Editors’ Note: This is the transcript version of the podcast we published last Wednesday with Howard Lee. Please note that due to time and audio constraints, transcription may not be perfect. We encourage you to listen to the podcast, embedded below, if you need any clarification. We hope you enjoy!
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Rena Sherbill: Welcome, again, to the Cannabis Investing Podcast, where we speak with C-level executives, scientists and law and sector experts to provide actionable investment insight and the context with which to understand the burgeoning cannabis industry.
I’m your host, Rena Sherbill. Hi, everybody. Welcome back. Happy Wednesday, or whenever you’re listening to this Podcast, great to have you listening. Today, we are looking at another week, where Cannabis stocks have been soaring, doing quite well, especially after getting smashed over the past year. It’s nice to see them having continuous growth, at least, if you can call a couple of weeks continuous, which I think you can at this point. Hard to find consistency right now. So let’s find it here.
So great to see that. And I want to remind anyone who doesn’t know or who forgot, follow us on Twitter. Putting up more and more content about the #modelcannabisportfolio that I’ve been talking about for the past month or so, the stocks that I have in that portfolio. And I think what we’ve been talking about on the show with guests and in these intros is how to look for a company to invest in and be that in the public markets, be that in the private markets.
We’re talking today with Howard Lee, who is CEO of SōRSE Technology, which is coming out of Seattle. It’s a company that deals in CBD emulsion and the medical and technological and innovative advances that they’re doing there. Howard gets into that in a very articulate, clear way.
Very interesting to talk to him about meeting his Chief Science Officer, who was the first person he saw that could make cannabis water soluble and how important that was in his journey to go into SōRSE and becoming a part of the cannabis industry. He is coming from a few other industries, had a lot of success there. Interesting to hear why he came to the cannabis industry.
But what we’re talking about is, if it’s a company that you want to invest in as a retail investor into the public markets, we’ve been talking about what we’re looking for there: a well-run company, good management, management that you trust. They haven’t been expanding at all costs, hell-bent on expansion to the detriment of their own profit or revenue.
So we’re seeing that all shake out. We’ve been talking about it for a few weeks at the very least about what’s going to happen. The cash crunch has been exacerbated by the COVID period. Howard gets into that a little bit. Depending on what type of recovery, what shape recovery we see in the U.S. economy, be it V-shape or shaped like a trough that takes longer to recover, what happens to the industry there? And also what happens in the markets, too?
We’ve heard also from a few guests that small private companies who have been building their cash levels, while other companies have been more focused on expansion, what happens to them when this period of growth – have been on pause? The whole world is almost on pause.
But a lot of deals – Howard gets into that also, a lot of deals, a lot of capital, not moving through the system right now, what happens after that… the consolidation that’s going to come into effect, the smaller players that have been building cash and sources, that are profitable.
Howard cautions us from knowing for sure what this quarter will bring. So many companies are cutting guidance. And Howard says, he’s not sure what Q2 will bring, but they’ve had record revenue. They’ve had continuous doubling revenue every year and they’ve been cash positive, they’ve been profitable, hard to know what’s going to happen this year.
But these companies, what happens with them… also interesting to talk to Howard about their deal with Pascal Biosciences (OTC:BIMUF), and why they made that deal, and kind of the science-forward approach that they’re taking.
So I would say the three main takeaways that we’re talking about today is, just what to be looking for in a company? And Howard talks about what it means to be cash positive in this industry we’ve been talking about it a lot, we’re seeing outside of this interview, but in general, we’re seeing iAnthus (OTCQX:ITHUF) and Harvest Health (OTCQX:HRVSF) and so many other companies run into cash problems and deals breaking down and management issues, lots of things to be wary of, and I think also interesting to pay attention to who we think the winners are going to be.
So, again, I talk about the model – our own model cannabis portfolio. I’d love to hear from listeners what they have in their portfolio, what they’re looking at.
We also get into today another takeaway is the global markets. I’ve been tweeting about Khiron (OTCQX:KHRNF) and what I see as the opportunity for them in South America. Mexico has been discussing this week that they might actually advance some legislation there to help with this COVID time that has been so detrimental to economies. Certainly, theirs as well. And what I’ve said before is, how cannabis is part of the culture there. So how it could seamlessly get into regulation, get into legislation there, so exciting to follow that. Howard also talks about that part of the world and their global approach, their development plans for the global picture.
And I would say, the last point is looking at the science and innovation that’s happening in the market. Really interesting to see already just in the past six months to a year, all the innovation that’s happening, Howard talks about CBD. And also what’s – that can be possibly, he is not making any claims, but what that possibly might mean for any treatments relating to COVID.
But certainly, how it also just affects recreational products like beverages and edibles and makes them better tasting and the efficacy is easier to see and to feel and to process. He talks about the businessman’s high, developing the businessman’s high.
So, I would say, Mad Men for the new generation, not a businessman who wants to be drinking martinis all day and have a three-hour nap on the couch. Obviously, that doesn’t limit itself to the business world. A lot of other uses can be found and experienced with this type of technology and these types of products.
So excited to bring you this interview. Excited to keep hearing from you, our listeners, who I really love hearing from and it keeps growing and making this podcast more interesting. So appreciate hearing from you. Looking forward to hearing from more of you. Excited to bring you, Howard Lee today. Happy May, everybody.
And before we begin a brief disclaimer, nothing on this podcast should be taken as investment advice of any sort. And in my model cannabis portfolio, I’m long Trulieve, Khiron, GrowGeneration, Curaleaf, Vireo Health and Isracann BioSciences. You can subscribe to us on Libsyn, Apple Podcasts, Spotify, Google Play and Stitcher.
Howard, welcome to the Cannabis Investing Podcast. Really, happy to have you on the show.
Howard Lee: Thanks Rena. Thanks for inviting me.
RS: So talk to us about your journey to the cannabis industry? I know you have kind of a really interesting, multifaceted background. Tell us what brought you to this industry?
HL: So I’m the least likely person to be in the cannabis industry. So my background for the last 20 years is starting companies, one that has a very successful exit, one that’s a successful business, but wasn’t a successful exit for the investors. But four years ago, literally, I was going to take a year off, had just finished a large round in my company that I founded and did a secondary.
So I got a little bit liquid, and I was going to take a year off. And literally, my – and literally, my next door neighbor said to me, “Hey, Howard, I need to meet with you. I got a project to work on. I got a project for you to work on.” And I said, “What’s this? And I said, Brian, I’m going to take a year off.” And Brian says, “No, no, you really need to talk to me.”
And Brian worked at that time in Microsoft. And Brian, who is literally my next door neighbor said, “You got to really meet me.” So I said, “Sure, I’ll meet you.” And we had coffee and he said, “Hey, Howard.” And he looked like a guy who was selling used cars with a trench coat. What’s going on? And he goes, “I want a POT license.” And I burst out laughing. I said, “You’re in the cannabis business? I said, “Yes” He said, “Yes, I’m in the cannabis business.” And he is a senior Microsoft executive. And I’m looking at him going, “Why are you talking to me?”
I’m literally an Eagle Scout. I hadn’t smoked a joint in 30 years since college. And I looked at him, I said, “You got to be kidding.” He says, “No, no, I really need your help. This is – this license has been floundering for the last six months to a year. I need some help. I need some management.” And I said, “Oh, God, Brian, let me think about it.” And I said to Brian that “I’ll look at it and see what I can do.” And I did get bitten by the cannabis bug. And the thing that kind of interested me was here is this incredible industry.
It felt like – and this is how old I am. In the old CPM days, where hobbyists were trying to figure out what a little computer could do, the Apple IIe days, the Kaypro days, and it was just like that.
I went to a conference that was only supposed to have like 3,000 people attend. It got overwhelmed with like 8,000 people, and it was just like this, really fascinating part. But what was really interesting was not the weed part, which, by the way, I do smoke now. But I do inhale. It wasn’t the cannabis part that the plant material that got me interested. It was – there’s a lot of medicinal purposes. There is really a lot of good stories around it.
Someone from the Salk Institute actually did a presentation about potential uses of cannabis to help with dementia. It was fascinating. And this is four years ago, but it was completely – I don’t know how to say, just an outcast. No one really – not many people were really into it, even though I described this kind of big buzz in the industry.
So it got me interested. And what really got me interested was, I didn’t think most people would want to smoke this product. I thought people would want to do it as an edible, drink it, even inhale it in a different format. And so all of this was kind of interesting.
And what was more interesting was, in less than 10 months, the retail business in Washington State went from zero dollars… So from the first store opening, from the first dollar sold to the billionth-dollar, it took less than 10 months. And I realized, hey, this is a really, really, really interesting market.
And I come from a tech background, where I founded a work from home virtualized telephony platform where I had 270 competitors, and we’re all fighting over an entire market that might be $2 billion 10 years ago, right, was really, really small. Here was a $10 billion in my backyard, around $10 billion, $1 billion in less than a year generated in Washington State. So that I just said, “Hey, what can you bring to the market?” And that’s kind of product market fit experience, bringing together investors, and that – and I kind of started the story. The other part of it is, we actually found a piece of technology that was pretty amazing, so.
RS: Did that go together where you were convinced of the industry before you were convinced the – let’s say, the exact role or the exact source technology that you’re with now?
HL: Yes. So I was convinced that there was someone who is going to make money. I wasn’t convinced that I could make money at it, or my team can make money at it until we found Scott Riefler, who is our Chief Science Officer. And Scott has an amazing background. Scott – I’ve had the chance to work with a couple of geniuses in my life, truly geniuses, people who saw the future before anyone else did. People who worked hard at their craft and were just brilliant at it, and Scott is a genius.
And just in the first meeting, this wonderful man kind of was like a magician showing us that he can make cannabis water soluble. There are so many people who say they can make cannabis water soluble. And I didn’t understand the true impact of it when I first saw it. But I first saw that this was a technology that would solve a definite product need.
One was, there was no good dosing. There was no way of dosing beverages and edibles easily. There was no way of masking the taste easily. Many cannabis drinks today tastes like oil and then bioavailability was a real problem. And everyone was saying this thing about nanotechnology. But even I, as a novice knows that nano is not – it’s not approved by the FDA, nor is it actually a safe product, in general, when you make things nano.
And so what ended up happening was, we saw this piece of technology and it’s in food technology. And the reason that I can say that, Scott is a genius is that, every airplane that you fly today uses his former product. He developed the glue that holds the aluminum planes together. He developed the glue that helps the carbon fiber industry today.
And then he switched to the food business. And as we started to work together, he had retired out of a food company that he helped create. And we started to work on this stuff and it started to really fly.
And then once we produced the first branded product – we don’t actually produce the product, we provide the technology. There’s a licensee that actually touches the plants and touches the THC. It became the number one drink in Washington State in less than 90 days.
So, there’s well-funded competitors. We weren’t very well-funded back then. And literally within 90 days, if you can believe it, a single product selling a 10 milligram drink, that was essentially an apple cider with cannabis in it, THC in it, the taste profile was nothing anyone produced and it just became the number one seller. It’s still the number one or number two seller in Washington State.
RS: And is that – do you think because of the taste, because of the efficacy of it? Is that because of how he figured out…
HL: Yes. So think about this, we’re working with the product. We’re trying to figure out if it works. I can tell you that one of the best kind of – in the early, early days, well, as we’re working this out, we put it in guacamole at lunchtime. And yes, as you can imagine, we had some good – we still have some good lunches every now and then.
We had some guacamole and dip. And one of my friends who was in charge of buying for a cannabis company called Have A Heart, came into my office and said, “Hey, can I have this guac?” I said, “Hey, well, it’s a – it has THC in it.” He goes, “Oh, let me try it.” And literally, he left after having just a few bites. And then he came back 45 minutes later, he goes – actually, within a few minutes later, he goes, “Oh my god, I’m feeling this high. And I go, “That’s great.” He goes, “Well, let me see how long it lasts.” And less than 45 minutes to an hour, he was off the high. And he said that was amazing, it’s a businessman’s high.
So the whole idea of not only taste profile, but the bioavailability of what we did. And, by the way, this isn’t nanotechnology, we’re just using normal food, commercial grade food machines today to make this product, to make the emulsion, it was pretty amazing, right? And that was early days and so we knew we were onto something at that point.
RS: So how wasn’t that nanotechnology if you’re able to take something that doesn’t last for so long?
HL: Yes. So what – how we work it is, we enrobe the THC – or, now our bigger market is CBD, with a coating that lets the body think of it as water or water soluble rather than oil. So it doesn’t go and lodge into your liver. It goes directly into your stomach, gets digested very quickly and comes back and gives you your high and releases the high. You won’t have this kind of rebound effect or this really long tail of feeling high with our product at all. And that’s the beauty of being water soluble.
Well, the other things that isn’t really mentioned in the cannabis world. And it’s a – too many people have had bad experiences with brownies or other products that are made with THC oil. And the industry still doesn’t get it yet. But there’s also stomach problems that come out if it’s just oil. Some people are very sensitive to oil, and you’ll get stomach aches, you’ll get even diarrhea, the worst case, if it’s not truly water soluble or enrobed in the way that we do it.
RS: I’m interested before we touch on the CBD angle that you guys are focused on now.
HL: Yes.
RS: I’m just interested, you said that you hadn’t smoked or taken cannabis since college and now you do, that’s something that changed with being part of the industry or the products that you’re developing now, they’re more suitable for you than, let’s say, a joint 30 years ago that you can’t control when or how long or, what [type of high] you know?
HL: Yes. So, yes – so I do smoke from time to time, but I actually have allergy-induced asthma. So I don’t really like to put stuff in my lungs. But when I use our products and there’s various different ways to do this, different products. But it just gives me a nice buzz and it comes – I come off of it very quickly, right?
So it’s not – it is a product that I use and it’s just a product I enjoy. It also has much less sugar than wine or beer and I’m sensitive to sugar. So that’s a – so it just is a nice product, right? Also, if some people who drink a lot of wine, you get a headache the next day. Or if you partake too much, you don’t have a hangover the next day with cannabis products, so.
RS: Okay cool. So the focus now on CBD, what was the decision there to get into that side of things?
HL: Well, and you know this probably better than anybody as you interview all of these people in the cannabis industry. It takes forever to get a license or to work with a manufacturer to convince them to use our products in the THC world. In most reasons why the THC world doesn’t really want to add another layer of cost or layer – production layers, because they can sell their products today. They can sell bad products today and get away with it, right?
You want to work with people who want world-class products and world-class experiences. And if – and the THC space just takes forever to get a deal done. And then now with the downturn in the equity markets – in the cannabis equity markets, you don’t even know who the winners are anymore. And the money that used to be there to actually develop a product and get it out the door with our prospects or customers has dried up substantially.
So we realized that we had to get into another market. CBD just started 18 months ago to two years ago just to be a bigger and bigger deal. And we actually power some of the more popular drinks today. One of them is MAD TASTY. And Ryan Tedder is a lead singer for OneRepublic, great business guy, created a great drink with us. And you can just see CBD taking off on the shelves now.
RS: And it – does it at all, like give you pause in terms of what’s happened to that sector in terms of kind of the FDA coming in and kind of dissuading some consumers, I think, from taking part in the sector because of, I guess, so many bad actors? Or do you think that your product speaks for itself and you’re kind of just focused on that?
HL: So if my – it’s a good thing I’m working from home, because if my – if someone was hearing me say this, I’d be throttled in a second. So I’ll phrase in the best way I can say this. Our product makes both THC and CBD much safer to use and much more easier to use. And what we’re working with and this is the kind of legal ease that I have to say it around is, we’re working in the background with people to help regulators understand the difference between what we do and what the market may or may not be doing, right?
We can actually help the regulators provide them data on dosing and how our products are near perfect dosing versus other people’s products that may or may not be dosed well. I won’t say that the entire industry is bad. I would just say that, we have a leg up on much of the science and much of the testing that we can provide to people who are regulators today.
RS: So you’re in touch with the regulators. Where do you think the – that part of the sector is going? Are you – I guess, are you able to – well, it sounds like you are able to convince them a little bit. But do you see the sector growing? Or do you think until they kind of figure out the regulations, there’s going to be those in the sector that won’t be good faith actors?
HL: Yes. So in any boom and bust market, you’re going to have a lot of bad faith people in the market, right, because they want to make a quick buck. They want to get – they want – they’re going to sell snake oil. I think the way that the reg – so, hey, here’s the – the good news for us is, we’re a technology.
You could choose to use the technology to – with CBD or THC, all of that’s legal for us to sell. It’s unfortunately not legal for businesses to sell to consumers, but it’s legal for businesses to sell to other businesses CBD today because of the Farm Act, right? It’s that last step with the FDA to allow businesses to sell CBD, so there’s no great – there’s – it’s – there’s a bright line. You can’t sell to consumers, it’s illegal according to the FDA right now, right?
But the cat’s out of the bag, and the FDA is in a horrible conundrum. They’re – they’ve approved GW Pharma’s (NASDAQ:GWPH) epilepsy drug to come to market, but it’s literally just CBD distillate. And that same CBD distillate can be consumed by a consumer today in a bottle, right, and just coming off the shelf at some natural path store.
So are you really going to shut it down when it’s helpful and nonpoisonous in its oil form essentially? Or are you going to regulate it, so that there’s drugs that are approved versus consumer products or nutraceuticals that are – that can be approved?
So that’s where the FDA is going to have to need testing data. They’re going to have to have case studies built around that. And it’s going to be a difficult regulatory problem, because it’s just an ingredient, right? Just CBD, THC. It’s proven that you can’t overdose on it almost.
RS: Right. And what do you think about this COVID time that we’re in? Do you see it as – with THC being deemed an essential item in so many places, but then kind of CBD, obviously, people are using it for anxiety and to relax like they always do. But I think it’s also suffered from some bad false PR that it cures COVID, or it helps with COVID?
HL: Oh, yes, yes. So remind me to tell you a story about why we’re working with Pascal.
RS: Okay.
HL: But before then let’s talk about COVID. So if you look at the macro issues that we have with the COVID lockdown in the United States or in the world, the question economically, is it going to be a V? So it’s going to be a big bounce back very quickly? Or is it going to be a trough? And that trough is just going to be dragged out.
So economists think that in the U.S. because of the $2 trillion stimulus or recovery package, it’ll allow the U.S. economy to bounce back very quickly in a V-shape form, right? So it’s all about acceleration now, or right now we’re completely stopped. We hit a wall – brick wall. It’s how fast we can accelerate the economy back to “”normal or a new normal.”
If it’s a trough, I would say to you, that’s – in a V-shape form, we might be back into good shape by end of year, right? If it’s a trough, it’s Oh my god, it’s going to be a six to eight-year process to get the economy going, right? And so, with COVID, whether it’s CBD or THC, those are the two scenarios. But in the difference what you asked the first – there’s a long-winded question about THC.
In the States that THC is deemed an essential product or essential service, well, the THC industry has proven, it is much like liquor. People use it to self-medicate. People use it to feel good. People use it to relax. And sales for our licensees are just booming on the THC side much more so than – I wouldn’t say much more so, but I would say, we have one licensee in Washington state that’s literally, I think, they’re having their best month ever and they’ve increased their sales of their beverage products by 33% or so month-over-month. They can’t keep it in stock, and so they had to hire a second shift.
In the CBD side, we’re seeing some of our customers like, of course, I can’t give you their names, but their e-commerce sites are – have increased their sales by 40% as well. That’s e-commerce for CBD, but it’s not like the THC industry just – that is just booming. I think the Washington State stores can’t keep products and stock just like grocery stores, it’s going out the door that fast right now.
RS: So do you worry at all about V-shaped recovery, or that there’s a lot of people unemployed? Or is there a concern over even if we get back into it as quickly as possible, there’s probably a lot of people with less money to spend? Does – is that worrying in the industry with people’s incomes being affected?
HL: It’s – in recessions, liquor seems to be pretty recession proof like cosmetics, right? So if the THC business is like the liquor business, then it might be – I wouldn’t call it recession proof, but it might be better off than other industries, right? So that’s what I’m hoping. It looks like that’s an easy bet to say because of the sales currently in the lockdown is just up is through the roof for most of the THC companies.
It’s a good time to be a retailer, good time to be a product manufacturer in the THC space. It may not be a good time to be in the CBD growth phase or the CBD – THC grower, because there’s a glut of both of those products today in the market.
RS: And then, is there a worry about like the supply chain being affected longer-term in terms of what’s happening?
HL: Yes. All of us have to worry about supply chain issues, right? We don’t want our people to travel but we have – but to help our customers produce products, we do travel to those sites to help produce products. This is the technical support help that sometimes we have to give and the QA that we have to do to make sure our products are holding up to their standards and our standards. And travel is becoming really difficult, right?
We had to issue letters to our employees to make sure that if they get stopped that people know that they work with an essential service business. So yes, it’s a worry. It’s a – there’s no doubt about it. And the longer this thing goes, the harder it is to get stuff done right? It’s harder to get supplies. It’s harder to get – deliveries are already being delayed, right? So by a few days, if not a week or two.
RS: Do you think things change permanently based on how things have been affected during this period, like more online sales, things like that, more deliveries, things like that?
HL: No. I don’t – I think, worldwide, supply chains will definitely be affected, but THC and CBD is all local. It’s all localized. We actually are – we actually, for the CBD side, we’re structured to work with large CPG companies, where we have multiple manufacturing facilities in 1,000 miles apart from each other. So we’re – we have the ability to make powder and liquid in different locations. So that if a large CPG company needed 100 kilos and suddenly someone’s state was shutdown, we could actually do it in another state right now.
So we look at – we look at – are looking at the maturity of our supply chain and for people who want to use our emulsion in a mission-critical way. We think – and it’s all localized in the U.S., right? We don’t do anything foreign yet, and that’s tied… We do work in Canada, and they do have a – we have a licensee, a large licensee in Canada. And they’re doing the same thing we’re going to be doing that we already do in the U.S., where they’re going to be in multiple locations as well. So the supply chain in THC and CBD are actually pretty robust, because they’re all localized, right? Even the growers are localized in States.
RS: So talk to me a little bit, I mean, you said that you had a story to share. But also just how – you have a recent – you acquired part of Pascal Biosciences.
HL: Yes.
RS: But also talk to us a little bit about how you decided to make that acquisition and who you decide to go into partnership with?
HL: Sure. So this is a case where luck sometimes plays into into your business dealings, right? And because Washington State was an early adopter of legalizing cannabis, and because the stigma of working with cannabis was a lot less in Washington State three or four years ago, than it is in the rest of the country, it still is hard to work in cannabis sometimes in other parts of the country.
A gentleman named, Patrick Gray. He’s a Co-Founder essentially of Pascal Biosciences. Patrick – I haven’t worked with him yet. I’ve met him. He might be – some would already consider him a genius. And again, I don’t use that word often for people, but he helped develop the hepatitis B vaccine. He has been involved in many, many large – from the startup phase to become very large biotech companies, but he helped develop the hepatitis B vaccine that saves about 2 million lives a year now, I think.
He also found the ingredient that makes Cialis and helped create that drug to market as by an accident. And what Patrick found was that CBD helps T-cell receptors find tumor cells. And they’ve been working on it for three or four years. But what they’ve been trying to do is enhance the CBD with other compounds to make it more receptive for T-cells and to find tumor cells.
And they saw an article about us. We’re local, so we could easily just walk over there, talk to them about our CBD, give them a sample of our CBD emulsion for them to test. And, lo and behold, after 400 and some-odd tests, our emulsion was the best delivery vehicle they’ve ever seen by five to 10 times better.
And the other thing that’s even more important is that in high doses, it’s potentially – this is in a Petri dish – all of this is tested in a Petri dish. In high doses, CBD actually doesn’t help T-cell receptions after a certain point in time. But with our emulsion that goes away, so we’re less poisonous to the CBD and to the load of the CBD in the environment.
And so what we decided to do and right now there’s a term sheet to acquire the company, and we’re working out the details and we are – we already invested in them. But we want them to be big partners, because we want to be able to have them work with us and also to help them evangelize our emulsion to other medical researchers.
And so that was the interesting part of the story, right? You said that CBD could potentially help the COVID virus. There is that chance that if CBD can help enhance T-cell reception, which is your body’s way of fighting tumor cells or odd – its antibodies right to help other things, it could work there. We’re not saying it does. We don’t want to be snake oil salesmen. But we do know in a Petri dish, CBD mixed with our emulsion can help T-cell receptions – T-cell receptors find tumor cells much more readily and that’s interesting.
RS: Yes, very interesting. So where are you guys along in the process?
HL: We have a 90-day window. We’re one month into that window. We’re doing our due diligence right now. And I will tell you and honestly, the COVID virus is not helping us fund the acquisition.
RS: Yes.
HL: So we may have to restructure it to make it work a little bit better for both parties to make it work. It’s just dried up a lot of the funding we were counting on. We have a piece of funding that we need to make sure it is in place before all of this can happen. So we have to do all that stuff.
RS: How real is that in terms of – I mean, the industry anyways was suffering from a capital crunch. And now, obviously, this is a huge issue in that regard. How much do you think it affects? And how long do you think it affects things? And how much do you see it going back to, I guess, the normal that we’ve known anyways?
HL: So for us – and it’s maybe, because we’re just in such an exciting field, right? Part of the other side of the story is, there’s too many good stories. There’s – we have people who come up with us and we have this friends and family emulsion product called Howard’s Hurricane that – it’s a test product name to use our CBD emulsion. Right now, it hasn’t been commercially viable, commercially available until just recently, right?
But this product, if you want to call it that, we’ve given it to cancer patients, who are desperate, who are friends and family. And we say, “Look, we don’t know if it works or not. You’re welcome to have this.” And the good stories are, I was at a wedding – a friend’s wedding, and this man came up to me and hugged me. And I didn’t know who he was. And I thought, oh, this is a friendly-wedding.
And it turns out – his name is Chris. And Chris was fighting lung cancer. And he said to me that before Howard’s Hurricane, he couldn’t sleep with chemo. And this is all anecdotal. We don’t know why it works or why it doesn’t work. But when he got Howard’s Hurricane, he was able to get rest and sleep better. And here’s a man who, unfortunately, literally eight weeks later after I met him, he has come to the lung cancer not from COVID, but he just recently died.
But can you imagine that if it could really help people sleep, help people in whatever fashion, there’s just too many good stories about CBD and THC helping people. In the case of Chris, it was just CBD. But it’s just these interesting stories mean that we as scientists and we as businesspeople need to really find out what works and what doesn’t work as quickly as possible. And that’s Pascal and that’s why we’re – we want to work with Pascal.
RS: And I think keep the eye on and I imagine as a business leader, this is especially a salient characteristic to keep the eye on that side of things, even in the face of this up – this upturned world that we’re living in right now.
HL: Yes.
RS: How much – as a business owner, how much do you rely on kind of the way that you’ve already gone about kind of revenue and you guys are profitable, I believe, is that right?
HL: Yes. We were profitable last year. This year, we may not be profitable, hey, because of Pascal and because of some things we’re investing in. But let’s put it this way, we’re cash positive. And that – it’s also because of these large deals we’ve done with Valens are incredibly helpful as well.
I didn’t truly answer the question that you gave me a minute-and-a-half ago, let me add to that. The COVID has hurt us potentially in raising “easy money.” I raised probably over hundreds of millions of dollars for different startups. And I – and I’ve been through the 2008 downturn and many other downturns before in terms of raising money.
But I would tell you that in our – I’ve always got four or five people who really want to figure out a way to invest in us. I don’t know what the valuation will be. I don’t know any of that. But even if you have these good stories and you have good technology and you have some momentum now, I think, the problem right now with any investors, it’s hard to see if any company will have momentum until we see the acceleration back to the marketplace.
For us, it’s more about what our price will be and for the investors is, can anyone today find out how fast people are going to accelerate in this market, right? Our sales are probably going to be very, very flat to down in Q2 because of the COVID virus. I think, many of our customers are just waiting to see what the demand is going to be. But having said that, the THC and CBD demand should be there and they should get orders. But it’s all up in the air right now. So…
RS: Notwithstanding the kind of part of the equation that is impossible to predict and quantify at this point, what is your vision, let’s say, post-COVID period? And obviously, you can’t say, for sure, what happens with the Pascal acquisition and things like that. But in general, what’s your vision for SōRSE going forward, like in the next year to few years?
HL: Sure. What we’re focusing on is the Intel Inside or Cortex of hundreds or thousands of products. We want to be in as many research studies as we can for medical side, for medical professionals. So we want to be that baseline piece of technology that they rely on for perfect dosing, no sensory, pharma grade, quality CBD emulsion, right?
So two years from now, I would say that we’re still growing rapidly. We’re essentially doubling in revenue every year at a minimum, and I think we’re just keep going. I think the market is so big and so large that, I think, we just want to be a small part of it, but a very critical piece of that technology that people bring to the market.
RS: And is the goal is to go global? I mean, I know that you’re in…
HL: Oh, absolutely.
RS: …in Canada?
HL: Yes. So we’ve already shipped to the EU and the UK. There’s a couple of people producing products in the EU with our product. We’re looking with Valens at Mexico and Australia together. At the same time, we’re looking at other countries in South America, who are interested in using our technology and our products. So yes, now we want to go global as well. We have two people on our team already dedicated to Global Business Development alone.
RS: What are your thoughts on Europe and South America, in particular? What are your thoughts on those markets? I mean, I know there has been some disappointment in those regions. What do you think about it?
HL: I think they’re four years or five years behind the U.S. markets, maybe even longer. But I think they’re going to accelerate faster than the U.S. – or the EU is always different. They have kind of like the Canadian model, where they’re very protective of their consumers and you have to get approvals before you can bring a product to market versus the U.S. you can bring a product to market then you get the approval kind of thing, is the way I kind of look at it.
So it’s just going to be slow and steady. But I think, our technology is so portable. Again, it’s – it doesn’t require crazy strategies to deploy. We can deploy it almost anywhere, or we can actually – we can actually ship our emulsion legally to the EU right now. That may not hold up, because they may be regulated differently again soon. But right now we can.
RS: How much – speaking of regulations, how much do you think COVID affects the legalization discussion in the States? But also South America, there was talk of going legal also in some places. How much do you think that affects things?
HL: Oh, I think, our concern in – it’s – let’s just throw the U.S. in the same thing. So it’s not just EU or South America, but it’s also the U.S.
RS: Yes, sure.
HL: Every single – everyone’s form of their FDA is focused on COVID and not on new regulations or anything else. And so I would say to you, it’s just put a damper on everything. And so everything’s now delayed six months in regulation. So something that we thought maybe the FDA would rule on is probably delayed till next year now, right? So that’s nine months away. So that’s the downside of COVID for us in terms of regulators. I don’t know if they’ll even come back to CBD and CBD regulation for quite sometime.
RS: As a business leader, how difficult is it to navigate something like this, which is unprecedented and then you’re also having to manage teams of people and products and everything else that goes along with meeting a business?
HL: Oh, this is – nothing is ever easy. But one of my former careers or jobs was managing thousands of people at The Walt Disney Company. And that’s – this is much more easier than that. My team is 55 people. I can call up anyone. I can – every company has their politics, but it’s a lot easier. It’s not – and it’s also more fun, right?
Not to say that my time at Disney was not fun, don’t get me wrong. But it’s – when you – when you’re involved in a big corporation and you have multiple layers of management and all those things, it’s very hard to get things to move for us. If we had to make a pivot, we can make a pivot within weeks rather than within nine months.
So it’s a lot easier for us. And it’s – I would say to you that because of the concern for everybody’s health, it’s – as a business leader, it’s almost impossible to say that you’re going to be perfectly healthy working with us. We just don’t know what vector people can – we don’t want people to go on a business trip and get COVID.
We don’t want people to come into our labs and unfortunately, have an infection as well. But it’s – we just don’t know until the tests come out. So it’s – the tests are easy to show and demonstrate, it’s going to be hard to keep people healthy. And I think that’s the hardest thing for a business leader right now is to make sure that the teams and the people on everyone’s family stay healthy.
RS: Right. And like concerns over masks and gloves and things that you would need for the lab. Is there a worry about shortages there or…?
HL: No we actually donated our N95 masks. There isn’t a shortage yet in our group. We actually donated our N95 masks to Seattle Children’s Hospital and some other places. And so I would say to you that we have enough masks for our own work and our own teams today. If we don’t get them – if they don’t come back to market in four or five months, maybe we’ll have some problems. But we hear that the supplier is going to ease up within the next 60 days, so.
RS: It’s interesting what you mentioned before just as a – being in this industry, you’ve had to learn how to pivot in so many different ways and jump over all these different hurdles and challenges. I’ve heard that from a number of different leaders in the industry – in this industry that obviously, the health aspect and the human aspect is devastating and the crisis is a crisis and it’s tragic. But it’s interesting that you are somewhat prepared in that regard for it?
HL: Yes, yes, absolutely. I mean, think about this, we’re in these markets that the federal government doesn’t want us to be in, but we’re still selling in those markets and we’re selling successfully in those markets. And if you don’t have the mental agility to understand that, then it’s pretty difficult to work in these environments, right? And it’s just another mountain that we have to climb is COVID, right? It’s just another obstacle either we go around, we climb, we’ll, deal with, right?
So I think the team are – most of the – most of our team is resilient and understands that it’s another thing to work through. A lot of companies, I will say to you that I really feel and there is some industry here in the cruise ship industry, right? There’s – six weeks ago, they were just running full tilt, everything was fine and they get this mountain in front of them. Many of those people never ever had to change their tack or their career in 10, 20-plus years, right. That’s going to be tough for the organization to adopt, right? So…
RS: Yes, yes. Cruise ships not as nimble as the cannabis industry, I think.
HL: No, it’s not.
RS: Yes. So, Howard, this has been a really interesting conversation. What do you want to leave listeners with – anything you want to say before we go?
HL: Go donate blood. What people don’t realize is, when we’re – I hate to use the word shelter in place that we’re staying home to avoid other people. Many, many, many people are canceling their blood donor appointments and there’s a horrible shortage of blood and – in the marketplace.
So that if someone needs an emergency surgery or God forbid someone is in a car accident or something, there’s just sometimes in some cities, there’s not enough blood right now. And so if you can encourage your listeners and yourself and whatever country you’re in, go donate blood and help the blood banks out, because that’s – it’s incredibly important. So that’s what I’ll leave you with.
RS: Well, that’s very good advice. Very kind and important advice. Yes, may we all do our part and hopefully see good news and better news soon.
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