Innovation, Infusion, and Marijuana Stocks: Sproutly CEO Keith Dolo Has A Fresh Take On The Cannabis Industry
By Brandon A. Dorfman
Jul 23, 2018
A PotNetwork Exclusive
Marijuana stocks welcomed a new member to the team earlier this month when ACMPR Licensed Producer Sproutly Canada, Inc. (SPR:CNX) commenced trading on the Canadian Securities Exchange. The company saw significant volume on day one on the exchange, with stock prices surging over $1.00 per share before settling in closer to analyst expectations. Both insiders and industry experts agreed it was an auspicious debut for Sproutly, more so considering the volatility plaguing most small-cap marijuana stocks.
Born via a reverse takeover (RTO) with Stone Ridge Exploration Corp. in February, Sproutly’s path to the cannabis stock markets has quickly become the preferred route towards capital markets in the industry today. In fact, access to capital markets, now more than ever, is most likely the driving force behind a recent slew of cannabis companies going public via RTO, according to Sproutly CEO Keith Dolo. Innovation, however, is how Sproutly hopes to separate themselves from the pack in this new crop of marijuana stocks.
Their wholly-owned subsidiary, Toronto Herbal Remedies, has a 16,600 sq. ft. state of the art production facility set up more like a pharmaceutical-grade production house rather than a typical grow house. And earlier this year, Sproutly signed a letter of intent to acquire Infusion Biosciences Canada Inc., bringing along with them in the deal their groundbreaking APP Technology, a proprietary, patent-pending recovery process for recovering both water soluble and Bio Natural Oil cannabinoids. It’s a low-cost method that looks to transform the industry and upend the market for marijuana stocks.
At the head of this Herculean effort sits Keith Dolo, CEO and Director of Sproutly Canada, Inc. A fresh face to the cannabis industry, Dolo brought nearly 15 years of executive and leadership experience with him to the company, along with a new paradigm shift to the industry as a whole. He sat down with us recently to share his thoughts on Sproutly’s move to the public markets, the company’s innovative direction, and the cannabis industry as a whole.
Let’s dive into your background a bit. With over a decade working for the staffing firm Robert Half, how did you make the jump to the cannabis industry?
I spent about 14 years working in a multitude of different roles with Robert Half, rounding it off as the Vice President responsible for the operations here in Western Canada from a sales perspective. So it’s a very different role, obviously, in the cannabis space. I was tapped on the shoulder by one of the founders here at Sproutly. I think that they looked to try to expand the company into many other ones that were out there, obviously, the capital market being a big key to, then, all of these companies going public. They wanted somebody to come on and restructure, and lead the company down that path, and have a fresh take and a fresh opinion and view on the company. It wasn’t an easy transition, certainly, when somebody asks you to get into the cannabis space, never having been in it before or knowing much about it. But it took a couple months of research on my end and discussions with the right individuals to make sure that it was the right move, but it’s been a wonderful one.
Before you came on board Sproutly was your typical cannabis company —growing and selling cannabis. But you’ve redefined the company to focus more on commercialization and meeting the demands of the consumer. Talk about what you brought to the company when you came on board.
We really took the first few months to look at where the company was and where it was going. It was at that time that we realized a lot of these large-scale producers were going to start hitting the market with these million square foot facilities, putting out a massive amount of quantity of product but only basic products, the flower or trim. Not a lot of them are working kind of down the value chain of innovative product and how to get these products into the hands of consumers. We were fortunate enough that we were introduced to Infusion Biosciences. And after about eight months of due diligence, we started to really understand their technology and how it would not only play into the Sproutly group of companies we were trying to build but also kind of separate us from the industry. We’re just in the final stretches of closing that transaction up which will hopefully position our company away from being a traditional cannabis company and more into the value of our lower down the value chain, at that point, stuff.
Your wholly owned subsidiary, Toronto Herbal Remedies, has a 16,600 sq. ft. state of the art production facility that was recently granted an ACMPR License to cultivate. But from all reports, it’s set up more like a pharmaceutical grade production house than a typical grow-warehouse. What makes THR so different than anything else in the industry today?
I think there are some other kinds of small-batch production facilities, but I think when you look at the large majority of the ones that are being built, they’re very high-scale, greenhouse-type setups where, when you have that large a size of facility, it’s tough to control some of the CO2, the humidity, the temperatures, and so on. So, the controls are allowable to be significantly higher when you have a small batch facility that you put a lot more care and attention to versus just reconfiguring or revamping an old existing warehouse that’s out there. Things from airlocks to closed loop air systems, sterilization of all the air with UV filters that go through it, will allow us to control all of the infestations or mold that would typically occur or happen at a facility of a larger-scale size. That’s what allows for controlled amounts of pesticide use. So, having a small-batch, high-quality facility will allow us to upgrade and upkeep the technology but, as well, to control the level of quantity and quality of product that gets put out through it versus doing large-scale batch facilities.
Your other big focus is Infusion Biosciences Canada, where you’ve developed a proprietary process called APP Technology. Tell us about that and what that means for the company and the industry at-large.
Infusion Biosciences has spent the last 12 years studying water-soluble research led by Dr. [Arup] Sen who has a PhD in Biochemistry from Princeton. The acquisition pivots us with their APP technology away from our standard business model and away from being a traditional Licensed Producer to really focus on the production of an ingredient or a product that stands, really, in a class of its own in the market as being the world’s first only truly water-soluble cannabis solution. It allows Sproutly to be, essentially, a leader within the consumable beverage industry as we start to look at putting products and ingredients back out to market.
The big news recently is your public debut on the CSE. Can you tell us what that means for the company both in terms of the work you put in to arrive at this moment as well as for your future growth?
It’s been good. A considerable amount of work for those that have taken a company public. And only when you take a company public, I think, you can truly appreciate the amount of work it requires. The volume has been ecstatic or, you know, fantastic and it’s far beyond what we actually expected it to be in the first few days trading here, I think we had just over 3 million shares traded in the first day. It’s nice to see the stock kind of settled out to where it is right now and, obviously, there’s a couple additional announcements such as the close of Infusion Biosciences. We think there’s a lot of investors still waiting until that gets put together. You’ll see that kind of down the road in the next couple of weeks here. The [first] week couldn’t have gone better than planned. We’ve kind of settled out at the market cap that we expected that we would, and we’re just moving forward to kind of grow the company and prove out to the market what our strategy and what our strengths are going to be.
Sproutly joins a growing group of cannabis companies going public over the past few months, especially via a reverse takeover (RTO). Is there something about this moment in the industry that has set you and so many in the industry on this path?
Investor demand has been really strong for the past 18 months, maybe even a little bit longer, about two years. With such a capital-intensive business for Licensed Producers that are setting up operations, being able to access the capital markets really gives you an ability to access this capital to fund your operation and expansion before really truly realizing the revenue that a traditional industry would use to fund the advancement of their operations and expansion. So, accessing the capital markets and the money that’s existed within it, that’s just been a major driving force for pretty much why everybody, I would say at this point, or the majority of companies have looked towards going public. If it weren’t for that, the majority, I would believe, would just stay private at this point.
You were recently quoted as saying that Sproutly would stay away from the U.S. cannabis market. Your exact quote was, "we're going to stay from the U.S. guidelines for right now and focus on the regulated jurisdictions - Canada, Australia, the EU." Is the U.S. that toxic of an environment right now for the industry that it’s just not worth it?
I think there’s a lot of very viable companies that operate extremely successful south of [U.S.-Canadian] border, expanding throughout different states. As we look at the size company that Sproutly is and what we need to achieve over the next 18 to 24 months as an early stage company —accessing capital, and at that lowest cost of capital, is pretty much one of the main drivers for where our business needs to generate its actions right now. Looking at not having a play into the U.S. market at the current point allows us to access different levels of investors without having any U.S. ties at all as well as being able to look at different institutional investors. It’s looking at where we can access capital and the lowest cost of capital for our shareholders, and that’s just keeping all of our fingers out of the U.S. at this point. We certainly will get to that point of looking at U.S. operations as soon as the federal guidelines relax and ease up, and as soon as that happens, I think you’ll see a lot of the Canadian companies that have shied away from the U.S. start to focus on it. It’s a big market.
With cannabis legalization impending up in Canada, rumors are spreading about some big-name beverage companies making a play into the space —Molson/Coors and Constellation seem to be peeking around the corner. Do you see them entering the cannabis space as competition, or as an opportunity, perhaps for some future dealmaking of your own?
Definitely an opportunity. I think whenever you see large, established brands enter into an industry, certainly an industry that’s been clouded with the gray market for so many years in the cannabis space, it brings a lot of credibility, and with that, it brings a lot of investor confidence. At the size of company we are right now, I think it would be a little short sighted to think that a company like Molson/Coors or Constellation would be our competition. But for what we produce and our revenue model that we’re going to be looking at in terms of cooperating and agreeing to go back to market with companies like Molson/Coors or Constellation, that’s kind of right in our wheelhouse of who our joint venture partnerships are looking to start to pan out with. That’s definitely more of an opportunity. It’s companies like that that we want to see continue to get into the market. It provides credibility for companies like ourselves.
Now that Bill C-45 is done and has passed tell us, what did the government do right, and what, in your opinion do you think will need to be fixed down the road?
I think they did a lot of things right. I think, overall, it will be extremely useful in keeping cannabis out of the hands of kids and minors and really keeping the profits away from organized crime. One of the other larger things that we’ll need to work on continuously is probably going to be public education and getting cannabis facts straight out to the consumers so that we can obviously ensure that we protect the public and the community. There’s a lot of aspects, not just one, in the bill that addresses both of those things. Two other big things that need to continue to be looked at down the road are additional guidance on how the rules and the regulations are going to be handled and how it’s going to provide potential consequences for those that don’t follow them, both from a Licensed Producer standpoint like ourselves all the way down to the end consumer. For ourselves, we’re looking for additional guidance on how the consumable beverages and the edible market will be handled in 2019. Those principles within the bill were not addressed, and consumables such as beverages and edibles will not be legalized on October 17th. So, we’re waiting on additional guidance to be provided on those, and that will drive our company in the direction that we’re going to look to go forward from.
Finally, tell us something we don’t know —something about your part of the cannabis space that you think people should be talking about that they’re not right now.
Sproutly is going to be the first to market with the world’s only truly water-soluble cannabis solution. For those that have heard that story, it’s really resonating and causing a lot of conversations on our end, and a lot of interest within and about the APP technology that Infusion Biosciences has done and created. That technology is truly a ground-breaking discovery after 12 years of research by [Dr. Arup Sen], a PhD in Biochemistry from Princeton. That’s going to shape how larger companies out there looking to infuse their current products or looking to develop into both beverages and edibles work with their existing products without having to worry about getting a cannabis oil into them. That is what is going to be the driver behind our company. We’re the first to market with the world’s only truly water-soluble cannabis solution. That’s the big, kind of, underlying factor of the whole situation here, and the whole discussion.