Day two of the MJIS Las Vegas Cannabis Capital Growth Conference brought more information from the front lines of capital management, with discussions of navigating previously uncharted regulatory environments and some of the most exciting up-and-coming companies in the world of cannabis.
Emerging Companies in Cannabis
Matt Callahan – Botanix Pharma
Botanix is solving problems associated with skin disease with a proprietary CBD formula – a different approach from popular cannabis and pharmaceutical hybrid treatments for epilepsy and fibromyalgia.
The company’s pre-clinical data shows that CBD as an active ingredient reduces inflammation in the skin, blocks proliferation of acne, and effectively switches off excess production of sebum, the oil that causes acne. Though the “entourage effect,” or mixture of cannabinoids, has been touted as vital to medical cannabis, in Botanix’s studies, THC did not prove effective in treating skin disease, only CBD.
According to Callahan, there are around 50 million acne sufferers in the United States, and zero new active chemical treatments for acne have been developed since 2001. He touts his product as an alternative to the popular prescription drug Accutane, which carries a “black box” warning and can have dangerous and permanent side effects.
While Botanix’s initial focus is acne, the company is also working on psoriasis and skin cancer treatments.
Two roadblocks exist in creating this product: FDA and DEA regulation, and the fact that CBD is not entirely bioavailable, or able to be fully absorbed into the body. Botanix uses a CBD formula that is of FDA-approved purity and quality, and is planning further compliance work for the product so it can be prescribed by physicians and dermatologists.
In spite of its challenges, CBD comes with a much lower-cost and speedy drug development process than traditional pharmaceuticals, making it a great investment. There’s an extremely rapid path to market ahead for this life-changing drug.
Skin disease is a billion dollar market, and with the number of people of all ages who are negatively affected by acne, Botanix seems poised to disrupt the space.
Phil DeVries – THERA
Another company currently seeking funding is THERA Integrative Healthcare, an organization with physician operations and clinic operations businesses and targeting emerging medical cannabis markets.
According to Founder Phil DeVries, medical cannabis programs in emerging markets are plagued with limited patient participation due to lack of physician access and delays in the recommendation process or licensing for dispensaries. Likewise, there’s limited physician participation, as most are either uneducated or prohibited from discussing the topic for fear of losing their license.
THERA’s mission is to create a nationally scalable clinic model to full-service medical cannabis services to new markets like Illinois where dispensaries are starting to open, but there are still issues with patient and physician access to information.
This model will allow doctors to actually diagnose issues and prescribe cannabis, rather than make a “recommendation.” So far, insurance companies are covering up to 80% of the fees for patients.
With the potential for their clinics to be licensed out to any state where medical cannabis is legal, and the way the company is providing the missing link between the cannabis and medical fields, THERA is definitely one to watch in the next year.
Public Company Pitch
Lexaria Energy ($LXRP, $LXX)
Chris Bunka, Canadian-born venture capitalist and CEO of Lexaria Energy, has built a successful business that spans North America. His company produces a line of all natural, additive free, pain & inflammation-relieving coffees, teas and protein energy bars, medicated with CBD.
According the the company, the products improve concentration and can even promote muscle recovery, allowing athletes to train more regularly. Protein bars are currently make up a market of $8.3 billion, and are sold in gyms, convenience and grocery stores, and specialty nutrition stores – now, potentially a dispensary or recreational storefront.
According to a recently published Leafly poll, edibles are greatly outselling flower and concentrates in California, Colorado, and Arizona. With smoking or vaporizing, an average of five times more active cannabinoids are absorbed than with edibles, but infused food and beverage products remain a popular method of ingestion because of the health issues and stigma attached to the act of smoking.
The main problem with edibles as a medication, is that most of the cannabis content in edibles is not used by the body. Cannabinoids are not easily absorbed by the intestine, if they even make it through the acids of the stomach.
Lexaria’s proprietary technology binds cannabinoids with fatty acids at the molecular level, along with a process for enhanced palatability and absorption so the cannabis cannot be tasted. The company has done its research, having conducted a third-party in vitro laboratory study that showed 5X improvement in intestinal absorption compared with other delivery systems.
With over 40 thousand gyms in the US, plus dispensary, grocery, convenience and drugstore retail, there’s huge market potential. Lexaria is now evaluating license partners for the delivery mechanism technology, including established THC edibles companies.
Once patented, opportunities to use the delivery tech for nicotine, NSAIDs, vitamins as well.
Further funding would carry Lexaria through profitability, expanding production, distribution and sales, additional patents and R&D, further potency and efficacy testing, and new product development.
Canada’s Public Markets
Lexaria’s Chris Bunka went on to explain his background, and give some valuable insight on the Canadian stock exchanges and investing environment in comparison to the United States. After going public in 2005, Bunka’s company, Lexaria Energy, obtained a dual listing on CSE in 2009.
In 2013, Canada passed a law federally legalizing medical cannabis as part of Health Canada. The policy allows for electronic payments, capital and banking, and ample patient access without federal interference. The production and dispensary program has really just ramped up, and investments are beginning to show returns.
There are three stock exchanges in Canada:
- Toronto TSE (sim to nasdaq),
- Canadian CSE (sim to US reptg OTC+)
- Toronto Venture TSXV (sim to US reptg OTC)
According to Bunka, there are a few downsides to doing business in Canada; the legislative process is slow, so far there are only 26 licensed producers and only 24K registered patients, the law currently allows for flower only, and there are still issues of unknown market demand, supply, and price points, and a large number of non-official transactions still taking place.
High points of this favorable legislative and regulatory environment include the recent election of Liberal Prime Minister Justin Trudeau, the Tweed + Bedrocan merger, and Organigram’s raise of $6.3 million. There’s Arguably lower risk than the current United States OTC markets, and with an estimated recreational market of 500K people, Canada is a great example for how legal markets might soon operate in the US.
Growth Company Spotlight
Justin Cifelli – Med Ag Ventures, Inc.
This company owns Phoenician, the best-in-class and most expensive grinder brand, with revenues of $70k per month and increasing. The brand is teaming up with rappers Snoop Dogg and Waka Flocka Flame in the near future for licensing the titanium products with their own branding.
Now acquiring more subsidiaries, including a massive online outlet to aid in their Hempioneers digital media business. In the meantime, the company is working on developing titanium nails for concentrates, luxury precious metal Phoenician grinders, and cultivation LED lights and curing structures for cannabis flower.
With strong brand recognition, in-house manufacturing, and a lifetime warranty on Phoenician products, this company has a track record of creating exceptional value.
Clint Crary – RhyaPharms
Based in Davis, just outside of Sacramento, Calif., RhyaPharms is a CBD-based “nutraceuticals” brand, complete with online retail, wholesale, and white labeling products. The company creates “CBD Prime” drops, sprays, tablets & capsules, and e-liquids for vaporizers.
In the near future, they plan on releasing single-dose CBD shots, body & hand lotions, “CBD Fusion” foods, and transdermal patches.
According to Clint Crary, the founder, CBD manufacturers face a dilemma in getting products to market. Many contract manufacturers are unwilling to work with cannabis at all, and among those who are willing, most require Minimum Order Quantities that small CBD companies cannot meet.
Therefore, RhyaPharms is ready for its own automated manufacturing line in order to solve bottling costs issues and fulfill the desire to become a white label manufacturer for other CBD products.
Private Equity After The JOBS Act
Many consumers think of “crowdfunding” as taking place on websites like Kickstarter and GoFundMe, but it’s become a common practice in the investment banking world, and requires a slightly different and more regulated process, especially for cannabis businesses.
On day one, Randy Shipley had given some insight on the JOBS Act, which was passed when the post-”bubble” access to venture capital began to dry up. The policy made changes to the restrictions on startups. Crowdfunding fills the gaps that occur when working in existing, traditional fundraising models. Just like during the Internet boom, early stage equity participation will definitely pay returns in the rapidly-growing cannabis industry, where angel investors and crowdfunding are filling a major void for startup capital.
On the second day, Gina Austin, Esq. of Austin Legal Group went over what cannabis entrepreneurs need to know about the various existing and proposed rules as they relate to crowdfunding.
Companies can file as either an S1 or S8, or either tier stipulated in Reg A+. The various types of business exemptions determine how companies can raise money, based on number of investors and monetary amounts permitted. Where one method may seem like the easier route in regard to general solicitation, others have benefits as well. She encourages every business owner in the industry to review and research all the various SEC filing options with a qualified cannabis attorney.
Matthew Mills, CEO of Med-X, is one of the cannabis entrepreneurs who went with Reg A+ in order to get on SEC and FINRA radar and begin reporting right away. He wanted to give everyone the opportunity to invest (at a $600 minimum) through a funding portal. Reg A+ gave Med-X that opportunity, and the company raised $15 million in a relatively short time.
Now, Med-X has one of the few pesticides approved by the EPA, a digital media platform, and an upcoming new pest-resistant soil product.
Also alluding to the importance of an attorney with a strong background in the cannabis space, Mills stated, “I’m not an expert – I’m a student.” In this industry, it’s refreshing to hear from entrepreneurs who are still learning themselves and successfully shaping positive perceptions of cannabis.
Technology & Cannabis Panel
David Goldstein, the founder and CEO of Potbotics, created a device that actually analyzes the brainwaves and the effects of various cannabis strains, and sources that data for its comprehensive strain and dispensary database in the form of a mobile app. Goldstein moderated the technology panel and gave an introduction to the “Internet of things”- devices connected to a larger network.
There are now 50 million devices currently connected to the IOT, and growing fast as Bluetooth and Wireless Internet technologies are integrated into homes, cars, printers, and in the cannabis space, used for remote grow room environmental control and cannabis testing.
When smart machines combine with big data, meaningful events and knowledge can be recorded, measured, and analyzed and problems can be solved without human intervention.
For connected devices, the tech community is already seeing many valuable applications to healthcare industry, with a $300 billion annual market in healthcare data. According to Goldstein, when it comes to backing up the claims of cannabis as an effective medicine, real data on the plant and treatment efficacy will be the factor that eventually re-schedules or completely de-schedules cannabis from the Controlled Substances Act.
Eugene Lopin developed CHEX, or the Cannabis Hemp Exchange, which connects wholesale buyers and sellers to help them track and update inventory while making simple business-to-business transactions.
Following a new tech industry trend, APIs allow the owners of proprietary softwares to leverage the technology and license it out for use within other applications, similarly to how Google Maps appear in many other apps. Part of the strategy for CHEX is to integrate with existing apps that dispensaries and producer/processors are already using. Some seed-to-sale and state regulator softwares are already working on developing open APIs: Agrisoft and Flowhub.
With the burgeoning Las Vegas market as the venue for these promising companies to come together, the Cannabis Capital Growth Conference was an instant success. At its next event in San Francisco, March 3-5, 2016, the MJIS will continue to build on the information presented.
