Toronto-based Biome Grow became the latest Canadian cannabis producer to list on a U.S. public market when the company started trading Wednesday under the ticker “BIOIF” on the OTCQB Venture Market. Less than three months after first listing publicly on the Canadian Securities Exchange, Biome also listed on the Frankfurt Stock Exchange and, in November, struck a $100-million a year supply deal for the Newfoundland market. What makes that deal different is that while most agreements of that size are based on licensed cultivation capacity, the 24,000 kg of cannabis in Biome’s deal is due to come from a local facility that remains under construction. Cannabis Professional’s Jameson Berkow spoke to Khurram Malik, CEO of Biome Grow, about the company’s Atlantic Canada focus and its plans for global expansion.
Cannabis Professional: How were you able to strike such a large supply agreement without the capacity already in place?
Khurram Malik: Being later to the game we thought we could come up with a more efficient mousetrap. The traditional way of growing is you build a facility, however many square feet, hope that there is a market for it today and a market for it tomorrow and a market for it the day after and keep your fingers crossed. What we do a little bit differently is similar to when we used to build power plants all around the world. The way you build a power plant is you sign a 20-year power-purchase agreement up front and then you go finance and build a plant. It is a different risk profile. We can sign distribution deals and contracts for purchasing our cannabis well before our facilities are even finished construction. If we are building, let’s say 380,000 square feet in Canada in between now and the end of , all of that will be spoken for before the facilities are even finished being constructed. It is a very different risk profile than your traditional cannabis company.
CanPro: Doesn’t that just transfer the risk to the buyer?
KM: It does, so the buyers go out and has to have confidence that you can deliver. The ability we have is to go into provinces like, say, Newfoundland and tell them we have a nuanced way of doing things, we understand your problems pretty well and we will place our facility in a more rural location such as western Newfoundland where there will be greater economic impact. That resonates because then we aren’t just another random company coming in.
CanPro: And that argument works better in Atlantic Canada than elsewhere in the country?
KM: It is an economically depressed [region] so if you are creating jobs out there politicians will step up and have a conversation with you a bit more readily than, say, in Ontario or Alberta. Per capita consumption in Atlantic Canada is a lot higher than it is in other parts of the country. When we created Biome we thought about where we can go where other people are ignoring opportunity and at the time and still somewhat true today, about three quarters of all the licensed producers were in British Columbia or Ontario, the rest of the country is relatively untapped. The other cool thing about Atlantic Canada is that if you go local, supply local and brand local then locals will go out of their way to buy the local product. The one province that takes that to the extreme is Newfoundland. It will be a national brand but everything will have a localized flavor. Whether it is in Alberta or Manitoba or elsewhere localization is important to us. The Newfoundland locations, for example, will have very local flavours and be very maritime-looking with every single scrap of material sourced from the island, and that resonates well.
CanPro: Why do you think you’ll be so much more successful at building cultivation facilities than everybody else?
KM: We have built a variety of different versions of cultivation facilities or helped to design them over the last six years. The problem that you have with most of the cultivation facilities in Canada and it is sort of changing with some of the newer entrants, is they are highly unsophisticated. They are just large boxes with a lot of people running around. So if you build a 250,000 square foot building you might have 200 people running around, which is a problem since human beings are the largest variable when it comes to production.
CanPro: But aren’t a lot of other producers also employing automation?
KM: There is automation, but there is not automation to the degree you want the automation to be at. Look at agriculture, let’s say you are growing cucumbers or grapes in a greenhouse, the margins of those industries are super thin so you have to automate the heck out of it to make a living. What I’m saying is even in the more automated facilities today, a human being still walks into a flower room and spends several hours a day with the plants. There might be automated watering or nutrients going on, but what we are looking it is a system where the human being is almost never touching the plant. They might touch it in the beginning and in the end during the packaging stage but all of that in-between part a human being would almost never see a plant. Think about movable walls, movable floors, and robots picking things up and moving around. This isn’t rocket science. This already exists in other parts of agriculture but it has only recently started to be introduced into cannabis and the reason for that is that Canadians tend to be very risk adverse, we seem to have a huge amount of risk appetite for a mining company but for every other sector we tend to be very conservative.
CanPro: Where do you go after Atlantic Canada?
KM: In the next two or three years, the bulk of our sales are going to be overseas, not in Canada. This is really an international play. There are hundreds of millions of people in jurisdictions all around the world which are only now coming online with very compelling medical programs. Most of our cash will be medical cash coming in from overseas with a little bit of [recreational] coming from Canada. We are Canadian-based and we like being in Canada but it is really an international play.
CanPro: Where internationally would you like to go?
KM: The U.S. is too much of a sticky wicket right now. We think things will change in the U.S. in the coming years but until it does we aren’t going to jump in from a regulatory standpoint. We are looking to go anywhere in the world but the United States for now. Our plan is to try and go where other people are not so we are probably going to stay away from Western Europe in most jurisdictions because I don’t want to be the 20th [licensed producer] in the German market, for example. Where you will find us over the next while are places where there are no regulations or regulations are just about to come online and what we do there is help influence or even in some cases help write the regulations and be the first company in. What most producers will do is wait for regulations to be published and then for the applications to be issued then try to find a local partner and put their applications in, which is a perfectly fine way to do it. We try to get involved several steps before that. It is a lot of work but it should pay off at the end of the day and hopefully we will see the fruits of our labours in the coming months.
CanPro: How much of a priority is promotion for Biome? it is still such early days for the company but the name seems to keep popping up
KM: There are two ways of looking at promotion. There is commercial product promotion for our actual products we are bringing to market and we are pretty well known in Atlantic Canadian provinces, and with the supply shortage right now pretty much anything you can supply you are going to sell without too much of a marketing spend so if you look at some companies spending huge amounts of money on promotional stuff on the commercial side of things, that is unnecessary. Some companies can spend a lot of money but we can’t, we have to be efficient with our capital. So that is not a necessary spend, what is necessary is just to let people know we exist as a company. We are new to the game, we are still classified as one of the smaller producers. It is just something we want to do in the early days to let people know we exist. We just want to get on people’s radar screens, that is all that is. Unfortunately when you go public you’ve got to do these things to stand out from the crowd. If we had gone public two or three years ago we would probably have had to do less of that.