Elixinol on a high, without the high

Paul Benhaim is the CEO and founder of Elixinol Global (ASX:EXL). It's based in Denver Colorado, but Paul actually lives just outside Byron Bay and why not, because this is a marijuana company and the base, the global headquarters of marijuana, of course, is just outside Byron Bay. 

He's not in the marijuana business; it's more the hemp business and the share price has gone from $1.50 to $4.80 in just a few months. That's partly because American President Donald Trump recently signed a hemp farm bill which legitimises the industry and they're starting to get some traction now.

They sell a lot of CBD or cannabidiol products, both creams and stuff you take, and they've just expanded into the pet industry as well. It's an interesting business. Paul Benhaim has been hanging around this industry for 20 years or more, first starting off in the UK, then Australia, and now in the US. I think it's well worth checking this out and getting an understanding of what they're doing.

Here's Paul Benhaim, the CEO and Founder of Elixinol Global. 

Paul, I think probably the best thing to do is to start with a bit of the background and your background and how you got to where you are.  Just the journey that you've been on, because I think you started in this business in 1993, with a health food bar launched in the UK.  Do you still have that or did you sell it?

I sold my rights to that bar just after the turn of the century, after I moved to Australia, actually.  I wanted to start again so I funded myself to be in Australia to help create an industry here, which was a lot longer than anticipated, changing the legislation to allow hemp foods.  It did eventually change in 2017, of course, which we're starting to take advantage of properly right now.

Right, so you didn't really have a business until then, is that right?

I became an author of nine books, I became a business mentor to others wanting to work within the hemp industry, so that was really my main business, supporting people around the world.

Then you had Hemp Foods Australia, which relatively quickly turned into Elixinol in the US and listed here.  Just take us through that process, what happened there?

Well actually, Hemp Foods Australia was set up in 1999, but didn't really start trading until about five years ago, about 2013, approximately.  That trading was very slow to begin with, it was being done out of my garage as a...until the laws changed, but that quickly grew to a small unit, to a small factory, and now to a number of buildings.

Now what were you making, Paul?

We were making hemp seeds, were the first product that we made and then we progressed to hemp protein using very specific and novel technology to do that.  Those products are still made today and it's now become the number one brand of hemp foods in Australia.  At that time of course they couldn't be sold as a food product.  They had to be sold for external use only and for export only, so that's when I started to work in countries like Japan and I was forced to work in those kind of countries really to start with, and looking at the overseas markets.  That, as I said, eventually changed in 2017 but before it had changed, while forced to look at overseas markets is when I really discovered the growing interest in cannabidiol or CBD and at that time it was mainly from recreational or medical cannabis and I felt that there was, it was really a product from industrial hemp derived CBD.

So I started working with my colleagues in Europe, which is who I'd grown up with, I guess, and created, I guess the first hemp CBD products, recognising that probably the main market for that was going to be in the US.  I decided to start looking for people to sell in the US and that's when I met Gabriel Ettenson, who is the co-founder now of Elixinol.  He was a distributor for a short period of time and very quickly I realised that that was going to work and I needed someone to really support me as a partner over there.  Gabriel invested at a very early stage and he's now the second largest shareholder in Elixinol Global.

At that point, when you were doing this, what were the products that you were making and distributing?

The products were very, very basic at that time.  They were pretty much the raw CO2 extracts, that's super critical fluid extracted extracts of hemp, which provided a product that works.  A lot of people got some excellent results, reported excellent results to us...

What was the product?  Was it a cream that you put on yourself or do you take it or what?

It was an oral delivery device.  It was originally in a syringe, actually, so we distributed it in syringes but for oral consumption.  You would take a few millilitres, a very small amount, basically a pea sized amount under your tongue and it was very bitter and strong tasting.  Some people still sell these kind of products today.

What was it for?  What did people take it for?

Well, for the same reasons people tell us they use CBD today, which is everything.  We first got involved because we heard it was helping epilepsy, but very quickly recognised that all the studies supporting the use for mainly pain, from inflammation, for anxiety, and for sleep.  They were the three main reasons people were telling us that they were using it for and that's what most of the studies were pointing out the use of this product for.  It was less of the, I guess, what people were more talking about in the media which was more epilepsy.

Did that syringe that you're selling, then, did that get you high?

No, no, absolutely it did not get you high.  That was one of the differences between what Elixinol's mission from the beginning was to really give access to mainstream, as many people as possible, to the benefits of whole plant extract cannabinoids that didn't get you high, that didn't contain psychoactive amounts of THC, tetrahydrocannabinol, that’s the stuff that does get you high.  We stayed away from that from the very beginning and we continue to today.

Take us through the range of products that you've got now.

For Elixinol, basically what we did from that same base product, we still use a very similar base product.  The main difference is that we've identified specific genetic varieties of cannabis that are our preference now, number one.  Number two is that we learned how to, I guess, clean the material.  I don't mean clean it as if it was dirty; I mean clean it from things like chlorophyll and waxes, things that are not really going to be helpful in a full spectrum product, but without harming the other cannabinoids, terpenes and flavonoids that are helpful.  We learned how to do that really well.  Then we've learnt how to actually ensure that we have stabilised cannabinoid terpene and flavonoid profiles for different uses, or what we think people use them for, and in different delivery devices. 

That's led to what we have today and that varies very much from I guess when we first perfected our tinctures?  Tinctures are like a small bottle where you can take drops under your tongue of these preparations.  We moved to things like capsules for people who just didn't want to taste or anything, they just wanted to take their dose of CBD in a capsule form.  We then developed something called the X-Pen which was quite early on and that was, I guess, the evolution of that early syringe form but it was a much cleaner more specific dosage delivery device.  Then we moved from there...  I'm just trying to think...  roughly this order, we moved from there to what is now our main focus, a primary focus of moving into bioavailable delivery devices. 

We developed a liposomal product of CBD when we discovered that when you take CBD orally, the ideal is to absorb it sub-lingually, under your tongue for maximum absorption.  But if you are swallowing anything, including tinctures or any edibles of any form, then you would get very low bioavailability, and people are still getting effects from that.  We worked with a number of technicians to create a liposomal delivery device.  Which is basically a ball where you can insert the full spectrum CBD plant into that ball and absorb it on a nano-level of course, which when swallowed it would be really much better absorbed. 

We continue now, and that's actually the future of Elixinol is looking at a number of other technologies that increase bioavailability in different forms.  Although they're not the only products that we have.  We moved then into topicals, so we have something called a Rescue Balm which is good for places such as your knee or your ankle where blood doesn't get to very easily, your skin of course is your largest organ, so actually absorbing those products directly through your skin is excellent. 

We followed the trend for vaporising type products where we're allowed.  We call that our multipurpose hemp oil, we call that Respira.  We created lip balms and we have a number of other products in our R & D lab that are very close to being launched right now. 

I take it with the products that you're swallowing or putting under your tongue, you don't, they're not prescription medicines so you don't need to go through Phase 1, 2, 3 trials and so on.  You just put them on the market because they're kind of not medicines, is that right?  But I guess the advantage would be that they work.  Is that correct?

Well, okay.  There's pros and cons to what you just said of course, so maybe it's best to explain it properly.  Before I started, I gave you a very brief overview.  Really what I have been doing is studying the scientific journals and literature that was available and meeting with a number of professors that have told me that they've spent decades studying the endocannabinoid system, and it's the endocannabinoid system that all humans have.  Many governments complain that there's not enough research about these products and their safety.  After reading hundreds, literally, of scientific journals, maybe thousands in fact, I have very large files in my office today, was when I realised that there is actually a lot of evidence showing the safety and efficacy of these products. 

A lot of the safety and efficacy was shown by doctors who were employed by governments to prove how these products would be dangerous, and they ended up proving the opposite.  And a lot of those researchers actually jumped into the industry soon after, they gave up working with the government and realised this was going to be a life changing new industry for the world. 

What had happened is that we recognised that we could sell, in Australia, I guess the Blackmore’s model which is using efficacy-based science to create ultimately dietary supplements, nutritional products, without making any claims.  We don't tell people why they should be using our products.  We have grown by word of mouth, and that word of mouth has turned a tipping point more recently and I'm sure we'll get to that in later conversations,  by major multiple national retailers taking on our products in the US, in Europe, and very shortly in Japan, it seems.  So pretty much every continent in the world, people have recognised after using these products 5 years, that word of mouth has really spread to their usage. 

We're really focused on the forms that we sell it in as I described a lot earlier.  I didn't describe our new CBD powder actually.  Which is a really easy simple dose to get people who have never tried CBD to try it for the first time.  It's a way you can just pay $3 and open a packet, pour it in a glass of water, stir it around and get a cherry flavoured CBD dosage. 

What does it do for you?  If I did that, what would it do for me if I did that?

Well, we make no claims about what CBD does but we have those 3 products.  One is called Create which is for the morning.  We call B for Build in the middle of the day and D for Dream at night.  We recommend people enjoy those three servings per day if they want to take those powders.  As I said, people tell us that they're using it for pain, sleep, anxiety, and many more things, but we can't talk about that out to the public. 

What are you saying?  That the stuff actually winds you up and brings you down or something?  Does it make you sleep and wake you up?

Like I said, our products do nothing.  We make no claims about what our products do.  But the science does show that cannabidiol and cannabinoids do bring a homeostasis to the body.  Which is basically saying what you said, yes.  They can bring you up and bring you down, in your terms because they will bring you to where you naturally need to be. 

What we've done is we have developed a number of terpene profiles which are the micro-parts of the full cannabis extract.  Even though our product is based on CBD, CBD is only one molecule of hundreds in this material, all these full plant spectrum and we only use full plant spectrum as our focus.  Some companies just call their products CBD and they use the isolated CBD molecule.  We don't and we use these full spectrum and full spectrum includes terpene profiles.  You can actually create terpene and flavonoid profiles that support more the morning boost, so you would have Create instead of your morning coffee potentially.  And you'd have D for Dream which is a cocoa flavoured one with again, a special terpene and flavonoid profile to have in maybe a glass of milk before bed. 

And they both are based around the main molecule CBD but they are all in the full spectrum product that we have developed over these last 5 years in our own laboratories using our own genetic varieties that we contract to grow and we own our own farms of course, produce and bottle and distribute all in our own facilities.  We ensure that we have that full supply chain to ensure the efficacy of these products. 

Tell us about the importance or the significance of the US Farm Bill that was passed last year, December. 

The Farm Bill was definitely a historic and momentous occasion for our industry.  It was really where the US recognised that it could no longer pretend that hemp was dangerous, that's the low THC form of cannabis in the definition of hemp and that could be used and grown throughout the United States.  That was already happening to some degree but President Trump’s signing of that hemp Farm Bill really made that very clear. 

Then has now put that into the purview of the FDA, the Food and Drug Administration of the US who are now I guess defining exactly how that can be used.  But since that Farm Bill went through at the end of the year, our company has had some excellent conversations with a number of major brands and multinationals around the world which is the main specific benefit for Elixinol Global.  Which, as we announced recently, led to one of the largest major national US retailers taking on 13 of our 45 different products that we have in our range. 

Which retailer was that?

We can't name their name yet.  It's part of our agreement with them.  But I think in the next few weeks that will become obvious when obviously they’re on shelves and I’m sure people will be talking about it because it is one of the most, the largest and most well-known retailers in the world. 

Is it fair that the Farm Bill that President Trump signed basically legitimised the hemp industry that you're now part of?

Yeah, well, it legitimised it from, I guess what it was before it was more a research and development industry.  Even though I've been working in it for 20 years in the US, it's a research and development industry.  It's always been legal in Europe, of course.  And in Australia, it's still, practically illegal, even though it's all legal officially.  It's very complicated legal structure globally and that actually takes quite a significant amount of our energy in ensuring that we're up to date with the latest legislations in the US on a state basis, on a national basis, as well as all the different countries around the world that we work in.  We've actually have exported to over 40 countries, now from the US.

Can you just take us through your financials, Paul?  Your revenue doubled, more than doubled in the financial year 2018, but you're still burning cash, aren't you.  Presumably that's a decision to continue to invest for growth in the business, is that right? 

Yeah, that is correct.  Originally, we were focused on being a profitable business which we manage, we were the first public company in the ASX to be profitable.  One of the only in the world in fact to be profitable in this industry.  But especially after the Farm Bill, very clear decisions were made that we needed to really ramp up our investments into the future growth of this industry as these opportunities that we always believed would come, have come and are absolutely very real. 

How much cash are you burning? 

Well, how much cash we're burning changes regularly.  I think the important bit is we are able to turn up or turn down our cash spend depending on the opportunity.  As we close these deals, we will continue to spend cash as we know, our revenues are going to be supporting that kind of spend.  If we have all these opportunities but none of them close, then we certainly can certainly turn off a lot of this cash spend because most of it is within the marketing, advertising, PR and promotions part of our spend.  A lot, of course, though is going into capex which we have now nearly finished, our commissioning of our new facility which more than doubles our capacity from what we produced today, actually.  That will be opening next week in Colorado in our new purpose-built site which was designed from the ground up rather than what we do today, which is we have a number of buildings and it's been part of an organic growth. 

It's what happens when a small fast growing company started one building, then you go to another one, another one, I think we're in seven or eight buildings right now which is not sustainable and we knew that at the end of last year and we recognised that we would have to invest if we thought the Farm Bill was going to go through.  We started that process of many months before the Farm Bill went through and we're just about to finish it today, which is perfect timing as we start to take on these major national retailers. 

I think the summary of it all is that yes, we are spending more than we have in the past, and we can turn that off when we need and at the moment, we don't see a need for any more funding at this time, but again, if these opportunities keep closing and more of them come on than we anticipated, more than the growth curve that we're on today, then there is a possibility that we will go back to the market at some point and say look, I think it makes sense now for us to approach some more funding, to grow even further than what we're already doing and we're not on a slow growth curve today. 

Your last capital raising in September of last year was $40 million at a $1.85 a share and the share price is now at $4.80 so you must be tempted to get back at, to see if you could tap the market at this sort of price. 

Well you know, that's one way of looking at it, but the other hypothetical way is in 12 months’ time, we could be $10.00 a share or more, so, you know, and it's not the shared price that we're focused on.  Of course, for us that’s a natural consequence of having a fundamentals-based business in this fast-growing industry.  I think that is starting to become clear to the market is where we're differentiated between other businesses, is that we actually have been focusing on our long term business already for a number of years and a number of those possibilities are starting to come to fruition and there's plenty more in the pipeline that we hope will come into fruition, not just in the United States but in Europe and Asia.  Also, in some of the countries that we've already communicated that we're working in and many of the other countries that we hope or plan to work in, in the future too. 

You're growing your own hemp?

We grow our own hemp in Colorado in a 50% joint venture that we're in so that we can ensure that we, we can show, I guess other people that we know exactly what we're doing and we're growing our own varieties.  But we also contract out to the largest grower in Colorado, we believe is possibly the largest grower in the United States or has been at least as far as we are aware, and they grow predominantly for us, we're their largest customer today.  This year, we're also contracting out to a number of other states as well and the reason being is that we don't want to put all our farming risk into one place, we cannot, we're absolutely an FMCG branded products company.  There is no doubt about our focus.  But to have that focus in this industry, it's absolutely critical that we understand the supply chain. 

And when these major national retailers come to us, they, that's what they want to know, they want to know, do you own your supply chain, are you secure in that supply chain, so we take them to our farms, we show them all the people we contract with and we show them our new facility, our old facility, and all the certifications we have and we have all of these ticks to show them that our products are stabilised, they're safe, and that's why we're confident that we will continue to be a leader in this industry for times to come.  As many new brands come into this industry, particularly via the digital, e-commerce channels, the B2C market, it's very hard to tell the difference between a lot of companies.  But we think the larger customers that we have access to know with the Farm Bill will spend a lot more time doing due diligence, that's what we're finding and we find that we tick all of their boxes. 

I noticed that you recently made an acquisition in the pet area.  Is that for some sort of pet food or pet medicine or what? 

Yeah, exactly, it's the same reason we sell CBD whole, full spectrum products to humans.  We sell, also, we have actually been in our private label business been supplying a pet company.  We supplied them because it's not our expertise, we're not veterinarians but we wanted to experience and understand if that industry was real.  We have learned very clearly that pets, like cats and dogs, have endocannabinoid systems too.  Pets have problems with anxiety, pets have problems with epilepsy, pets have problems with sleep, just like human beings do and it seems that this, the pet company that we were privately manufacturing for, a company called Pet Relief in the US who are the number one brand of pet based CBD products was becoming very successful, so we negotiated to actually have a strategic stake in their business so we took 25% of their business to ensure that our goals were aligned, that we could continue to supply this company with our high quality, whole farm extracts, while they supplied the veterinarian market, at the same time. 

Fascinating to talk to you Paul, I appreciate your time, thanks. 

No worries, thank you. 

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