Vinay Tolia, CEO at The Flowr Corporation
Vinay Tolia is the incoming CEO, pending regulatory approval, of The Flowr Corporation, a Health Canada Licensed Producer that cultivates ultra-premium nin-irradiated cannabis. An early investor in Flowr and former advisor to the company, Mr. Tolia is the managing member of Bengal Capital Trading LLC, a derivatives trading firm with a focus on listed equity options, and previously held roles with investment banking firms Peter J. Solomon Company and hedge fund Midtown Capital. Mr. Tolia attended the University of Michigan where he obtained a BA in economics and BSE in Industrial and Operations Engineering.
EPISODE TRANSCRIPT
[00:00:01] You're listening to Thinking Outside the Bud where we speak with entrepreneurs investors thought leaders researchers advocates and policymakers who are finding new and exciting ways for cannabis to positively impact business society and culture. And now here is your host Business Coach Bruce Eckfeldt.
[00:00:30] WWelcome everyone is Thinking Outside The Bud, I’m Bruce Eckfeldt, I’m your host and, tonight we're here with the Vinay Tolia who is CEO of the Flowr Corporation. We're gonna find a little bit more of that Flowr is a Canadian company. They're focused on the growth side of the process of the economy of cannabis process and we're gonna find a little bit more of what they're doing based in Toronto. They have a birth facility out in B.C. and they are on the Toronto exchange. So excited to talk to the man here a little bit more about what's going on in Canada what they're doing a flower and kind of the future of cannabis here. Welcome to the program.
[00:01:05] Thank you so much. It's great to be here.
[00:01:07] So why don't we start with a little bit about you and just kind of your background how how you got into this space how you got involved with flower and then we can talk a little bit about flower and what you're doing with the cannabis market.
[00:01:18] Sure it sounds good though. I got into this space in a very roundabout way but my background is in finance. I was an investment banker in New York and then I had founded a hedge fund in 2006 and in around two thousand and 13 and 14 right when they changed the laws in Illinois that I was based out of Chicago where they change changed laws in Illinois to allow for medicinal cannabis. We started talking to some people who were playing or licenses to grow in Illinois. I didn't know anything about the industry but I found it just fascinating from a business point of brand from kind of a social injustice point of view and just invested still in one of the companies I was applying for for a license in Illinois and that company ended up winning a couple of the licenses in Illinois and I became close with them and just started learning more and more about the industry and started learning. I mean just looking all over the place and then in two thousand and sixteen we met when I say we the family office that was behind our hedge fund and we met Philo and his team and we really hit it off and it was really their their expertise and skill in the cannabis space that we hadn't seen anywhere else. And we realize this is the team we want. This is the team we want to bet on. This is our edge and we founded flower 2016. I was a part of the original investing group. I was an advisor to the company for a few years and then left the hedge fund about three months ago to move to Canada and join as CEO full time. So I'm I'm all in a massive Canadian risk. As of as of a week.
[00:02:57] All exciting exciting moves. And tell us a little bit about the team so you mentioned Tom but what you mentioned the team is exceptionally good. Tell me more about it. Who else is involved and what makes a team so unique.
[00:03:08] Sure. So I think this goes into what differentiates us and really what differentiates us is a lot of people and myself included when I first got involved in this phase don't understand how hard it is to grow the plant consistently and at a high quality. I mean most people when they hear it they say oh it's a weed.
[00:03:30] It's literally weed.
[00:03:32] By the way I was no different when I first got involved space. But then when you when you start digging you realize that to grow the plant consistently and without pests and pathogens is very very hard. I mean you can you can have 10 different growers start with 10 identical genetic material and you say come show me your your finished product and then 10 different products of different chemical composition. So when you're growing for a make medicinal market right you've got to make sure that the patient is getting the exact same treatment every single time. Same goes for the REC market. People want that same experience over and over and over again that that psychoactive and therapeutic experience depends a lot on how it's grown and depends on how much like you give it and then how much water you give it when you prune it when you give it nutrients. Anyway that's to me is that's a word when when I talk about quality growing it's it's a lot of those factors the plant needs a lot of TLC but to do it in a fashion that's clean and I can get into that a little later on that means clean. It's really hard to the team the original team was a Tom Flo who is the co-founder of mad relief which was one of the big producers here in Canada and purchased for three point two billion dollars earlier this year and the largest action in the U.S.
[00:04:53] in the cannabis space in the history of the cannabis space so far. And a lot of the people he's been partnered with for they were one of the first guys the first teams were setting up facilities and growing it in Canada since 2000. So it's been they've had a medicinal program here in Canada since 2000 and. So these guys have set up designed and set up a bunch of facilities over well over a decade's worth of experience which you simply don't have really in a lot of places. You have guys who have been able to grow for years and been doing it kind of like a black market large scale but not legally in a like in a industrial scale environment. And that's what the team can set up so it consists of Tom and the founding team was a lot of his old partners who were construction experts design experts and engineering experts at all. Specifically they're all the is specific to the candidate space.
[00:05:51] Yeah that's right. I think the time frame that they had the experience that they have really is unique and the scale that we're talking about I guess give people a sense of what we talked about growing at scale like what is this what is the volume was the facility looked like.
[00:06:05] What are we. Just give us a magnitude of vision here.
[00:06:09] So there's different kinds of roads. But to me without getting too technical the main the two main the two main goals are kind of indoor controlled spaces. That's that's it fully indoor closed loop system where the growth is essentially is trying to manipulate all the variables humidity CO2 air flow everything and then there's greenhouse so greenhouse clearly has it's cheaper on the and the utilities I'd like you to use less electricity and things like that you'd lose it for that for that. There's a tradeoff you lose control over a lot of the other environmental variables. So we focus just on an indoor grow back. Is it the difference between like so that one of the differences between the one of the basic the main difference between the States and Canada is because this is federally recognized and legal in Canada their health and safety regulatory body is a record as a federal regulatory body so the states you have individual state based aid requirements and different sides that are that can be allowed and some that aren't in different testing regimes in Canada. It's the equivalent of the FDA that does all the health and safety testing the product gets they get sent to farm all the abs. But the thing though it's much harder to comply with a federal program than it is a state by state program and then virus scale.
[00:07:37] So the reason I imagine enduring greenhouses and greenhouses that are can be massive greenhouses that could be half a million a million square feet and then you have indoor facilities our indoor facility is eighty five thousand square feet. Wow. So yeah it's a big it's really on a big scale. And the reason I mentioned the difficulty of scaling is this business it gets exponentially harder to grow at a bigger scale. So growing from ten thousand square feet to thousands groupie isn't five times as hard. It's exponentially harder because it's just lots more areas where you can introduce pests and contaminants and things like that. So it's really different a different game at the level that you're playing a different game and you know one more differentiating factor for us is most people in Canada because I mentioned the Health Canada testing regime is so strict know they can't ask the microbial use to mold levels of the final product so they have to resort to a process called irradiation. That's where they take the final product. They shoot it with chem mores it kills the mold and bacteria but it would be the equivalent of me of me taking a moldy piece of bread irradiating and then handing it to you and saying OK well it'll pass it pass me all that but you wouldn't want to eat that right.
[00:09:00] Great visual image there.
[00:09:02] It's still red. And also what that radiation does is it changes the Turpin profile of the plant. So it's being associated with Hey bark ash. So it's just a far less aesthetically pleasing plant and that's what you have to do if you can't grow in a clean enough environment to keep esteemed pathogens out. And that's why processes are so important and very few people in Canada are able to grow and not use irradiation. So if you if you're using if you're growing in a greenhouse you're also because you can't control humidity. You can't control mold and you're almost guaranteed to irradiate your product. So that's another key differentiating point for us is not having to irradiate a product which is very hard. It's still hard for us. And that's a big point of view and I talked about this earlier it's a quality where this is not a commodity and there's always been different kind of scales of gradients of price in coal already. Just like there's always been a market there is now. And so not all kind of but not all bodies created the same. And there is definitely very distinct differences between between quality between you know different and then even the same THC and CBD lockout is still a quality aspect that oftentimes the euro is going to get commodities or not really it's because it's simple it's not like we are not like corn now there are no discernable differences within the plant Yeah well it's almost like I equate it to kind of wine and things like that like there's you know there's this kind of all element but there's so much more around this.
[00:10:32] That has to do with how it's being used and no taste preferences and the cultural implications and stuff.
[00:10:39] So I guess how are you. How are you. Kind of segment. I'm segmenting the market and how. Now that you have kind of these grow capabilities and the quality levels you can produce. Where does that push you or does that put you in terms of the market that you're going after.
[00:10:53] From from the actual flower product point of view you mentioned the wine analogy which I think is fair and I think that's a good analogy. However this is even different. We oftentimes struggle to find good analogies. I think wine is is one of the better ones. But even with wine because you can have a five hundred dollar French Bordeaux and you can take you know boxed wine and it might not taste exactly the same but there's still even the cheap stuff will still get you drunk right now.
[00:11:23] So why why.
[00:11:24] I think the wine analogy is where we struggle to find good good corollaries for the space. I don't think it's as applicable because you know you can have a five hundred dollar fine and see French wine and two buck chuck. You get a Trader Joe's and you get you both. We'll get you drunk. We were cannibals because there is this psychoactive component to it. Now it's a different experience altogether. That cheap stuff and a nice stuff. So it's not as though you can just smoke more of the cheap stuff and it'll get you it'll get you to the same places as the expensive totally different experience so yeah see what I'm what I'm getting at. There isn't a so-called premium segment of the market for dried flower. It's really just everyone wants a nice stuff and give at the price differential isn't like the 500 dollar bottle of wine versus two buck chuck. It's a few dollars more program. Yeah I'm not saying it doesn't make a difference to people on the on the budgetary scale but because the price is close enough and it's a totally different experience like the entire dry flower market is something I think we can go after. So it's not like we're a niche player that only is only to serve a small segment of the drive volume market with all of the drive pharma is part of our addressable space.
[00:12:41] How do you look at the market at this point. We've got you know the US is obviously in its funky state right. We've got the federal illegality. You've got state by state kind of referendums going on you know you're in Canada. Right. So Canada now is a federally legal.
[00:12:56] But do you see it bigger than. I mean in lots of other countries are starting to look at cannabis legislation. How strategically how are you kind of looking at the market at this point from a candidate's point of view.
[00:13:06] Sure. So the beautiful thing about Canada is because it's federally illegal you can basically go after the world from the world outside of the US. So we are absolutely looking at international opportunities. The EU is a big one. I mean you saw the UK just this month as allowed for doctors to prescribe medicinal cannabis. France is talking about changing our laws or people talking about changing our laws but he is just a very decent market but just a potentially massive market. We're looking at Australia we're looking at Latin America.
[00:13:39] So we will absolutely play in any jurisdiction where. Where will he go. Well I would do. And the thing is if you look at the laws in most of these countries like Australia and Germany and whatnot they look much more like the Canadian laws than they do like any U.S. law. So the German laws specifically say that to be involved the German certain parts of the German eco system you need to be partnered with someone that's regulated on a federal level.
[00:14:07] So it's very hard for the US guys are physically possible for the US guy to play there. So this is absolutely a gold opportunity. And you know our specific IP and skills that translates all over the place very well. So we've already been looking to expand worldwide. And we'll get to that's going to be a big part of our next months and years.
[00:14:30] It is a funny situation with the US and it's kind of you know the situation that's in in terms of opening up this world market where normally and I'm sure the US would be moving very quickly and becoming a world player on this. You know it's stuck. It's an end it's not and it's sort of creating this open field for a lot of folks. I mean it. I mean I guess strategically as you look at this market you say the U.S. gets its act together and figures out some national legislation in the next three four years I guess that is the game to get enough kind of get enough traction and our footprint in this before the U.S. goes goes federal are you really looking at us. That's a different they're going to play a different game than you are than Canada is going to play.
[00:15:11] I think a lot of our our skills that can be applied in the US however we have to be careful because we're listed on the Toronto Stock Exchange and we can't have any U.S. assets. So you know we were not looking at the US right now but we have a lot of experience and connections in the US and a lot of the players and all that. One interesting point is when indeed the U.S. gets its act together and those will be legal they're going to have to change the regulatory environment to a federal system if they want to export it which I'm sure they're going to want to export. And so we will you'll see some kind of federal body whether that's the FDA or someone else take over on the health and safety side of things will get much more stringent. And right now you have the U.S. operated. I don't blame them at all. If I were them I wouldn't be doing this where they're right now they're growing to whatever standard they have to in the jurisdiction they're in and they're not they're not going they're not pushing to do to have health and safety standards at Canadian levels because why should they. That is that is an added expense and an added headache that they don't need to. They don't need to undertake it right over compete. Yeah. Yeah. But but but lying when the walls come down and there's a federal regulatory body there they're going to have to instill that. When that happens you know we're going to be because of our expertise we're gonna be a really attractive partner for you know we're going to be really attractive.
[00:16:43] Yeah well we'll leave it at that. We'll leave it at partner. We'll see how things play out.
[00:16:49] So let's talk about that kind of the investing side because I think that having been a banker or having looked at businesses from a investment point of view how does the investor and you look at this market. What are the things that you know short of the money side needs to kind of know about or educate themselves on if they're going to get involved in this market. How do you make good investment decisions and how do we look at this as like any other kind of sector or industry. How do we make our business decisions good investment decisions.
[00:17:18] Sure. So that's a tricky question given how story driven this market has been so far. Yes.
[00:17:26] The reason I got involved a couple of years ago is this before the markets exploded. Well the reason I got involved is if done well these grow facilities can be tremendously high.
[00:17:39] Our old why cash flow producing assets if you could you're doing that. That's that's the difficult part.
[00:17:45] When I say no June I just mean if you have the requisite skill set and that's that's how I got involved so I still try to look at this from a cash flow point of view although that's kind of old fashioned you look at what's happened with a lot of the with the with a lot of the names in the space but you know eventually fundamentals will matter and cash flow will matter and when it comes to cash flow to be the real metric that that's kind of the most important one that determines profitability is a yield right.
[00:18:17] So when you when you're looking at the cultivation side of the business it is very much a real estate business and like any real estate business you want to judge productivity per square foot productivity in some unit of size. And the more the more product you can get out of a given footprint the obviously the higher your revenues are and the greater chance you have of being profitable. So from the investor point of view clearly there is a story aspect to all of this. We all know the winners in this space in the next five to 10 years will be absolutely enormous because it is such an enormous market that we know is unlike a lot of other industries. This is an industry that has proven size is already as an investor I would really really look at you because that's going to be the thing that determines profitability. And one day when cash flows really start to matter. Yeah. Yield in a b what's what.
[00:19:15] What determines cash flow and what's going to go into yield.
[00:19:18] I mean look at looking at the operations on the kind of strategy and the kind of operational strategy at the Grove facility and stuff what what are the big factors that go into that they're going to yield to the output of of that particular facility. Sure
[00:19:34] That's a good question. So there's there's a bunch of things. One is just is just the system that you're using there's different types of different styles and different systems. Some for example you know drip irrigation systems you guys but you've probably seen the pictures of growth facilities where they have a line irrigation that's connecting all the pots in the green nose and they're dripping water into there. When you're running that kind of system you're kind of maxed out on how much yield you can get per square foot. Even the greatest grower in the world can only get a certain amount of yield under that system. We run a different system called sea of green and there is the plants they are much more tightly compacted it's kind of a think about it is a high performance system. It's like a it's like an F1 car. I mean if you put an F1 driver in there you all seen what they can do on TV. You put me behind there I'll smash you know 20 feet so a lot of it is is based on the style you're using some sales and more forgiving than others the ones that are less forgiving tend to have higher upsides. And then a lot of it depends on the processes it depends on exactly how you're treating the plants how you are. There is a lot of the technical folks don't like to admit this but there is still a lot of TLC that you have to give the plant and there's that and there's there's there's the experience of the of the Grow staff. There's so many adjust that you have to make on the fly. It's not as though there's a playbook where there's just a step by step manual of how to do that. So there's still a lot of adjustments that you have to make on the fly which which heavily determine the output at the end.
[00:21:16] Yeah. Yeah.
[00:21:17] I've been sort of reading and seeing all this kind of tech now that's going into the to the girl process to grow facilities. It's also kind of this robot grow kind of theory or approach where you know the more you can kind of measure and respond and adjust and have metrics and dashboards on you know what's going on on the ground and Adelaide How do I make sure that I'm hitting you know hitting my yields hitting my you know the various levels you know avoiding the contaminant stuff like that.
[00:21:44] It's it's really it's it's fascinating. It's it's it's very scientific.
[00:21:48] From from what is it it very much is it just not to be not to be lost in all that is it. It is still there is still art involved. It's not as though it's a computer program that's you know that's been solved there is still because there are there simply aren't people that's going to get more and more automated people will get better and better and there's no doubt about that.
[00:22:11] But we have this scenario where people are are just don't have the the requisite skills that they don't have the experience they're under 10000 hours if you do like anything else you have to try a bunch of things and make a lot of mistakes and there's a lot of smart people in this space that will figure it out over time but right now they just haven't gone through enough cycles. They haven't made enough mistakes.
[00:22:33] Yeah. How so.
[00:22:36] So you're focused on producing flour. How far up the chain are you going.
[00:22:41] Are you doing extractions or you're getting involved in the actual you know kind of creating consumer products themselves are you focused purely on the production. The production of flour.
[00:22:51] No so I had to eat so here here in Canada the producers sell direct on the recreational side they sell it directly into the provincial wholesale place which goes straight to consumers. So basically anything we produce on the recreational side is the consumer product. Now that's the dried flour side on the and the extracts. We will absolutely play in that space. However that's not that will be legal in Canada until next October.
[00:23:18] Now right now there's nothing available on that that they've been inedible and all and all that you know when you come to the extraction because you're just pulling out a molecule from the plant and you're putting it into a dummy or an oil and that the quality of the flower is less important. So I'll will absolutely play in all those markets that are flagship product and the thing we're going to be known for is the premium dry to follow because simply that that's the hardest thing to do that you can grow the you know low quality stuff and just send it straight to extraction not many people. That's that's easier to do. Not many people can grow the high end flower and that's what we want to build our brands.
[00:24:00] Yeah.
[00:24:00] Anderson what's your strategy around strains and things like that are you do you have a particular focus or are you looking at lots of different ones. How are you making those decisions.
[00:24:09] Joe we're looking at lots of different ones. We have a pretty big bank of strains right now.
[00:24:14] That's going to be driven a lot by customer demand. Did this like anything else there's different fads that happen where all people want this strain and then six months later there's some new hot strain and so the key is to add a big enough bank and not have just strains but actually mother plants so that if some new trend comes along that you can be up in production as soon as possible. You don't have to wait for planting seeds in if you just have seeds to get it and get have enough starter material to start a room you're talking about could be nine months to a year to get that going. If you have all that if you have all those genetics kind of in a library that's that's already alive you can you can get up and running much faster so the strains can be varied depending on the customer demand. But I also just just want on again hammering this point of the. Because as I mentioned before the chemical composition of the plant is different based on the environmental conditions. You can have the best strains but if you if you don't have the right processes in place and the Right Growing grassy it's not going to matter you're still going to come out with an inferior product.
[00:25:27] Yeah it's kind of a genetics I mean again you can start with the right genetics but if you think you get them and grow them in the right way you're gonna end up with inferior or at least a highly variable product which is not what we want in a large scale approach to this business.
[00:25:42] So I just one last question I have is as you look at this market you know you're focused on this growth so what are some of the other interesting kind of ancillary products services you know other other things that sort of need to be put in place or there's that are you need to be innovative in terms of making this whole market work because it's more obvious than then just a plant that's like it and all the other things around us that actually make this market work.
[00:26:05] Where do you see the opportunities or the interesting dynamics going on or innovations you know companies doing interesting stuff to make this make this market happen.
[00:26:13] Sure. Just just a point of clarification. It's not that we're just focused on the good side but I can I can talk your ear off about all the branding that is really our specialty and that is that's something that not many people talk about because no one wants to talk about how hard this stuff is to grow. They want to talk about oh it's too muddy and we're just focused on the brands because the brand no matter the while that is true it's not a commodity and it's not easy to grow. And so that's why I really spend a lot of time talking about that. So as far as what other innovative things are happening there is a ton of innovation happening. It really is location specific. So the for example the all the innovative things that are happening on the branding side are happening in the U.S. because Canada is so restrictive as to branding and marketing. I mean you can't have television ads up here. The packaging is extremely restrictive you can't really fancy packaging it's just a very plain box with your logo which is just a few centimeter a couple of meters across and that's it. So you can the winners in Canada on this I will not be the ones who that very cool packaging and cool market. So a lot of the innovation agenda around a lot of the growth processes and things like that in the States. There is a ton of interesting stuff happening around branding packaging different form factors.
[00:27:43] So you know if you if you go into any of the any of the big conventions the trade shows you'll see all kinds of new form factors all kinds of new delivery mechanism.
[00:27:56] That's where most of the that's where most of the innovation is happening right now is just trying to come up with kind of more more user friendly ways that are effective to ingest the product. Great. I mean people are people are really high on they shouldn't use that word high but bullish they're bullish excited about about drinking bulls which I agree is very exciting because we're already set up as a society to be socially acceptable to go out and get a drink. So if you can do that with a product that doesn't that has no calories it doesn't get you hung over. I mean that sounds amazing however because if the bio availability of the of the drinkable side it has to be processed by your digestive system and then your liver. So it's not immediate it's depending on what time of day it is what you have in your system whereas smoke and vape it's your lungs and is immediately it hits you immediately you know how much you've had. And you know it's hard to have too much or too little of that. So a lot of the lot. I guess what I'm going with is a lot of the innovations are happening around different ways of getting the product in India's system in a consistent. And you know for a lot of people that don't want to inhale something somebody will or or a or something like that so you see you're seeing a lot of innovation around that and that's super exciting for all of us because then it opens up a segment of the market who has never touched the product before and doesn't want to smoke it or inhale it but it's fine. Try buying a different conveyance and could really just expand the market for all.
[00:29:36] Yeah yeah. As I said there's just so much potential and it's such a dynamic marker announced it's suggesting.
[00:29:44] If people want to find out more about flower about you what's the best way to get that information or get a hold of you.
[00:29:50] So the best way is to visit the website. That's a fellow couple who are that see a flower noted dot S.A. that their website all by information is on is on the web. If anyone wants it should be an email feel more than welcome to my emails. The I and a Y at Flower dot S.A. and we're publicly traded on the Toronto Stock Exchange.
[00:30:15] Drake's change in the ticker there is well w are awesome and I'll make sure that those links are are in the show notes. This has been a pleasure. Thank you so much for taking the time. I know you guys are on a fascinating wild ride.
[00:30:28] A lot to do to get these facilities up and running and rallying and get this market developed and taking on the world here. So I'm excited for you guys. I appreciate the time.
[00:30:40] Thank you so much Bruce. It's a pleasure to be on. And thanks for having me.
[00:30:46 You've been listening to Thinking Outside the Bud with Business Coach Bruce Eckfeldt to find a full list of podcast episodes. Download the tools and worksheets and access other great content. Visit the Web site at thinkingoutsidethebud.com. And don't forget to sign up for the free newsletter at thinkingoutsidethebud.com/newsletter.