#015 - Decoding the Science and Strategy of Hemp Derived Cannabinoids w/ Dave Neundorfer

Speaker 1: 0:01

Hey everybody, welcome to High Spirits. I'm Ben Larson and, as always, I'm joined today by my smarter half, anna Rae Grabsen. Today we're diving into minor cannabinoids hemp derived cannabinoids, the hemp industry, the One Hemp Coalition, hemp, hemp, hemp hemp. It's big on everyone's minds right now. I know last week or week before, we were talking about the impending war between hemp and cannabis. It's getting pretty dramatic, even if it's just clickbait. But we're going to get into all that. But first I'm going to check in with my good friend Anna Rae How's your week going?

Speaker 2: 0:41

My week has been good. I started off I went to a new chiropractor that I'd never been to and they did this crazy adjustment at the base of my head. And as soon as that adjustment was unlocked, I got all these creative juices flowing and started having all of these new business ideas and seeing new perspectives. I made another appointment. I'm going back this afternoon. I'll let you know what happens.

Speaker 1: 1:07

Wow, was there some psychedelics involved in this chiropractor work?

Speaker 2: 1:11

Not at all, although one thing that was cool is that they did have some cannabinoid creams that they used with some of their electric pulsation therapy, which was neat I hadn't seen that at a chiropractor's office before, but yeah, so on a personal note, I've been having a lot of creative inspirations ever since that session and, in terms of work, I'd say that this has been one of those roller coaster weeks in cannabis. It feels like we have these high highs and then we have these crashing lows, and I'm just constantly reminded of the resiliency of all of us for working in this space, and it feels very present right now.

Speaker 1: 1:52

Yeah, yeah, how about you? Absolutely yeah, I'm good, I'm good. Things are a little bit different today. I don't know how much of that's going to come through to the audience, but I'm sitting in Charlotte, North Carolina. I was just in New York yesterday. It's been a little bit of a whirlwind of a week. Really cool conference yesterday actually was at the Jeffries office on Madison Ave and man Boris Jordan was there, Ethan Natelman, Charlie Bechtal it was kind of a cool little gathering. There was a bunch of family offices there. So I kind of got to connect with a lot of people that I hadn't seen in a while and get a good sense of how people are feeling about the market. And it was funny being in New York talk about an embattled market. There was definitely a New York bent to it and just how people were approaching New York and it definitely sounded like even the Crescos and Cure Leafs of the world were taking a little bit of a different approach with New York State versus everywhere else.

Speaker 2: 2:59

Yeah, poshess is what it seems like is the name of the game in New York at this point.

Speaker 1: 3:06

Yeah, but yeah, I don't know. So, like I said, I'm sitting in North Carolina. Now I'm actually sitting in a car, so apologies if I break up at all, but, being in North Carolina, coincidentally, I'm not sitting next to him, unfortunately. But I know Open Book Extracts is based in North Carolina and today on the show we have Dave Noondorfer, who is the CEO of Open Book Extracts and just really excited for this conversation. Dave and I have known each other probably about for, oh man, it's been four or five years now just building our companies in parallel. We source a lot of ingredients from Open Book and probably share a bunch of customers. And yeah, it's funny I reflect back when I first met Dave and we were very much in regulated cannabis and he was very much in hemp, and how those worlds have gotten closer together over the last three or four years has been really interesting. And so before this call I was even asking him how is business in North Carolina? Is it business friendly? Because things have become a lot less California-centric for us.

Speaker 3: 4:24

Well, ben, I wish we were sitting next to one another and I look forward to the next time that we're doing it and time flies when you're having fun I think it has been four years and boy. I think that's a huge understatement on how our worlds have merged, maybe collided, but look forward to talking more about it.

Speaker 2: 4:44

Yeah, and I'll queue up a little bit of the bio background that we've got on Dave. So, dave, you're the CEO of Open Book, and Open Book Extracts is an ingredient manufacturer and product development house focused on cannabinoid-enabled health and wellness. Based out of North Carolina, and prior to Open Book Extracts, you co-founded Greenleaf, a leading Ohio medical marijuana company that won and now operates, the MacLumps number of licenses allowed in the state and along with a lot of other stuff that you did before this, including being a graduate of the Stanford Business School working in the semiconductor and automotive space. So you've got a long history in business and entrepreneurship and chose to dive into cannabis, first in Ohio and now with Open Book. So this is really exciting to get to have this conversation with you and learn about some of the really unique things that you and your business are doing. Why don't you tell us a little bit more about Open Book Extracts and what the company does, who it serves, how big you are, things like that?

Speaker 3: 5:56

Great Well, thank you for having me in, ray. It's great to see you as well. Open Book Extracts has been in business for just shy of five years and, as Ben mentioned earlier, we're based in North Carolina, whereas Ben is in Charlotte. We are just north of Raleigh, durham, also known as the Research Triangle Park. We have a 76,000 square foot manufacturing facility. It is NSF CGMP certified. It's ISO 9001 certified. Those are our big two. We have about eight others, including organic and kosher and halal and down the line, and we started this company because we were really excited about the therapeutic unlocks of the lesson pairing side of the cannabinoid spectrum.

Speaker 3: 6:47

And when we were building and getting ready to sell our Ohio Medical Marijuana Company, we suspected that the 2018 Farm Bill was going to de-schedule and legalize hemp and hemp-derived CBD, and we started evaluating the market in 2018. And we were dismayed at what we found. We didn't find the reliability, the consistency, the traceability, and then, most alarmingly, we didn't find the transparency that we felt this industry needed in its nascent state, in its emerging state, especially if the large brands, the CPGs and big retailers were going to enter and embrace it. And so that's why we started OpenBook Extracts. We double-clicked on the lack of transparency, named our company OpenBook, and we set out to raise the bar. Self-regulating because we still don't have clear regulations from the FDA and what's required, but self-regulating to a standard that we feel is important for any product that you put into or onto your body. We serve about 100 recurring brands, we're all B2B, we have about 100 employees and boy, it's been an exciting and crazy ride for the last 4.5, 5 years.

Speaker 2: 8:10

Amazing. Thanks for sharing that. So, when you say that you predicted that the Farm Bill was going to open up opportunities in hemp before it happened in 2018, how did you know? What were the clues?

Speaker 3: 8:27

We didn't have a crystal ball, but there was draft language of the 2018 Farm Bill by the summer of 2018. And so we knew that there was going to be bipartisan support, and we knew that McConnell was a huge advocate. We knew that there was a huge agricultural contingent that was supporting opening up hemp. I think there was a lot of talk about hemp being America's new cash crop at that time and we just felt the momentum on the hill. We had a great advocate in McConnell and it looked like it was going to go, and then, once we started seeing the draft language, we said you know, this is going to be an interesting next chapter.

Speaker 3: 9:07

We think that, as part of this next chapter, this hemp and CBD lens might be where the broader mainstream consumer embraces cannabis, and we were also really excited about the unknowns beyond THC and beyond CBD. Even and one of the hallmarks of our company was that we embraced the minor cannabinoids pretty early on 2019 and 2020. And that became a calling card for our business. We do three things we make bulk ingredients at pharmaceutical grade purity and consistency. We do formulation R&D on behalf of brands that don't have their own formulation teams, and then we do finished goods manufacturing all under roof. And by doing those three things, you know, our theory and our thesis and I think this has proven out is that we'll be able to deliver better products, more innovative products, with more reliable quality and timelines.

Speaker 2: 10:09

Yeah, I definitely want to dive into the minor cannabinoids a little bit more, but before I do I want to ask a little bit of questions about how you have seen your customer shift and change since you guys got into business. So when hemp started entering the more mainstream marketplace, we were seeing some pretty wild things like CBD, hummus and chocolate syrup and like some wild things that have largely disappeared With. Now I'm seeing a lot more products that are more formulated and focused on certain benefits and wellness angles. I'm curious if you saw that in your own customer base in terms of who was purchasing the ingredients or the type of formulation projects that you were doing, and how they've shifted. Are you focused on more on formulating for more wellness style products or more food products Like what does it look like?

Speaker 3: 11:06

It's a great question, and we certainly saw the fatified nature of CBD, especially on the heels of the 2018 Farm Bill. You mentioned a couple of the crazy formats. We've seen cannabinoid-infused pillows and you know CBD corn flakes and all of the ridiculous things that you see really at the start of a new market with a lot of pent-up interest, and that's settled down quite a bit. We've always adhered to a vision of these products being more health and wellness focused and therefore embraced more health and wellness formats, and so gummies, soft gels, tinctures, shots, beverages, pressed tablets things that you would find in the dietary supplement aisle or the health and wellness aisle of Whole Foods.

Speaker 2: 12:03

Cool Ben, you want to jump in here?

Speaker 1: 12:08

Yeah, I'm curious. You were talking about the FDA earlier and the whole industry, be it cannabis or hemp, has a lot of like. There's a lot of mystique around the FDA and what their level of interest is in getting involved in the conversation. I know you guys you had mentioned you know just understanding that that was a necessary kind of relationship for us to build and I want to see from your perspective, like how has that conversation changed over the years and are they becoming more engaged? Because it kind of feels like for a lot of us it's just like it's this impenetrable fortress but has like so much, has such an influence over what the future of hemp may look like.

Speaker 3: 12:54

Yeah, you know I was not ever involved in an emerging market prior to starting Greenleaf in Ohio and then Open Book Extracts. And when we started Open Book Extracts, never would we have ever in our wildest dreams believed that five years after the 2018 Farm Bill, we still would not have clarity on the regulatory front, and so that has been something that you know. Every year, we're kind of more and more blown away that we don't have the guidance that we feel is necessary to ensure consumer safety and ensure a level playing field, with clear guidelines that you know the different compliance departments across brands, as well as retailers, really need to be able to enter into and invest in this market, and so the market has been artificially capped as a result of not having that clarity for the last five years and for most of that time period.

Speaker 2: 13:57

Ben, as you know, like we've had radio silence.

Speaker 3: 14:00

You know, every once in a while, there were warning letters sent out for brands who were making irresponsible or unfounded health claims, but those were episodic. And what we've seen this year and this is why we're really optimistic about finally getting the regulatory clarity that we've been waiting for is we've seen some action right. We saw a collaborative process outlined by the FDA in January of this year. We've seen a bipartisan and bicameral request for information and RFI that Congress issued in July. We saw an overwhelming response to that RFI from the industry and now we're hoping that we have a potential pathway for draft legislation and CBD policy reform, which could be a reality in this Congress. And that's what we're really pushing hard for, because the industry needs it, the consumers need it and it's long overdue, right yeah.

Speaker 2: 15:06

What you're talking about? Is the industry pushing for regulation to give more guidelines to existing hemp businesses of how everyone should operate and create consumer safety? Is there a unified voice in the hemp industry in wanting those regulations or are you unique in desiring that because of the effort that you guys have put in for CGMP and other levels of high levels of self-regulation that you've instituted?

Speaker 3: 15:40

It's a great question With cannabis being such a mosaic of different constituents, there's no single unified voice in cannabis. Within each quadrant of cannabis, it's hard to find a unified voice. That's why we started a coalition called One Hemp to try to bring a unified voice of leading responsible operators in the space, some of our closest colleagues, many of whom we've been doing business with for years. We started One Hemp Go to OneHemporg if you want more information to try to show Congress and the FDA that there is alignment and we're not the only group that came and aligned under some recommendations and responses to the RFIs there are multiple, but we feel that we have a very good framework for thinking about the legislation that should be considered as part of this Congress. The group it's interesting. What emerging industry have you seen? A group or a coalition that's comprised of many different operators, but many of these operators are competitors.

Speaker 3: 17:01

You have competitors who are pleading to Congress to say, hey, regulate us with stringent regulations so we can at least have the clarity that we finally need for this market to grow. It addresses the exigencies of our market today, where there are a lot of unintended consequences from some of the unknowns in the 2018 Farm Bill that have created a lot of question marks and a lot of reverberations across the industry, not only on the low THC CBD side, but on the high THC regulated, state-run medical and recreational programs side.

Speaker 1: 17:42

Let's dig into that a little bit, because it has gotten phenomenally complicated. The more that we try to build unifying voices, it's getting more and more challenging. Hemp cannabis even in some conversations trying to unify those two, which sounds insane. But we both happen to be on a hemp beverage alliance call, which they're kind of an interesting group because they're shooting the middle between CBD supplements versus the unbridled side of hemp. They're right in the middle. They're like oh, low doses of THC. I think it would be helpful, if you don't mind, if just what is one hemp generally standing for and what end of the spectrum is it? What is it not? Because I think some people are very sensitive that if you're not fighting to protect what they're doing, they think you're against them. It almost gets kind of geopolitical in that sense where it's like no, no, that's not what I'm saying. We're just trying to move the conversation forward in an arena we know is palatable to the FDA.

Speaker 3: 18:59

Yeah, what we want and it's a great question, and what we want is to find a compromise that will allow for a nationwide bar to be set to be able to provide a clarity to large CPGs, as well as to retailers, to enter the space. Once we set that bar, then we'll see new money invested into the space. That new money will drive research and that research will drive better products and better outcomes and better safety for the whole industry. What we have right now is a tug of war between different groups who want to grab for more today, grab for a higher THC ceiling, or groups that want to drive it down to zero, who are concerned about there being any THC and products that you can buy at a gas station or at a CVS or at a Costco.

Speaker 3: 20:01

What we've tried to do is leverage the best science that's out there to create thresholds or adoption of a safe harbor. Under these thresholds, the market can exist, we can have clarity on it across 50 states, and then anything above those thresholds we leave to the states. We've already seen that there are different states who are taking their own approach to policy. You mentioned or at least it was mentioned on that call, then Minnesota is already at five milligrams of D9 and D8. What we want to do is set a bar below which no state can be more restrictive, back by science, above which states can be more permissive, and the legislation that we would push for would not preempt state rights. There were folks on that call that said no, we want five milligrams, we want 10 milligrams, we want 15 milligrams.

Speaker 3: 21:03

We think pushing for that is only going to kick the can down the road for another two or five or 10 years, because there are a lot of constituencies in this cocktail cannabis cocktail including the MSOs, who would push really hard on THC levels that go above one or 1.5 milligrams. One hand blended at 1.5 milligrams. We think it's backed by science. We think it's going to be politically digestible from a risk of impairment standpoint, especially with when combined with natural levels based on the ratio of what's in the plan of CBD. We think it's going to be a level that we can get the congressional leaders and FDA behind. That is our stance. Is it where we want to end up 10 years from now? No, but at least it will set the playing field, allowing our industry to grow, bring investment capital, bring more capital for research and continuing to improve the experience and the safety for the end consumer, which is what we're all here to do.

Speaker 2: 22:14

What you're talking about is deep in the policy weeds For folks listening. I think that Dave's really bringing up some key points about the ways that there are divides in this massive cannabinoid space. Just yesterday, nancy Mace reintroduced the States Reform Act, which is a campus specific Love Nancy.

Speaker 1: 22:37

Yeah, go Nancy. Thank you, she's great. Dr Harold has a massive crush on Nancy.

Speaker 2: 22:48

And so on the one hand, that's an effort to work on legalizing existing state cannabis programs. But then, dave, what you're talking about is one hemp, talking about congressional legislation to create hemp regulations. That sounds like what you're proposing is almost standalone legislation, separate from the Farm Bill, and I just wonder, as someone that's clearly deep in the policy weeds thinking about this stuff, excuse the pun do you think that congressional leadership has the capacity to even sort through the difference and understand kind of the broader cannabinoid space that we're all playing in, to be able to differentiate between what Nancy Mace is talking about with the States Reform Act versus talking about a one and a half THC milligram or one and a half milligram THC proposal for safety in the hemp space?

Speaker 3: 23:53

I do think congressional leaders have the capacity and attitude to understand it and it is there are. I think, as an industry, we make things more complicated than they need to be, and there are obviously multiple factions at the table and there are multiple legislative pushes. Right now there's the Safe Banking Act. There's the potential descheduling of cannabis, which President Biden kind of pushed for last year, and the HHS announced some tensions to the skeptical cannabis from one to three and is waiting for DEA input in response to that, and then there's the 2023 Farm Bill and, as everybody knows, the Farm Bill gets weighed in on and evaluated in the past every five years. So this is the five year anniversary of the 2018 Farm Bill.

Speaker 3: 24:51

Whether or not the legislation that we're pushing for lands in the 2023 Farm Bill as the vehicle we'll see it could be standalone.

Speaker 3: 25:01

It could be part of another appropriations bill, but we think that now is the time to do it. We've been educating, we've been pressing, we've been having great meetings with congressional leaders and their staffers and the tone has changed and we do believe that these leaders now understand most of the complexity really driven around safety, efficacy and science backed solutions that address the concerns that the FDA has flagged, and that is why we put together one hand to really try to amplify and reinforce that message that now is the time to do it. There are over 40 million users of hemp derived CBD products in the United States. It's a big number. The rise of hemp derived and pairing products has been growing exponentially over the last couple of years, and if we don't do it now, I think it's only going to grow in complexity, and we sense that there is the appetite and the aptitude to understand it and drive solutions forward this year, and so that's our goal.

Speaker 1: 26:19

Well, yeah, I'm optimistic that will drive some stuff forward this year. I mean, luckily the rescheduling is not a congressional act, but who knows? I mean I think we all saw, like Mike Johnson got the nod yesterday for the House Speaker role and I don't know my predictions for what we're getting this year are going to turn into my predictions that we might get for 2024. So I'll just leave my cynicism there. I'm really sorry, guys. I'm going to have to jump. I'm going to leave you guys to the conversation.

Speaker 2: 26:54

All good, I've got so much more to ask you.

Speaker 1: 26:56

Yeah, dave, I need to give you a call. I have a lot of questions about North Carolina. I'm kind of going to walk around a building really quick. But yeah, love you guys, I'll catch up with you both soon, enjoy.

Speaker 2: 27:14

Thanks, man, so Dave so we were just talking about all this policy stuff, and we all know, as CEO, a big part of your role is about setting strategy and vision and working on the business, not just in the business, thinking about the future, where it's going and, with this moving target of policy, how does that affect the way that you think about your business? And so many businesses right now are in like their 2024 planning phases. What are you planning for 2024, bringing it back home to OBX and starting to think about the business?

Speaker 3: 27:46

Well, it's a great question. I am a businessman, not a politician, and so this is certainly more within my comfort zone On the business side. What we've been building and, first of all, as I mentioned earlier, waiting to get four and a half years to get something done, to get the regulatory clarity for more investment and more brand adoption and retail adoption in our space, is insane. And what we've done over this period of time is try to create a platform that is easily extensible into whatever regulatory outcome we find, and we've done that. Our true north in that process has been quality, reliability, manufacturing standards, iso, cgmp those are all table stakes.

Speaker 3: 28:43

But we've also invested significantly in research and innovation, and we think that this is a market that's going to continue to appreciate research and innovation more as time goes on, as we get more clarity, as we want to unlock more ways for these cannabinoids and combinations thereof to deliver great experiences and therapeutic outcomes and mood states to the end consumer, whether that's in a recreational capacity or a pharmaceutical capacity or a medical capacity. And so we have been thinking about creating a platform that does have built-in regulatory hedges. We do stability studies and safety studies for all of our minor cannabinoids. We do significant amounts of efficacy studies focusing on benefits that range from pain to sleep, to focus, to women's health, to relaxation, and we use those data to drive insights on new formulations and new product development. But we eventually think those data will be helpful to have for when a future market might require safety studies for these products, and so that's how we've been doing.

Speaker 2: 30:12

Let's slow down for a minute and dive into these minor cannabinoids and then talk a little bit more about the studies. For the listeners who don't know what a minor cannabinoid is, can you give us an idea of what you mean by minor and then maybe give us some examples of some minors that you're excited about and really leaning into?

Speaker 3: 30:32

Great. Yes, so the major cannabinoids the major cannabinoid and cannabis is, of course, chc, delta 9. The major cannabinoid in hemp is CBD. And then we refer to the minor cannabinoids as cannabinoids that are naturally present but in smaller concentrations than the majors, and so it's a bit of an alphabet soup. But the minor cannabinoids, the fab five that we talk about quite a bit with an OBX, are CBC, cbg, cbn, thcb and CBDV, and we have been studying and formulating with and working with those minor cannabinoids, producing them, testing them, since 2019.

Speaker 3: 31:28

And they all have different ways of adding value to the end product and to the end consumer. So CBG has been leveraged in formulations for workout, recovery and relaxation. Cbn helps with sleep. Thcv has been used for energy formulations. Cbdv has been used for formulations focused on delivering just that focus. And then CBC we've seen it as what we call a potentiator for all of the benefits of the other cannabinoids, almost like an enhancer or an amplifier of the effects of the other cannabinoids. So all of them still require a lot. I think we're still scraping the surface of what we can do with the minor cannabinoids, but those are the typical formulation types that they're being incorporated into, be it a gummy or a tincture or a soft gel or otherwise, or beverage.

Speaker 2: 32:33

What OBX is doing is isolating pure forms of these minor cannabinoids and using them as ingredients and so, within the context of innovation, it sounds like you really are thinking about this much the way traditional CPG is thinking about just consistent innovation processes, of thinking about the next thing and how to use it. Are you developing IP around this?

Speaker 3: 33:01

We are In. Some of the intellectual property we start a patent and others we treat as a trade secret. But yes, we are building intellectual property around the minor cannabinoids and that's been part of our strategy since day one.

Speaker 2: 33:21

Do you think long-term there'll be an opportunity in the cannabinoid space to commercialize that IP and trade it and enforce against it things like that?

Speaker 3: 33:31

I do think so. I think IP will continue to be valued more as the market matures. I don't think IP is valued as much as it should be on either side of the fence the hemp-derived CBD or the THC sides of the fence. We expect that to grow, since we invest so much in research and IP development. It's something that we hope will have intrinsic value in the future, be it in the form of differentiated products or future innovations or future formats. Building IP portfolio and protecting that portfolio is a key strategy of ours.

Speaker 2: 34:14

I agree that it isn't something that's come to fruition yet, but it is part of a really holistic, long-term plan that makes sense. You talked about self-regulation. I've talked about that with my own career journey. When I helped start the first cannabis lab, we were trying to sell self-regulation because there was no regulation for cannabis companies that was required. I learned what it means to be too early to market and something like that. I've had a philosophy ever since that self-regulation is great until things get tough and then people throw it out the door. You've really made it a key differentiator for what OBX does. As I've been exploring a lot of the international markets that are interested in cannabinoids, one of the major differences between the way Europe is starting to mature versus what happened in the US is that they are taking an approach of having these different manufacturing certifications like CGMP and ISO from the get-go. Are you able to then export and serve more of a global customer base because of your choice to partake in that type of self-regulation?

Speaker 3: 35:31

That's a great question and it's actually. We conducted our EU GNP gap assessment last year. Today we're closer to EU GNP than we are to CFR parts 111 and 117. That's food processing and dietary supplements. We're making the march to EU GNP compliance. We'll be there by the end of this year, by the end of 2023. We'll be EU GNP certified by the middle of 2024, which will help us unlock and be able to export into European as well as some Latin American markets.

Speaker 2: 36:08

What's the difference between EU GNP and the CGMP that you have in place right now?

Speaker 3: 36:13

In layman's terms, what we have in place right now is what the FDA requires for dietary supplements. Eu GNP will be pharma grade.

Speaker 2: 36:27

If you're down to dive into the business a little bit more. You called yourself a businessman. A few minutes ago we talked about growing the company. I'm curious about how you grew the company from an investment perspective and if you had important partners along the way and how you approached that and how you've continued to look at growth through equity capital and if you're raising in the future things like that.

Speaker 3: 36:55

Absolutely. We set out to build the standard, the state of the art, on the hemp derived CBD side. We have had an amazing group of investors and supporters who, like us, have a long-term view of this market in mind. We don't have a single investor or team member who got into this market thinking it was going to be an easy, quick flip. Luckily, there's alignment in the vision of let's build something that's sustainable, that will last, that's meaningful, that will make a mark on this industry.

Speaker 3: 37:35

We've had multiple rounds of equity capital. In the early days it was mostly high net worth individuals and family offices. Then we brought on our first institutional investor, key investment partners, who have been a fantastic sharp guys who are well connected and super supportive in the space. I can't say enough great things about key. Then, as part of our series C, our third round of venture capital, we had our first strategic investor. That strategic investor was British American tobacco BAT through their venture arm which is called Better Tomorrow Ventures, Be Tomorrow Ventures. They have also been amazingly supportive and urging us to delve deeper and go faster on some of our safety and efficacy research initiatives. They have a great team that they didn't try to change what we were doing.

Speaker 3: 38:38

They acknowledged our position as a platform that can zig or zag depending on what regulations unfold. They've been great to have on board. That's been our staircase of capital raising over the last four and a half years.

Speaker 2: 38:57

Are you done? Will you need to keep bringing in outside capital? How's the company doing?

Speaker 3: 39:02

We'll see, we hope to be done with needing to raise venture capital, but certainly, depending on what happens on the regulatory front and on the legislative front, we will. We could raise an opportunistic round of capital if we see a massive opportunity to go out and either pursue a roll-up strategy or an acquisition strategy, or open up an entirely new market or open up more capacity for a large partner that comes in and exhausts our current capacity.

Speaker 2: 39:41

Has there been any M&A to date for the company? Have you rolled up any other companies we have?

Speaker 3: 39:50

Yeah, we rolled up two companies so far in the last four and a half years. I wouldn't call it a roll-up, but we've acquired two companies so far and are always paying attention to what's happening out there. I think because the overall market is in a relative valley right now, with compressed valuations and stock prices. We do think that this would be a great time to pursue an acquisition or roll-up strategy, but it's hard to do that and have conviction around it until we have a little bit more clarity on which way the wind is going to blow on the regulatory front.

Speaker 2: 40:29

That makes sense. Talk to me a little bit about the OBX supply chain and where you're getting the hemp inputs to be making these extracts.

Speaker 3: 40:41

Yeah, so it's evolved a little bit over the last four and a half years. So OBX has never owned any agricultural assets, so we've always bought. We've had off-take farmers from in the early days, the OBX Farm Network, and that was a network of farmers mostly in North Carolina, to whom we armed with genetics as well as GAP, good agricultural practices, sops and we would agree to the criteria of purchasing their hemp on the back end and then we would organize and align on volumes. And so we did that for 2019, 2020, 2021, to a lesser extent in 2022. But the market and the requirements in our industry have evolved a little bit and I think the need to be vertically integrated has been de-emphasized.

Speaker 3: 41:40

And in 2020, we were doing our own extraction because we couldn't find a CGMP extractor in the space. That's no longer the case. There are great CGMP, large scale extractors in the space. So now we've been shipping those extractors biomass and then receiving crude oil back from them. And that is where our supply chain starts, with crude oil into distillation, into crystallization, into chromatography and then into finished goods manufacturing, leveraging all of the different cannabinoids that fall out of those processes. And so we start with crude oil and we stop just short of third party logistics we use an outside firm for 3PL, but we do everything in between.

Speaker 2: 42:27

But that's really interesting to hear about how it's shifted. Does that OBX farm network still exist or have you let that go it still?

Speaker 3: 42:37

exists and farmers unfortunately in the first wave of this industry, I think in many cases were left holding the bag. They were inspired to dive in and explore hemp as a crop and, of course, there was way too much hemp grown in 2019 and 2020, maybe 10X as much as the market could digest and that led to a massive price compression and a lot of the farmers were either left with hemp that was under contract that those contracts were ignored or canceled or some of them were wildcatting, hoping to sell into a market and capitalize on even higher prices.

Speaker 3: 43:26

And a lot of that hemp never made it to market, unfortunately, and so our farmers, every farmer that we engaged with, got paid per the contract. I think we're one of the few processors who could argue that certainly, east of the Mississippi and the network, I think, based on the relationships that we built, if there was regulatory clarity and rejuvenation of the market and market prices, I think that network would come back pretty quickly and would love to keep growing hemp going forward.

Speaker 2: 44:02

Well, I spent some time working in the meat space and in livestock. It's very normal for processors to have options on farmers' animals before those animals are harvested into the supply chain, and those options and those supply contracts will shift and move in terms of who benefits more, be it the producer or the farmer, because, as the market prices change, sometimes it's the OBX and that equation that benefits, because the price of the input goes up, but you pre-negotiated a great price, but sometimes there's oversupply and all of a sudden the producer doesn't want to pay the price that they contracted anymore because it no longer is a good deal in the market and they could go elsewhere. And I have long wondered if cannabis was going to be moving in that direction. And I've seen some examples both in the licensed, regulated cannabis market, with brands that will give genetics to cultivators and pre-negotiate purchase terms, and like what you're saying, with hemp.

Speaker 2: 45:19

And I think at this point because the supply is so unconstrained and is moving so quickly in all directions that it just hasn't worked in our space yet. But I do believe that going forward, that those types of supply contracts are indicators of a more mature market and that we'll get there and it will help the whole supply chain be able to rely on input costs and things like that.

Speaker 3: 45:44

Yeah, yeah, completely agree.

Speaker 2: 45:46

Yeah, very cool. Well, so I guess the last thing that we really haven't touched on has to do with some of the clinical trials and studies that OBX has undertaken, and so I'm curious if you could share what your perspective on the general clinical trials that you see being done in the space with cannabinoids, and if they're sufficient, and what OBX is doing outside of the research that's taking place at universities and other institutions.

Speaker 3: 46:21

Yeah. So, first of all, no, they're not sufficient relative to where they're going to be in, hopefully, 10, 20, 50 years. And I always love to quote my favorite cannabis researcher, dettie Mary, who said, hey, in 50 years we're still only going to be scraping the surface of really understanding how to fully leverage this point. And so what we're seeing today, I think, is a level of research coming out of a constrained market, constrained from a regulatory standpoint as well as constrained from a cash standpoint. And what we internally have done at OBX really comes from our thesis that, even though the hemp-derived CBD market is one-tenth of the size, roughly, of the THC market, we think the pace of innovation on the low THC side is 10x faster than the high THC side, because we can collaborate with other companies across state lines, we can ship ingredients, we can collaborate with universities who don't have DEA licenses, we can collaborate with universities outside of the United States on research All of these things that we do, and so a lot of our clinicals have been table stakes on really just the first level of understanding of the efficacy of the minor cannabinoids and reinforcing, for example, the benefits that have been anecdotally verified, because we operate in this bizarre industry, where it starts with humans because we have a legal market and then works its way back to mice, which everything in the pharmaceutical side.

Speaker 3: 48:14

It goes the other way around, and so we're starting with deep anecdotal evidence and then we select which bodies of anecdotal evidence we want to double-click on and validate with data. So that's how we select our clinical trials.

Speaker 2: 48:31

And so OBX has sponsored specific clinical trials. Is that right?

Speaker 3: 48:36

Yes, we've done a handful of clinicals, mostly in the areas of anecdotally verified or anecdotally supported benefits of the minor cannabinoids. So pain, sleep, focus, relaxation is underway. And then women's health.

Speaker 2: 49:00

And you mentioned earlier in the conversation that the FDA has done not a lot, but that they have sometimes issued letters or warnings about companies making health claims. The clinical trials that you're doing do you think that they support companies that use your ingredients being able to actually make a health claim and stand up to the FDA?

Speaker 3: 49:26

No, they wouldn't. We wouldn't advise our brands to make health claims, even with the data that we could provide to them. The trials that we've done are multi-arm placebo-controlled trials that are some of the largest trials on minor cannabinoids that have ever been done. But in order to be able to validate and make a health claim, you would have to get through phase one, phase two, phase three, clinicals. We have not invested in that stair step yet, but there is for our own internal formulation and innovation work. The data that we generate from those validating trials help us to better deliver great outcomes for the end consumer and then also for our brand clients.

Speaker 2: 50:19

You're basically proving internally that it works. That's really cool.

Speaker 3: 50:24

Yeah.

Speaker 2: 50:25

Amazing. Well, this has just been such a great conversation. I think we could talk all day, but I won't take your time. I know you're busy. This is the part of our show where we're going to start our wrap with our last call. This is where we give you, our guests, an opportunity to make a last impression, a plug for your business called action, whatever you want, Dave, what's your last call?

Speaker 3: 50:49

My last call for anybody who's interested in this market or working within this market is to get involved and let's put pressure on the two committees with jurisdiction on hemp drive CBD. Those two committees are the House Energy and Commerce Committee and the Senate Health Committee. Whether you want to support onehackorg or one of the other groups that responded to the RFI, who has proposed legislation to change, now is the time to push. Now is the time to educate. Now is the time for action. We need to show that people believe in this industry. People want this industry to succeed. Now is the time to do it. That's my final call plead for action. It's on behalf of the industry, less a commercial of open book extracts. This is a fight for access. This is a fight for action and it needs to happen now. So appreciate everybody's support For anybody that wants more information on OneHemp again, please go to onehemporg for more info. Awesome.

Speaker 2: 52:07

Thank you so much. I'm going to read us out today, which Ben usually does To our audience. We are immensely grateful to have you. Your engagement encourages us to keep bringing you these thought provoking conversations. So if you've enjoyed this episode, please like, subscribe and share high spirits with your colleagues, your friends, and share it with your family, and remember folks to stay curious, stay informed and, most importantly, to keep your spirits high Until next time. See you later, bye.