A hemp based investment: Elixinol Global Limited

Paul Benhaim is the CEO and Founder of Elixinol Global Limited which floated on the ASX in January at $1 dollar a share. The shares are now $1.75, so not a bad little effort for investors who came in on the float on $1 dollar, they’ve made 75% in three or four months, pretty good going there. What is it? It’s a business that’s been around, basically it started in 1999 as a hemp foods business in Australia. 

Paul Benhaim who founded it had been in the UK, he’s a Pom, came to Australia in 1999 having established hemp foods in hemp foods bars and so on in Europe, came to Australia to do it here but unfortunately the laws weren’t changed until 2017, allowing hemp foods. And so he built the business and basically lived on being a consultant for a while but was able to start selling last year, was exporting a bit before that. He’s got hemp foods Australia. In the meantime he started a hemp supplements and skin care business in the US in Boulder, Colorado, called Elixinol US which is now making a profit of $2.5 million dollars per year.

He’s got a profitable business and then floated this year, raised $20 million dollars in order to get into medicinal cannabis. It’s capitalised at $40-45 million dollars but it’s quite speculative.  It is making a bit of a profit thanks to the US business but the plan now is to spend the money raised in the float on building a medical cannabis business in Australia and that’s where he reckons the growth lies. Although, he does say the growth in the US is there as well and he’s growing in Australia. 

If you’re interested in medicinal cannabis, this is not a bad one because it’s got some businesses that are hemp foods and hemp supplements behind it as well as building a medical cannabis business in Australia as well. Worth a look, Elixinol Global Limited – EXL on the ASX.  

Here’s Paul Benhaim, the CEO and Founder. 

Paul, Elixinol is a combination of three businesses, Hemp Foods Australia, Elixinol US and now the new medicinal cannabis business in Australia.  Take us through the sequence of events, because I think you started Hemp Foods Australia was the first thing in 1999, tell us about that and what you did for capital and what exactly the business did and does?

Sure, Alan, thanks for the opportunity.  I did start hemp foods Australia in 1999, which is when I first came to Australia to live and I’ve been settled here ever since.  Before that time, however, I was born in London, the United Kingdom, and I set up my first hemp foods business.  Well actually, I first discovered it around 1993 when I was studying a scientific benefits and health and nutrition benefits of hemp seeds, particularly the fact that it contains omega 3 and omega 6 essential fatty acids.  I looked to start a business up because I could not find any company in Europe that was actually commercially producing hemp foods products at the time. 

That didn’t stop me because I went to Eastern Europe, gained the first supply or first hemp seeds from Hungary actually, where they have been growing hemp for many thousands of years, as far back as records go anyway.  Bought those hemp seeds and created the first Hemp Food Products in Europe.  That is now the most successful hemp food product in the world still today.  That success led me to becoming a consultant helping other people create hemp food products such as hemp oil, hemp pasta, hemp ice cream even made from non-dairy hemp milk, hemp breads, hemp tea, hemp miso and many other unusual niche products in Europe.  That led me to coming to Australia in 1999 where I was head-hunted to actually work for a firm that wanted to expand their hemp fibre business into hemp foods…

Paul, why did you come to Australia?

Well, because I was head-hunted by this company wanting to setup a hemp foods business in this country.  They said, “We have hemp fibre and we would like to use the seed.  We’ll change the laws in Australia to allow hemp as a food…”  Because Australia, at that time, was one of the only countries in the western world that didn’t allow hemp as an edible food, even though of course it doesn’t contain any psycho-active ingredients, doesn’t get you high in any shape or form and is just healthy.

So I came over here, setup a business with them which was a joint venture at the time and created food supply chains, rough agreements with Coles and Woolworths, LOIs basically saying that as soon as it was legal they would start selling these products.  And they actually ended up taking 18 years nearly later before that legislation had finally changed so that was definitely one of the longest pieces of the puzzle in my hemp businesses to succeed.

You can’t be too careful.

You can’t be too careful.  It’s been very challenging getting it to where it is now, but now Australia is caught up with the rest of the world and hemp foods is now booming. 

That business as a joint venture, who were your partners?  That was presumably Hemp Foods Australia, was it?

It was Hemp Foods Australia but basically after a few years they decided that because the laws weren’t changing they weren’t interested anymore.  I ended up basically acquiring 100% ownership in Hemp Foods Australia and I never gave up.  I continued to lobby in a slow and consistent way over many years, but during that time I continued with other businesses.

I was going to say, what were you living on at the time, Paul?

Not much, to be honest.  It was a very challenging time for me because I’m one of the world’s experts in hemp foods and found I myself in one of the few countries in the world where I couldn’t sell the product.  I ended up becoming a consultant, help other people setup successful hemp businesses around the world until I realised that I had to walk the talk again rather than just helping other people.  So I decided to actually setup Hemp Foods production line in 2014. 

Even though hemp wasn’t allowed as a food, I recognised there were loopholes I guess in the legislation that allowed us to grow the plant and produce it into a food.  I started that in 2014 and started selling it for external use only and for export.  By the time it was legal in 2017 we’d already been turning over a few million dollars a year selling hemp seeds and hemp food products. 

When did you setup the business in the US called Elixinol which does, I think, hemp supplements and external products? 

The business in the US is in a very different field to Hemp Foods Australia.  It sells hemp CBD dietary supplements.  CBD stands for cannabidiol, it’s one of the products from hemp that is, it’s very well-known for many of its benefits today.  We were getting many enquiries from Hemp Foods Australia customer service teams saying that can we supply hemp oil for cancer cure?  And we said, “No, we don’t have that, that’s not what we sell, that’s a different product…” and send them back to the internet.  But those enquiries due to popular people like Dr Sanjay Gupta on CNN making these products or hemp CBD particularly popular, led to so many enquiries that my customer service team were literally crying on the phone to me saying that, “Paul, we have to help these people somehow.” 

So I found a way to use my connections in Europe to develop a way to create hemp CBD nutraceutical compounds that we could export to the US.  I started that and in about 2014, chose my first distributor who is now the General Manager for Elixinol LLC and we are now one of the largest brands in the world selling CBD dietary supplement products, based in Boulder, Colorado. 

Where is the hemp for that business grown?

Well, at the beginning it was grown in Europe and we did export it from Europe into The United States.  Following the years ahead of us we realised that local is always the best, it reduces a number of issues in terms of supply chain of course.  We now contract out all of our hemp in Colorado itself, so we produce from locally grown Coloradan hemp licensed in the state of Colorado and manufactured in our own laboratories also in Colorado.

Just back to Hemp Foods Australia a moment, the law was changed last year, was it?  What products have you got on the market and how are they going?

The main products that hemp foods are known for are hemp seeds, hemp oil, hemp protein.  The hemp protein powder is used in smoothies.  Hemp oil is like a salad dressing pretty similar to flax oil.  Hemp seeds are a crunchy nut that is enjoyed often by itself or as an addition to any type of food.  Those are the best selling products and they continue to be our leaders today.  We’re also moving into skin care as well, launching a skin care range actually next week for Hemp Foods Australia called Sativa.  We also intend to launch a number of finished food products this year to help us access more of the mainstream food markets.

Have I seen any of your products?  Where are you selling them, in the supermarket or health food shops or what?

Yeah, we’re sold in most health food stores in Australia and you’ll also see some of our products in IGA.  We’re also a raw ingredient supplier so some of our products do get into the mainstream multiples, not under our brand because we are the first and one of the largest hemp food producers, manufacturers in Australia.  We sell to other people to put under their brand as well.  But our brand is the Hemp Man, or the Hemp Foods Australia brand.

How much revenue is that business making?

Last year that was getting up to around $3 million in revenue and because this year’s actually the first legal year of hemp foods, we can anticipate that will be growing of course.

What sort of margin do you make on that stuff?

The margins are good.  It’s pretty much a break-even business at the moment.  But again, that was from the figures that we’ve launched are from last year so far, that being a year where still hemp foods weren’t legal.  It wasn’t legal until the end of November and so the very last month is all we had of legal hemp foods.  This year is very much a growth year, we expect positive margins moving forwards.

You’ve IPO’d in January this year, raised $20 million dollars I think mainly to enter the medicinal cannabis market or jump on that particular wagon which is starting to roll along.  What are your plans in medicinal cannabis?

The three areas we’re in is obviously hemp foods, hemp dietary supplements and now in medical cannabis.  Medical cannabis is completely separate from those other two ventures, but being based in Colorado, the first state in United States, one of the biggest places in the world to allow recreational and medical cannabis.  We’ve been watching that industry and market grow for quite some time.  It was when Australia actually produced very clear legislation to allow medical cannabis in Australia that we decided to take advantage of that. 

For medical cannabis to be done properly in Australia, you need 100% pharmaceutical grade production facilities.  We created a very clear plan to market and we have applied for our licences with the Office of Drug Control, the ODC, for a plan that will take just over $13 million of the $20 million that we raised in creating our first small but modular facility for medical cannabis.  We do foresee that there will be a greater spend in that industry in the future, but right now the actual market for cannabis is very small.  But we believe that’s purely because it’s a very early industry and Australia federally and on a state basis is learning how to actually deal with the legislation.

So, to be clear, the idea is to spend $13 million building a medicinal grade production facility in Australia, is that right?

Yes, that’s correct.  Just to add to that, it’s cultivation and manufacturing facility.  They’re actually two different licences and two different business models and we have chosen to vertically integrate those two models into one modular facility called Elixinol Australia.

What product are you going to sell?  What are you going to make in this place?

We intend to launch four products to start with.  We haven’t informed the market yet about those specific products, but they have been developed and formulated through our many years of understanding the doctors that we employ in the US and the thousands of anecdotal evidence that we have directly ourselves which have allowed us to understand that it’s not just CBD and THC that produce the benefits from medical cannabis.  The scientists and people who have been studying the endocannabinoid system, which is the system that is the basis for medical cannabis working in the body, which is basically our own internal receptors in each human being that we have to work with the cannabis plant. 

I’ve known a number of people in Europe who have been studying that for their entire lives.  They’ve been very key in assisting us to ensure that the products that we come out with are very much cutting edge products that go straight to provide the benefits that we expect medical cannabis to offer people.

Right, but are you going to have to go through trials and so on?

No, that’s one of the benefits about the new medical cannabis legislation in Australia.  The office of drug control was setup to, I guess, fast-track the regular TGA route of pre-clinical/clinical studies that are usually required to launch a drug in Australia.  We are intending also to become involved with some clinical studies.  In fact, we are already involved with some pre-clinical studies and preparing for full clinical studies on some products.  However, they are not required to launch a medical cannabis product in Australia.  The only difference that they offer is the availability to make claims and to potentially go on the PBS scheme.

Can you share with us what you expect to make in terms of revenue out of these products?

For medical cannabis we don’t intend to have any revenues or very minimal revenues, I should say, this year.  We will probably be importing some products which will be the same as the products that we make and sell here but we don’t expect to have our full vertically integrated chain up and running until 2019.  I guess our medical cannabis business is more of a long term venture, as many of the other ASX listed medical cannabis businesses that are out there. 

I guess one of the main differences between us and many of the other current cannabis companies listed in the ASX is that we have two very much revenue generating businesses and LLC particularly is a highly profitable business today, producing over $2 million of EBITDA last year and is very much on a strong growth curve also.  We are a group of, I guess, diverse yet consolidated hemp and medical cannabis businesses.

As you say, the US business reported EBITDA, that’s earnings before interest tax depreciation and amortisation – just about $2.5 million – but the whole business didn’t make much money.  In fact, you lost $1.5 million or you reported a loss of $1.5 million.

Yeah, correct.  That was partly to do with our listing costs and the amortisation that comes with that.  As we’ve migrated from three private companies into one public company, of course that comes with some cost to ensure that we can do that.  As I said, our biggest generating revenue business is on a strong growth curve and continues to be.  We are expecting to give our quarterly updates and reports in just about a week’s time to communicate that more clearly with the market of course about how that’s looking in the first quarter of this year.  But I can say that it is continuing on a positive growth curve where we do expect will lead us into profit in the not too distant future. 

You must have had a brief thought about selling that business instead of IPO’ing, so that you could focus on medicinal cannabis?

Yes, and both the nutraceutical company and the hemp foods company were doing quite well by themselves and we have had some interest in people purchasing those companies.  However, I’ve been in this industry for 25 years, I’ve written nine books on the subject and continue to be a global leader and speaker at conferences throughout the world.  I’ve got a schedule of nine conferences this year in fact where I’m talking at.  What I’m trying to allude to is that I’m not in this for any short term gain only, I’m absolutely in this to create a strong foundation for the world’s largest hemp and cannabis based businesses, as I have shown in my history of being able to create. 

Now doing this in a public arena allows me to actually speed up that process.  A lot of things that I’ve been intending to do for a number of years can now be put into play.  We do expect very exciting times especially in the next couple of years for this group of businesses.

How much do you still own of the business?

Personally, I own and control of over 50% of the business today, so I’ve still kept a very solid and strong amount of that business and I certainly won’t be selling any of that this year or next year either.  My dedication to this business is…

Your shareholding is locked for a while, isn’t it?

Indeed, until the end of 2019, so 2020, so that’s still quite a way to give investors the confidence that I’m here to build a very strong business, obviously between now and then but hopefully to get trust in the fact that I’m here for the long term.  I’m not intending to sell out in two years either, I’m intending to be here to grow this industry which is something that I dreamed and planned upon for my entire career. 

How big do you think the business can be?

The potential for the market is very significant.  I mean, even just for medical cannabis alone in the US is over $8 billion today, estimated to grow to $10 billion dollars plus.  In Europe, the potential annual market value is equivalent to AUD$88 billion dollars.  In my opinion, this industry and certainly our business is only just beginning.  We’re only just creating the foundations to a range of products and a range of uses that we will communicate to consumers around the world, whom we have a very loyal following today, to join us in the growth. 

The thing is, these products that we work with all have scientific based results and these are the reasons why these products are not here as a fad, even though there’s been a bit of a wave of cannabis listed businesses in the recent past.  We believe that we are one of those companies that are now basing ourselves around science, around dedication with our history of being involved with this industry for so long and with our long term future vision.

Great.  Thanks for talking to us, Paul.  Good luck!

Thank you, Alan.

That was Paul Benhaim, the CEO and founder of Elixinol Global Limited.