Radient Technologies Inc (CVE:RTI) Receives Health Canada Standard Processor License

Radient Technologies Inc (CVE:RTI) (OTCMKTS:RDDTF) (FRA:RD8) is an extraction solutions provider that produces cannabis resin. CEO Denis Taschuk discusses the company’s strategic partnership with industry heavyweight Aurora Cannabis Inc (TSE:ACB) (NYSE:ACB) (FRA:21P). Aurora holds a 15 percent stake in Radient and can increase its ownership share to approximately 20 percent of Radient. While Radient’s revenue projections vary from product to product, the company’s recent announcement that it had received its Health Canada standard processor license was followed by a spike in its share price. Taschuk anticipates commercial production beginning by the end of February or the start of March and acknowledges the company will be focused on meeting its commitments to Aurora in 2019. Taschuk is not worried about market saturation in Canada and notes that the European demand for oils is considerable.

Transcript:

Narrator: Radient Technologies is a Canadian manufacturing company creating natural ingredients for customers in the food and beverage, supplement and pharmaceutical industries.

Radient has developed a new technology for the extraction of active ingredients from cannabis and hemp. Its patented, microwave-assisted processing technology is based on the selective heating of moisture that is present in natural materials, using microwaves as the energy source.

The technology creates a targeted, pressure-driven extraction process.

Radient Technologies trades under RTI on the TSX Venture.

Ed Milewski:  Is anybody coming?

James West:   I’m here now with Denis Taschuk, he’s the CEO of – Ed [laughter]

Ed Milewski:  What?

James West:   We’re trying to do a show here. I’m here with the CEO of Radient Technologies, Denis Taschuk. Denis, how are you doing today?

Denis Taschuk: Doing great, James, thanks very much.

James West:   Awesome. I would say what is the business model of the company, but we’ve now gotten into the habit of creating that little reel that gives everybody a quick primer on the company, so my question for you, Denis, is, who are your clients and who are you extracting cannabis resin for?

Denis Taschuk: Well, we’re extracting, in Canada, we’ll be extracting for a number of the licensed producers, but most notably, our strategic partner is Aurora. And as you know, Aurora Sky is about to go into major production, and our expectation is that we’ll be quite busy with Aurora for the balance of the year into the New Year, and as we look at 2020, we’ll probably be bringing other Canadian LPs into the manufacturing staff. But right now it’s going to be about Aurora.

James West:   Wow. And Aurora is a major investor in Radient as well, aren’t they?

Denis Taschuk: That’s correct. They hold about 15 percent of the company today; they do have a right to take that stake up to just under the 20 percent threshold, but as of today, they’re 15.

James West:   Okay. So have all of your processes been tested on Aurora’s product, and is it the case where you already know what to expect and what you’re going to get out of it, or is that yet to come?

Denis Taschuk: Well, I think it’s a bit of both. We’ve done obviously some preliminary work, but it’s awfully difficult to conduct test manufacturing runs on live material given the value of the material. So what we do from a manufacturing perspective as we validate new processes is, we try to find proxy materials and guess what? Industrial hemp is actually not a bad proxy for it. So you do some runs, you get yourself organized in terms of your processes, and then what you do is you get into live production and just continue to improve the process over time.

James West:   Okay. So one of the challenges that I and I know other investors have is understanding how the revenue model works for extractors who essentially provide a total extraction service. Like, how do you, how do you project the margin, the gross margin and the costs, and what exactly is the nature of your agreement with a company that’s a client like Aurora, who you’re going to be extracting for?

Denis Taschuk: Well, some of the questions that you ask, I can only be general in nature at this point in time. But what I can say is, as we look at various extracts, we go on a product by product basis. And depending on what the product is, the economics could be as simple as a per-gram processing charge; because our process generates some interesting economics from things like improved recoveries and purities and such, that has value as well.

So you could see a part of the product pricing model be reflected in a semi-royalty structure and semi-per-gram charges. In some cases, it may very well be a royalty charge. It’s going to vary from producer to producer and from product to product.

James West:   Sure. Okay, now, earlier this week, you received your standard processing license from Health Canada, and it had an immediate and profound impact on your share price. And I’m curious as to why did the receipt of that license make such an impact on your share price and investor interest level?

Denis Taschuk: Well, I can only speculate. We don’t comment on share prices, but what we can say is, it’s getting a standard processor’s license, getting licensed under Health Canada, is not, as you know, an easy thing to do. It’s months and months if not years worth of hard work, effort, consultations with Health Canada. It’s a big deal, and at the end of it, for us, it differentiates between revenue and no revenue as opposed to, for instance, our partner Aurora, where they get another facility licensed and up and running, it’s a little different for them. They already have their core licenses in place to generate the revenue.

For us, this is a major milestone, as it opens the pathway for our revenue foothold in Canada.

James West:   Okay, so is it suddenly a case where, like, okay, everybody get in here! We’re going to start extracting, finally, and crank it all up?

Denis Taschuk: It’s pretty close to that. We’re not, you know, we’re not far from being ready to hit the Go button. You know, we’ll be in commercial production, I’m guessing, literally, by the end of February, very, very early March. And yeah, it’s line it up and let’s go.

James West:   Interesting. So the revenue model is based on, you know, the fact that you get material supplied to you, and so there are obvious reasons to be attracted to that as an investor in a space where the future viability of producing cannabis itself, due to the commodity nature of the substance, gives you an advantage. But to what extent is an extracting company reliant upon producers of cannabis? I mean, is there some pressure on price and margin for you based on the fact that you have to get your cannabis from somewhere?

Denis Taschuk: Well, I think that’s probably a mid-term question. Right now, it’s all about capacity in the industry, as you know. And even if the Canadian market were saturated today, given the developments that we’re seeing in Europe and the number of EU member states that are legalizing for medical purposes, the demand for cannabis and in particular cannabis oils is going to continue to grow and increase. More we’re seeing in Europe as well is that pricing parameters are holding up better than they are in Canada. So they can still, like, till that situation sorts itself out, which I think it’s still about two, three, even four years down the road, I don’t think we’re going to see the same pressure. We’re not going to see the same pressures you might see on the cultivation side, where you can have a bottleneck in terms of capacity.

So that’s what we’re seeing, anyways, and that’s what we’re expecting to see.

James West:   Okay. Is there any plan on Radient’s part to roll out its own products and perhaps become a vendor of extracted products?

Denis Taschuk: I think that’s something that we’re going to be obviously in close consultation with our friends from Aurora. They have their own ideas about products in the space, and given the fact that historically we’ve manufactured ingredients for other industries, we’re well-placed with SaaS to perhaps take all or some of that product on it. I don’t think in the next year or two we’re going to be interested in doing that; I think we’re more about building our capacity over that short term, and I think looking at different forms of product might be a mid term strategy, but as I said, it’s one thing we would obviously look at in partnership with Aurora at this point in time.

James West:   Okay, so now that you’ve got your license, how soon till revenue starts to show up on the balance sheet?

Denis Taschuk: Well, firstly, it would be on the income statement, and secondly, it would probably be, I’m going to guess [laughter]

James West:   Good point, good point, he got me there!

Ed Milewski:  It was a trick question.

James West:   Let’s make sure you do it on the balance sheet. [laughter]

Ed Milewski:  Make sure everybody’s playing the tapes in here.

James West:   Okay, thank you, thank you, sorry, I’m paying attention! [laughter]

Ed Milewski:  I was kicking him under the table.

Denis Taschuk: [laughter] Thank you. I would say maybe March is when we’re going to see it, and then our fiscal Q1, which is calendar Q2, is when I think we really start to see the revenues rolling.

James West:   Okay, great. And do you think profitability is on the horizon in 2019?

Denis Taschuk: No, I think we’re still a bit a ways out yet. I’d be looking to mid-2020 right now.

James West:   Mid 2020. Okay. How much of a barrier do you think your relationship with Aurora will be to extracting products for other major LPs in Canada? Do you think there’s going to be some resistance to the idea of giving their product to you, who’s also extracting for Aurora as a sort of close affiliate?

Denis Taschuk: Well, I think you can look to the beverage industry or perhaps the tobacco industry, where you’ll find that the very big players don’t play well together, and I think we’ll fully expect that in terms of our customer profile. So I think where we’ll be able to, to the extent that we have excess capacity, what we’ll be doing is looking to the mid-tier and some of the smaller players to fill out the manufacturing stack.

James West:   And is, I mean, this is obviously a forward-looking conceptual question, is it conceivable that Aurora could buy the entirety of Radient if the terms could be met?

Denis Taschuk: I think at the end of it, that’s a question you’d have to ask them. I’d like to believe that we’re an important part of their world; how important, that would certainly be a statement that they could make. But at this point in time, I can’t comment on that.

James West:   Okay, great. Awesome, Denis, well that’s, it’s great to have an update on the company, and congratulations on the receipt of your standard license. We’ll look forward to talking to you again in the future. Thanks for joining me today.

Denis Taschuk: Thanks for having me again, James. Appreciate it.

Original article: Radient Technologies Inc (CVE:RTI) Receives Health Canada Standard Processor License

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