VIDEO: Front Range Biosciences Cannabis Clone Delivery

Front Range Biosciences CFO and co-founder Nick Hofmeister outlines the company’s propagation methods to create disease-free, pesticide-free, certified true-to-type clones for hemp, cannabis, and coffee. While it can take four to six months to clean new stock in the initiation process, Front Range now has 170,000 plants in its inventory and can multiply that stock at a rate of 3 to 4 times every 6 to 8 weeks, depending on plant variety. As a result, Front Range fills a critical niche in the cannabis industry, by offering disease-free plant propagation. Front Range’s plant propagation are also perfect for home growers in Canada and Hofmeister anticipates Front Range working with retail dispensaries and consumers directly in the future.

Transcript:

James West:   Our guest in this moment right now is Nick Hofmeister. He’s the CFO and co-founder of Front Range Biosciences. This is a private company, Nick?

Nick Hofmeister:   It is a private company. We’ve been around for about two years, and have raised about $4.5 million into the company from venture capital.

Ed Milewski:  Where are you based?

Nick Hofmeister:   We’re in Lafayette, Colorado, just north of Denver and east of Boulder.

James West:   Okay.

Ed Milewski:  All right.

James West:   So your particular focus as it pertains to cannabis is, you specialized in tissue culture, and so is that basically propagating cannabis through cytokines and that kind of thing?

Nick Hofmeister:   It is a method of propagation that involves using sterile lab procedures to create disease-free, pesticide-free, and certified true-to-type clone. So these clones come out in the healthiest possible way, and then they’re delivered to cultivators to go into their grows. We do this for hemp, marijuana and now coffee.

James West:   Okay. For the process from which you initiate a clone process, or, rather, a tissue culture process, till you’re able to deliver a clone product to the grower?

Nick Hofmeister:   There are a few stages to the work that we do. The first stage is to bring the plants from the cultivator, or from our own library, into the tissue culture process; that’s called initiation. That cleanup process can take a while. It can take four to six months to get a plant into our process, into clean stock, and remove all disease, all pesticide, and certify that it is a true-to-type plant – it is the plant that you want it to be.

That process of four to six months is mainly driven by the fact that every single plant we’ve brought into our facility from our customers has at least one disease on it. Sometimes it’s two to five, all layered on top of each other. So that cleanup process can take awhile.

Once you’re in the clean stock program, however – and we have our own varietals, we use our customers’ varietals – those varietals are now in the clean stock program and can be replicated very quickly.

So, yes, that picture of doing it on a stainless-steel rack in small containers, you can fit 9 or even 16 plants in a small, 3-inch plastic tube – that means that you can multiply and replicate these plants very quickly. So you can move from 1,000 to 10,000 to 100,000 plants within a matter of months. We have about 170,000 plants currently in our inventory in Lafayette, Colorado, across both our lab and our greenhouse, and that multiplies; we can multiply that at about 3 to 4x every six to eight weeks, depending on the varietal.

James West:   So I guess the only limitation, then, is space and manpower?

Nick Hofmeister:   Space and manpower are the limitations. Of course, capital; you know, we always view capital as one of the constraints on the business, but in this financial market, that’s not a big one. And even space is not a major constraint for our business in that our space requirements are much smaller than they are for an equivalent grow growing a certain number of plants. To give you an indication, we’ve got about 15,000 square feet in total in Lafayette here, that holds 170,000 plants, and we have not maxed out that space yet.

So the biggest concern that you raised is labour: getting trained technicians into our facility. We run through a very extensive training process to get them up to speed and producing cuts at our level of quality, under our requirement. But labour is one of the big limitations.

Ed Milewski:  Other people lease this process from you, is that a possibility?

Nick Hofmeister:   It is a possibility. So, so far we operate now in Colorado and California; we also have negotiations going on in Canada and Australia and a few other countries at the same time. The one in Australia is a licensing arrangement, for example, so we can license our technology to them. We’re a relatively small company still, at about 25 employees, so operating in Australia is difficult, but licensing our technology is very good for that particular jurisdiction.

In Canada what we’re looking at is partnership there. We want to be operationally involved in Canada, and we run our own facilities, or we work with partners, in Colorado and California.

Ed Milewski:  What models could you have under, like, either licensing or partnerships? It sounds to me there’s a lot of different approached.

Nick Hofmeister:   There are, and we’ve actually tried a few as a company. So we originally started with a model that involved building facilities inside our customers’ facilities, so that would be the in situ lab model, if you will. And we discovered that that was too cumbersome to manage, and didn’t allow us to get the economics of scale that we really wanted in this business. And we see some of our competitors attempting that model.

If you look at the rest of ag, however, this process, tissue culture, has been used for three decades in everything from sugar cane all the way to mint, hops, potatoes, berries and other crops. In those situations, those are independent nurseries that deliver crops to cultivators most of the time, and they do that at the largest, most efficient scale that they can, on the order of millions or tens of millions of plants per facility, per year. And so for us, the strategy is to build nurseries that provide tens of millions of plants a year, and we do a few of those to address each region that we need to.

Obviously, US regulations require us to work independently in states and not across state borders, but in Canada or in Australia, you have a federally regulated system, and you need only a few labs to address an entire country.

James West:   Right. Can I ask you, how much does it cost you to produce one clone from this process, and how much can you sell that clone for?

Nick Hofmeister:   Yes. So I’m going to give you some general numbers here, but what we look at in terms of pricing is that the wholesale pricing for clones in the United States in particular, is about $4 to $12 per clone. That’s true in marijuana, and that’s true in hemp as well.

For those markets, the price varies depending on which varietal you clone. So if you have an advantage varietal that has a higher yield, for example, you can get a higher price. It also depends on the size of the plant. We produce plants in 72-cell trays – those are the smallest plants, those are a few inches high – 50-cell trays which are a little bit bigger, and four-inch pots, which are quite a bit bigger. So the price varies depending on the varietal and the size of the plant.

The cost is something that is proprietary, so I won’t go into too much detail, but the short version is that margins are fairly good on this plant right now. We have a market opportunity where we’re the leader in the space, we are scaled faster and larger than anyone else of our competitors, and there is a strong demand for these clones; there just aren’t many providers for them. So if you want a clean stock clone right now, there aren’t many places to get them; in fact, we’re one of the few.

So the pricing in that situation means that we have a fairly good margin on our product. Over time, our costs come down; if you look at comparable industries in ag, the cost to produce these plants does come down quite a bit over time. In many examples in long-term adoption, this is sub-$1 per plant. So we have plenty of room to expand our margin over time, and match

James West:   Are you going public?

Nick Hofmeister:   I don’t have a comment about that right now. We are exploring multiple financing options, and certainly we look at the public markets as a viable exit path for the company in the long term, but I don’t have any plans to share.

James West:   Okay, well let me just throw it out there that if you are interested in going public in Canada, that is – our facility is here in the Exchange Tower, we have an entire office dedicated to raising capital and taking people public, and so we would be very interested in investing in your company at the least, and assisting in your go-public strategy should that opportunity present itself somewhere down the road.

Nick Hofmeister:   That’s great. I really appreciate it, and as the guy raising the money for the company, any and all comers and help on that front is always great. Would love to take that offline and talk about our upcoming fundraising effort.

James West:   Okay, we’ll definitely do that. Now, it strikes me that you have an opportunity here to fill a very critical missing niche in the whole cannabis industry, because we hear about all of these large greenhouses and new grow-ops exceeding 1 million square feet in some cases, and that is my standard first thought is, where are they going to get the clones to fill these spaces on a timely basis in a market that is, you know, basically, overrun with demand with no suppliers? So right now, what are the alternatives?

Nick Hofmeister:   Yeah, we share that opinion. If you look at other agricultural commodities and you look at their supply chains, one of the biggest problems, other than processing, is the beginning part of the supply chain: where do you get your plant starts from? Where do you get the genetics and the actual plant starts, the hundreds of thousands or millions of clones that you need in order to fill these facilities?

So the cannabis industry has had to develop methods to do it internally, but those methods are relatively unsophisticated and come with a lot of risk. So traditional cloning, if you take a mother plant, you grow it up, you cut branches off, you stick those branches in soil; in doing so, every disease that was on the mother is automatically transferred to the daughter, and that process is what we’ve been using in the cannabis industry to date for the production levels we’ve had.

It is not an industrial-scale process. So if you look at sugar cane or berries or any of these other crops that are vegetatively propagated, they’re cloned, they are always done using a procedure that looks like tissue culture. So, they’ll start with sterile, clean stock, and they’ll use that to propagate. If you don’t, you’re exposing yourself to risk, and that risk comes in multiple forms. It comes in the form of disease actually disrupting your production; it can kill plants, it can reduce the yield of plants. It can be in the form of pesticide application, and the associated costs and risks of that. And last, there’s a consumer safety issue, both on the disease front, but particularly on the pesticide front.

So when you see California, for example, enacting new legislation that’s going to go into effect on July 1^st, around pesticides and solvents, it’s to address that issue. If you start with dirty stock, you will have to deal with disease along the way that will be expensive and risky. And then on the back end, the government is going to test that and make sure that you aren’t doing anything to endanger a consumer.

If you start with clean stock, then you can run a very clean cultivation program, you do not need to use pesticides in that process, and then you can produce a clean product on the back end. So when you look at a company like Driscoll, for example, our VP of production, Dr. Cecilia Zapata, built Driscoll’s tissue culture infrastructure in California, China and Mexico. And when she did that, it was to create a clean stock program that would allow Driscoll to produce clean product all around the world at any time, from the varietals that they cared about. So we model ourselves pretty closely after a company like Driscoll.

James West:   Mm-hmm. Now the difference in size of clones you deliver suggests, obviously, that the plant in the four-inch pot is far more mature and thus resilient to failure upon transplant than, say, would the one in the micro-trays. So is that, am I to deduce by your previous comment of the range of $4 to $12 that a $12 clone is typically in the four-inch pot, and a $4 clone would be more of the micro-tray variety?

Nick Hofmeister:   Yes, that is correct on all fronts. So the smaller plants are the cheaper plants, and the larger plants are the more expensive ones, and you use the larger plants when you have a, let’s call it, an environment that’s more difficult, or you’re doing it at smaller volumes. So if you’re doing a greenhouse at small volumes, for example, you may want to start with a four-inch pot that will give you a boost on your production and the number of cycles that you can get per year.

Another place where you might want to use four-inch pots is in small scale outdoor grow. So, the hemp market in Colorado has blown up tremendously here. We’re looking at approximately 18,000 acres of hemp planted in Colorado this year. When you do a late planting, you want to start with more robust crops, particularly in an environment like Colorado that’s very dry with inconsistent rain. So there are reasons to do the four-inch pot.

For large-scale industrial-scale mass production, the smaller plants are generally the ones that our customers want.

James West:   Interesting.

Ed Milewski:  How easy is it for someone to come in and replicate what you’re doing?

Nick Hofmeister:   There are multiple reasons why this is a pretty difficult task. So we’ve spent almost two years of operations in our company getting to the point where we are now, and that’s with a very experienced team. So I’ve raised about 280 million, I’ve been in biotech start-ups for the last decade or so. My co-founder, Dr. Jonathan Vaught, is our CEO; he’s spent his entire career in molecular diagnostic start-ups, and our VP of Production, Dr. Cecilia Zapata, is one of the few experts in the world at this particular procedure. So she’s created tissue culture processes for more than 1,000 different species.

There aren’t that many people who are capable of building a company like this. It’s still taken us 24 months to get to the point where we are. So that has to do with the technical challenge of creating a tissue culture program for a new plant; every varietal, not just every marijuana or hemp plant, but every varietal within that, responds different to tissue culture, and we change our processes, we change our formulations, we change our environmental conditions, to match what the varietal wants. So learning all of that – obviously there’s IP in that as well – but learning that and protecting that and implementing that at an industrial scale takes a very expert team quite a while to do. And that’s why I think we have probably an 18-month or better head start on all of our competitors.

James West:   Okay. One of our viewers on Facebook, Ian Hendry, wants to ask a question, and he says, as a consumer, as we are allowed to in Canada – we’re allowed to grow our own cannabis – he asks, will it be cost-effective for him to buy from you, and will there be a way for them to buy from you, and how will it be delivered and guaranteed?

Nick Hofmeister:   Yes. So it’s a great question, and we’ve had a lot of inquiries from home growers about whether they can use tissue culture plants to start their own process. And it’s a good idea to do it, for the same reasons that it is at industrial scale. You start with the cleanest plant; that means that you have much less chance of getting disease on that plant throughout its growth cycle, and that your chance of having to use any kind of pesticide, or to destroy your crop because a disease takes over, goes down. So for all those reasons, tissue culture is a very good process at home growing situations as well.

So we have focused so far on B2B applications. We sell mainly to large-scale cultivators, however, we have some relationships -we’ve built one in Colorado – where we do smaller volumes of production. The price for those individual clones is higher than the $12 that we mentioned earlier, but, to get a clean plant that’s healthy, robust, that does a really good job in your home grow, it is worth it to home growers, and the typical retail price for one of those clones from traditional cloning that does have disease problems associated with it, is usually $15 to $20, sometimes $30, per clone as well.

So we think that we can enter that market over time with very clean stock that is delivered to retail dispensaries and then to consumers that way, for home grown.

James West:   Hmm. That’s fascinating. All right, tell you what, Nick, we’ll leave it there for now, but we are very interested in your company. We interview hundreds of cannabis companies here every month, and I know a winner when I hear one; that sounds like a winner to me. So I really want to follow up with you, and we’ll come back to you in due course and help you all the way along. Thanks for your time today.

Nick Hofmeister:   Really appreciate your time and thank you both. Take care.

Ed Milewski:  Thank you very much.

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Original article: VIDEO: Front Range Biosciences Cannabis Clone Delivery

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