The CSE is proud to present the latest edition of the CSE Quarterly.
The Canadian Securities Exchange is proud to present our tenth edition of the CSE Quarterly.
The impact of technology and innovation is all around us. As the CSE continues to grow to well over 300 listings, technology and innovation have become bigger components to our story, both behind the scenes and our listings board.
This issue of the CSE Quarterly highlights the stories of several listed issuers who are using technology in creative an innovative ways to advance their respective businesses and industries.
The companies profiled in this issue include:
Carl Data Solutions Inc. (CSE:CRL)
ParcelPal Technology Inc. (CSE:PKG)
FanDom Sports Media Corp. (CSE:FDM)
Hello Pal International Inc. (CSE:HP)
Bitrush Corp. (CSE:BRH)
Peak Positioning Technologies Inc. (CSE:PKK)
In addition, to these stories of innovation, the latest message from the Canadian Securities Exchange CEO, Richard Carleton, has updates on how the CSE is leveraging technology and innovation to improve the performance of the Exchange for Entrepreneurs.
Missed a previous edition of the CSE Quarterly? Click here to access previous issues.
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Have you ever wished you knew how fast your teenage son was driving your car when he borrows it? Or exactly where dear old dad is when he is 40 minutes late for a family dinner?
Or that your car battery is about to conk out before it does so and leaves you stranded in the middle of a downpour?
If so, then you’ll want to know about IGEN Networks Corp. (CSE:IGN; OTCQB:IGEN), as the company is beginning to commercialise a system that sends all this information and more straight to your mobile phone in real time.
From monitoring the location and driving behavior of family members to tracking a fleet of drivers to ensure they are doing what you pay them to, the enhancements to safety and efficiency are far-reaching.
IGEN President and CEO Neil Chan and his team have really thought this through, to the point that not only does their solution address safety problems for drivers but also marketing problems for car dealers.
The chain of use begins when a new car arrives on a dealer lot and is installed with the IGEN hardware, a box about half the size of a computer mouse. Dealers are able to track cars if they are stolen, and the companies that finance the cars know how many cars are on each dealer lot. They will know which ones too, as the system provides the Vehicle Identification Number unique to each automobile as part of its data feed.
When a customer purchases a new car they have the opportunity to subscribe to the IGEN service and have a full array of real-time data available to them to monitor the conditions and use of their car.
The dealer benefits as well, not only from having sold the system but also because it creates an ongoing connection with the car purchaser. One of the biggest challenges for car dealers is customer retention. In other words, once a customer purchases a car, how do you get them to come back to you for their next purchase, and in the interim how do you keep them loyal to your dealership for oil changes and other service?
Because the IGEN system is monitoring the vehicle, it can automatically inform the owner when it is time for an oil change. But this can be programmed as a dealer function as well. That way, the dealer can e-mail the owner to let them know that their automobile needs servicing, and perhaps send a coupon or some other type of enticement along with the message to encourage the owner to use the dealership.
“Less than 10% of customers come back to the dealer after the warranty period expires,” Chan points out.
It is the classic win-win situation, where the customer and the business both derive clearly identifiable benefits from use of the system.
Another benefit to consumers is the potential for lower insurance rates. In this scenario, the driver chooses an insurance company that agrees to a discounted premium in exchange for the ability to monitor driving habits so the insurer knows if the driver is operating the vehicle safely and adhering to limitations within the terms of the policy. The owner saves money and the insurance company knows it is underwriting someone who realizes they are being monitored and therefore had better drive responsibly.
Chan explains that the insurance industry in the United States suffers some $15 billion each year in what is known as “rating errors,” essentially money left on the table by insurance companies because they are incorrectly assessing the behavior of the drivers they insure. “The fact is they are guessing and don’t really know how you drive,” says Chan.
“The premium discounts come from the ability of the insurance company to have better visibility on your driving patterns. We have the capability within our platform to know whether you are a good driver or a bad driver. We have developed algorithms along with insurance companies to determine that as it relates to premium discounts.”
Chan names some of the biggest insurers in the United States and says “this is where they are heading – if you want a discount on your insurance you will have to have one of these in your car.”
The driving force behind the idea and creation of the technology to support it is Chan himself, whose background fits the IGEN vision perfectly. As Senior Vice President for Sales and Marketing at Webtech Wireless, a leader in GPS-based fleet management, Chan was essentially responsible for executing the company’s strategic plan. Under his watch, Webtech grew to have 800 customers and some 240,000 location devices in over 40 countries.
Earlier in his career, Chan founded and built Motorola’s broadband access business in the Asia Pacific region, establishing 12 regional offices along the way, and was involved in the actual creation of wireless broadband through a company he helped put together called Airvana.
Thanks to these and other Senior roles at successful technology companies, Chan also understands a relatively new, but very important, market that depends on our use of mobile phones, computers and other connected devices – big data.
Once IGEN has enough vehicles equipped with its monitoring hardware, it will be able to profile drivers in different jurisdictions and pool data that can be analyzed to show how people live their lives, via their cars. Marketers, government, infrastructure planners and many others should be willing to pay a pretty penny for IGEN data and related analytics.
“I can be specific regarding the various services we offer but at the end of the day this is our business,” says Chan of analytics. “We know the lifestyle of a family based on the time they are spending in the car. Who is driving and how much time are you spending in various locations throughout the day? There is a lot of information there and our model is targeted at the consumer segment, where we are going to get the biggest sample.”
Almost sure to make that sample larger over time is a relationship with Verizon Wireless in the United States announced on May 21 of this year. Under the agreement, Verizon sales representatives will sell IGEN’s system to automobile dealers in addition to the telephones and other products they are already marketing.
“One of the first things I always used to do was go find the gorilla to hold its hand, and that was usually the carrier. I get inside the carrier to develop a relationship and that is how you expand your channels,” says Chan.
“With the Verizon partnership, we are preparing the Verizon sales force to sell our products and services into dealer channels across the United States. We do business with 500 dealerships now but there are 25,000 new car dealerships in the country, so we have barely scratched the surface.” Chan goes on to explain that a large dealership sees about 500 vehicles pass through its lot every month.
When asked to boil the appeal for drivers down to a single concept, Chan is quick to choose “consumer empowerment.” He explains this using transportation trailblazer Uber as an analogy. “What the difference is between before Uber and the present is now the consumer interacts directly with the driver. It is simple but it has created a billion dollar industry. We’ve bypassed competitors who require you to talk to someone to get information. With IGEN the information goes directly to you.”
And taking that concept one step further, could the benefits extend beyond paying customers by serving one day as a solution to the plague of bad driving? “I believe family behavior changes,” says Chan. “I have never been alerted on speeding with any of my kids when they have taken the car. It does change everyone’s behavior for the better.”
Revenue in the quarter through June 30 was US$289,065, some 90% of it from hardware sales. The first year of service is baked into the initial sale, and profit margins are good, but it is in the second year — the renewals — when the margins get really juicy.
“We are bringing the control back to the consumer,” says Chan in summary. “Providing that direct information to the consumer is really the essence. Being able to collect and use that data, being in the analytics business, is where we think the future is. And we understand technically how all this needs to come together, and what metrics you need to focus on to make sure you have a profitable and ongoing business for the long term.”
Robix Fuels (CSE:RZX) has under its sleeve what it says is a revolutionary oil spill clean-up technology, with a patent for a vessel that recovers oil off the surface of water mechanically. Known as the “COV”, or Clean Ocean Vessel, the apparatus promises a higher rate of recovery as well as a lower environmental footprint for oil spills in open waters, harbors and near shorelines.
After signing its first preliminary agreement to market the device last week, Robix is ready to build on its foundation and establish a portfolio of customers, taking the company to a new stage of growth.
The Alberta-based company’s CEO, Nathan Hansen, said the technology is based on simple “oleophilic” (oil friendly) principles of physics, as the ocean vessel contains two metal contra-rotating drums to which the oil clings, allowing for the material to be picked up off the surface of water. Scavenger blades then work to scrape the oil/water fluid off the drums into storage tanks so that the oil is safely contained in the vessel.
The contra rotating drums also cause a pumping action, which helps the oil to collect more effectively than by one rotating drum, explains Hansen.
The advantage of the stable, Catamaran-style barge vessel is that it can be used in virtually any rough sea conditions with waves as high as 8 feet, and that the recovery efficiency of the COV is in the 90 to 97 percent range, outperforming its competitors that cannot operate when waves exceed 18 inches. The special design of the company’s vessel gives the ability for the two drums to fit into the surface of the oil slick, says Robix.
The technology is also highly scalable, as it can be used in any size, from mini to large, depending on the size of the oil spill.
The company has already built its first COV, which is 40 feet long, 26 feet wide, and 12 feet deep from the surface of the deck to the bottom of the tanks.
Robix’s idea is to license its technology to either a potential customer such as an offshore oil producer, or a service contractor, to use the vessel “in case” with a quickly deployable plan in place. The license would provide the same comfort as insurance, in the sense that if an oil spill tragedy occurred, the COV would be on stand-by and ready to help.
“If there is a leak on a drilling platform in the open ocean, that’s where we come in,” says Hansen.
“A small spill at a gasoline station — that’s not really our strength. Ours is a big oil spill. It doesn’t happen that often, but when they do, it’s catastrophic,” he adds, referring to the $40 billion clean-up cost of the infamous BP oil spill in the Gulf of Mexico in 2010, which put oil companies under intense scrutiny, and on governments’ radar screens everywhere.
A market for the technology certainly exists. Some 2 billion metric tons of oil is shipped in oil tankers every year, and in U.S. waters alone, 1.3 million gallons have been spilled from vessels and pipelines.
Robix’s idea is taking off, with the company already in discussions with several potential customers.
The company just signed a letter of intent with a Mexico consortium to jointly market the vessel in Mexico, to be used for oil spill recovery and remediation in the country. Robix said efforts are now underway to ship the recently manufactured first COV to Mexico for reassembly and testing upon the execution of a definitive agreement.
The deal was signed with Grupo Macomax, a Mexican holding company that offers services to environmental emergencies in the country.
“Our vessel works to reduce the cost [of clean-up] so dramatically, and appeals to any entity operating in a region with ample shipping traffic and with production platforms with a higher risk,” the chief executive affirms.
Hansen is confident that the technology has widespread appeal nowadays, citing the example of a mandate implemented in the Mediterranean to have all risk mitigated through stand-by equipment, a result of the BP oil spill that occurred almost five years ago.
The typical method used to clean up oil spills now consists of surfactants and dispersants, which drive the oil directly to the bottom of the ocean, and only defer the problem, whereas oil is contained in the COV safely.
Indeed, Hansen says that environmentalists have put pressure on governments to supply “best-in-class, mechanical solutions” for protocol measures, which he anticipates will be a huge benefit in terms of attaining customers. Specifically, Robix has advanced, developing economies high on its radar screen as opposed to already developed markets.
Currently, the company is in the early stages of crafting its business plan and working out its guidance, which it expects it will be able to release after it completes its first deal. Its lucrative business model is such that as soon as it has a licensee with a revenue stream, it will immediately begin generating positive cash flow.
For example, a customer would pay an upfront license fee, which would be quite similar to the capex required to build the unit, as well as monthly stand-by fees based on how many units the client would like to place.
“The margins on profit are very high. Aside from building the unit, the only costs would be training on how to use the apparatus,” says Hansen.
Marketing plans are being implemented now, with Robix recently raising $1.1 million in an equity round, with the intent of going back to markets to raise more funds soon. Any funds raised so far have gone directly toward the cost of building the first unit, which was approximately $2 million.
“We are required to design another size unit, probably a 10 footer, [which will likely be] in conjunction with the first license,” the CEO explains, adding that this new unit could well be funded by a provincial grant from the Canadian government.
The COV, the patent for which forms the basis on which the company was founded, is just the beginning for Robix, as it looks for more intellectual property acquisitions, all focused on oil-water separation technology.
The chief executive says such technology would be in demand in the Western Canadian Sedimentary Basin, where many oil fields in the northern parts of B.C. and Alberta have severe water issues when drawing the oil up.
“[These companies are] basically producing water with oil that comes with it. There is a need for new technology for the industry to continue to have economic viability.”
He adds that there is also an acute need worldwide for purifying water, another possible use for its oil water separation IP. Whatever the scenario, the COV patent is the first in a series of patents, with Robix currently in various negotiations to tack on more to its portfolio.
In the meantime, Robix is working on further applications for its Clean Ocean Vessel, opening up its existing technology to new markets and buyers.
The basic parts of the COV can also be used for oil sands tailings ponds, another big environmental concern for both governments and the oil and gas industry as a steady stream of oil slick is created by the tailings process. The device would turn the otherwise toxic oil sands waste into more oil to sell, which otherwise would be lost revenue.
“Our R&D team is working on this right now,” says Hansen, referring to the combination of other technologies with Robix’s two contra-rotating drums to make the idea more economically efficient.
With typical acerbic wit, the late columnist Mike Royko once offered his readers a simple rule for eating healthily: “If you enjoy it, you can’t have it; if you don’t like it, you can eat all you want.”
That was a little over three decades ago, when there was probably some element of truth to Royko’s tongue-in-cheek guideline. Today, however, the list of products that not only are tasty but also good for you is long and growing.
Global Gardens Group (CSE:VGM) made that list a little longer on November 5 when it released a product line aimed squarely at the highly popular almond and soy milks that many health-conscious adults view as a refrigerator staple.
Veggemo is a vegetable based dairy alternative that tastes delicious and feels so much like milk, according to the company, that even devoted milk drinkers will be hard-pressed not to give it serious consideration. Factor in the absence of bad stuff like trans fats and cholesterol and one begins to understand why the Global Gardens management team so deeply believes it has a winning combination on its hands.
That combination might never have come together were it not for a fateful meeting four years ago between now president and chief executive officer (CEO) Rob Harrison and vice president (VP) of Marketing, Wade Bayne.
Harrison had traveled to Vancouver from Ontario to see an early version of the product at an incubator group founded by executives from Lululemon. Bayne had been invited to the office that day as well, and the two experienced consumer goods executives quickly found themselves on the same page. “We both perceived a huge opportunity,” says Harrison.
Bayne, whose background includes executive positions at names like Molson Coors and Procter & Gamble, explains that being in the right business at the right time is everything. “In an industry that is enjoying great growth, even an average company can do well, whereas in an industry that is flat or declining, a strong company will struggle,” he says.
“So, before you choose where you want to be, find an industry that has strong growth driven by factors that are sustainable.”
Harrison, who has advised the likes of Heinz, Nabisco and Nestle, claims that the dairy alternative beverage category is growing at double-digits per quarter, which compares to 1-2% growth for consumer goods overall in Canada.
And then there is dairy itself.
“You see dairy milk declining on a per capita basis for the last 25 years and people migrating to our category,” explains Harrison. “As marketers, you see exponential growth, a new category, great margins and strong demand from consumers, and we believe this shift is going to continue.”
Harrison says the alternative dairy industry is now valued at over $2 billion in North America.
In the four years since Harrison and Bayne met at the incubator, countless versions of the beverage have been created, a number of which were taken out for testing with large groups of consumers. The main tests took place in two waves: the first led to the conclusion that protein was breaking too strongly through the flavor matrix, thus causing consumers in the trials to report a slightly bitter taste.
“Protein doesn’t taste good,” says Bayne, “so you have to mask it and we spent three months getting that right.”
The next wave of testers liked the taste but said they would prefer the product to possess a little more body, “so we dialed up the texture to replicate a 1% or 2% milk,” says Bayne.
One might wonder how a vegetable-based drink manages its slightly off-white color. Bayne credits ingredients such as potatoes, organic potato starch, tapioca and a white-yellow pea sourced from Belgium for the milk-like hue. “It is not an artificial colour,” he points out emphatically, adding that genetically modified, or GMO, ingredients are similarly banned from the Veggemo recipe.
With the product perfected, the fourth quarter of 2015 was chosen for the start of an aggressive yet prudent roll-out.
“There are two things you measure in this business, and the first is distribution,” explains Harrison.
“We had set out to be in 450 stores at the end of the first quarter of 2016 and it appears the number is going to be closer to 800.”
Six months from the beginning of product roll-out the goal is to be in approximately 1,800 stores across Canada, including those run by several of the leading chains.
The roll-out continues in further stages to include chilled Veggemo (the first phase involves shelf-stable product, which is packaged in an environment such that the beverage remains fresh on the shelf for up to 14 months) and the addition of stores in the United States.
Looking a bit further out, Harrison says the company has its eye on the global marketplace, as North America accounts for only 18% of dairy alternative beverage sales volume worldwide. There are many attractive markets for Global Gardens to consider, he says, both for sheer size and, in some cases, high levels of lactose intolerance within the population.
A product can be fantastic, but if people don’t try it they will never know. Harrison and Bayne have already considered the appeal factor from multiple angles and have a game plan to ensure that consumers across the country find the product if not one way, then another. This, of course, drives the second metric Harrison was hinting at: sales per point of distribution, or how many units you are selling at each store.
Key to this is the brand and its character, which Bayne describes as “light-hearted, approachable and playful.” A naturopath in Colorado that Harrison and Bayne refer to as a “guru” asserted that many healthy food choices brand in such a way as to appeal to hard-core health food consumers; because of this, however, they effectively alienate a large percentage of “average” consumers not drawn to a product branded in that fashion.
The packages for Veggemo’s three flavors – original, unsweetened and vanilla – are each different but share a common visual theme characterized by happy animals in fantasy-like nature settings. To say they stand out sitting amid rows of competitor’s containers, almost all featuring a white beverage splashing into a glass or cereal bowl, is an understatement.
Then there is in-store product demonstration, which begins this month.
“We will be doing product tastings at about 1,000 stores so that shoppers can come and try Veggemo before they make a purchasing decision,” says Bayne.
Prices for Veggemo, which at first will be offered only in the 946ml size, will differ from region to region and by retailer, but the company’s suggested retail price is $3.49. This is in the middle of the category and at a level that leaves a very nice margin both for the retailer and for Global Gardens, and the company’s margin can be expected to climb in later years as economies of scale and other efficiencies take root.
Research indicates that a consumer making a health and wellness purchase decision tends to be less price sensitive than an average consumer, and because Veggemo is so innovative it is essentially creating a new segment of non-dairy beverages. Indeed, at the recent Grocery Innovations Canada show, Veggemo was chosen as one of the 10 most innovative products, which is quite an accomplishment given that there were some 300 products at the show.
While one eye will always be on profit, Harrison understands that execution of the business plan is the most important thing as the company begins to establish the brand.
“The gross margin is great and the selling price is great, but it is really about the management team, the category growth and how we have positioned this product,” he explains. “We have a point of differentiation that is research-based and are selling an everyday consumer good resistant to recession.”
Investors seem to share Harrison’s belief. When the company went out to raise capital in the second quarter of this year, its target was $2.5 million. It ended up with $4.3 million.
A commitment to running lean and mean should help to make those funds stretch a long way. A team of just five people has brought the company to its current state, with an aversion to owning fixed assets serving to keep costs mostly on the variable side of the ledger. “We are a company that fits the times,” says Harrison. “Who wants to own fixed assets and a factory with lots of people when there are groups whose business it is to do that?”
Going onto shelves in the likes of Walmart, Save-On-Foods, IGA Market Place, Calgary Coop, Metro Quebec, Thrifty Foods and London Drugs there is bound to be at least one retailer close to most people in Canada carrying Veggemo no later than April. Try it. You might like it, and if you do…you can have as much as you want.
The rush of junior public companies into the marijuana space over the past couple of years has been fast and furious as laws regulating the drug’s use changed in Canada and some US states.
Despite the best of intentions, many of these companies have not fared well, though in fairness regulatory hang-ups undermined momentum for those focused on operating in Canada.
Golden Leaf Holdings (CSE:GLH) chose a decidedly different path by positioning itself to take advantage of regulatory change in states on the US west coast. It turned out to be a shrewd move, as the company has gone from strength to strength literally since day one.
Golden Leaf was established in May 2014 and in the one-and-a-half years since has succeeded in growing sales to over US$1 million per month. Oregon has proven to be the perfect jurisdiction for its operations, with the company having been able to legally sell its refined marijuana oil products to medical marijuana users since inception.
Recreational use was legalized in Oregon on October 1 of this year, but the only products that can be purchased through approved dispensaries at the moment are dried leaves and buds. Golden Leaf chief executive officer (CEO) Don Robinson anticipates that the second half of 2016 will bring permission for dispensaries to sell oils and edibles to recreational users, a move that would expand the market for Golden Leaf’s products by leaps and bounds.
All Golden Leaf products are based on the extraction and refining of oil from marijuana plants. The oil is sold in a variety of delivery systems, including vaporizers and edible products, the latter slated for introduction late in the current quarter or early in 2016.
“Our business model is built around the lowest cost production of the highest quality oils, based on competitive advantage, economies of scale and intellectual property,” explains Robinson.
“We think we have a different approach to the industry than other companies.”
Well-funded (the company raised a total of US$17 million in two financing rounds prior to going public on October 14 of this year) and with a strong team, Golden Leaf has proven its ability to move quickly when opportunities present themselves.
“We believe we are the biggest extractor in all of North America – we don’t know anyone bigger,” says Robinson in describing the company’s market position.
“Our growth has been explosive, from $150,000 in revenue in September 2014 to over $1 million in April 2015. We have added equipment in the last month, and by the end of this year will have doubled our output capacity and be at a monthly run rate of $2.5 million.”
Robinson explains that the company has been able to sell all of the product it makes, and that further capacity will be needed once refined products become legal for sale to recreational users. So far, Golden Leaf’s sales have come entirely from the medical use market in Oregon.
Right next door to Oregon, of course, is Washington State, where the market is twice the size of Oregon’s.
“When you put Washington and Oregon together, you are looking at a combined market of US$2.5 billion, and almost 1.4 million consumers,” says Robinson.
Keeping up with demand will require significant capital spending. “Capex for us,” explains Robinson, “is all about acquiring more machines. Each machine is close to $300,000 dollars with a two-month payback. We had three machines and added two over the summer, and by the end of the year will have 11. With each extractor you need support and auxiliary equipment because you extract with one machine and refine with another. That is the bulk of our capital spending.”
Funds have also been used to enable production of marijuana itself. “We are attempting to grow all of the feedstock for our extraction process and the reason we want to be self-reliant on feedstock is we believe it is important to be organic. You also get a better quality of feedstock if you do it yourself as opposed to buying it on the open market, where it is inconsistent.”
That claim was borne out in a November 18 press release from the company giving quality control through in-house production part of the credit for extraction yields reaching 14%, up 50% from the year-to-date average to the highest level ever experienced by the company.
From a structural perspective, part of that credit belongs to a Golden Leaf subsidiary in Israel called Green Point Science, which conducts research and development work.
“Everything that happens in Israel with cannabis is best practice,” explains Robinson. ”They have been experimenting with cannabis since the early 1970s and we are adopting their best practice in growing, breeding and greenhouse operations. In a perfect world, we would have our own strain optimized for extraction that would grow faster, with less light, less water and more disease resistance, and therefore be organic.”
Golden Leaf has grown at breakneck speed so far and with recreational use of oils in Oregon seemingly on the horizon, demand looks like something the company may never have to worry about. Still, it is hardly a bad thing that ongoing regulatory change in other parts of the country, and even nationally, will likely to add to its demand prospects.
“Four states and Washington DC are legal medically and recreationally, the states being Alaska, Colorado, Washington, and Oregon,” says Robinson. “In addition, 23 states are in some form of decriminalization.”
Then there is the national front. “The Obama administration took a big step earlier this summer and now allows research into medical marijuana,” Robinson explains.
“Up to now it has been illegal so claims as to the efficacy of marijuana from a medical standpoint are all anecdotal. Once medical studies start coming in that prove efficacy in a formal way, you will see a sea change.”
Getting back to the principle of positioning for change before it happens, Robinson points to the strength of his team and says that when it comes to management, “we have invested ahead.”
It is all about striking the right balance, mixing team members with years of experience in various aspects of the marijuana industry with executives from outside the space who bring branding and other valuable skills.
“This is going to be a very big business and we believe it requires the best of big business practice applied to cannabis,” says Robinson. “It is that marriage of talent plus ready access to capital that will enable us to continue taking advantage of opportunities as they come our way.”
DNI Metals (CSE: DNI) is lining up all the pieces to become one of the world’s leading graphite producers, using a three pronged approach of exploration, distribution and refinement.
Exploration
Success begins with finding the goods, and this is a base DNI has covered, having purchased a high-quality graphite project with a mining license in Madagascar in 2014. Some of the best large flake discoveries are in Madagascar and Stratmin Global Resources PLC (LON:STGR) owns and produces there from one of the top graphite deposits in the world.
That deposit happens to be just down the road from DNI’s project, with both sitting along the same trend. DNI chief executive officer Dan Weir points out his site is also close to the main shipping port and has ready access to a paved highway.
“I believe that DNI sits on a world class graphite deposit,” said Weir, “as we are located on the same trend as Stratmin.”
Working in Madagascar has some important benefits as compared to other parts of the world, including Canada; while there is good graphite in Canada, Weir concedes, it is difficult to get at.
Currently, only one small mine in British Columbia is in production, and it can only operate for six months of the year. “Most other North American graphite deposits are hosted in hard rock. They have to drill it, blast it and grind it up really, really small, and process it – there’s a huge cost to do that,” Weir said.
Conversely, Madagascar has material which is “like going to a sandbox, where you go in with an excavator or a shovel and you dig it up and process it.”
Another benefit to being in Madagascar is that it has one of the best mining codes in the world.
“To get a permit in Canada probably takes around three to four years – it’s very difficult,” Weir said.
Weir joined DNI in November 2014, and since then the company has acquired a full mining permit in Madagascar. He would likely still be waiting for the go-ahead in Canada.
The combination of a good permitting environment and soft host rock that makes for easier processing culminates in a reasonable price tag to go into production. Weir expects to begin commissioning the facility in the first quarter of 2017, with the mine set to be operational midway through the same year.
Overall, the project is slated to cost $10 million to $15 million, which is a fraction of the spending proposed in North America by other graphite companies.
Moving toward production, DNI plans to complete a resource estimate, with drill results and a preliminary economic assessment expected by the end of this year.
In tandem, DNI is acquiring two copper-zinc exploration companies with $2.3 million in working capital that will be directed to development costs at Madagascar over the next year, as the project heads toward the construction phase.
Distribution
While the company takes the Madagascar project forward, Weir is also looking to add value in other ways.
This is where part two of the plan comes in – establishing a reputation in the graphite space.
Success in the industrial metals world begins pre-production with off-take agreements and relationships; with this in mind, Weir has established a distribution network buying graphite from Brazilian producers and selling into North America.
“I am making a little bit of money from that,” he said, “but not a lot. The whole point is to build off-take relationships with buyers of graphite, so that when we come to market for financing to build DNI’s mine in Madagascar the end users will know us, respect us, and DNI will have established a reputation of high-quality graphite and partnerships with buyers,” he said.
Refinement
The third and final stage to DNI’S vertical integration strategy is the acquisition of a laboratory 20 kilometres outside of Toronto.
DNI looks to establish this lab as a hub for innovation, not just in the mining sector, but in batteries, pilot plant development and clean tech. In the future, DNI will purify its graphite at the facility. The lab works with some of the largest companies in the world.
DNI is buying the laboratory for $4 million, and while this seems like quite a large chunk of change for a small company Weir points out that the assets and property value are around $3.6 million, making it a low-risk proposition.
The transaction is expected to be completed over the next few months, Weir said, giving the business some cash flow to help toward building the mine in Madagascar. “The shining star in this whole transaction is, what other junior mining company is cash flow positive?” said Weir.
While the company builds relationships with buyers, builds its project in Madagascar, and acquires the laboratory, there is one overhanging issue that Weir is also quick to address – the graphite price.
The graphite graph
“Graphite prices in 2012 were twice what they are today,” he said, though he is not concerned, and his reasoning is two-fold.
Firstly, new supply is unlikely to come to market in the near term, particularly in North America, where he believes that economically, the more expensive hard rock projects will be difficult to commission and put into production at current graphite prices.
“We see a lot of growth around the world,” Weir said, noting that demand from new sectors such as lithium batteries was beginning to pick up.
With a potentially world class project in Madagascar, relationships with most of the major graphite buyers in North America, its own laboratory, and a positive outlook on the price of graphite, it is no wonder that the chief executive is “extremely excited” about his company’s future.
A neat carpet of green can be seen stretching as far as the eye can see, like a well-tended lawn of some grand country manor. But this is right in the middle of the California desert.
It’s just one of Captiva Verde’s (CSE:VEG) many organic vegetable farms in isolated patches across the California and Arizona desert.
Being organic, the farms deploy no chemical pesticides or synthetic fertilizers.
There is a big cultural shift as organic becomes the mainstream, with 78% of US families buying organic produce, which means it’s big business… if you can get it right.
Organic farms are 35% more profitable than the average farm and in retail stores organic prices are typically double conventional prices. Yet currently only 0.5% of US farmland is suitable for organics.
According to the Research Institute of Organic Agriculture and International Federation of Organic Agriculture Movements, global retail sales of organic food are estimated at US $72 billion. North America represents 48% of this global demand.
From renewable energy to organic farming
Captiva Verde is taking a run at this giant market. Worth just CDN $20.5 million, it is fair to say the company is a comparative minnow in the field of agriculture.
But founder Jeff Ciachurski is ambitious: “You’ve got to have a lot of guts,” he says. “You need to go in with a big operation and take the chance.”
Ciachurski made his fortune in sustainable power after he founded Western Wind in 2002 with an initial investment of CDN $250,000.
Just over ten years later he sold the company to Brookfield Renewable Energy Partners for $420 million.
As important as the project is the person behind it; the man or woman with the relentless drive and will to win.
“I made a very big success for my shareholders; in fact I was one of the few guys in the entire worldwide market place that made a whole lot of money in the wind and solar space,” says Ciachurski.
“So I’ve got a knack for finding high quality deals and ones that really take a lot of perseverance, a lot of emotional energy and challenges.”
And he thinks there are lessons he learned from his former employment that are directly applicable to the world of organics.
“There is a huge regulatory landscape you need to navigate. But we successful entrepreneurs take on the big challenges,” Ciachurski says.
Captiva Verde was founded in 2014 and is certified by the United States Department of Agriculture (USDA).
Ciachurski’s team now farms 3,700 acres, the majority of which is leased, and the group is looking to add another 2,270 acres in the southwest US for organic cultivation.
The farmland is managed by a team with extensive experience in organic vegetable farming, food processing, clean energy and land development in California and Arizona.
The isolated fields in Arizona, Imperial Valley and Tehachapi are all at different elevations for production synched to optimal climate conditions, allowing for 365 day a year harvesting and crop rotation.
If the vision above is one of man in harmony with his environment, then the state of California, with some 20,000 organic farms, reveals what happens when agriculture of this sort is done on an industrial scale.
A big risk with big money
It has been a challenge for Captiva Verde, not just meeting the exacting farming standards, but winning over retailers.
“The certification program in California is so tough. The reality of organics is that the standards are way beyond what you’d call sustainable,” said Ciachurski.
“The US is a very litigious place, California especially so. There is a very large and robust food safety program. You want to make sure the buyers know you have a top rated food certification.”
Scrutiny was intense to gain National Organic Program certification. And meeting the food standards and safety criteria can be very costly, which is often a deterrent or inhibitor to smaller, less well-funded groups.
How many small businesses could fund a four-mile fence to avoid cross-contamination from animals? Captiva was forced to bear these costs to gain USDA certification for just one 600-acre farm.
“We take 300 tissue samples per acre to test for bacteria,” states Ciachurski.
“All this can be a big setback for the smaller guys, who often have to sell at the farmers market because the big end retailers would not find their standards remotely adequate to get onto their shelves.
“That’s why you have to raise the capital; it’s a big risk with big money at the start.”
Captiva also had to convince potential buyers of produce that its farms were capable of producing enough to meet the demand from retailers such as Whole Foods and Trader Joe’s.
It was stuck for five months in the spot market, where prices fluctuate minute to minute, while it proved its output was reliable.
“The risk is no one will buy from you until you can prove to them you can grow big quantities. At one time US $9 million worth of supply had to be re-ploughed back into the ground,” Ciachurski laments.
It’s only really in the last month Captiva has found itself in the happy position of selling all its production on contract.
“That means that everything we grew already had a buyer by the time it goes in the ground,” adds Ciachurski.
So what does the future hold?
“Tremendous growth,” Ciachurski says.
The organic vegetable market is worth around US $35 billion a year and is expanding at some 12-15% annually. That rate is forecast for the next 10 years.
Captiva, meanwhile, is making remarkable financial headway.
In 2015 it reported US $9 million of losses. By November it was producing US $500,000 a week worth of vegetables but selling it at only $200,000.
As of 8 May, Captiva has 455,000 pounds of produce a week fully contracted, which brings in US $570,000 a week in sales (the equivalent of almost CDN $30 million of annual sales).
“We are the only company that even has those kinds of revenues on the CSE and the only publicly traded 100% organic farming company,” he points out.
Further expansion is on the books as Captiva looks to some strategic acquisitions.
The company announced last month that it was considering buying two companies – a large food broker and a substantial salad making operation – to expand right through the organic produce supply chain.
The acquisitions will add a further US $13 million of sales a year for the group.
“We’re a growing company in a growing market. Since October 2015 we started from zero sales to now US $1 million a month. Now, as of May, we are moving to US $2.5 million a month,” explains Ciachurski.
“We are fast making money in a dynamically growing sector, and that’s what investors want to see.”
Technology companies are renowned for their rapid growth rates, but apparently even they can’t keep up to successful groups in a tried-and-true business that many of us are in contact with all the time.
Network marketing, also known as multi-level-marketing (MLM), is the practice of individual direct sales coupled with recruitment of new direct sellers by existing salespeople. If you are thinking Amway, you’re on the right track. With some 3 million salespeople worldwide, Amway is the MLM king, recording US $9.5 billion in sales in 2015. Avon (NYSE:AVP) and Herbalife(NYSE:HLF) are among other big MLM names.
Laguna Blends (CSE:LAG) is the latest entry onto the MLM scene and the potential to go from zero to 100 overnight was one of the key factors that convinced its founder to go all in. “I have put over $1 million of my own capital into the company,” says Stuart Gray, Laguna’s CEO. “Successful MLM groups grow faster than tech companies so one of the nice things about Laguna is that we have the ability to get bigger really quickly.”
Laguna began its sales quest in March focused on the nutritional and health benefits of products containing hemp. Hemp is known for being rich in protein, as well as omega fatty acids 3, 6 and 9, plus magnesium and other nutrients important to a balanced diet. Gray summarizes the product category as “functional beverages” given that a hemp-infused instant coffee and four flavours of a sports drink mix called Pro 369 (after the omegas) comprise the initial product line.
Gray originally learned about the benefits of hemp as a consultant to several companies in the medical marijuana industry. But while the health benefits of hemp strains used for food, as opposed to intoxication, were obvious, he felt that the approach to selling these products could be improved upon.
“We see hemp-based products on the shelves at many of the biggest food retailing names in the world, but in some cases the product has not sold through as well as the producers thought it would,” says Gray. “There remains a lot of education that needs to take place as to the true value of hemp, so we chose direct marketing because it enables potential customers to really learn about what they are buying.”
Gray understands that MLM is an ultra-competitive universe and as such is relying on more than just unique products to set Laguna apart. “We are definitely differentiating ourselves by pioneering hemp-based products that nobody else has,” explains Gray. “But really, how we separate ourselves is through technology. We have virtual 3D technology that replaces the need to go to hotel meetings to learn how to recruit. Everything you need to build your business is on there.”
The objective of a company such as Laguna is to provide products, infrastructure, support and training for independent affiliates, he explains, whose role it is to then go out and build the business through sales and recruitment.
Gray says the combination of unique product and what might be the industry’s only 3D training and administration platform enabled the company to grow its affiliate network from zero at the beginning of March to 700 members in Canada and the US less than one month later. “We have proven that we can do this,” he says.
It is not only affiliates that Gray has been able to attract to Laguna. In early May the company announced that Ray Grimm had agreed to come on as president. Grimm has some 25 years of experience in direct sales of weight loss and nutritional products, and is credited with leading three companies in the space to north of $50 million in sales in their first five years.
“Ray is considered a legend in this industry and he told me we have not only great products, but the best technology he has ever seen,” says Gray. “I really think that if you look at digital disruption, we are one of those companies that changes the game.”
Another key member of the team is Stuart Kawasaki, president of wholly owned subsidiary Laguna Blends USA, who has been in network marketing since 1988. “One of the companies he was a consultant with early on did $1 million of sales in its first year, $15 million in the second, and by year five was over $300 million,” explains Gray.
Experience is deep on the technology side as well, with Martin Carleton and Charles Carleton – early contractors to the team that built Skype – overseeing technology for Laguna Blends. Martin also sits on Laguna’s board of directors.
The company has inventory ready to go with a retail value of about $1.65 million, so at a 40% payout on sales to its affiliates, Laguna looks set to generate good numbers as product begins to make its way out of the warehouse.
With proven management in place and product straining at the gate, Gray anticipates meaningful levels of revenue are just around the corner, following in virtual lockstep with expansion of the associate network. “It is no different than when a stockbroker goes to a new firm, his clients follow him,” says Gray. “If you are an MLM leader and you move, some of your people follow you.”
Given the company’s technology leanings, social media is also proving to be a worthwhile recruiting tool. “With Laguna having the leading technology, a lot of people found us through social media,” explains Gray. “I ask newcomers who they were referred by, because we always want to make sure that the affiliate gets credit, but in many cases they just found out through an article or a video. MLM can now even spread through networks where people e-mail their base a video or put it on social media and it goes viral.”
Not on that dangerous edge where you are re-inventing the wheel, nor on the lost-in-the-crowd track of doing the same thing as everyone else, Laguna Blends has apparently positioned itself in something of a sweet spot by introducing modern tools and unique products to an established industry. With an experienced executive team in place and sales underway, the company and its investors will soon find out just how many tech companies Laguna can leave in the rear view mirror.
CSE is proud to present its most recent quarterly update video and press release below highlighting the record first half of the year at the Canadian Securities Exchange:
Growth in Trading Volume and Financings Highlight Productive Q2
CSE Posts Record Activity in First Half of 2016
The Canadian Securities Exchange (CSE) is pleased to release an update on activity of the second quarter of 2016, resulting in a record first half of 2016 highlighted by record trading volume, changes to listing requirements, and initiatives to help CSE issuers build on recent positive momentum in financing and other aspects of corporate development.
Key Statistics
Trading volume in CSE listed securities grew 64% compared to the first half of 2015 to 2.01 billion shares;
The CSE finished the first six months of 2016 with 328 listed securities, up 12.3% compared to the same period the previous year;
CSE companies conducted 178 financings for total gross proceeds of $123 million, up 28.4% over the first half of 2015;
Trading on the CSE in securities listed on other exchanges totaled 1.82 billion shares, an increase of 19.1%.
Growth in trading volume and financing proceeds during the first half of the year reflected both the increased number of securities listed on the CSE and noticeable improvement in Canadian investor sentiment across all sectors. The 2.01 billion shares traded in CSE listed securities in the first six months of 2016 puts the exchange well ahead of its pace of 2015, when a record 2.47 billion shares traded for the full year.
The CSE is proud to highlight a busy first half supporting issuer outreach to the financial community with a variety of activities. These include CSE Days held in major cities where executives enjoy the opportunity to present to audiences of financial industry professionals, retail investors and issuer peers.
The exchange also published new issues of its CSE Quarterly magazine, the most recent leading with a profile of the CSE’s top performing companies as measured by growth in market capitalization (the CSE Quarterly magazine can be viewed at https://cseblog.wpengine.com/2016/06/01/cse-quarterly-issue-9-now-live/).
In addition, the CSE launched a new website in April. The modern format makes it easier for investors to gather information on CSE companies, and for both existing and prospective issuers to access the resources they need to make interaction with the exchange as efficient and cost-effective as possible. The CSE’s new website can be accessed at http://www.thecse.com.
Other achievements in the first half of 2016 included a comprehensive update to initial listing requirements. Proposed changes were published for comment in February and following feedback the modified rules were submitted for regulatory approval. The new requirements will become effective in Q3 upon publication of a notice from the exchange.
In the second half of 2016, the exchange will work to finish a review of continued listing requirements for listed companies. A list of proposed amendments will be published for comment in the near future.
“The CSE team is constantly working on new and dynamic ways to drive our mandate, which is supporting entrepreneurs and lowering the cost of capital for early stage companies,”
said Richard Carleton, CEO of the Canadian Securities Exchange.
“The activities we undertook in the first half of 2016 made our offering as an exchange stronger, as evidenced by growth in both trading volume and financings closed by our issuers. We will continue to support CSE listed companies with a variety of public efforts, and by working with regulatory authorities to improve the operating environment for Canadian financial markets as a whole.”
Marijuana sales reached nearly US$1 billion in 2015 for the state of Colorado, where the drug was cleared for recreational sale just over two years ago
As the social narrative and legal argument surrounding marijuana continues to evolve, an intriguing dilemma is posed for a typically conservative mainstream investment community.
Investors looking at Beleave Inc. (CSE:BE) will likely have polarised opinions depending upon their age, politics and life experience. Indeed, the issue of marijuana’s decriminalisation and commercialisation is very much loaded.
But, whatever an individual’s standpoint on the moral or ethical merits of this emerging industry, one thing is quite clear; a pragmatic look at the business case reveals a compelling argument for the growing sector.
Marijuana sales reached nearly US$1 billion in 2015 for the state of Colorado, where the drug was cleared for recreational sale just over two years ago. According to the state’s authorities some US $135 million was collected in taxes and fees related to the pot business that year.
Colorado is one of four US states to legalise marijuana for recreational use (the others are Alaska, Oregon and Washington). Twelve others, including big markets such as California and Nevada, now allow consumption for medical purposes.
In Canada, the medical marijuana business has legalised progressively over the past 15 years.
But, the major turning point came in 2014 with the introduction of the Marijuana for Medical Purposes Regulations (or MMPR) by the government’s Health Canada arm.
Newly-elected liberal Prime Minister Justin Trudeau in November announced that marijuana would be legalised for recreational use in Canada during 2017.
It represents a major opportunity, particularly for Beleave.
Although there’s a lot going on around the edges for Beleave – with the company working on various research and development projects – at the moment the story is quite a simple one.
Beleave is the next man up for regulatory approval
Around 30 companies have been given the regulatory green light for medical marijuana.
And as Beleave chief executive Roger Ferreira explains it, his company is currently in the advanced stages of the regulatory licensing process with Health Canada. Being in the final stages of the approval process, the regulatory decision is expected soon.
With the help of chief operating officer Bill Panagiotakopolous, and his construction industry ties, the company has now built at low capital costs a 14,500 square foot production facility designed to meet Health Canada’s requirements.
The facility, in Hamilton, will be capable of producing some 550,000 grams of marijuana each year and, crucially, it is designed to be scalable so that the production line can grow in lock step with the commercial side of the business.
That scalability will be key. Ferreira says initial market research to date indicates Beleave could sell out its entire capacity within a year from the start of production.
Prescribed patients on average consume between one and three grams of marijuana per day, he explains. As such just 270 to 800 registered patients would be needed to max out the group’s supply in year-one, giving the company revenue of $4.2 million with margins of 72%. As demand for the product increases the company has already laid the groundwork for expansion of up to 270,000 square feet with margins increasing to 83% and revenue growing past $100 million.
At the same time the demand for licensed marijuana in Canada is forecast to soar.
The number of registered patients has grown at a rate of 20,000 patients per year since the regulatory framework was brought in during 2014, and the introduction of a recreational use market is expected to see customer numbers swell further.
So what’s next in the medical marijuana licensing process?
To be green lit in Canada, a grower has to complete a three step permitting process.
First, the company needs Health Canada to approve the drug for cultivation (i.e. growing). This is what Beleave is currently waiting for.
Once licensed for cultivation the company will then be able to legally obtain already sourced seeds and ‘clones’ for planting and begin the process of growing cannabis plants.
Health Canada assesses and reviews the operation throughout as part of the new regulation process.
A separate license is then required for harvesting. Without a harvesting license the plants cannot be cut, dried or processed in any way. After that, a third license is required to allow the company to commercialise the product.
From an investor’s point of view this represents a critical focus for the next year. Ideally, Beleave will want a seamless transition through each of the three stages – as bottlenecks through permitting could see harvests missed and the loss of potential sales.
The grow op
Previously, Canadian patients were legally allowed to grow marijuana for their own medical purposes.
New regulations, introduced in 2014, aimed to create larger scale third-party suppliers to deliver a safer and more medically appropriate product.
“They wanted to establish an infrastructure whereby there was a commercial base, with a lot of quality assurance oversight to ensure that the product is safe for use,” Ferreira told Proactive Investors.
“With what patients were growing themselves, in their basements, it was unclear what the quality was in terms of potency, contaminations and consistency.” Furthermore, there are other inherent public safety concerns associated with such a system, including diversion of plant material to illicit markets, as well as the potential for gang-related violence.”
He added: “Our facility is pharmaceutical-grade in terms of quality assurance procedures and manufacturing practices. We’re taking extremely heavy security precautions, and putting in place extremely stringent reporting requirements in terms of inventory and surveillance.”
“All of that is being done to ensure a clean, safe and high quality product.”
“It is a state of the art facility that encompasses all of these things.”
Research & development is a key focus for Beleave
Ferreira, a Phd who has authored peer-reviewed papers on neuroimmune pharmacology, highlights that research and development and academia are a key focus for Beleave.
By concentrating on science he expects the business to produce a clinically efficacious drug, as well as creating consistently potent and safe marijuana products.
Central to its R&D effort is a collaboration partnership with researchers at Ryerson University, Ontario, and parts of this work is grant-funded.
“We are working on extraction and drug standardization of cannabinoids and other pharmaceutically relevant compounds in the plant material, with the aim of developing exciting and innovative IP surrounding cannabis-based pharmaceutical therapies” said Ferreira
“Standardisation of cannabis based medicines will allow them to be considered more than just a crude plant or extract, and more as a regulated substance that’s highly characterised and has a composition that’s suited to pharmaceutical use.”
He pointed out that while cannabis is being used to treat the symptoms of multiple-sclerosis, and as ad-hoc pain relief in cancer care, it still is not an approved drug.
It remains a narcotic where the evidence of its effects is mainly anecdotal.
“There’s emerging clinical evidence of its usefulness for certain illnesses,” said Ferreira.
“But, you cannot advertise it right as a specific treatment yet. It hasn’t really been proven out, there isn’t a lot of evidence data. And there are reasons for that.
“When you look at availability in the market, there are so many different strains with all these different names and varying qualitative aspects to them – to do with aroma, flavour, strength and effects.
“These things attract a consumer’s eye, but what the clinical community is more concerned with is to do with potency and therapeutic benefits.
“So we have been looking at how we can establish a production facility that, with good working practice, can ensure reliability, repeatability and a uniform product.
“And that is what is going to make cannabis a more standardised medicine, and help move perceptions away from the idea of it being a crude plant material.”
The CSE Quarterly – Issue 10 is Now Live
