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Aurora Cannabis

We Americans like to think we’re in the forefront when it comes to cannabis legalization.

After all, nearly 30 states have medical cannabis and nine have approved recreational cannabis for adults, the most significant wave of legalization since the plant was banned seven decades ago.

But it’s our neighbors to the north who are quietly paving the way for the future of the industry. Colorado and California may get all the press, but Canada has developed one of the world’s most liberal medical cannabis policies, one that has allowed truly national cannabis companies to develop in ways American companies cannot because the plant remains federally illegal here.

As to how this future may shape out, look no further than Aurora Cannabis. While the largest U.S. cannabis companies are valued around $190 million, the Edmonton-based company was recently valued at $2.4 billion—yes, with a “b”—with a stake in nearly every phase of the process from seed to sale.

Not too shabby, eh? And as Canada moves toward legal use for adults, they’re only getting started.

“I have a joke I tell that I wake up every morning and say a prayer of thanks to the DEA for keeping cannabis federally illegal in the U.S.,” said Cam Battley, 49, Aurora’s chief corporate officer. It’s a joke, and he is quick to point out that he thinks it’s ridiculous that the plant remains federally illegal here.

But behind every joke is a bit of truth.

“The huge advantage we’ve got over the U.S. is that in the U.S. cannabis remains federally illegal. It means the companies can’t produce in one state and sell in another. It means they can’t deduct their business expenses so the effective tax rate can be 60 to 70 percent. And they can’t list on public exchanges and have the same access to capital that Canadian companies have used to successfully begin our global growth.”

“Not only have we been able to expand across Canada and establish massive capacity, but we’ve been able to expand around the world.”

“The Squarest Guy in the Cannabis Business”

Battley doesn’t fit the profile of your typical cannabis peddler.

He spent most of his career working in the pharmaceutical industry until a friend in 2014 suggested he look into medical cannabis. While the American government spent years battling and shutting down dispensaries, Canada’s government in 2013 created a legal framework for the industry.

“Are you crazy? I do serious stuff,” Battley responded to his friend. Then he began to look at the actual medical benefits of the plant.

“What resonated with me is that medical cannabis is used to manage the symptoms of a wide range of health conditions, and I was well aware of the vast unmet medical need with respect to symptom management across this wide range of conditions,” he said. “So a light bulb went on for me immediately, and it was one of those times in life when you’re absolutely delighted to find out you were completely wrong about something.”

“Today they call me ‘the squarest guy in the cannabis business’ because of my business background. Plus I’ve been a Scout leader for 10 years and soccer coach for 10 years.”

In 2016, he took the job as chief corporate officer at Aurora, making him the company’s public face in dealing with the media, investors, regulators and others. And he won’t even admit to ever enjoying the product.

There’s a good reason for that, however. The U.S. Border Patrol in recent years has begun banning non-citizens from entry—in some cases for life—for simply admitting to having consumed cannabis.

Growth and Enterprise

When Battley joined Aurora Cannabis in 2016, the company had 35 employees and a value of $70 million.

Today the company has 480 employees, rivaled in size and value in Canada only by Canopy Growth Corp. The two companies together are valued at $6 billion, which is more than Canadians spent on medical and recreational cannabis in 2017.

Battley credits Aurora’s growth to Founder Terry Booth, who used his own money to launch the company’s first 100-acre grow operation in 2013 and has guided it through the sort of growth that would be impossible in the U.S.

Take the company’s 800,000-square-foot grow operation at Edmonton International Airport, where they expect to produce 100,000 kilograms of cannabis a year. Said Battley, “The airport authority is our landlord, and that’s a federal body, so effectively Prime Minister Justin Trudeau is our landlord. Can you imagine having Donald Trump as a landlord of a cannabis company?”

Alberta’s minister of economic development even showed up at the press conference announcing the airport project.

Such government support is just one of many factors that has allowed Aurora and its competitors to reach a size American companies only dream of. The federal agency Health Canada has created a nationwide framework for medical cannabis, so unlike in the U.S., patients don’t have to worry when they travel that what is legal at home could be a felony in the province they are visiting. For Aurora, that means the ability to operate across the country, which U.S. companies can’t do.

The company also has access to investor money through Toronto Stock Exchange and does not face limits on vertical integration like many U.S. states have established. That means companies are limited from controlling all phases of production and sale. Lacking such regulations, Aurora has invested in or purchased companies that specialize in extractions, companies that conduct cannabis research, companies that specialize in gardening techniques and companies that design waste digesters. Aurora owns one of Europe’s leading medical cannabis importers, which provides up to 40 percent of the company’s revenue.

In anticipation of Canada’s legal recreational market, Aurora purchased 200 liquor stores in order to convert them to cannabis sales.

Despite all this growth, it doesn’t do a dime of business in the U.S.

So while his joke about U.S. cannabis policy is just that, a joke, nobody at Aurora is laughing.

“It’s ironic, because we’re very much aware [U.S. policy] is prolonging the social harms associated with prohibition in the U.S., and I disapprove of that very, very strongly. The advocate in me gets quite angry at that, because we also know that those social harms associated with prohibition land much more on Americans who are minorities and poor than they do on others.”

“That said, the longer cannabis remains federally illegal in the U.S., the more lead time we have to establish our global leadership.”

“That said, the longer cannabis remains federally illegal in the U.S., the more lead time we have to establish our global leadership. It’s an odd situation of public policy, which I strongly disapprove and think is wrong is actually in the short-term beneficial to leading Canadian companies like Aurora.”

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Striking Gold

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When the California Gold Rush broke out in 1848, the first millionaire didn’t get rich by mining or prospecting.

San Francisco businessman Samuel Brannan made the first million dollars selling equipment to the frenzied hordes who descended on California with gold in their dreams and money bursting out of their pockets. He went on to become one of the world’s richest men.

A different sort of rush is happening now in California and the other 10 states that have legalized cannabis. It’s been called the “Green Rush,” and like Brannan, one California company is proving you don’t need to grow, sell, extract or even touch the plant to be successful.

“We have a small part of more legal cannabis transactions than any other company in the world,” says Nick Kovacevich, 33, chairman and CEO of KushCo Holdings. “Maybe we provided them with the vaping pen. Maybe we provided them with the packaging. Maybe we provided them with branding services.”

In just five years the company has grown from practically nothing to $145 million in annual sales providing packaging, branding, vaping products and myriad other services to the burgeoning legal cannabis industry.

“One way or another, if you’re picking up a product, there’s a high likelihood we had something to do with it. Because we’re working with 6,000 cannabis businesses throughout the world, we’re getting our fingers and hands on a lot of these transactions. By being an ancillary company, we don’t actually touch the plant.”

 

Entrepreneurial Spirit

A born entrepreneur, Kovacevich launched his first company in 2007 with a college friend. PackMyDorm provided college students at four California campuses with packing materials, scheduled movers, arranged storage between semesters and scheduled movers for the return to school.

He wasn’t lifting heavy boxes, though. The actual moving was contracted out. He sold the company in 2010.

Around that time, Kovacevich grew interested in the cannabis industry. He’d been raised by his district-attorney father to see it in a negative light and as an athlete in college he rarely partook.

It was while recovering from knee surgery he decided to try it again and “quickly realized a lot of the information I believed was false.” Ever the entrepreneur, he decided after selling PackMyDorm he would launch his own company in 2010.

“One way or another, if you’re picking up a product, there’s a high likelihood we had something to do with it.”

 

Medical cannabis was booming in places like California and Colorado, but he didn’t want to join with the rest of the herd and run a farm or store.

“When people were looking at growing and opening dispensaries, we were looking at how do we build a set of products to support those endeavors? What are they going to need on a daily basis that we can provide?” he recalled. So Kush Bottles was born, designing and selling packaging for cannabis products and helping to make childproof packages the industry standard.

He took over as CEO in 2014 and has since renamed the company KushCo Holdings, because these days, the company is about way more than just bottles.

 

Exponential Growth

Today, Kovacevich’s company is actually several smaller companies: Kush Supply Co. provides vaporizer products, packaging, supplies and accessories. Kush Energy sells ultra-pure hydrocarbon gases and solvents. The Hybrid Creative is a design agency for cannabis and non-cannabis brands. Koleto Innovations focuses on research and development.

From his humble beginnings, his companies have sold more than 1 billion units, with 220 employees spread across five facilities in five states with legal cannabis.

Never heard of these companies? Not surprising. They don’t sell a single product containing THC. That’s up to their customers.

He credits his success to foresight and customer service. KushCo Holdings had a warehouse in Colorado within a few months of legalization there. It had one in Washington years before legalization. It had one in Massachusetts three months before legal cannabis sales began there.

And having customers who are also growing exponentially helps too.

“All our customers, for the most part, have been growing. So, when our customers grow, they buy more from us, which means we grow.”

 

Taking on the Black Market

There are still threats to the industry, but Kovacevich sees none greater than the black market.

“The black market, especially in California, is very rampant. People in this industry are used to buying through informal sources like dealers, but they’re also used to going to pop-up medical shops, which are now servicing rec,” he says.

This year, the United Cannabis Business Association released an analysis that found there were 2,835 illegal stores and delivery services in California, more than three times the 873 legal sellers.

Kovacevich says these illicit operations often sell vaporizers and other products that are untested and potentially unsafe, contributing to the wave of vaping-related illnesses sweeping the nation.

He blames the fact that California doesn’t have enough retail cannabis stores to meet the needs of the state, and many cities have none at all, since the state left it up to municipalities to determine if they would have dispensaries.

“There are not enough stores from the convenience standpoint and because of the testing requirements and all the onerous red tapes, pricing is significantly higher, so the black market is winning on convenience and price,” he said. “The key to taking back the market is to make it more convenient, by allowing more retail stores, and driving the cost down by lowering taxes.”

He sees the need for the federal government to begin regulating the industry to ensure what’s in cannabis and vaping products is safe. Of course, that would involve removing it from the list of Schedule I drugs.

He pointed out that research has shown teen use decreases in states that establish legal, adults-only stores.

“Everyone is looking for a reason to say legalizing cannabis is a bad idea, but I think if we can create fair, strong regulation, we can make sure the integrity of these products is kept,” he said. “The question is, ‘Why would you not legalize?’ You’re reducing the likelihood that kids will get involved. You’re reducing the crime aspects and you’re making safer, more effective products available for adults who choose to use it.”

 

www.kushco.com

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Engineering Endeavors

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Drive around rural Colorado these days and you’re apt to see hemp—fields and fields of it, growing legally in the shadow of the Rocky Mountains.

Industrial hemp is booming, fueled by nationwide demand for CBD products, legitimized by the federal government in the 2018 Farm Bill. But how can consumers be sure that a CBD tincture is really free of THC, the psychoactive ingredient of the cannabis plant?

Ask a chemical engineer.

At Kazmira LLC, there are several of them on staff, working out of a massive, 200,000-square-foot plant outside of Denver. It just might be the largest extracts company you’ve never heard of, though if you’re a CBD consumer, you’ve probably enjoyed its products.

“We’re still finding out about all of the uses for CBD oil, and there’s so much runway for industrial hemp, in terms of the fiber and all the ancillary uses of the plant,” says Co-founder Dr. Priyanka Sharma, a chemical engineer. “I think there’s so much that can be done with just the plant, there’s only more growth that we’re seeing.”

 

Chemical Background

The name Kazmira comes from the Kashmir region of India, where hemp has been used for thousands of years. Dr. Sharma’s parents are from India, though she grew up in the Chicago, Illinois area. Her father is a chemical engineer, and she always saw herself following in his footsteps. She even married another chemical engineer.

After obtaining her doctorate from the University of Illinois at Chicago, Dr. Sharma went on to work in highly technical areas, such as “molecular modeling of functionalized gold nanoparticles with various ligands and their behavior in biological systems” and “developing a predictive model to understand chiral separations of orphan drugs.”

But she had been hearing about the growth of industrial hemp, and nowhere had more growing than Colorado. So, in 2017 she and her husband moved there and launched Kazmira. The goal was to use their scientific backgrounds in oil, gas and pharmaceuticals to build a company for extracting CBD from the plant using strict standards.

“The reason we decided to start Kazmira is there was a gap in technology companies in this space. We wanted to lend our expertise to making quality and safe extracts for industrial hemp. We wanted to continue our passion for engineering and apply it to the hemp space,” she said.

Other companies, she explained, were operating in “pretty unsafe environments,” using outmoded equipment, without the kind of quality control or manufacturing standards she was used to, without processes for keeping pesticides and other contaminants out of the finished product.

“We realized there were a lot safer and more efficient processes that we could apply to this industry to make these hemp extracts.”

“The reason we decided to start Kazmira is there was a gap in technology companies in this space. We wanted to lend our expertise to making quality and safe extracts for industrial hemp. We wanted to continue our passion for engineering and apply it to the hemp space.”

Truly THC-free

Kazmira’s “TruSpeKtrum technology platform” allows the company to produce hemp oil that is guaranteed to be free of THC. While many companies claim to do likewise, federal standards allow a CBD product to legally contain up to three parts of THC for every thousand parts of oil by weight.

The oil that comes out of Kazmira has no detectable level of THC, the company boasts. Among its 30 employees are eight scientists with PhDs, two with master’s degrees and two medical doctors.

The team works with farmers, mostly in Colorado, to get hemp plants that are free of pesticides and other contaminants, and Kazmira has the capacity to process thousands of pounds a day.

So, why have you never seen a Kazmira oil or tincture on a store shelf? The company only produces the oil, selling it to other companies, which sell the finished product.

Dr. Sharma explained, “We’re able to provide them with a product that meets specifications retailers care about—free of pesticides, toxins and microbials. We are able to guarantee their CBD source is safe.”

And given the booming popularity of CBD as treatment for a whole variety of ailments, from anxiety to inflammation, and given that these products can legally be sold anywhere in the U.S., Dr. Sharma expects Kazmira to continue growing and expanding what can be extracted from the hemp plant.

“The runway is a lot longer right now for hemp because anybody from a child to an adult can take a hemp extract and they can access it as well,” she said. “I think there’s so much that can be done with the plant that there’s only going to be more growth.”

 

kazmira-llc.com

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Delectable Delights

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For most people who enjoy cannabis edibles, taste is secondary to the buzz it packs. It’s on your lips for a few seconds, while the THC inside will hopefully keep you going for the whole Phish concert.

But trained pastry chef Rachel King asks why edibles can’t be delicious and THC-infused?

“If you’re going to eat an edible, you might as well make it enjoyable,” says King, co-founder and culinary director of Kaneh Co., a San Diego, California-based gourmet cannabis company.

Launched in 2016, the company has grown from three to 65 employees, with edibles sold in more than 200 stores across California, an explosive growth King attributes to meticulous dosing and the belief that edibles customers are looking for a wide variety of sweets that taste just as good as what you’d get in a fine restaurant or candy store.

“As our clientele widens and cannabis becomes more and more accepted by people in different walks of life, they will be looking for a product that is not just a vessel for medication.”

“I wanted to make sure people were getting a delicious, good product that would get them high, not just something they’re trying to choke down to get high.”

 

A Pastry Chef

King, 36, came into the cannabis industry in a roundabout way.

Her first experiences with cannabis—smoking whatever flower her friends had out of an aluminum can—were not positive.

“I would usually get way too high, so it was not that pleasant for me,” she said.

King was trained at the San Diego Culinary Institute and went on to work at some of the city’s finest restaurants. Pastries were always her specialty and focus; Food & Wine magazine named her one of the best new pastry chefs in 2013.

“Pastries hold a special place in peoples’ hearts. You’ll always remember that birthday cake or extra-extravagant dessert you’ve had,” King said.

But restaurant work can be demanding, so when her brother and some friends came to her with a proposition for an infused edibles company, she listened. So, in January of 2016, Kaneh was born.

From the beginning, King explained she would not sacrifice the quality of her desserts simply because they would be cannabis-infused.

“Considering my background was in pastries and not cannabis, it was really about the food product itself,” she said. “I wanted to make sure people were getting a delicious, good product that would get them high, not just something they’re trying to choke down to get high.”

“I didn’t compromise the quality that I was already used to working with in my cooking background.”

A New Ingredient

Still, adding a major new ingredient to the type of cooking she had long done presented a challenge. There were some hits and plenty of misses.

“Working with the product itself, figuring out when to add the medication, how it affects the overall product, was a bit of a learning curve,” she said.

Kaneh hit the market with a large array of products—cookies, brownies, snack bars, nuts, dates and cocoa powder. She was one of two kitchen employees.

“Now we have a huge professional kitchen staff with people who used to work in bakeries and restaurants,” she said. As of this writing, the company has 22 different products available, from cookies to jellies to caramels to that staple of stoner cooking for decades, brownies. Each is a 100mg product, divided into 5mg or 10mg doses.

Kaneh sells as many as 50,000 products a month, according to King. For now, they’re just in California, though the company is exploring licensing in other states. She attributes her company’s success to “the quality of the taste, and obviously the consistency of the medication.” Ingredients are the same she would use to make desserts in a fine restaurant.

When people get an edible, they expect the potency to be exact, and so does King. She’s found a way to finally enjoy cannabis—five milligrams at a time.

She believes the future of edibles is in diversity, offering consumers a wide variety of options.

“People are getting super creative. The consumer base is widening. People are going to want more things rather than just the same old things. Nothing to disparage the classics, a good chocolate chip cookie or brownie will never get old, but the more people that try edibles, more they will want something different.”

That said, she noted that a brownie is Kaneh’s best-seller.

“It’s the Best of Both Worlds, a classic fudgy brownie. We press in a piece of chocolate-chip cookie.”

“It’s so good.”

 

kanehco.com

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