we’re working on (9.27 unclear) with brokerages and dispensaries throughout the country.

Matthew: Do you see more properties being offered for lease to cannabis cultivators and dispensaries or is it mostly to buy outright?

Matt: It’s a mix. If I had to make a lean in one direction, I would say most of the cultivation centers are purchased if only because the TI, the Tenor Improvements and additional costs that go into the location are so intense. They’re much higher than the dispensary. So those properties tend to be purchased. On the dispensary side they’re primarily leased, but those are… I’m more leaning in one direction. It’s a mix across the board.

Matthew: Okay. And how many properties are currently listed on Herb Front today?

Matt: At this point we have about a dozen of properties that are just verified zoning compliant. We’ve had more than that, but there’s been a pretty brisk rush. Once we put a property online and we make people aware of it, those properties have been put under contract pretty quickly. So at the current moment we have about a dozen opportunities.

Matthew: So give us a little more detail about your back here because you obviously know a lot about real estate and now cannabis and real estate. What was kind of the opening you saw as being a real estate professional where you kind of had a light bulb moment?

Matt: Yeah, you know it was two-fold. The first one was I had a property that was for sale or for lease out in the suburbs of Chicago. This was during the licensing period and we had a potential dispensary come to us and really offer us way more than frankly anybody else was and really frankly what the property was worth. But when I asked them why they were willing to pay that premium they just said listen this is one of the few zoning compliant properties that we would be interested in this licensing area. And I didn’t really think much of it at the time. The owner of the property was an older landlord. She didn’t want to be involved in this industry and so we ended up passing on the opportunity. And so I never really thought much of it.

And then about six months down the road someone else started talking about it. This was a person who I have known for a long time. I really respected them, and when they said yeah there’s a huge disconnect in this industry. Why don’t you take a second look at it? It was then that I kind of thought oh okay, there’s something here and that’s kind of where our journey began.

Matthew: What’s Herb Front’s business model? How do you make money?

Matt: Yeah, we essentially, we act very much in a brokerage capacity. So we have our national network of brokers. Only brokers who are part of our network who we’ve verified on a couple of different levels as part of our due diligence process are given access to our technology and our maps in any area. So Matt if you are in Colorado and you pass kind of our background check and you’ve established yourself as a leader in this industry in your area, we’ll give you these maps actually for free. But then in return what we do is we take a percentage of your commission revenue for the transaction.

Matthew: What are the top cities and states where you have listings? Is it pretty much Illinois right now and then where do you see the most growth?

Matt: No, we only have one in Illinois right and there’s not a lot of growth here in Illinois. There’s on desirable license still left to be awarded and that’s frankly where our listing is. I don’t know if it’s under contract yet, but it should be soon. You know the growth is two-fold. On the East Coast there’s emerging markets that state legislatures are approving medical marijuana. So there’s certainly a lot of growth there, but then there’s a lot of growth in the western states that had established medical and recreational marijuana for a while. Municipalities are frankly reining in a lot of the dispensaries that are already there and they giving them stricter guidelines on where they can be and what the zoning requirements are. So we see a lot of movement in the established markets. So the opportunity is both in the established markets and the emerging markets at this point.

Matthew: I imagine California is a big, fat, juicy opportunity for you here hopefully in the next year or two.

Matt: We are getting more calls there than we know what to do with right now.

Matthew: Wow. Well let’s walk us through how it typically works so we can visualize and internalize what it’s like to be on Herb Front. I just won a cultivation license let’s say and I’m looking for a property. How does it all go from beginning to end? What’s the typical workflow?

Matt: Sure it’s one of two ways. In the perfect workflow it’s you’ve just won your dispensary license. You would logon to Herb Front’s listing site, and from there you would be able to search the zoning verified properties that we have. And right now we’ve got a pretty small inventory because we’re still kind of getting ramped up here. But if you found something that you liked, you would then be able to reach out to that broker who controls that listing. Let’s say it’s not a perfect scenario and we don’t have any actual listings in that area. We probably have a broker that has access to that map, at least in that area. And what we would do is we would put you in touch with a broker who’s part of our network in that area and we would give them the map so you could begin going out to find properties that are not listed at this point and finding off market opportunities. And that’s frankly where a lot of the transactions are getting done. A lot of the best properties are not even on market right now because the owners don’t know that they’re positioned well. So yeah if we don’t have a property listed in the area that you’re interested in, we will put you in touch with a broker who has access to the properties that comply.

Matthew: Now I want to kind of circle back to loans a little bit because obviously if you’re doing a build out, particularly if you’re a cultivator, you need a loan or a lot of businesses do. Maybe they have capital they’ve raised and they don’t need a loan, but loans are an important aspect to building out a business. And you know we’ve moved away from banks holding loans like they did yesteryear. Now they’re more transactional and they are more fee collectors, toll keepers on the way for loans going to Fannie Mae and Freddie Mac, those type of things. Do you see any problems occurring? We talked about the FDIC piece a little bit, but if the bank doesn’t hold the loan and then gets pushed off to one of these government agencies, have you heard of any problems with that at all or they seem okay with it?

Matt: No, no, we’ve heard a lot of problems with it which is why we actually have something that we call Herb Front Capital. It’s a syndicate of lenders who will lend on the real estate piece only. That’s what they’ll lend on, and they’re not Fannie, Freddie secured. You’re not going to find the same rates that you would find at say a Bank of America, but they’re also not the same terms you’re going to find in a hard money loan where you have very short term and very high interest rates. So we’re actually putting that together and which should be launched probably in the next week or so. That will give dispensaries or cultivation centers the ability to access capital as it pertains to the real estate.

Matthew: Okay. So there’s a huge gap between. Let’s say, a lot of mortgages are based off the 10 year on. So that’s around let’s just say 2.4 percent right now. And then hard money lenders are clearly in the double digits, sometimes high. So that’s a huge kind of chasm. Where do you typically see this interest rate falling then for someone that wants Herb Front Capital?

Matt: It’s really on a case-by-case basis, but it’s fair to say that it’s halfway in between. If Bank of America is going to give you let’s say 3.5 to 4 points on your home over a 20 year or 30 year amortization and on the other extreme you have hard money that’s a year or two at probably 20 percent, you know, our capital structure is on average somewhere very close to the middle between. So high single digits, probably very low double digits with some term that gives you some breathing room.

Matthew: Now is there any questions you get over and over again that you might be able to answer here on the show?

Matt: Well for the first one, you know, the one I get often and all the time is that first piece. What are the things I need to be aware of? It’s one, it’s finding that human component that is willing to be a part of this industry. Two, what zoning issues do I have to worry about? Three, what sensitive uses are there in my area that affect a property and how far away do I have to be? And then the fourth piece is the lending piece that some people have and some people don’t. It depends on the capital structure of the entity that’s involved. Those are the big questions yeah.

Matthew: Have you seen regulations in terms of signage? I notice when I go down to Denver some of the dispensaries there have signs you can see from a mile away. Do you see that in terms of, you know, Chicago is pretty famous for ordinances and aldermen and people regulating every little piece of everything. Do you see a lot of that like how dispensaries should look from the outside in terms of how it can say it’s a dispensary?

Matt: We have not had any exposure to that. It’s not part of what we do. So you know as much as I would love to comment on it, we haven’t come across it and it’s not something that we’ve…

Matthew: Sure, it’s a post sale issue right?

Matt: It’s a post sale. It’s more, you know, there’s some really good consultants out there that handle the internal security, the external security. You know there’s different pieces to this process and we’re very much focused on identifying real estate that complies for the community in which it’s in. We help the community and we help the dispensary.

Matthew: Okay. Now in terms of the size of the real estate that’s desired by most dispensary owners, new dispensary owners and new cultivators, I’m sure there’s a wide spectrum, but can you give us some ballpark guidance in terms of how big a space they’re typically looking for?

Matt: Yeah on the cultivation side it really varies all over the board. There’s some enormous ones out there and there’s some relatively small ones that have used stacking plans inside to make a very small place produce a lot of product. So cultivation centers it’s really all over the board. When it comes to dispensaries you know 2,000 square feet with parking is kind of the ideal. Some have gone down to 1,500 square feet and some have been a few thousand square feet more than that, but for the most part that’s really where we’ve been. We represent Café Serendipity who is one of the largest if not the largest franchiser of dispensaries in the country on a lot of their transactions, and that’s really what they’re looking for in terms of ideal space plan and it really falls in line with what a lot of other dispensaries are looking at.

Matthew: Sure and I encourage listeners to go back and listen to the episode with Megan Stone who is a dispensary designer that talks about making sure that your customers don’t feel like criminals because there is a lot of dispensaries that are not welcoming because they really haven’t thought out the layout that much, and it’s really helpful to have ample parking. You know when you walk in a place where you can kind of normalize and look at the dispensary instead of kind of being shuffled off somewhere. So I encourage you to listen to that episode. But Matt, as we close how can listeners learn more about Herb Front and what you do?

Matt: If listeners want to learn more about Herb Front I would strongly encourage you to go to www.herbfront.com, that’s www.herbfront.com like a store front but Herb Front or www.herbfrontcapital.com which we will be launching here in the next coming weeks.

Matthew: Great. Matt, thanks so much for being on CannaInsider today we really appreciate it. If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher or whatever app you might be using to listen to the show. Every five star review helps us to bring the best guests to you. Learn more at www.cannainsider.com/itunes. What are the five major trends that will impact the cannabis industry in the next five years? Find out with your free report at www.cannainsider.com/trends. Have a suggestion for an awesome guest on www.cannainsider.com, simply send us an email at feedback at cannainsider.com. We would love to hear from you.

Cannabis Oil Extraction Technology with Andy Joseph

Andy Joseph

Andy Joseph is the founder and CEO of Apeks Supercritical. Apeks makes high quality CO2 extraction machines. These machines allow cannabis leaves and flowers to be broken down into the super valuable cannabis oil the market is demanding. In this podcast we’ll explore the technology and promise of cannabis extraction.

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

Key Takeaways:
[2:05] – What is Apeks Supercritical
[4:00] – Andy talks about how he got into the supercritical machines business
[5:49] – Andy explains different extraction techniques
[15:09] – Andy gives his opinion about the “art and science” of extraction
[17:11] – The most popular infused extracted products right now
[25:45] – How much oil can be derived from 10 pounds of sugar leaf
[29:45] – How long does it take to process the 10 pounds of sugar leaf
[32:14] – Andy discusses how long customer run their machines
[34:27] – How easy is it to operate Apeks Supercritical machine
[36:33] – Andy talks about the pricing of the different machines
[40:37] – Andy discusses the future of the extractions
[42:23] – Mistakes made when purchasing an extraction machine
[47:13] – Contact details for Apeks Supercritical

Click Here to Read Full Transcript

Matthew: Hi, I’m Matthew Kind. Every Monday look for a fresh new episode where I’ll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at www.cannainsider.com. That’s www.cannainsider.com. Are you an accredited investor looking to get access to the best cannabis investing opportunities? Join me at the next ArcView Group event. The ArcView is the premier angel investor network focused exclusively on the cannabis industry. There is simply no other place where you can find this quality and diversity of cannabis industry investment opportunities months or even years before the general public. If that’s not enough, you will also be networking with the top investors, entrepreneurs and thought leaders in the cannabis space. I have personally made many of my best connections and lifelong friendships at ArcView events. If you are an accredited investor and would like to join me as an ArcView member, please email me at feedback at cannainsider.com to get started. Now here’s your program.

We’ve all heard of the 80/20 principle. Applying the 80/20 principle to the cannabis industry one might say that 80 percent of the profits are attained by sales of 20 percent of the products. But Vilfredo Pareto who created the 80/20 Principle also said that the 80/20 principle can be taken further and that 4 percent of the products in a market can make up 64 percent of profit. I believe that extracted cannabis oil is the 4 percent of the cannabis marketplace that will make up 64 percent of the profit of that marketplace. Today we’re going to hear why from the founder of Apeks Supercritical Andy Joseph. Welcome to CannaInsider Andy.

Andy: Thanks Matt. Thanks for having me on. I appreciate the opportunity to speak to you and your audience.

Matthew: Sure thing. To give us a sense of geography can you tell us where you are in the world today?

Andy: We are in Johnstown, Ohio which is a suburb just outside of Columbus, Ohio.

Matthew: Okay. And what does Apeks Supercritical do?

Andy: We manufacture supercritical CO2 botanical oil extractions systems. And what that means is we use liquid carbon dioxide or sometimes called supercritical carbon dioxide as a solvent to extract oils from botanical plant materials.

Matthew: So supercritical has to do with the state of the carbon dioxide. Is that what that term means?

Andy: That’s right. Most people are familiar with kind of the three states of matter; liquid, solid and gas that a lot of materials, you know water obviously is probably the most common one that can be in CO2 at normal atmospheric temperature and pressure and basically in the environment around us as a gas. It wants to be in gassiest form. And if you take the pressure up high enough and control the temperature in a certain way, you can convert that CO2 either into a liquid, so you can have liquid carbon dioxide. You can also convert it into a solid. Most people are familiar with dry ice, and it’s basically a solid form of CO2. But if you convert the pressure and temperature up high enough, specifically above approximate 1100 psi and 90 degrees Fahrenheit, CO2 will become what’s called supercritical.

Basically that’s a combination of liquid and gas properties that in the extraction world is favorable because it allows the CO2 to diffuse in deeply into materials. So it can get into deep nooks and crannies to allow it to extract oil out of plant material. But it also acts like a gas in that it expands to fill the entire volume of a container so it can get good exposure throughout the volume without being affected by things like gravity.

Matthew: How did you get into the supercritical machines business?

Andy: You know I kind of fell into it. I actually started as a broke college student after I got out of the Navy. And I was looking for a few extra dollars to help pay for college, so I started a fabrication business. And you know found a couple of customers that were interested in extraction devices. The applications at the time were flavorings and natural products, natural nutriceuticals, things like that. But then in about, about the same time that California legalized or started having a lot of activity in the legalized marijuana industry, that’s when we started seeing activity with the extraction systems more geared towards marijuana rather than flavorings where we got started.

Matthew: Did you have some sort of skill set in fabrication or did you just say hey I’m going to jump into this?

Andy: Well in the Navy I ran nuclear submarines. I was a mechanical operator and a mechanic on nuclear submarines. So I had a decent amount of mechanical aptitude to begin with, but in college I was going, I was studying welding engineering. And so you know I had a couple of part time jobs while I was starting school and working in machine shops and welding shops. So kind of between the exposure that I had in the military and some of the exposure that I had as a machine shop operator, machinist and you now a welder, those kind of things combine together to give me the base experience that I needed to start the fabrication business.

Matthew: Can you help us understand at a high level the different types of extraction processes there are including CO2 that we talked about a little bit; ethanol, BHO and any others that might be out there?

Andy: Sure yeah, I like to break the different extraction categories up into kind of the different topical areas. One, and these are all specific to marijuana but they are used in other industries as well. You know kind of the first category of extraction is really mechanical, and there’s two probably commonly used mechanical extraction methods that you’ll see in the marijuana industry. One of them is going to be, you know, using just a standard sieve method or making kief where people will take either dry ice, usually it’s some kind of dry ice block and put it into a bucket with sacks that have different layers of micron ratings on them. The dry ice effectively does two things. It makes the trichomes on the marijuana plant very brittle. So it freezes them, and then the mechanical force of shaking the block around will break those trichomes off and they will get sorted out based on their particle size through these different bags and that’s how you make kief.

A similar method is another one called Bubble Hash. Some people will call it ice water, and it’s a very similar process except for instead of using dry ice, you use water ice and regular ice and water and the same thing happens. Basically the cold water causes the trichomes to freeze and become very brittle. And so another common method that can be used is called Bubble Hash or sometimes ice water extraction method. Basically that’s where people will take something that looks a lot like a washing machine and they’ll put the marijuana in ice water, you know, water with ice in it. And it functions very similar. It will freeze the trichomes causing them to be brittle. They will break off and then they’re generally filtered through some kind of a mesh system to get a similar product. It’s a little bit more automated because you can use things like a washing machine. There’s more complicated equipment out there to do it now, but both methods are mechanical in nature in that they really just freeze the trichomes, break them off and then filter them out. Bubble Hash method has the obvious drawback that you have to get the water out of the product once you’ve done the separation and extraction portion. Whereas the kief method doesn’t, but kief is a lot more labor intensive.

So those are two very common mechanical extraction methods that you will find in the marijuana industry. Both are very inexpensive. They’re very easy to do. They’re clean, you know, you’re only using water or a solid form of carbon dioxide being dry ice. So there’s no residual solvents or anything like that, but they’re not very efficient from the standpoint that they do nothing more than break the outer layer of available oils off of the plant. So you aren’t doing an extraction. You can’t run it on kief for instance, or I’m sorry you can’t run it on trim because it has no solvency power. It can’t get inside of the plant and start to dissolve the oils out of the plant material. And so the yields tend to be pretty low and you tend to not get complete extractions.

Moving to the next level of extraction that a lot of people will see, I call them solvent based methods. These are going to be things that use some kind of a solvent, some kind of a solvating liquid to be able to do it. There’s really kind of two categories of this. One’s going to be using alcohol or ethanol as an extraction. This is referred to, a lot of people call this Rick Simpson oil. It’s one of the methods that people will make. Rick Simpson oil is basically performing in an alcohol or an ethanol extraction. And it’s basically a two step process where you immerse your material in alcohol or ethanol, let it sit there for some period of time and there’s different things you can do. You can apply some heat or you can keep it cold depending on what you’re trying to do.

There’s quick wash methods where you run the alcohol through it and only allow the exposure time to be very short, maybe a few minutes. But basically you expose the material to alcohol. The alcohol leeches out or dissolves the oil from the plant and then you subsequently filter any particles or any material out of the alcohol and distill it off. Distilling it off can be as simple as literally evaporating the alcohol or going to something more complicated like a rotary evaporator. But the end result is the extracted oil that once all the alcohol has been distilled out or evaporated out, then you’re left with a alcohol free solvent. Some people will leave a little bit of alcohol in it and that’s generally referred to as a tincture, but that’s a typical solvent method that’s been around for a long time. Again used widely in the food processing industry as well. Most of vanilla extract is processed exactly the same way.

Another solvent process that’s typically found in the extraction world, again particular to marijuana is going to be using some kind of a hydrocarbon, and that can be butane, sometimes referred to as butane hash oil or BHO. Propane is commonly used or is becoming more common and hexane can also be used. Hexane is a little bit more similar to an alcohol extraction, whereas hydrocarbons like butane and propane tend to be a little bit more similar to CO2 from the standpoint that they tend to operate under pressure or at least close to pressure. Is if we look at propane and butane kind of as a similar animal, you know both of those methods are very commonly used primarily because two things. One, it’s cheap. You know the equipment tends to be fairly inexpensive. Even the closed-loop systems are you know can be 10 or maybe even 20 percent of the cost of a CO2 system. But it also is pretty effective. Butane and propane is a very strong, very powerful solvent. So the extraction efficiencies tend to be very high.

There’s drawbacks to using a strong solvent like that in that you don’t have any selectivity. It tends to want to extract out all of the available oils, waxes, paraffins available in the plant. And so there generally has to be some kind of a separation process within the extraction in order to keep the oils separate from the waxes. Particularly if you’re going to go and do something that’s going to vaporize it. Vaporizing the waxes can cause issues with, lung issues where you’re basically ingesting those waxes that have been vaporized as opposed to just the oil. So again butane and propane extraction methods are very popular, very common. The obvious drawback to both of those is the fact that they’re compressed, flammable gases. And so the explosion hazard can be a significant concern and can also be a significant cost.

I think a lot of people tend to underestimate the cost of a true hydrocarbon extraction facility and look at just the cost of the equipment and not the cost of the facility to operate it within. In order to be safe and legal it has to be an explosion proof facility that has monitoring, explosion proof switches and exhaust systems that are capable of being deenergized for switches and things like that. Also the evacuation system has to be able to evacuate the room in a certain amount of time. It has to all be integrated in there. It has to have alarming systems. All of these things are costs that have to be accounted for when you’re considering doing a butane or a propane operation.

Matthew: So doing a butane or a propane operation, do you think the costs are comparable once you take into effect that you have to make a blast proof room and create all these safeguards.

Andy: Yeah exactly and that’s moving on to the CO2 kind of comparison. When you look at the cost of a CO2 operation versus the cost of a butane or propane operation they start to become very similar if not the same depending on the size of the operation especially because of the fact that carbon dioxide is nonflammable. You don’t have to have the same explosion proof or blast room, as you said there, type of facility for a carbon dioxide operation. You really only have two safety concerns when you’re running the CO2 extraction system. The first is safe operation which is generally revolving around the pressure. So you have to make sure the operators are trained and understand and have the ability to see if there is pressure in the system and make sure the pressure is relieved properly before they try to open up vessels. Most of that is in design and training. But as far as the facility goes, you know the facility really just has to have a CO2 monitor in it. Basically it’s monitoring the level of CO2 in the room and it has to be able to alert or alarm any people or any operators who might be in the room to essentially exit the facility until the CO2 has gone away. So you know you don’t have to have an evacuation system. You don’t have to have explosion proof switches and all that kind of stuff. It’s much less expensive and much less complicated facility.

Matthew: Switching gears a little bit to the art and science question of extraction. There’s many people that say there’s an art and a science to extracting cannabis into concentrates. Do you agree with this statement and why or why not?

Andy: Well so I understand a lot of people refer to themselves as artisans or extraction artists. It’s great, but the reality of the situation is extracting is science. There is no art. There’s just science, and you know the application of temperatures, pressures, flow rates, time, pre-processing, post-processing, you know all of these things are all scientific in nature. They’re all application, you know, going through and making sure that you’re processing parameters are consistent. They’re being monitored, all of these things are just science. They’re engineering, they’re science. It’s not art. You know I tend to disagree with people who claim that they’re extraction artists because that would imply that they have some inherent ability to do an extraction, to perform some kind of an extraction that comes naturally to them, as though they’re an artist painting an art, you know, making a painting. Their inherent ability to see different things and create something on a canvas. That’s not necessarily even repeatable, that’s art right, and that’s not what an extraction process is, it’s certainly not what it should be.

To be a little bit harsh I think some people who refer to themselves as artisans or extraction artists are really just not being good scientists. You know they’re not tracking their parameters. They’re not paying attention. If they produce something that was by accident, then that’s great. I mean some of the best products in the world have been produced by accident. But turning that into a repeatable event is science. That’s not art.

Matthew: Okay. And maybe perhaps they’re referring to bringing products to market that people really want. In which case what do you see people using the Apeks Supercritical machine for the most in the cannabis industry to create what kind of products that eventually go to retail dispensaries?

Andy: Well so there’s really three products that the oil that comes from the Apeks Extraction Systems will be used in in kind of the marijuana marketplace. The first one is vaporizing pens. You know electronic cigarettes is kind of the public (17.27 unclear) the marijuana industry calls them vape pens or vaporizing pens. Oil that comes out of an extraction system, particularly a CO2 extraction system can come in a lot of different forms. One of the things we didn’t discuss as we were talking about CO2, supercritical CO2 before is the fact that CO2 is tunable. It has the ability to change its solvency power based simply on temperature and pressure. Competitive extraction methods like butane or propane don’t have that ability. They’re just on or off.

CO2 is unique because of the fact it can change it solvency power. What that means is you can actually extract out different portions or different molecular weights from the plant material. For instance you know there’s a range of molecular weights. People say oil kind of is, you know, what’s in the plant material, but the reality is there are light oils. There’s volatiles. There’s heavier oils. There’s light waxes, there’s heavy waxes. There’s paraffins. There’s a lot of different fats and lipids. There’s a whole range of molecular weights available inside of a plant. And each one of those molecular weights makes up the “total oil” or wax as sometimes people will call it. Using CO2 selectively changing the temperatures and pressures can allow you to bring out just the lighter oils or just the heavier waxes, depending on what your parameters are.

In the application of a vape pen generally people want to have the lighter oils. So you know there’s kind of two approaches that people will take with the CO2. One is to run parameters that produce just the lighter oils. You know those tend to be pretty lower pressures, colder temperatures. And the lighter oils that come out tend to be very fragrant, aromatic because they also have a lot of the volatiles intact. Those are all great things for a vaporizing pen. You need a oil that’s flowable. You need something that has a lot of flavor and taste which is generally the volatiles. The drawback to operating on that condition is that it’s generally slower. The solvency power is less, and so it takes a longer time to do the extraction, but the positive is you don’t have to do any secondary processing.

So you know a flipside or an alternate method that a lot of people will use with systems that don’t have the ability to run colder temperatures and pressures is they use a secondary process called winterization. And so they will take the extracted oil that generally has a lot more waxes and lipids present, they’ll winterize which is a secondary alcohol extraction to remove those fats and waxes. Then they’re left with just the oil. So the vape pens is kind of its own animal. It’s a very very popular product right now. Again our extraction systems can produce oil that is used directly in vape pens without any secondary processing at all. It’s also used sometimes in conjunction with the winterization process to produce a vapable oil.

Secondary or a second product that the marijuana industry sees a lot is what I would refer to as kind of the infused products market. These are going to be your edibles, your topicals, your lotions, things along those lines, cookies, elixirs, suckers, cakes, whatever, any kind of infused product. There’s really kind of two categories of infused products that people need to consider. And that really is it going to be activated or nonactivated meaning you know if you’re doing a chocolate for instance and you want to be able to have an activated THC content within the chocolate, generally the chocolate making process is at a low temperature. And so what you’ll have to do with your cannabis oil is you have to activate it before you put it into your chocolate. And when I say activate I mean decarboxylate or converting the THC acid into THC which is psychoactive.

And so the activation process is an important thing to consider especially if you’re not going to be baking or exposing your infused product to any kind of heat. Chocolate is a good example. And so activating the product prior to extraction is actually more useful because of the fact it will increase the yields with a CO2 extraction system. So a lot of our folks who have a topical or a lotion that doesn’t see any heat but they want an activated product or a chocolate or something like that, they’ll actually perform a prebaking process or decarboxylation process on the raw plant material prior to doing an extraction. Whereas materials like cookies or brownies that are going to be baked, they can use a nonactivated or nondecarboxylated extracted product in the cooking prior to baking and then the baking will actually do decarboxylation.

So you know it can get very complex and I guess kind of the point I’m trying to make here is that you know depending on what kind of product you’re going for, there’s a number of steps before the extraction and after the extraction that have to be considered in order to get the total product. I like to kind of say the corollary would be if you were going to go bake a cookie in your kitchen, you know, you wouldn’t just take the flour and expect a cookie to come out. You have to have the flour and the sugar and the vanilla extract and chocolate chips and all that kind of stuff in order to get the final cookie. Extraction is generally just one piece of the total process.

Now a bit of a corollary, a bit of a flipside I guess is a better way to say it is the third products category that people are using our CO2 extraction systems for and that’s the dabbing market. You know dabs are very very popular. It’s kind of a different form of vaporizing, generally very concentrated form. And the product types have many different names; Honeycomb, Crumble. I’ve seen muffins, you know, there’s just vaping oils, there’s waxes, there’s shatter. You know lots of different nicknames for what is all kind of this one product category called dabbing. One of the unique things about the Apeks CO2 system is the fact that it can run very very cold. We designed it originally to extract oils from botanical plant materials and you know plants aren’t designed to be, by mother nature they’re not designed to see temperatures above 100 or 110 degrees Fahrenheit. They start to have thermal degradation when they see that just because they weren’t designed that way if you want to call it that.

So we built our systems and we designed our systems to maintain very very low temperature exposure to the material. And you know the oil never sees a temperature above the extraction temperature in our systems which is an important concept because you know you can extract at a cold temperature, but if the separation vessel where the oil collects during the extraction process is heated, that if it sees a lot of heat during the extraction process, you can see thermal degradation even after the extraction has actually happened inside the machine. So we designed our systems around cold. One of the benefits that we found in the marijuana industry of being able to run cold like that is our systems can make a product that is referred to as crumble. It’s a very hard, very crumbly product that can be subsequently converted in a vacuum oven into a shatter or even a honeycomb type of product in a very very short amount of time; 10 to 15 minutes in a vacuum oven straight out of the extraction system.

The shatter that comes out is solvent free. You know the competitive process is going to be with butane or propane, and they’re have to do what they call a vacuum oven treatment of evacuate the propane and butane out of the extracted material. And sometime that can take three to four days in a vacuum oven and they have to flip the material over and it’s a lot of work. CO2 extracted crumble right out of our systems can go straight into a vacuum oven and be converted into a shatter product within a few minutes. And that product has become very popular here in the last three to four months.

Matthew: Now putting on the business owner hat or operations manager hat trying to understand how much oil or how much extraction I could do, let’s say I have 10 pounds of sugar leaf, which is not the flower but has the resinous THC sacs, trichomes on there. Is there a ballpark of how much oil I can get from that and how long it would take?

Andy: Sure so on a very very high level, 30,000 foot view a good rough number is 10 percent on trim. So you can expect to get about 10 percent yield of 10 pounds. So from your 10 pounds of sugar leaf you can expect to get about 1 pound of oil. Now here’s the problem with that statement. Number one, you’ll find that anyone who is familiar with a butane or a propane extraction will tell you that that’s ridiculous and they can get 15, 20 or even 25 percent yields from their butane process. So why would they ever use CO2? Well things you got to remember. Number one, if they’re pulling 25 percent from plant material using butane or propane, it’s going to have a lot of waxes in it. And so once those waxes have been removed, then the yield starts to become more in line. Number two it depends a lot on the parameters. Right so as we discussed before CO2 is tunable. So if you’re using subcritical or liquid, low pressure, low temperature CO2 extraction, you’re going to get a lower yield because you’re not bring out those waxes and resins. From a business standpoint that’s not good because you’re not maximizing the potential of the material. From a product standpoint it’s good because you’re getting oil out that you need for the vape pens.

The beauty of CO2 is you can actually do a two-step process. We call it fractional extraction where you can actually extract at a lower temperature and lower pressure to get the oil that would be preferable for a vape pen. And then you can come back and raise the temperature and pressure on the same material and subsequently extract out the heavier waxes and resins to get a complete extraction. So we generally will tell people that 10 percent is what you can expect, but the reality is the opportunity to get a much higher yield is there. And there’s two methods to do it. One is higher pressure, higher temperature going into the stronger solvency power of the supercritical CO2, realizing that the product you get is generally a very waxy material that’s not going to be desirable for vape pens, but is very desirable for an infused product. And in that scenario you can get 15, maybe even 17 percent yields if you’re doing a true supercritical extraction. Whereas you know 10 percent is more applicable to what you’re going to get that’s going to be useable for a vape pen application.

So it’ gets a little complex. We generally tell people 10 percent because it’s a conservative number that they can use in calculations and be confident that that’s what they’re going to get, but there are ways to get much higher extractions. One of those as I just said, a supercritical. Another method that a lot of people are using with our systems is they’re prebaking the material. And so they’ll bake the material, decarboxylate the material as we were talking about before in the activation process. And it does two things. One obviously it activates to convert the THC acid into the THC which is psychoactive, but it will also cause the yield to go up. It soften the waxes or converts some of the waxes into an oil that’s more soluble in lower pressure and lower pressure CO2, subsequently getting a higher yield and even in a shorter time. And so we see a lot of customers who will perform extractions subcritical extractions, low pressure, low temperature on decarboxylated or baked material getting extraction yields in the 15 to 18 percent range. Whereas the same material that’s been extracted under the same parameters that’s not decarboxylated will only give a 10 percent yield. So there’s a couple of different ways you can kind of manipulate the product even before the extraction that can produce either higher yields or a more favorable product if that meets all of your demands.

Matthew: Now back to the getting a pound of oil for 10 pounds of trim. How long would that process take, ballpark, to you know put all the trim in there and have it come out the other side as well. I guess it depends on the size of the machine that’s being used, but what can you tell us there?

Andy: Yeah again I’m going throw out some kind of ballpark numbers or rough numbers that people can use in their calculations. So you know a pound every one to two hours is pretty typical. Now again there are ways to speed that up and there are ways to make it longer. You know when you’re playing with a solvent that has tuneability you can change its solvency power. You can start to play a lot with those extraction times. You want to choose an extraction time that meets your production process. And what I mean by that is if there’s a diminishing return that comes from extraction times. And so as the process runs longer, you get less and less material for each hour that the material is exposed. And so there’s a point of diminishing returns, and that point is going to be different for everyone.

Some examples would be if you have an application or you have a situation where you’ve got unlimited material, you’re probably not going to want to try to squeeze the lemon as hard as you can, right, because the harder you squeeze it you get a lot of lemon juice first. But you know as you get to the point where the lemon juice is all gone, you have to squeeze harder and harder and harder just to get a little bit. It’s a very similar process here in that there’s diminishing returns depending on how hard you squeeze and your run time is effectively the squeeze. And so if you have unlimited material it may not make sense to run a full two hours or even three hours on the material because that additional hour, that third hour of extraction you’re going to get just a little bit of oil out of material as opposed to if you used that same hour for new material, you’re going to get a lot more the same amount of time.

Now if conversely you’re limited on the amount of material that you have available to, it makes a ton of sense to extend the extraction time even longer and squeeze that lemon as hard as you can so you can get the maximum return from your material. So again we generally will tell people a pound every one to two hours realizing that the times can be very flexible and you know tuned to match your actual operation.

Matthew: So back to the lemon analogy it makes sense to have fresh lemons all lined up, but sometimes you can’t have all those leaves or buds or everything you need right lined up as you need them, but that’s a great analogy to help us understand there. And it seems like in your experience most people are trying to keep the machines running 24/7, is that accurate?

Andy: You know it varies. We’ve really got quite a range of customers. You know some folks are definitely high production you know the thing runs, our systems will run literally 24/7. You know they’ve got contracts with you know as much material as they can get. These tend to be more the Northern California kind of guys and they’ve just got more material than they know what to do with, and they run the systems literally 24/7. And keeping that think running is very very important to them. And so you know just like any other good manufacturing process, an automotive supplier or whatever, they’ll have spare parts. They’ll have spare you know consumables laying around waiting so that if they do run into some kind of a hiccup or any kind of an issue, they can immediately get the system back up and running.

On the exact opposite end of the spectrum, and those tend to be our larger CO2 production systems that get used in those applications. Completely on the opposite end of the spectrum you know our smaller bench top systems get used a lot by what we call “club use”. It’s not so much personal use, but it’s usually a group of folks in a collective or a club that will get the system and they’ll have their small group of people kind of collaborate and you know put their material together, process it and use the oil specifically for the club. Those systems tend to run a few hours a day or maybe even a few hours a week, but allow the clubs to serve their patients with a clean, safe extracted oil that doesn’t have to be consumed. And you know they get a lot of control over the process in areas that aren’t as heavily regulated as California and, I’m sorry, as Colorado and Washington. You know there tends to be not as much testing and not as much scrutiny on the final product. And so there’s some concern especially from people who are using marijuana in medical applications that they want to know what is in their product, and the only way to really be sure is to do it their selves. So we will see a lot of people use our bench top systems to kind of get control of the medicine that they’re using for their patients.

Matthew: So the machines are pretty easy to use it sounds like if you can just get a bench top one for a collective and kind of figure it out or what kind of training is involved?

Andy: Yeah so all of our systems are all fully automated. Our bench top system does have a couple of manual valves so we tend to refer to it more as a semi-automated system in that the operator has to manipulate a couple of valves before the process is started, then it’s automatic from that point. Our larger production systems are fully automated in that they’ve got a touch screen where the user basically goes through and the machine will, once you push start, the machine will walk you through a series of prompts asking you for your temperature, your pressure, your time, and then it will do a couple of safety checks to make sure that the vessels are prepared to receive pressure, make sure that all of the vessels are closed properly, the hoses are connected. And from that point the system will take over and be fully automated.

That being said they are simple to operate from the standpoint that the CO2 system does all the work. However the operator still has to have some mechanical inclination. You know these are industrial pieces of equipment that are being used. They’re under high pressure. And the operator has to have some basic mechanical aptitude to be able to open a vessel, close a vessel, you know, to some degree even perform maintenance on the system; changing pump seals, changing o-rings, changing gaskets, things along those lines. So I wouldn’t say that you know just any, my mom will kill me for saying this, but I wouldn’t want my mom to operate the system because you know she’s not the most mechanically inclined. So you know it’s not for everyone, but the full automation and the automation of the system makes it much easier to operate compared to some of the other systems that you will see out there like the butane and propane systems that are all manually operated and even some CO2 systems that are out there today are still manually operated as well. The operator has to be significantly more skilled in order to know when to open this valve, when to open that valve, what pressure gauge to look at, when to do this, when to do that. All of those things go away for a fully automated system.

Matthew: Okay and what are the costs, the price points to get into different size machines?

Andy: Prices for our systems start at about $36,000. Our bench top system is $36,000, and that price includes training. Again it’s the full system. There’s no additional components you need for the extraction. Any secondary processing stuff would be additional obviously, but the extraction process is all inclusive there. And again training at your facility would be included in that price as well. That’s our bench top system. Our smallest production systems starts at about $86,000 and prices from the production systems go from $86,000 all the way up to about $190,000.

Matthew: Okay. Now there’s some young businesses out there that might have trim and they know they can get a positive ROI if they could just afford a system. So when they’re in that position what do you say?

Andy: We actually have a leasing program. We’ve developed a leasing program about three years ago, and it was in response to this exact problem. You know everybody in the cannabis industry was a startup three years ago. And so there was a lot of opportunity from a return on investment standpoint but not everybody had the cash. And so you know we developed a leasing program to basically allow folks to do exactly what you’re saying. You know our terms are generally 25 to 35 percent as a down payment and then the subsequent lease terms are going to be 10 to 20 percent interest rate over the course of 12 months for payments. You know it’s interesting we’ve had this program in place for about three years and you know depending on the credit worthiness that’s what’s really going to determine the down payment and the interest rate that we apply.

But I’ve had just about every one of the folks who’ve engaged us from a leasing standpoint or a financing standpoint, at some point in time during the process of the application they say yeah I intend to pay this thing off in a couple of months. And the reality is they can’t. You know the return on investment for these CO2 extraction systems, you know, it can absolutely be a matter of weeks. You know three to four weeks is very very reasonable number for return on investment. However, where people will generally get themselves in trouble is that assumes that you have a couple of things in place. Number one you’ve got a supply chain set. Right so you’ve got access to material and that material can come to you on a regular basis and you know you have the supply of material to be able to feed the extraction system. You also have to have some place for the oil to go, right, and this is where a lot of people get kind of hung up in the process. You know they’ll procure some material, they’ll have access to material, they’ll get an extraction system from us. They get the extraction complete and then they say well what am I going to do with this goopy peanut buttery looking stuff.

Three or four years ago people would just take that and they would smoke it and they would be happy with it, but nowadays you have to have a product. You have to have marketing. You have to have all the things that every business needs to have. You know you have to have an accounting system. You have to be able to pay your employees. You have to have a marketing and a brand that people can recognize and people are going to associate with. All of these things start to come into play in order to make that three to four week ROI on an extraction system actually reasonable and it happen. And so just about all those folks who’ve asked us for you know financing and taking on our leasing program say well I plan on paying this thing off in two months, and while it’s functionally possible I’ve had only one customer actually pay it off early. All of the rest of them have found that they need the cash to support the other portions of the operation or the other portions of the business in order to make the entire thing viable.

Matthew: Great points. Great points. Now looking to the future, 3, 5, 7, 10 years ahead where do you see the extraction and concentrate business heading and changing?

Andy: Well we’re already seeing concentrates. Again in the marijuana industry, we’re already seeing concentrates start to take over sale of flower. You know in some dispensaries it’s already taken over and in other ones it’s on its way to taking over from a percentage standpoint. So you know concentrates are very popular for a number of reasons. You know they’re just that. They’re concentrated so there’s higher potency levels for folks who have been consuming for a long time and have built up a tolerance level. You know they can start to actually get high again or be able to benefit from the medicine again. But there’s also a digression element to it. Vape pens in particular really help people be more digression, have more…

Matthew: Discreet.

Andy: Discreet thank you, that’s the word I’m looking for. It allows people to be more discreet in their consumption. You know the soccer mom kind of is always the quintessential example. You know she doesn’t necessarily want her kids to know that she’s medicating or enjoying marijuana recreationally, and vape pens allow her to do that. But the edibles I think that’s really the area where I think there’s going to be a ton of activity in the future. Vape pens have already become very popular, but I think the edibles are going to become even more popular. Just because one it’s obviously discreet, but there’s also the element of it’s so much easier to use. You know you don’t have to carry this product around. Once you’ve got like a vape pen, you don’t have to have a dabbing apparatus. You don’t have to have your electronic nail and all that kind of stuff. Cookies are really easy. You know you put it in your purse or put it in your cooler and you take it and then you enjoy it and it’s gone. You know it’s very simple. It’s very easy to use. It’s very inexpensive, and you know I really think that that’s where the big push in the industry is going to go.

Matthew: Now I’ve asked you a bunch of questions Andy. Is there any questions that I didn’t ask you that I should’ve that people should be thinking about when they’re evaluating extractions and concentrates for cannabis?

Andy: Yeah, you know, probably the one… I guess I will reword your question in a slightly different way which is what mistakes do people make when purchasing an extraction system. You know and it all comes down to common sense. It’s research. Make sure you do your research. You know unfortunately in an industry that’s developed itself from an underground position still has some unscrupulous players out there. And you know it’s really important when you’re doing any kind of research that you ask all the right questions and you know get the details behind the answers. Don’t just take a sales guy’s word that you know this system or the thing it’s going to do whatever it says it does. Make them show you the details. Make them show you the data to support it.

We talked a lot about yields. We talked a lot about the throughput and the return on investment. Get the numbers. Show proof. I had a professor in college who told me once said, “In God We Trust, all others bring data.” And you know I think that’s the way people need to consider, the things that people need to consider when purchasing an extraction system. The other thing is do your homework on all parts of the business.

Back a few years ago, I like this story because it’s applicable to my welding days, you know a few years ago the West Coast Choppers and Orange County Choppers TV show were very popular. And you know I was working in the welding industry as a consultant effectively. And so I would get a lot of people who would say hey I’m going to start a motorcycle business. What kind of welder should I buy? And you know the welder was the first thing that they were going to buy because it tends to be the biggest purchase and it’s also kind of the coolest thing. Well the welder is just one piece of a very large puzzle of building a motorcycle right. There’s not just building the motorcycle itself there’s also who are you going to sell it to, how are you going to sell it and who is going to design it, where are you going to get all your parts.

And so I would encourage people to you know reconsider before going and buying a welder how they’re going to do the rest of the business. And you know very very similar corollary comes from the extraction side of things. People who want to start a marijuana business tend to go extraction first. They tend to think that top of mind because it’s the most expensive piece of equipment and it’s kind of got a wow factor to it. But you have to realize when you’re considering this that it’s a much bigger puzzle not only from a business standpoint of who’s going to do the finances, who’s going to do the marketing. You know what’s your plan for branding, but there’s also the actual process of getting the oil out of the plant and into a saleable product. Right, and that into a saleable product is an important piece. How are you going to take the extracted oil and put it into a vape pen right? Are you going to winterize it? Are you going to cut it? What kind of vape pen are you going to get? Where are you going to get your vape pens from? Most of them are coming from China right now and I’ve heard some horror stories about importing vape pens from China and basically holding people hostage to get their vape pens. If you’re going to do an edible product, you know, what’s the product going to be like? How are you going to make sure that you homogenized, meaning that you get an equal distribution of your extracted oil throughout the entire baked product. The chocolate chips don’t necessarily evenly distribute themselves in a cookie, but you have to make sure that the THC is evenly distributed. That’s an important aspect.

Testing, especially with the more regulated states like Colorado and Washington, testing is extremely important in making sure that you have the proper dosing, especially on the infused products. Where are you going to get your testing? Is the testing provider reputable. You know there’s still some states that are pretty new and in their infancy and the testing houses don’t have a ton of experience. You know so there’s a number of things that go in there. We get a lot of, I’m going to call them, early stage players or people who have an expressed interest in the cannabis industry and they really kind of start with the extraction process. And you know it sounds a little bit harsh, but you know we tell people go back and do your homework before you’re ready to pull the trigger on this thing because we don’t want you to make $100,000 mistake.

Matthew: Right, great point. Now are you still looking for investors?

Andy: No, no. We are not looking for investors at the moment.

Matthew: Good, good for you.

Andy: We’re fortunate enough to be in a position where we don’t need funding.

Matthew: Great. And Andy in closing how can listeners learn more about Apeks Supercritical?

Andy: Our website has a wealth of information on it. It’s www.apekssupercritical.com and that’s www.apekssupercritical.com.

Matthew: Great. Andy thanks so much for being on CannaInsider today, we really appreciate it.

Andy: You’re welcome. Thank you Matt, appreciate it.

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

Tech That is Changing Cannabis Cultivation with Greg Eisenbeis

Greg Eisenbeis

Do you know how healthy your cannabis plants are during the night? Do they have enough humidity? is the temperature perfect? GrowRemote.com is brining sensors and automation to the grow environment that will solve these problems.

Learn More at: http://growremote.com/

*Get the FREE CannaInsider Podcast for your smartphone, CLICK HERE.*

Key Takeaways:
[1:45] – What is Grow Remote
[2:09] – Greg’s background
[2:51] – Greg talks about the move to the cannabis space
[4:21] – What to automate first in your cultivation room
[8:28] – Greg talks about immediate results
[9:05] – How is the watering measured
[12:05] – Greg talks about how to make CO2 reach all plants equally
[12:49] – What are the results cultivators are seeing over a period of time
[13:43] – Greg discusses lighting
[15:07] – Greg talks about total dissolved solids
[16:37] – Does the temperature of the water affect plants
[17:45] – Ho Grow Remote data can help you make better decisions
[21:08] – Best practices for controls and automation in cannabis
[27:28] – Cost of retrofitting a floor to grow cannabis
[28:28] – Greg talks about pricing of the Grow Remote system
[29:54] – Contact details for Grow Remote

Click Here to Read Full Transcript

Matthew: Hi I’m Matthew Kind. Every Monday look for a fresh new episode where I will take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at www.cannainsider.com. That’s www.cannainsider.com. Are you an accredited investor looking to get access to the best cannabis investing opportunities? Join me at the next ArcView Group event. The ArcView Group is the premier angel investor network focused exclusively on the cannabis industry. There is simply no other place where you can find this quality and diversity of cannabis industry investment opportunities months or even years before the general public. If that’s not enough, you will also be networking with the top investors, entrepreneurs and thought leaders in the cannabis space. I have personally made many of my best connections and lifelong friendships at ArcView events. If you are an accredited investor and would like to join me as an ArcView member, please email me at feedback at cannainsider.com to get started. Now here’s your program.

If you have read the free report from CannaInsider, The Five Trends That Will Disrupt the Cannabis Industry, you will know that it’s a theme of this show that automation and robotics will begin to be a standard practice in cannabis cultivation facilities. Greg Eisenbeis, founder of Grow Remote, is our guest today. Greg is going to tell us how automation and controls can help ensure healthy plants and a consistent healthy harvest. Welcome to CannaInsider Greg.

Greg: Hey thanks Matt.

Matthew: To give us a sense of geography can you tell us where you’re located?

Greg: We’re right, I don’t know if you call it the heart of Denver, Cherry Creek in Denver, Colorado.

Matthew: Oh sure, great area. What is Grow Remote?

Greg: Grow Remote is a company that really focuses on data collection and control systems. We market battery powered wireless sensors that are meant to collect timely data on a regular basis of anything in the environment really.

Matthew: Okay. And what’s your background? How did you get started in this field?

Greg: Well my background is controls and automation engineering. I’ve been doing that I guess over 15 years now. I started a company in that field when I was 26 and have been doing it for a long time now. Just building automated processes for companies that build, test or assemble whatever they manufacture. So I guess a good way to frame it is that TV show How’s That Made. We build those machines, like those kind of machines.

Matthew: Okay. And why pivot towards cannabis cultivation? What’s the interest there? What’s the problem you’re trying to solve?

Greg: Well initially I was not interested I guess because of ethics or whatever, but after viewing or talking to some other people that has changed. And it’s actually the most exciting industry I’ve been in ever. It’s just like, it’s like a Petri. At least in Denver it’s like a Petri dish. We’re in this amazing, exciting industry that really in my opinion has not been catered to on the tech side very much. I’m guessing because it’s mostly been in a basement until, you know, the last six years.

Matthew: Great point. It does feel like a Petri dish, and the exciting part is that really every business in Denver in the cannabis industry and also elsewhere is a startup to some extent at least coming out of the shadows and being a startup. So you don’t have any huge established entities. Everything is small and nimble. You can reach out to other founders and entrepreneurs and really make a lot of friendships.

Greg: Absolutely. I mean just in… I work at a co-op workspace and just in this office building alone you know there’s three companies that cater to the industry. And just in those connections along you know we’re doing fantastic.

Matthew: Yeah great point. Now let’s say I’m a typical cultivator growing cannabis in the conventional way. What are the problems there? If you could swoop in with your cape on and change a few things right away, what would be the first things you would do?

Greg: I think the biggest thing is really look at the environment. When I walk into a grow I can immediately tell if they have problems. You can just tell just by the air that’s in there. The weird part of this industry is they grow inside. I guess that’s not weird, this is where it came from. Most commercial buildings are awful. They’re completely just gigantic energy wasters and that really shows up in trying to control the environment. I would probably approach that first, but really the lowest thing is get the compass, where are you at.

Matthew: Yeah. So you measure a lot of different things, and I imagine that cultivators and business owners think one thing and then you come in there and show them something entirely different. What is it that they’re… is there a light bulb moment for them in terms of temperature, humidity and the things you’re measuring?

Greg: Absolutely. I mean it doesn’t take a lot of time, and we’ve been putting in, I guess, you know giving people a free system initially just to get into some of these places just to test it out. But in the first week, I mean, this has happened multiple times, they install the system which is like a sticky on a wall, plug it in and it runs and starts collecting data. But in that week, I mean, this particular client solved three major issues within the first week. Like for instance they didn’t know that their grow’s temperature was dropping 30 degrees every night.

Matthew: Oh, yeah that’s a big one.

Greg: Had no idea. I mean it was getting down to like the 50s. I mean in Colorado it’s like a yo-yo in terms of climate. And then no clue, I mean they had those, the cheesy temperature monitors that are on the wall. You know they do track high and low, but from which day? When was it reset? I don’t know. They don’t know. So when you start showing them the graphs after a week of collecting data it’s like holy cow tons of light bulbs start going off. Like oh my gosh our AC system completely sucks or I don’t know. There’s a lot of cool insights that are kind of funny to look at and we’re like okay well now we have some direction. We can solve these problems.

Matthew: So just out of curiosity what’s the quickest duct tape solution then that they implemented to solve the temperature issue? Was it just a humidistat change or I mean a temperature change? How did they do that?

Greg: Yeah so there’s a couple of things. One is like in these buildings that have really bad insulation some decide to put in like a blow, blown in insulation on the top. The problem with that is it has a lot of fumes and it shuts down your grow for a while. A better alternative is use, what I like to use is radiant barrier, a special type of type of it. And it’s the super reflective material. It looks like aluminum foil kind of. And with that it keeps all the heat out of the building or cold or keeps all the heat or cold in and it’s buffers it. And it’s 95% resilient to any kind of temperature thermal transmission.

Matthew: Oh wow.

Greg: So just putting that on the ceiling alone will button up that thing tight enough to where you’re not blasting your AC unit just 100% all the time because you can’t keep up. I mean another great insight, this is hilarious, so we have an output control. So a humidity sensor reads a reading. Says hey the humidity is too high, turn on the humidity fan. So the humidity fan starts running. Well through the software and stuff that we have and once they start tracking all that, they notice their humidity fan doesn’t do a damn thing. It runs all the time. Like they want to get it down to like 30% humidity, unattainable. Completely impossible based on their current set up.

Matthew: So temperature, humidity would you say overall in most cases that’s the lowest hanging fruit where cultivators and business owners get the biggest bang for their buck immediately?

Greg: I think so. I think those are two of the ones that can cause the biggest amount of stress. Humidity is variable because different grows use that factor kind of different. I know some that go up to 70%. I know a lot of the ones in Colorado like to stay really low. But the temperature for sure is a huge factor in reducing disease, creating stability in the crop so that they’re yielding the same amounts. And I think really the watering aspect is really, really needs a lot of attention.

Matthew: Talk about that. How do you measure the watering? How does that work?

Greg: Well it really comes down to application. We measure watering because we have a control system that will measure precisely exactly how much is being fed to every plant. We don’t allow a human per se to hold a hose and water or add nutrients for that matter because they don’t know when they added them, how much exactly they added them. They don’t have a way of tracking exactly how much they put on the plant. So with our nutrient injection system that’s something we provide is that measurable repeatable process to do those two things very very repeatedly.

Matthew: Okay so you can monitor on a 24 hour basis or a week basis you could say okay I delivered this many liters of water to this plant or this table of plants. Is there any discoveries when that happens? Do you find people were overwatering or underwatering?

Greg: Absolutely. Yeah and you can add sensors in there to even pull that. Some people are very good. They just know their plants very well. They know, they need about this much water, but with our software you just say, you set up a scheduling piece and it just says I want to put you know five gallons a minute and I want to water for five minutes. And every time that will come out as if you put it in a cup it will come out exact same amount almost on every head coming out.

Matthew: So the way I’m thinking about this and I could be wrong, is first you want to eliminate the problems and then you want to optimize your… you want to get rid of the painful problems and then optimize your plants. So I’m hearing temperature, humidity, watering, you know you got to get those right. So that’s just basic.

Greg: Yeah I mean with the air system I mean that’s always saying like you have the air, like the cooling part that’s great, but there’s also convection. How are you moving the air through the whole thing. A lot of people use CO2 and I have yet to see up until recently a really great CO2 distribution system. Usually they use these tiny little hoses. They string them for 40 feet, a total of 80 feet of hose. Those don’t work at all. And so if you’re trying to up the CO2, you know, and it’s a really great idea indoors, the distribution of it is awful. I mean it’s just awful. And so those are the big problems that need to be handled. Usually it comes down to distribution of the air. How are you doing that? And then how well are you containing the environment. Like how well can you keep the energy that you’ve put into it.

Matthew: So you’re saying it’s somewhat, if you do this the wrong way, you’re creating a micro climate that hey you’re getting CO2 to the far corner of your grow over there, but it’s not touching all the leaves of all the plants uniformly. So how do we do that? How do we make that happen.

Greg: A great way to fix that is instead of using like a little tiny tube that has little tiny holes and hope that a heavy air can promulgate. I mean this is just air flow. You know get a gigantic like 8 to 10 inch tube or hose, string that down and blow it down that and then get it to distribute. I mean look at greenhouses. I mean a lot of this stuff has already been done. Go to a greenhouse. They have solved this problem a long time ago.

Matthew: Yeah. So what are some of the typical results you see come in and what’s the business owners and cultivators most impressed with or happy with after a certain period of time?

Greg: I think fundamentally it’s really the feedback. When you’re running a grow and you don’t have the feedback, it’s like going on a hike and you’re going off trail without a compass or a map. It’s really flying blind in my opinion and I have lots of examples of other industries where you know like say an extruding process which is highly sensitive to temperature. They don’t have any feedback to regulate that and as a result they have massive amounts of scrap produced in the industry, massive amounts. And the same thing with a grow. Like you’ll just have wonky really crappy yields. Your results are all over the place. And they show that. You cannot generate the same crop with the same yield. It’s just hard.

Matthew: We haven’t touched on light yet. How do you think about that?

Greg: I think light is really important. I think by going indoors you’re really having, you know, the sun is an amazing thing and it does so many things. And with indoor lighting, like we try to fake it and do that as best we can and yeah it works. There’s just I think other things to be done indoors to make lighting where it really needs to be. I think there’s a lot of propagation problems with light. Most grows are top down. I think there’s a lot of research and development that needs to go into lighting that hits it really from all sides. I think if they did that there would be a lot bigger yields than currently what they do.

Matthew: Right because the sun moves across the sky and it hits different parts of the plant at different times of day. You know, most indoor grows if they don’t have a reflective surfaces or maybe like LED bars or something like that, there’s nothing happening on the side or underneath.

Greg: Yeah you’re wasting a huge amount of a plant that could be produced because you’re just not getting coverage. You know and sure the plants can grow big and they have huge canopies and that’s great, but what about all the other stuff underneath. It’s just a huge opportunity just sitting there being wasted.

Matthew: Now what about total dissolved solids? Can you tell us what that means and how we should be thinking about it?

Greg: So total dissolved solids is something like what we use to measure like after the fact, after a nutrient injection. So water comes in the straight pipe, no tank. Some clients filter it, some don’t. We inject nutrients and at the end of that cycle, because we do it at sub-second. We’re in the milliseconds, like 50 milliseconds or 20 milliseconds per ejection. We read on the opposite side of the injection really what the concentration of those nutrients are. So it’s a way of getting feedback of how much nutrient you’re adding to make sure that you’re not making that mix too hot or you know kind of teetering to one side that really could harm the plant or plants or the whole crop if you don’t do it right. So it’s the amount of I guess dissolved material in the water. I guess there’s a Wikipedia version I could read. It’s the combined content of all inorganic and organic substances contained the liquid in molecular, ionized or micro granular suspended form. So it’s the dissolved portion. It’s what can conduct electricity, and as you add more of that the more conductive it becomes.

Matthew: We talked about watering in terms of the volume of water, but what about the temperature of water and how that affects plants. Do you measure that or monitor that?

Greg: I mean we do track it just as a data point. I think unless your water is getting really really cold to the point where that definitely probably could shock the plant, I think it does matter. I don’t know how much of that would really affect it. I think when you have a very dialed on process you would definitely see a difference in water temperature what that would make. But with everything kind of being sloppy and stuff I don’t know if you would really notice a huge difference. Like what’s the problem, you know, I don’t know how much of the problem that would cause versus just bad nutrient mixing or the temperature being completely out of whack.

Matthew: You mentioned once you get the system, Grow Remote system in place you start to get this feedback and you’re not flying blind anymore. How do you see business owners using that information to change the course of the business now that they’re not flying by. They’re getting this data. What are they doing with the data to help their business?

Greg: I think that shows up in multiple fronts. One, it really creates the experimentation platform for iterating. So as you continue to grow and you want bigger yields and just higher quality product, you got to have that feedback to create those kind of decision paths. Once you have those paths you essentially can create recipes. This is how I grow this particular strain. This is how I grow this particular strain in Colorado, in North Carolina, in Texas and wherever. By having that data you can now react. So it’s, over and above that I think the biggest thing on top of that is scale. So there’s a decent amount of master growers out there but they’re a limited resource. They can only be so many places at one time, and you have labor problems like how do you train people to scale. So when you get the feedback and you get control systems and processes in place you immediately create the ability to scale and cookie cut your process across any state, any building, turn it on. It will immediately start self-adjusting to get you to the recipe that you determine through experimentation and tracking the first time.

Matthew: We as a society tend to look at all technology is good but if it’s misapplied then we can have a negative outcome. Is there anything in the world of automation and controls that you see being applied incorrectly?

Greg: I think one thing that would be done incorrectly is either not having enough data. So you’re taking like one point and not really understanding what the full picture is. That would be probably one mistake. Another mistake is not standardizing processes. So they try to automate something but they don’t standardize like they don’t have enough feedback to control it. So like a lot of them will do, they have the AC units that run. They blast them at… because you’re not monitoring temperature in various parts of that room, you actually don’t really see that the opposite corner which is on the outside wall is getting very very cold. And that is not even getting it. So not enough of that is one issue. Allowing simple processes to be run by humans, believe it or not, they’re not as dependable as the machine that you just set up I think to go. But relying too many on that. I know there’s a lot of guys that say ah we’re very hands on, we baby our plants and all that. And I’m like that’s great and that’s true but still parts of those processes can be standardized and it would serve and that attention that they’re spending on that stuff that really you know could be cloud sourced, it opens them up to do other stuff like how do we make this better instead of wasting time just standing or holding the hose.

Matthew: With your background in the controls and automation industry, what are the best practices that you see needing to be translated over or that have successfully been completely translated over or are there some that don’t translate all to the cannabis industry?

Greg: I think a huge majority of the things that we do in the automation industry translate over. I mean these guys are commercial and/or I call industrial growers. They all need processes. They all need very systemized ways of doing things to scale. I think best practices really are getting in the stage of collection with a lot of our competitors. I mean it’s an obvious point. It’s a big market. It’s very obvious just given the amount of competitors that are coming online that this is something of high value to really go after. Energy efficiency is a huge one. The amount of power these guys are sucking up is incredible and I don’t really see that being sustainable. So really taking that usage that they currently have and creating smarter systems that just really harness every ounce of energy that’s going into that place and either repurposing it for something else like preheating water. Say you are in a colder environment and the water is really cold and that is an issue for you. Well your lights are generating a lot of heat so why not just pump that heat across a heat exchange or preheat the water and now you’re not wasting money on a boiler to heat water that could be done in a different way. It’s just becoming smarter of how you use energy I think is going to be, for indoor growers, it’s going to be a big thing because there are lots of people coming in to start growing and those margins are starting to get smaller and smaller and that electricity cost is not going down.

Matthew: Great points. Now this isn’t a practical question at all, but I think all research and development begins with kind of dream scenarios or ideal scenarios. So I’m going to throw kind of a fictional left field question at you to see your answer. If you could wave a magic wand and get unlimited budget to create an absolutely ideal 30,000 square foot grow with no limitations, anything goes including inventing technologies that don’t exist what would that look like?

Greg: That’s a fun question. Man it’s a big question. I mean first and foremost to me it’s like the set up of the building. Like how are you going to… okay so if you want to go to super top dream it would be a replicator. You would hit a button, grow me some plants. You hit a button and two seconds later it pops out a plant. That’s pretty far off. So a notch below that. A lot of my other clients in other industries are like data centered. So I see how they kind of heat and cool things. I really believe in an under floor system, and this is something we really try hard to push. And that’s creating a subfloor so you’re basically creating an 18 inch gap underneath and all your plants and everything sit on that. You can condition the air and insert CO2 and all sorts of fun stuff underneath and distribute it and it leaks up. It’s a very amazingly controlled environment doing it that way and it doesn’t require heating the entire building to do it. So I would start with that first is the environmental control and reducing the amount of energy needed for that.

And then I would get into… I think it would be badass to develop some technology to harness that sun in an indoor way somehow. Like it’s such a powerful thing. Even if you’re in a building to somehow collected or routed through, I don’t know, route it through mirrors or somehow get that, harness it and get it into the building without having to go to a greenhouse, that would be amazing. And the yields, because you’re not subject to weather at that point, but you at least still get to harness the sun which I think is probably the biggest most valuable thing out there when it comes to growing plants. If you could somehow harness that with some black box technology that would just grab and spit it back out in whatever form you want inside, that would be pretty amazing.

Matthew: It would. I’ve always been interested in, you know, the data centers they have a raised floor and you’re saying the reason is so they can control the air in a more complete way instead of just pushing it down from above.

Greg: Yeah absolutely I mean think about this. Your 30,000 square foot grow you just told me about it’s probably going to have like a what, a 20 foot ceiling, maybe higher. So typical systems will put all the (25.52 unclear) back on top and they’ll push the air down and yeah cold air will drop. Great. Hot air, if it’s in the winter or you’re on the East Coast good luck getting it pushed down because heat rises. So right there there’s already issues with that. So now instead of doing that, take a floor and raise it 18 inches, seal it, pressurize it with a slight pressure and now you just push in generic air. Say it’s 70 degrees which requires probably a quarter or even less of the amount of air handlers you need to condition it. It pushes it now through that and now you have automated vents that kind of open and close, that control the volume and it leaks up at the ideal temperature plus or minus like three degrees and then insert CO2 injection inside that. So you’re literally putting like the most conditioned air you can have right on the plant, 7 to 8 feet in that zone and then above it you don’t really care. And you can just pull that back in and recycle it. But that alone will drop your energy cost in cooling by like 30 percent.

Matthew: Now there is a lot of listeners that are just coming online in Nevada and Oregon and other places, and they’re retro fitting buildings and so forth and they might be saying that sounds great. The raised floor, but does that add a tremendous cost per square foot when you’re retrofitting a space to grow cannabis or is it a pretty mild cost?

Greg: I think for the result you get it’s a pretty mild cost. I think, I don’t know if this is a more recent number or not, but think of it more like a $2 or less of square foot to add in a floor like that. And to me that’s not unreasonable. So take that and then add radiant barrier on the top and you’re again probably hitting maybe a $1 or $1.25 a square foot for that, but the combination of those two your temperature in that grow will be so consistent, so even to me it will blow things away completely just having that setup alone.

Matthew: Now in terms of cost for the Grow Remote system, how can a grower or a business owner out there think about hey I’m interested in these sensors and what Grow Remote can do for me. How do you introduce the cost conversation?

Greg: Yeah so we try to be very ala carte with our pricing and how we set up the system. We don’t believe in… well we probably will in the future, but currently we don’t really bundle things together because we feel like you need ultimate flexibility in where and what you want to do. So a lot of competitors they take a bunch of sensors and output controls, so they throw it all into one box and you have to buy that thing for $900 or $1500 or whatever and that’s all you get. With ours it’s really tailored to as much as you want to as little as you want. So you can buy one temperature sensor and the gateway, what we call the gateway, which is what it transmits to, and you can take that and build it to hundreds of sensors, tens of thousands of sensors. You just have multiple gateways. So it’s kind of ala carte in that regard. So just as like a starter system temperature and humidity and a base station which can go up 100 sensors or outputs is $403. So pretty reasonable even for the home grower who wants to do this. This isn’t just for commercial. We do have more commercial oriented products like industrial control systems that use industrial type controllers and that. You know they’re not off the shelf. They’re really meant for high reliability and high scale.

Matthew: Greg in closing how can listeners learn more about Grow Remote?

Greg: I think the best way is go to our website www.growremote.com. So that’s www.growremote.com. And we recently just launched a new site. It should be either alive now or in the next few days anyway. And it has lots of information, data sheets and all that. Give us a call if you have a question. I mean we have a consulting arm as well and a lot of it is about educating the customer just on possibility more than anything. Like there are other things out there that do really great that gives you high high value.

Matthew: Greg thanks so much for being on CannaInsider today. We really appreciate it.

Greg: Awesome. Thank you Matt this was fun.

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

Some quick disclosures and disclaimers, me your host works with the ArcView Group and promotional consideration may or may not be given to CannaInsider for the ads placed in the show. Also please do not take any information from CannaInsider or its guests as medical advice. Contact your licensed physician before taking cannabis or using it for medical treatments. Lastly the host or guests on CannaInsider may or may not invest in the companies or entrepreneurs profiled on the show. Please consult your licensed financial advisor before making any investment decisions.

What is Selling in Cannabis Dispensaries with Roy Bingham

roy bingham

Roy Bingham or BDS Analytics describes how his point of sale data collection at cannabis dispensaries provides key benchmarks for dispensary owners. BDS also uses the data they have collected to create an analytics and insights platform for customers in the cannabis space that want to have a pulse on what is selling.

***Guess what? you could be listening to this interview while you are driving, excercising, or sitting on an airplane, etc.
Get the CannaInsider podcast for FREE –> CLICK HERE.***

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

Key Takeaways:
[3:24] – Roy’s background
[5:11] – Roy explains BDS Analytics
[9:52] – An example of what BDS Analytics does
[12:10] – Is the data private
[13:16] – Roy compares the cannabis market with other markets
[16:42] – Roy talks about surprises in data
[18:31] – Plans on expanding outside of Colorado
[21:41] – Roy talks about common questions
[23:54] – Other parties interested in data from cannabis sales
[25:03] – What is the pricing for the platform
[27:14] – Roy talks about going through Canopy Boulder
[29:15] – BDS Analytics contact info

Click Here to Read Full Transcript

Matthew: Wow welcome to CannaInsider. This is Matthew Kind the host of CannaInsider where we interview the leaders of the cannabis industry, and I just want to stop and reflect a little bit because this is the 100th episode since the show started and I cannot believe we’re here already. When I started this show I really had no idea how many people would listen and I’m absolutely humbled by it. I thought it might just be a couple hundred people, but it’s exceeded my wildest expectations and I really appreciate you listening.

This 100th episode is a really special one with a gentleman named Roy Bingham who is the founder of BDS Analytics that provides an incredible service to companies looking to get into the cannabis industry or who are already in and they want to learn how to launch a new product that has a reasonable chance of success. So very important service he offers. I do want to also thank the ArcView Group for their sponsorship of CannaInsider, and I’d also like to ask you if you’re enjoying the show to please consider leaving us a review on iTunes. Every time I see a review it gives me a catalyst to keep going and keep enthusiastic about bringing you the best guests and the best topics. So if you have an opportunity and haven’t done so already, please consider leaving a review for CannaInsider on iTunes and we also love you on Stitcher. If you’re listening on Stitcher, we really appreciate you listening and of course the CannaInsider app on iPhone and Google Android. So with that I want to introduce you to Roy Bingham.

The legal cannabis market in North America is now in the billions and growing rapidly. With such a large and growing market it’s easy to get caught up in the excitement. Many new entrants assume anything they bring to market in this gold rush will sell. While the market is fragmented on a state by state basis, there will come a time when national players with a lot of capital and operational experience enter the market. That is why it is important to know what the marketplace really looks like before entering and to get some objective data about what is selling well now, but also what is emerging as a hot selling product category and what may be fading in interest among cannabis consumers. That is why I’m pleased to welcome Roy Bingham founder of BDS Analytics to CannaInsider today to tell us how to navigate through all the static and to find the hard data on what cannabis consumers are actually purchasing. Welcome to CannaInsider Roy.

Roy: Thank you Matthew. It’s nice to be here.

Matthew: Roy to give us a sense of geography can you tell us where you are in the world today?

Roy: Yeah today I’m actually about half way up the coast of Maine on a trip with my family to visit the in-laws.

Matthew: Great, and can you tell us a little bit about your background and why you decided to get into the cannabis industry?

Roy: Yeah sure. I grew up in the UK and worked in banking and finance in London for about ten years and then I came to the United States to go to Harvard Business School, did my MBA there. And then I worked at McKenzie the big consulting firm gradually becoming accustomed to the different ways that business works in the United States. And after that I started a firm called Health Business Partners and we focused on consulting, mergers and acquisitions and advisory work in the nutrition industry which really became anything that you could buy in a whole foods market.

After about ten years of doing that then I got the bug that so many consultants get and started building businesses and built a data business as well as a nutrition industry newsletter business and a conference business in that industry before getting into consumer products and creating a fish oil company and then eventually working in the team, executive team at a digestive care company based in Florida called Renew Life. And then about nine months ago I decided to leave Renew Life and started doing consulting again, and decided that this was really probably the time look at the cannabis industry again which I had become curious about about three years ago. And at that time I decided it was a little too early for me to get involved, but when I took notice again about nine months ago I realized wow it’s come a tremendous long way in two and a half years. And so eventually I decided to join the Canopy Boulder accelerator program and start my current company BDS Analytics.

Matthew: And what is BDS exactly?

Roy: So BDS Analytics is a business that my partner and I have done before in two other industries. Most everyone has heard of IRI and Neilson. They are the two big data analytics companies that focus on the consumer packaged goods industries and products sold in supermarkets. And what they do is they take point of sale information about which products sold yesterday, last week and last month and they break that information down into huge databases and provide the analytic information to the huge consumer packaged goods companies. Well what we did in the natural products industry is we created a company called Spins that was similar but very narrowly focused just on natural and organic foods, supplements, personal care products. And so we provided a set of data from the point of sale information that the people like Whole Foods were willing to provide to us so that they could then compare their performance relative to the averages in the market and that’s the key to retailers.

So having done that in the natural products industry my cofounder Liz (unclear 6.25) had done the same thing in the biking and outdoor industry with a company called (6.30 unclear) Trends where she worked her way up from entry level all the way to the head of business development. And we got together and decided that there was a tremendous opportunity and a lot of demand in the cannabis industry to do something very similar and that is the birth of BDS Analytics.

Matthew: So a company like Whole Foods or even a bike retailer you’re saying what they get out of it is they get some way to benchmark how they’re doing relative to the industry?

Roy: Yes. So a retailer like Whole Foods gets to figure out in fact how to layout their store, how much of their store to dedicate to which categories of products based upon sales data. So they get to actually see the totality of the demand in the market for the products that they provide and then they can choose what percentage of the store to dedicate to you know fresh produce for example and what percentage of the store to have in supplements. And then within those categories they use our data to figure out which brands to carry, which products are growing rapidly and therefore should have the best dedicated space so that they satisfy the customer demand. And the important thing of course in the cannabis industry is what we’re now seeing is the emergence of brands and consumers going into the dispensary and actually looking for a specific brand.

If you at that dispensary don’t carry that brand, you might lose that consumer for life and a lot of value walks out of the door. So what we help dispensaries do is make sure that they’re stocking their store with what’s really in demand in their state and whether it’s in the medical use or the adult use channels. Now thinking about brands, the other part of your question, brands want to know (A) which products to develop for the future, (B) which marketing strategies are working for them if it is discounting strategies or promotional strategies or buy one get one, and they want to know immediately. They want to know it from off the shelf sales data rather than sell into the store data so they can figure out which of those levers to tweak. And then perhaps the most important thing if you’re a brand is you want to be able to go to a new retailer who doesn’t already carry your products and show them that you have third party data that proves that yours is a major brand or a fast growing brand in your particular category or subcategory and therefore it would be good for the retailer to carry your product in their store.

Matthew: So bringing this home to a real world example, let’s say I’m a cannabis infused drink manufacturer. I notice after looking at some BDS data that 8 oz-10 mg drinks that are both have some spicy and sweetness to them are starting to sell really well. So you get that extrapolate like hey if we’re creating a new line within our brand that that’s something to really focus on because we can see that selling well at BDS.

Roy: Exactly yes it’s a very good example. It goes down to a very detailed level of data. In fact we track attributes as well so you might even know if it was an organic product or if it was super critically extracted with CO2 for example. That gives you a sense of what the consumers are going for now and that might be a tiny micro niche this month but in six month’s time that might one of the hottest categories in the industry.

Matthew: I imagine the retailers want the benchmarking but they’re not going to go into a tremendous amount of customization for you. They will throw you the data and say you figure it out. Is that pretty much how it works?

Roy: Yes it’s very easy really for the retailer. So everybody in the industry has a point of sale system and those point of sale systems all capture data into some kind of internal database. My technology team has worked with AT80 different point of sales systems in extracting data from those systems. Usually we can automate it. Probably over 90 percent of cases it can just happen automatically at the end of the day or the week or the month and our client barely even knows it’s happened. In some cases we have to ask them to manually create a certain format of spreadsheet. But once the spreadsheet is created we can swallow that data in all kinds of different forms and then we normalize it and standardize it which is very difficult actually. As you can imagine the descriptions in people’s computer systems depend upon who was typing it in on that day. And so there are hundreds of different descriptions in use that might be exactly the same product for example. So a big part of what we have to do is figure out how to normalize that data, but that doesn’t worry the dispensaries at all. They don’t need to be concerned with that.

Matthew: Now the retail dispensaries are, how does their data treated? Is it anonymized so it goes in and we don’t know actually who the retailer is just maybe either zip code or region or how does that work.

Roy: Yeah the first thing actually is we encrypt the data immediately. So we are very hacker proof. And then the second thing we do is we anonymize the data so nobody can use the data to look at their immediate competitor in any way. When they access the data through the portal they will be able to see their own information and we have very strict password protections on that data so that only the dedicated client can see their own data in comparison to the average of the market. So that’s really important. You’re not going to get to see competitive data. Nobody is sharing data that would be seen by their immediate rivals.

Matthew: You mentioned working in the grocery store vertical in the past and your partner working in the bikes and leisure trends industry. Is this just a matter of plugging and playing into the cannabis industry or are there unique considerations and nuances coming on to the cannabis market?

Roy: Will it has a lot of similarities to the natural products industry and the bike industry, but there are subtle differences . The similarities are that there are a lot of small, independent stores or small chains of stores, but in the natural products industry there is a lot more mom and pop type of operators who were (1) reluctant to share their data, (2) not as confident about the value of the data. What we’ve found especially in the Colorado dispensaries is a number of sophisticated management teams who are very data centric. They tend to be quite young. They realize that information is extraordinarily valuable.

So it’s been exciting to us to see how quickly people have embraced our technology much quicker than the penetration we achieved in natural products or in actually in biking and outdoors as well where you had companies that emerged as people like REI and Sports Authority eventually, but you had a lot of mom and pop small operators who felt that, who were skeptical about the value of data. They thought that they could decide which were the products they should carry in their store. And their customers would choose based on what was presented to them rather than having preconceived ideas from the customer about what they wanted. So those are some of the important differences.

Of course in the dispensary channel our clients carry HIPPA data, very secret information, very private information and it’s very important to us that we do not see that information. We’re not looking to touch any of that information. So that’s on subtle difference. And another one is that because this industry has different regulations state by state we’re building our databases state by state. So we will compare data within Colorado for example and we will be able to provide data about Colorado to people who are looking at Washington or Oregon for example, but we’re not going to generalize early on in this process that if you seen Colorado you know what it’s going to be like in Illinois because we all know that’s not going to be the case because of a different regulatory environment in different states. So therefore we’re building 50 different databases if you like as opposed to one big national database.

Matthew: That’s an excellent point. For example I know in Washington State there still is a higher percentage of people that prefer flower to edibles which leads to my next question. Is there anything that surprised you from your initial data? One thing that surprises me is that how fast the market is turning away from flower and turning towards the infused products of various kinds. I mean it seems logical in many ways, but it’s just happening so much faster than I thought would happen. Is there anything that surprised you from your initial data that you hadn’t anticipated?

Roy: Well I couldn’t agree with you more. I suppose I wasn’t that surprised given my background with packaged goods in other industries. I guess I wasn’t that surprised by the speed with which the infused products emerged and of course the power of branding that is driving that. And I think a lot of this is introductory products for people who were new to consuming cannabis as well. And many tend to prefer not to smoke for example so they’re looking for alternatives that are easy and that are perhaps a bit more medical or a bit more dosage controlled in their minds so that they can begin to learn what’s right for them. So we’ve certainly seen that in the data.

I think the other thing that we’ve perhaps been a bit surprised by is the speed with which concentrates and extracts have grown in the last 18 months as well. And a number of our clients have had tremendous growth in the extracts area for example. And then of course things like vaporizer cartridges as vaporizers become so popular. So we’re dealing with very rapid change in an industry that’s very new and very innovative at the moment. And the established patterns of consumer behavior haven’t really happened yet and we’re going to see very rapid change I think for the next several years both overall and on a state by state basis.

Matthew: So you mentioned state by state database. Are you starting just here in Colorado or is other states on the roadmap? What does it look like, your plans there?

Roy: Yes our initial focus is Colorado for the next several months. We already have had a lot of contact from other states as well. And what I’ve really said is after Colorado. And basically in Colorado we need to establish a panel that gives us statistically meaningful data which is 10 or 20 percent of each of the two markets in Colorado. Once we have a retailer panel of that scale we have a PhD statistician who works was us who will extrapolate that data to the size of the total market and we can be confident with a 99 percent accuracy that when we have 15 or 20 percent of the market that we know what the total market looks like as long as we have the right distribution of different types of dispensaries. At that point we will expand to Washington, Oregon and other states that have a market that has some maturity in scale and we can roll out in those markets relatively efficiently.

Matthew: That’s pretty fascinating. That’s all you need is 15 to 20 percent to extrapolate those numbers. So after a certain point…

Roy: Yeah you need 15 or 20 percent not concentrated. Like if it was all in one city, you know, one big city like Denver that wouldn’t be statistically meaningful. If it was all one type of store, it probably wouldn’t be meaningful either. So we do have to include independent and mom and pop stores in the database for example even if they may not be a massive percentage of the total. They can be very important because they have different characteristics, different consumers that still comprise an important percentage of the total market.

Matthew: Which is a good point. If I’m a manufacturer, a brand in the cannabis space and I’m looking to target let’s say you know people in their 20s that live in an urban environment, are you able to drill down to that level or is it higher up or you can’t really quite get that?

Roy: Yeah we’re not really drilling into individual cities for example. The problem with that is that there are a few cities that are very large to the point where competitive data might not be the objective there. So you need to have a significant number of retailers in any one area. And so we tend to look at the state level data.

Matthew: You mentioned HIPPA compliance. So there’s the opportunity then to segment a recreational sale from a medical sale?

Roy: Yes most of our clients have completely separate systems and databases between the two markets.

Matthew: Okay. Now I’ve witnessed some infused products companies showing interest in what you’re doing. What is the benefit they see working with BDS? I mean are they approaching you and kind of have similar questions as to what they want to do and how they want to work with you?

Roy: Yes the first one is usually how do I rank in the market? How am I doing? I know what my own sales are, but I don’t know how that compares with the overall marketplace. So they love to see data that shows their own ranking. The other thing is they know in aggregate how rapidly they’re growing based on their wholesale sales data, but they don’t know what the sell through rate is. So you can have this situation where you’re growing 100 percent based on the wholesale data, but only 50 percent based on the retail data. What that tells you is you’re filling up the channel and you might start, you know, and that might create a problem for you in the future.

And of course on the opposite side you might see a situation where your retail sales are going up twice as fast as your wholesales sales in which case you know that there’s a lot of demand and you better stock up some infantry fairly soon. So those are a couple of examples. And the big one really is to be able to go to a new chain of retailers that you don’t already work with and show them the data that says you’re the number three brand of this type or you are the fastest growing or the second or the third fastest growing and therefore it would be a good idea to carry that product. And that’s what I did in my previous job in the digestive care market. We started off in the independent health food stores and then we used the spins data to show Whole Foods market that they should carry more of our product in their stores. And then we showed the natural products industry data to Walmart, Walgreens, CVS, Rite-Aid, etc. and said okay if you’re going to have a natural digestive care section, you should have the number one brand in that section, and that’s how we grew from $40 million to $100 million in 5 years.

Matthew: Wow that’s great. Apart from infused products companies and different manufacturers and brands, are there any third parties, government or regulators that want to access this data or anybody that kind of surprised you that came out of left field.

Roy: Well certainly investors find this data very interesting indeed. Obviously when they’re looking at possibly investing in a company it’s very reassuring to see independent, third party data that shows how well that company is doing. So typically a manufacturer will come to us and start using our data and they may be showing that data to investors as well. So that would be a classic example. Then the other thing is that of course we can help regulators to focus their resources as well. They’ve got a massive data, imagine through the metric system the MED in Colorado has tons of data and we’re very experienced at figuring out what’s important about that data. So we do have a dialogue going with them and some of their advisors about how we might be able to help them to use their resources more efficiently and focus on the things that they’re most concerned about.

Matthew: What about price point? How much does it cost to access the BDS Analytics platform?

Roy: Yeah it varies depending upon the size of market that you’re interested in. So first if you’re a dispensary, it’s very economical. It’s somewhere between $50 a month and $200 a month if you’re a chain. At the moment as we’re expanding in Colorado we have a program called BDS Preferred for dispensaries which basically provides the service for free as long as you’re one of our beta testers who’s helping us to refine the system. For brands it could be as little as $500 a month if you were just looking at one subcategory that you are particularly interested in, and it could be many thousands of dollars a month if you’re looking for a large category. And of course as the categories grow as sales increase so the cost of the data on that category will increase as well.

At Spins we had customers who were spending well over $1 million a year with us on particular categories, and we had embedded staff who were working full time with our clients helping them to crunch data about new markets and market opportunities in competitive situations. So it’s really a matter of how much appetite and demand branding clients have for the data.

Matthew: What a great secret weapon here to have. I would not be telling my competitors or talking about using BDS that much if I was using it because it sounds like a great tool. Now you were part…

Roy: Yes I mean people become very used to this data. I used it for six year as I told you in digestive care and we could barely begin our product development process without studying the data intensively for several days actually.

Matthew: Great point. Now you were part of the first class of Canopy Boulder the first cannabis accelerator. For our listeners that are not familiar with Canopy Boulder, can you tell us what that was like going through that program?

Roy: Yes, yeah. Canopy Boulder was a very intensive program, extremely helpful to people starting a business. Of course you know I’m in my 50s. I’ve started several businesses so I had different needs from the program perhaps than some people. There were ten new companies that joined that program. My primary needs were for relationships so that I could validate the business model in the cannabis channel and compare it to what I had done in other industries and rapidly develop relationships. But many of the other people in the program were relatively new entrepreneurs. So they would have mentors who worked with them on marketing, sales, finance, accounting, the full range of capabilities that you need to start a business. And then Canopy Boulder helped those companies to raise capital and of course prepare for pitching which is a very important part of this process in order to raise capital through ArcView, through the Rockies Venture Club and from other angel investors.

Matthew: Are you still looking for investors for BDS Roy?

Roy: I’m not really, no. We were very successful. We originally intended to raise $900,000 and we’ve actually raised $1.4 million so far. And that’s actually about what we need to build this business. Originally I was going to do two raises, $900,000 and then another raise of something like a similar amount about a year later, but the appetite we’ve seen for investors has been great and so we’re at the point where we probably won’t need to do a second round.

Matthew: Roy in closing how can listeners learn more about BDS Analytics?

Roy: Well one thing is just to go to the website www.bdsanalytics.com and there is an opportunity there for you to register your interest. Go to the contact task page and send us a message of course. My email is just roy@bdsanalytics.com My cofounder (29.38 unclear name) she’s liz@bdsanalytics.com. And we’d be delighted to correspond with you and tell you what we’re doing and connect over when we’re going to be able to satisfy your needs as well. So that will be an approach to take initially.

Matthew: Great. Well Roy thanks so much for coming on CannaInsider today and telling us how this expanded, crazy market works. There’s so much intelligence we need to make great decisions here. And I’m glad you’re stepping up and filling that need in the marketplace. Good luck to you.

Roy: Thank you very much Matthew. It’s an honor and a privilege to be on your show and it’s really been fantastic for me to join this industry that’s so filled with vibrant exciting entrepreneurs with such positive attitude. I’m delighted to be here and look forward to helping people grow very successful businesses in the coming years.

Matthew: A very special thank you to Roy Bingham of BDS Analytics. If you want to know the future, look at the past and that’s what BDS Analytics helps to do. I really appreciate you sticking with us through 100 episodes and here’s to 100 more. Don’t forget there is now a full archive of 100 episodes you can listen to on iTunes, and in fact that’s all that iTunes store. So occasionally you’ll start to see a flashback episode appear on Wednesday because iTunes won’t even store all the episodes we have. So I’m going to have to bring some blasts from the past. There’s some great great interviews back there that can really help you understand and digest the rapidly evolving cannabis industry. So I encourage you to go back to the archives and listen to all the guests we have there. Again thanks so much for sticking with CannaInsider for 100 episodes and here’s to 100 more.