In this episode, we speak to Hamish Sutherland, CEO and President of WhiteSheep Corporations, about what growers and businesses need to be successful in the cannabis industry, as well as what they are currently lacking.
Listen to Hamish Sutherland, the Granddaddy of this industry as Steve puts it, share the insights that he has gained from his experience as the CEO and President of WhiteSheep Corporations. This podcast was a hit amongst our listeners, similar to the Starting up in the Industry (with Chris Jones of Cannabis Xpress). You’ll be buzzed after hearing his story!
Steve Looi 0:05
Hi everybody this is Steven Looi with the GrowerIQ podcast. Today we have Hamish Sutherland, CEO and president of WhiteSheep Corporations joining us. And he’s gonna be here talking about the current state of the industry and what it looks like in international district’s jurisdictions. Hi Hamish, welcome to show.
Hamish Sutherland 0:25
Hey, Steve, how are you today?
Steve Looi 0:26
Not too bad. Good to hear from you.
Hamish Sutherland 0:29
Nice to talk to you again, sir.
Steve Looi 0:31
Yeah, so you’ve been super busy. In the industry, one of the one of the granddaddies of this whole thing. A lot has changed. What? What does the industry look like now sort of post COVID and post bubble?
Hamish Sutherland 0:47
Well, two things first, thanks for calling me granddaddy. Second, the industry is still really quite volatile. The the big companies that are the bellwethers are suffering in the capital markets, the second largest company that everyone thought would be the world’s largest company has now at all time lows, even prior to its initial listing. The other big, the other big guys, our stock prices are moving around quite slowly. There is some optimism based on the upcoming election between Trump and Biden. But I’m not convinced that either of those will produce an outcome that benefits, Canadian players or Canadian operations.
I’m given to understand in speaking with many experts in the space, who are providing advice and technique and operational support to the smaller companies that there may be a continuation of the fragility for those companies that are under say, 100 and 50 million market cap, where they’re not able to raise any more cash for their op x. And the rate at which their products are selling in the provincial stores is inadequate for their cash flow requirements. So it looks like there may be an ongoing dribble of companies failing as a result of cash. But Steve, what’s really interesting, and you and I observed this over the last number of years, is that there continues to be this startling entry of new companies every week, based on the licensing by Health Canada. And so well established, or at least existing players are dropping out of the market, new folks who think they know better are entering. And that’s very exciting for the industry, because it brings in new blood new ideas, and with any luck at all, new professionalism that will help these companies, not just raise capital and find ways of spending it, but to deploy the capital in a way that allows them to actually execute on their strategy, whether it’s pure cultivation as supreme used to or whether it’s a retail chain, or whether it’s a particular edible or product category.
Steve Looi 3:20
Yeah, that’s – that’s super interesting. I was reading that of the licenses of the new licenses that have come out in the last year or so. More than 50% are for the micro, the craft grows sort of scale. And so is that something you’re seeing as well? And do you think that’s why is is that a part of the market that needs to be served more? Is it underserved as it is now?
Hamish Sutherland 3:46
So I guess what I would say is I don’t know, if I see that 50% number being viable. If you take a look at the Health Canada website that lists all the licensees, they identify which are the micros, and there are, I think there are surprisingly few.
Steve Looi 4:06
On the micro?
Hamish Sutherland 4:07
On the micros. Okay, so this is a separate – not a separate category, but they identified as part of the licensing identification in the table. But it does speak to two important items. One is that there are 400 and change plus like 435 or 450 licensees in Canada now. But if you look at either the BC, Alberta or Ontario stores, which is where I spend my time scraping data and just taking a look at what the world is doing. I would say that there are probably only 50 companies that are actually selling into the market. So what are these other 400 companies do?
And the answer is, in some cases, a little bit of research. In some cases, it’s still trying to as you and I used to talk about way back in 2016 looking at how long it takes To get a sales license, but if you don’t have a sales license, you’re still able to sell it into the big guys. So all these licensees are selling at wholesale, if they have any revenue at all, are selling at wholesale into the companies that are actually selling to consumers as a dried flower, or they’re selling into the extraction companies to be turned into oils. And the second part of this is that with 450 licensees, this is where you get the media reports that there is an oversupply. Because if it was balanced when we only had 50, licensees, and now we have 450, where is all that capacity going? Tut I would argue that, as our friend, Mike used to examine, when you look at the inventory levels, as stated on the financial statements for the publicly traded cannabis companies, that a good proportion, or a bad proportion, if we’re going to talk about subjective words, a bad proportion of that number listed in inventory, is comprised of trim. And if we think about the US model, where they had sold lots of flour, and then the trim was held back to be turned into extracted material, what’s happening now is that they’re actually extracting from the flower. And all the trim is sitting in inventory, getting old, and is simply inefficient to process. So it’s sitting on the books as an asset, but one could argue it’s a liability for both the industry and for the entity itself.
Steve Looi 6:37
And what makes the trim, inefficient process is it just not yielding enough THC?
Hamish Sutherland 6:42
Yeah, in my experience, trim ends up being 50% plus or minus of the original flower. And so if you’re going to run a 12 hour shift of extraction, co2 or ethanol, it is literally twice as productive to run your 20% THC product or 20% CBD product than it is 10%. So your – your cost to produce and custom manufacturer, when you’re running trim is exactly twice as high. And so why would you do that? If in fact you have, you don’t have excess capacity, if you’re only running one shift a day, and you’re you’ve got to be in the office, anyway, then sure, turn the machine on. But that’s not the situation as I interpret some of the financial data. And as I observe the inventory levels and the production yields of these companies. And now what’s going to be really exciting, Steven, and I hope that you included in one of these next podcasts is we are right now sitting in the middle of exactly in the middle. Well, no, we’re at the very end of the outdoor harvest period. So people should be, I believe, I would be looking for those companies that have an outdoor facility this year, I would be looking for those companies to start publishing, either photographs or videos of their harvest so that we in the investment and cannabis production and edibles market can get a handle on what is actually being produced and whether it’s any good whether the yields are there. What we observed last year is that roughly 50% of the crops were destroyed after harvest because they were either too low THC or too low CBD or , mold and or powdery mildew and was unusable. I’m really keen to see what’s going to happen right now. Because all the big guys have an outdoor grow somewhere and I say all is not entirely true. And it will be really fascinating to see how they matured from last year’s first legal outdoor crop to this year’s and whether they were able to improve the outcomes. Because that’s going to be an extraordinary quantity. There’s more there’s more licensed outdoor grow than there is indoor grow now. I don’t know what the numbers are. But if it if it’s if there’s one square foot of indoor indoor grow that’s licensed in Canada, then it’s 1.2 square feet of outdoor grow is licensed so there’s twice the capacity now than we used to have. And so let’s find out if that’s flower let’s find out if it’s all going to go to extract let’s find out if it’s just going to be pushed through the those big monster hemp ethanol extraction systems and and just do it as if it was a strip mine. It’s really going to be fascinating.
Steve Looi 9:38
Right. I mean, and so that is a giant milestone for the industry in Canada to have more outdoor sports square footage than indoor. Though it sounds like those numbers you know 50% almost fail rate on the crops. It definitely seems like Canada seems like it might not be the ideal place to grow. Outdoor cannabis. And so and for a long time folks have been looking at other jurisdictions out there. What have you seen lately in the international on the international level in terms of cannabis business?
Hamish Sutherland 10:14
Well, that’s a great question because it does tie in the outdoor with with pseudo-outdoor. So if we look at our Colombian friends, and our Jamaica, and our Uruguay and a number of other jurisdictions, perhaps even including Lesotho, where we have a license, the outdoor grows, there are able to generate a minimum of two and sometimes as many as five harvests a year with an outdoor grow, because they’re in a 12-12 lighting situation all the time. Now that requires some careful nurturing and the mothering stage. And as the babies go through vege, so that they understand that they’re, they’re converting from an 18 hour day to a 12. Because you’ve got it, you don’t want to teach it to grow on a 12 hour cycle, because then it’ll start to flower as soon as it’s born. But what we’ve observed so far, is that there has been a not very not enough inadequate, very little inner global traffic in cannabis flower. Right.
And I believe that that is because the government’s in the respective jurisdictions, the source jurisdiction, and the destination jurisdiction, are not communicating on the same wavelength about the same items. My experience in Africa was that our host country was not investing adequately in the regulatory requirements, specifically personnel who would go out and provide proper documentation records and reports on their inspections of the grows. And as a result, the importing country that would otherwise be thrilled to take a far lower cost, cannabinoid input, they do not have faith that the product has been manufactured or produced in a manner that gives them comfort and de-risks the transaction. Because we’ve had in Canada, a number of situations were a couple of companies export a product that was technically illegal, or illegally grown. The the international cannabis transaction pool has been tainted.
Steve Looi 12:39
Yeah, not a good start.
Hamish Sutherland 12:40
So it wasn’t a good start. Now we’re getting some products that are packaged and and saleable. But Australia just released, the TGA, there just released a report identifying that some five or six Canadian companies that export product from Canada to Australia, the labels are misaligned with the product at the testing revealed that it was not within spec. We’ve seen that into Germany and Denmark as well from Canada. And so more rigor needs to be applied to ensure that the industry is not tainted by either errors. innocuous errors if there’s such a thing, or malicious misrepresentation of the of the content.
Steve Looi 13:27
So when I was talking to potential buyers in Germany last year, a consistent reaction from them about Canadian producers was not a positive one. And because of those trades, we’ve had, you know, a lot of the German players are not super thrilled to deal with Canadian ones. Is that something you’ve seen as well or something you can comment on?
Hamish Sutherland 13:52
I would say to you that I have not experienced it myself. But I do understand and have heard from the grapevine that that is the case that there are there’s discomfort. And part of that comes from again, the legislators experience that we see that there was a Canadian company that had a contract with the government of Italy to supply them with three different –
Steve Looi 14:17
Hamish Sutherland 14:19
spectrums of cannabinoids, one was THC one was a blend one was a CBD based and the CBD CBD-forward products were tested and deemed incompatible with Italy’s requirements. And so the contract was terminated. That kind of thing resonates in the cannabis industry because there are only you know, at the end of the day, there are only 400 people who are doing this and you know, everybody or at least they’ve heard of you and once once you put your foot in your mouth, it’s really hard to get it out. And particularly that arises because there are so many alternatives for supply. You know, the Macedonians, and the The Croatians and
Steve Looi 15:03
Hamish Sutherland 15:04
Colombia and Uruguay and a number of others. And they’re starting now with some with legislation and with growing in Philippines and Cambodia, and Thailand and South Korea. And well, I believe those will be troublesome jurisdictions in which to grow the product, largely because of humidity levels, they won’t be able to grow it indoors and manage the humidity appropriately. With power regulations and power, inadequate electrical electricity systems and unstable electricity that comes through the network, that they won’t be able to control the humidity levels appropriately. And and it will make it much more difficult for the domestic industry to thrive. In the cultivation side of things now, that leads me to where I believe that an opportunity would be to have flower imported or a distillate and emulsification imported into that host country, and then establish a production system there that ensures that the local industry can build can develop its own brands and its own nuances. And as well employ enough people that it becomes an actual industry as opposed to a hobby.
Steve Looi 16:27
Right, right. Those are some really interesting jurisdictions that I’d never ever thought I’d see go legal. And hopefully they consider some of the points you talked about as they set up their regulatory infrastructure. You’re also active in Australia. Can you tell us a little bit about what’s going on there? You know, in the early days, there were quite a few articles, lots of activity there a lot of fundraising. But we don’t see too much news now on the facilities on the other side of that the facilities getting up and running. What’s going on in Australia, from your viewpoint?
Hamish Sutherland 17:07
The growth in Australia is mirroring that of the Canadian market circa 2013-2014. With the exception that we had a big in Canada, we had a large step function when the gates opened, because there was such latent demand, having built up in such interest in the capital markets in the cannabis industry that it jumped very quickly in the on day one, and then stabilized for a little while as the industry grew. And so the Australian market didn’t have that big pop at the beginning. But it does have the same growth rate. So we have a chart in a table that indicates what the monthly new licensees or not registrants in the system are. There are 30 or so licensees there that are able to produce many of them are in research only to the best of my knowledge and the best of it but the media is reporting two companies are actually producing commercial grade or commercial quantities of product. There are a number of organizations that are serving the patient base. That’s that’s there. The there are a number of a super positive factors that are are present, which is why we are keen on that market. One is that the federal government is keen to build an industry as an exporter of product. And so they are facilitating and have allowed five or six companies to become what are called major to obtain what it was called major project status MPS. And that is a designation provided by the federal government to industry leaders across the industry. Asterion cannabis, the company with which I’m affiliated was the first of these of the was the first non mining company to receive MPS status. Number of other companies have followed in are recipients of that designation. It doesn’t get anybody any money, but it does give us clout with the government and allows us to be confident that the government is in support of what we are trying to accomplish on behalf of the industry and the Australian community. So it means that we’re able to hire people it means that we are working with local governments and municipalities to ensure that we’re not compromising security and we’re not compromising any other agricultural purpose. In Australia, particularly there are issues with water. And as we learned last year, the fires that were raging, so we have to make sure that the industry complies with those things. But as a nation, Canada sitting here with 36 million people Australia is roughly 30-22-24 two thirds of the Canadian market so it will always be smallish in the context of if Canada is the same size as California. But only California when you compare it to the rest of United States, that makes Australia say the size of Michigan or Ohio. Both see no substantial material markets. But um, but just not a California or not a Florida or not a Michigan or not Texas. So Australia, some of the negatives in Australia for the domestic market are that the TGA, the Therapeutic Goods Administration, are slow but but improving in terms of allowing new patients to enter the market space. It is unnecessarily cumbersome process to qualify people for this. And it’s just a step that the that patients need to take to get into the system. Because in Australia, you must demonstrate and your doctor must demonstrate that the patient has gone through what I would call all other conventional options before cannabis is considered as the the last tier of unconventional alternatives. And that’s a pity because the harms that are caused by medicinal cannabis are as close to zero as you’re going to find. And so making it a difficult or a last step. Medicinal input is an unnecessary burden to put on a patient. Yeah, that that otherwise has challenges.
Steve Looi 21:38
There’s certainly meds out there that have way worse side effects than cannabis has even smoking cannabis. So that’s unfortunate.
Hamish Sutherland 21:47
I think you could make the case that every medicine has a side effect. And the side effect that cannabis has is that maybe it slows you down a little bit. Maybe it makes you smile a little too much.
If you over-consume it, let me just talk about that just for quick sec. There’s a there’s a transition that’s happening all the people, all the capital markets, people that were investing in cannabis A while ago are now investing and looking at what is called the psychedelics market. And I find that fascinating. There are two problems I have with the psychedelic industry. One is the name of it. And we call it psychedelics because it’s cool, and it’s sexy, and it makes all these people who are older than 50 years old, think back to the 60s 70s and 80s, when acid and mushrooms are really cool, and when we called them psychedelics and, and that sends the wrong message. It is truly believe this isn’t just a capital markets play. But there are medicinal benefits, then let’s give the right name.
The second thing is that we use the wrong terminology when it comes to how much the product is how much of any given product the medical community believes would be clinical for a patient. And so the term that’s used is micro dosing. Well, that’s the wrong word. Micro dosing implies that there is a standard dose. But the standard dose idea comes from taking LSD as a recreational drug or taking mushrooms, or MDMA or any of these other drugs that are being explored for medicinal purposes. It suggests that a micro dose is is smaller than some other amount. And and I would argue that that’s a terminology that reminds us of its colorful and checkered history, as opposed to what some of these drugs were actually invented for which was a responsible clinical purpose. But they were hijacked, because they made people feel so good when they took them in a quantity that was so far in excess of what the medical prescription was supposed to be. So I look at that with regards to cannabis as well. And one of the things that I that I became aware of when I was working in Bedrocan is that you don’t have to smoke a whole joint. You don’t have to hit a whole bowl. You don’t have to consume that whole ounce of dope. You can actually consume cannabis, not dope, but cannabis legally grown by a licensed producer. You can consume that in a number of formats in dosages that mediate your symptom without providing you with any of the psychoactive highs or, or impacts that we don’t want in our surgeons in our school or public bus drivers in our nursing community, or in people whose judgment we think might be compromised because they’re stoned.
Steve Looi 24:50
Right. Yeah, it’s I mean, what a interesting comment on how early these industries are both cannabis and psychedelics where. I mean, we’re still Trying to figure out what the dosing and titration looks like, for people for the general public. And I think there’s early indicators, if not one bit more understood ones that both these sets of molecules in terms of doses and tight titration is heavily dependent on a person’s DNA. And it’s very personal. And so, you know, we’re just so early on these days, that we’re still trying to understand it, even though we’re selling to people and letting people use it as medicine.
Hamish Sutherland 25:35
We’re certainly seeing an awful lot of the examination of the endocannabinoid system and how it’s impacted by the various cannabinoids. Which led to a segue. If I could, unless we’re absolutely, and the segue is CBD, okay. And, and it concerns me greatly. I want the industry to be successful across the board because I do believe that cannabinoids are can be excellent symptom managers for many disorders and indications I’m yet I’ve not seen adequate evidence that it is a curative for disorders, but at the symptom manager, and I think there’s terrific functional use for that across the board for all sorts of known diseases and indications but also the softer ones like pain management or sleep management, those kinds of things that are that are very subjective and hard to manage. But we’re we are observing in the industry. People jumping on the CBD wagon. Oh, yeah. And how CBD and it’s only CBD. And it’s like, I can’t think of an analogy. But it’s, it’s I guess maybe it’s like talking about tomato sauce. When we actually mean the word pizza. We expect a crust and maybe some meat, maybe some garlic and we’d like to some some veggies on it too. We certainly want the mozzarella unless we’re we’re of can’t take any of the milk products. But we’re saying the word tomato sauce when we mean pizza. And when we say CBD, what we mean is broad spectrum cannabinoids that act together in the entourage effect. And that’s an interesting point. I believe this because Charlotte figi. And and one of the kids we help service here in Canada, we know that there were only a few suppliers of what we called CBD based products that stopped the seizures in these kids. Yeah. And we know that when they took other products that had the name CBD and certainly had the CBD molecule in the product, that it did not have the impact. What does that tell you? It’s very clear. It tells you explicitly that it’s not just the CBD that’s doing the work.
Steve Looi 27:52
Hamish Sutherland 27:53
It needs the other things. So we talked about CBD, and what we mean is a broad spectrum cannabinoid and terpene cocktail. We don’t want to just talk about tomato sauce. When we’re talking about pizza, we want to talk about the whole assembled product. And then and what we don’t understand and this relates to our learning of the individual’s response to medicine ins and indications. We learn about the endocannabinoid system and we learn about which phenotypes have which active cannabinoids in them. I was just doing a little bit more digging the other day and you I know you and I’ve spoken regularly about how many cannabinoids there are and reports a 140 and other ones say 108 and some say up to 200. And then one of our friends in the biosynthesis industry says it’s almost unlimited because in biosynthesis extensively, they can invent new cannabinoids, right? It may or may not be unlimited. But what an interesting observation is that in Australia, THC and CBD are listed as controlled substances. And CBD. We can talk about this in a minute if you like but CBD has been recommended by the TGA to be taken off that controlled substance list. But all the other cannabinoids are listed as poisons. And the reason why isn’t poisons Wow, we just don’t know anything about them. Right? We don’t know enough about them. And we’re learning about the next generation of what these cannabinoids will be. And so, we we are we do not understand yet. What enough about we do not understand enough about how these cannabinoids interact and which ones do and which ones don’t cooperate beneficially. And so we are we are selling this thing called CBD and all these companies are going to put out all these CBD products and I used to make this joke, Steve when I did some public speaking, and I would say that they’re going to put CBD in car seats so that we don’t get road rage anymore. And sure enough, somebody came up with CBD impregnated yoga pants. Well, I can assure the entire market and the world that those Do nothing for you. Maybe the pants make you look good, but it has nothing to do with the CBD. And so we need to know and understand more about how the cannabinoids and terpenes interact to ensure that we are applying the right knowledge. But yeah, isn’t is an economic capitalist system driven by finance that says you’ve got to get revenue and you’ve got to do something. And so the first product that cannabinoid producers sell is THC. Why? Well, because it’s the elephant in the room, it’s 20% of the plant by weight. And then the next one is CBD because that has health benefits that Charlotte Figi. And, and others have demonstrated to us as being active and workable. And so we talked about CBD because it comprises, you know, upwards of 10, maybe sometimes as high as 15%. by weight of the plant. Well, what’s next? Well, the reason we’re talking about CBG is because it’s the next most volume, voluminous product in a cannabis plant. And it’s the one we can extract the the next most readily because there’s more of it. And the next one is going to be CBN. And then the next one and this and when I say these THC and CBD and CBN and CBG. I’m also talking about the acid format, not just the decarboxylated version.
Steve Looi 31:13
Hamish Sutherland 31:14
And then but then we’re gonna start migrating down into the THC vs and the THC PS CVC, and all the rest of the alphabet soup. But we don’t we just don’t know, the proportions required for them to be active ingredients in our system.
Steve Looi 31:33
Right? Yeah, it’ll be interesting. It’ll be interesting. And I think a huge boon for a lot of different industries, once we can understand what how these interactions take place, and what they do to us, and what are all the molecules that are active in cannabis.
Hamish Sutherland 31:50
And in the absence of that, you have the American companies that are allowing CBD products to be sold in CVS and every pharmacy, and you know, their rubs and lozenges, and all these other good things. If these companies do not stabilize their inputs, right, one time that they stay by so called CBD from somebody in an isolate form. And when it’s isolated, it’s not 100%, CBD, it’s 95. And there’s 5%. other stuff. And some of those are cannabinoids. Those other ingredients, if they’re not standardized, then you’re going to get a different outcome, if it works at all. And therefore we’re going to one day, go and buy a an espresso, or a latte, and it will be the latte we want. And then the next day, it’s going to be a pumpkin latte. And we’re going to go Hey, that’s not what I ordered. And then the next day, it’s going to be a watered down Americano, with only one shot in a venti size, we’re gonna, this is not this is not what I wanted either. This doesn’t even taste like yesterday’s.
Steve Looi 32:50
right. And even though the label says the same amount of CBD effects are going to be completely different.
Hamish Sutherland 32:55
Completely different and it’s going to poison the market. And so as I said, I want the industry successful, because I believe there’s value to be created and benefits for in health and wellness for patients and consumers. But if we don’t do it right, then we will be turning off and disappointing. The early market adopters who tried this stuff and go, Oh, it didn’t work out didn’t that didn’t help me. And then they’re not going to come back. And they’re going to talk to their friends at the various Hanukkah and Christmas and eat parties. And it’s it just doesn’t make –
Steve Looi 33:30
Yeah, you’ll get one or two chances to make that impression. And once they you know, have negative experiences with your products, it’s really hard to buy these or bring these people back.
Hamish Sutherland 33:42
And so we are potentially peeing in the pool, and it seems unnecessary. I appreciate that we don’t yet have the knowledge to know which ones are working well. But all that means is that we ought to make sure that we do not over promise. All right, carried away.
Steve Looi 33:59
Right. Well, and I think you know, consumers need to know this part of the education as well that there are myriads of molecules in the in the in the plant that could be acting on whatever it is that that you’re taking it for. And yeah, CBD could be affecting it. But it could be other things too, or other things in concert with it. So people need to understand that it’s just not a lone actor and all that stuff. Hamish, I want to go down a different route here a little bit segue into so you been you were part of the founding team that set up Bedrocan, one of the earliest groups to get the license, fifth or sixth in history, and you’ve been a part of a bunch of other ones that are starting up. I wanted to ask you a little bit about what that’s like and perhaps things other folks might want to think about. If they’re going to start up an LP in any jurisdiction. And maybe tell us a little bit about the software systems who you used at bedroll and going forward?
Hamish Sutherland 35:03
Sure, I guess I would summarize it in two sentences. And I’ll expand on them afterwards. One is that I’ve said all along, I do believe that the cannabis industry is a quality issue. And it’s about your quality assurance person, and the compliance that you monitor and manage. If you do not allow your QA, appropriate authority, and oversight of what you’re producing, then several things will happen. As you and I have commented about, in the past some outdoor grows that we’ve seen that there are often too much powdery mildew and or bud rot and or mold. And that’s in an outdoor if you get that in an indoor grow. It’s it’s very hard to get rid of. And I know that many people have asked me in the past. So how much how did you manage powdery mildew in your Bedrocan facility? And the answer is, I have no idea how to answer that question, because we actually never had it. I know that there are a number of people in the industry who have said, If you show me a grower who says he’s never had, or she has never had powdery mildew, I’ll show you a liar. Well, the fact is we never did, right. So I have no answers as to how to fix or cure or, or get rid of powdery mildew because I just don’t have the experience.
Steve Looi 36:28
Well, because you guys prevented it.
Hamish Sutherland 36:29
Because we prevented it. And so that’s what it’s about. If you’re compliance people, if you are ahead of the curve, if you’re ahead of the game, you you are able to stop the rain from getting in your roof, you can stop the disease and the pathogens from getting through. And so the design work that I’m doing for my Australian facility, the work that I was doing in my African facility, and a couple other ones that we’re working on separately. The key is to make sure that we put in place, not just the the post sanitation techniques, but the pre ones that disallow the the pathogens to get in the building in the first place. And that that’s ever so important. So I would say that it’s about compliance, and setting up the right authorities. So that your compliance person justhas control.
Steve Looi 37:20
Right, so just on that note, there’s a there’s a tension between the grower, the head grower and the QA person, you know, the grower wants to use all kinds of amazing things on on their grow, the QA person has to make sure everything’s in check and and and has been is right by regulatory standards. How much do you want to foster that tension or damping that tension between the two sides?
Hamish Sutherland 37:46
I don’t think I want to foster the tension, I think what we’ve seen in the White House in the last four years is adequate evidence of what tension brought brings one. And and it should be cooperative. In many large organizations you have silos of, of business units, and they compete for the limited capital of the company has, in this particular case, we’re talking about a cooperative venture, where the marketers must be confident that the product that they are positioning in the marketplace, either for adult use, or for medicinal purposes, is trustworthy, and will not compromise any of the stakeholder groups that the marketing department focuses on. And those stakeholder groups include government regulators, medicinal practitioners, the doctors and nurses and nurse practitioners that that authorized use of cannabis, the patient base, and to a far lesser extent, the investor community.
And so we need to make sure that the marketers can trust the product coming out of the building works, the operations, people are there to drive costs down, that’s their goal, it’s to make sure that the product that comes out of a building is produced at the most efficient rate at the quality designated or specified by the marketing team. Not the highest possible quality, but the quality specified by the marketing team. Right? That’s right. And, and the QA P is the individual or the team that has to bridge that gap and say, these are the protocols and these are the processes that need to be followed to get us to this stage. And when when one takes mathematics at a higher level than grade 910 or 11, you get into error measurements and how they impact calculations. So when you measure something with a ruler, nothing is ever 12 inches, it’s always 12 inches plus or minus probably a 32nd depending on how good your eyesight is, right. And so a QA has to make sure that they put in place processes and protocols that allow for that level of human behavior. Because on some day, somebody’s going to come in and they’re the job they do. They’re going to be Little more tired, or they’re going to be a little more acute. And they’re going to be a more aware and do a more specific job. And the QA has to understand that human behavior and the implications in the very specific facility that is being either constructed or in which the operations are taking place. And that QA needs to be able to have the authority and responsibility to tell operations that this is how we’re going to do things, this is how we have to adjust or to listen as well, to what operation says about why certain presided take place, and what is being what is, what the end goal is and what is trying to be accomplished. And then the QA can sit back and reflect and say, Alright, well, here are some alternatives for how we might be able to get there that meet the safety and, and documentation criteria. Because the running a GPP facility is one thing, and it’s hardly lacks, but it is compared to an EU GMP facility. And when you if you are trying to sell your product into markets that are extra jurisdictional, then you need to make sure that all the documents you produce and everything you do has a document that arises from the activity because as my QA, who was absolutely fabulous used to say, if it’s not written down, it didn’t happen. Right? Or whether you did or not, if you didn’t write it down, it didn’t happen.
Steve Looi 41:24
Right. Right. The regulator decides especially. So what I’m taking away from that is you want to balance you want a you know, the QA and the grower both to have strong positions, but not one running over the other and their priorities. You want something collaborative and in the middle, which I think yeah, that brings up probably the best in both.
Hamish Sutherland 41:45
There’s no there’s no one person who is who dominates. Everyone has an equal voice. And it’s up to the leadership of the organization, not the grower, not the operations person, not the QA, not the marketing person, but the person who holds the umbrella over all four of those groups. And get them to share to make sure everybody stays dry, as opposed to just one person staying dry and three others getting wet and and rotating in and out.
Steve Looi 42:14
Right, right. So another another question. I want to ask you about startups. So in those early days, I’m not sure what the software ecosystem looked like, back then. Did you guys have a pre packaged software that was row management system that was running to grow at Bedrocan? And if not, what, what did you guys do?
Hamish Sutherland 42:39
Well, I’m glad you asked that question. It’s really complicated. At the beginning of the enterprise back in 2013, there were very few systems that were designed for the cannabis industry, there were two or three from the States. And in Canada, Ample Organics was born out of a bunch of work done at the peace naturals project. And then it was spun out as a separate entity, and turned into Ample Organics and became the de facto inventory management software for the industry in Canada. The Pohn Prentice at Ample, developed a system that worked and was trusted by Health Canada to provide reports that met their criteria and needs. We started before John, who had a working version of his system. And so when we started, we were actually an importing company bringing product in from Holland. And we were packaging it so we weren’t cultivators, right, we then. And so as a result, we we were in fact, just a business that imported a good and then sold that good. We required more rigid and disciplined inventory control. And we found that we were able to make, and this makes most people quiver in their boots, including some of the people at Intuit, we made QuickBooks work for us, we were able to drill down and have QuickBooks work as both financial software and as our full inventory management software. And we were able to generate reports by by repurposing some of the standard line items in the QuickBooks system, to repurpose them to be what we needed them to be once and part of the reason for that is once we got going, we believe that we would have some capital and be able to move on to some of the other dedicated cannabis systems. So then we built our second licensed facility, which was a cultivation facility. We looked at some of the other tools that were out there, and we didn’t and despite the promises made by those groups, and they often said things like, were they Only company approved by Health Canada. Well, Health Canada never approved anybody. They had de facto acceptance. But there were never any formal stamps of approval, like the Canadian Dental Association for toothpaste or whatever it might be. But we were able to make our QuickBooks system work effectively. When we were acquired by Tweed, and we became Canopy Growth, they had proprietary systems in place, they used a number of systems of which MJ Freeway was one, they had a proprietary proprietary system built in house for packaging, labeling, and inventory control of finished product. And, and they were all cobbled together and brought together in an Excel spreadsheet, we decided we didn’t, it was going to be too difficult to switch or better cans over. So we waited until we put in place with canopy growth, a major reworking of all the data systems, and we ended up going with NetSuite for a period of time.
Steve Looi 46:02
Okay, so like a home a home-brewed version to serve your purposes.
Hamish Sutherland 46:08
Indeed, and there are there are better ways of doing it. And for our quality management system, we examine a number of specific pieces of software because inventory management is not the same as a QMS. QMS is necessary, required part of either an ISO or a GMP or an EU GMP system. And so you have to make sure you want to make sure you don’t have to, you want to make sure that the systems integrate, because in the absence of that, you end up having to double enter your inventory, or your operational data, operational data being temperature or humidity levels, whatever the the operational information is, that is required to get the product from one step to another, we have if you have paper reports, or even local iPad or, or tablet generated reports or documents, you need to make sure that that data can migrate across to all the systems that that require that data, the financial system, and the inventory system. And the the quality management system, so you need to make sure that it will do all of those things. Because if you have to re enter the data manually, you will generate errors, right? There will be mistakes made in the in the data entry part. And that’s it’s just too difficult because then you have to win when ultimately there is a difference between or a variance between the two reporting systems, you have to find a way of making that system work.
Steve Looi 47:55
All right. And so integration between those two systems sounds like something that would be super helpful. What else was sort of painful? Or wish you’d done differently in terms of the software you use to track inventory?
Hamish Sutherland 48:13
Um, there’s no hard answer to that what so what is it, it’s, um, one of the challenges is making sure that the order you choose, that is brought to you by the system. And when I say you are the person who’s responsible for putting all the items in a box, you have to be able to to scan the products that come out of the vault. And vault access is a problem because Health Canada requires that the voltage is locked all the time unless you are a person in charge. So you’ve got to scan the product out of the vault and you scan it into the box. And you have to make sure that you do so efficiently and when you’re when you’re processing 1000 orders a day. That’s a non trivial exercise, which is why Amazon is successful, because they have read a whole pile of tools together that that make it so that one pass of the scanning device for the item and then one pass for the shelf. And then the system takes the information appropriately and and subtracts it from what it says is there. And then you have to manage that against this idea of shrinkage. And these things all come together in in a more difficult fashion than you’d like. I guess in a way it’s it’s a it’s a bit like accounting software, that there are a number of accounting tools you can use that accomplish your objective. If you’re a small company and we know about SAP as a large company enterprise resource planning tool we can we can get around in our heads how that can be used. It’s that middle market area right very specific. That’s, that’s difficult to customize for the purpose of your business. And so in the cannabis industry as, as startups in a legal cannabis industry, particularly compared to, if we try to grab something from a standard warehousing business or an agricultural industry, then it doesn’t apply because of the specifics of cannabis, we have to know where every single plant is in our facility, and be able to point to it when Health Canada comes for an inspection. And that’s the same for the 22 jars of this or the 641 jars of that. We need to be able to identify and and point to the very exact location for that. And as startups, none of us had the capital at the beginning to buy the appropriate software that that we all grew into. Because we started off small and then the industry grew so quickly, that it exceeded our ability to use the tools efficiently.
Steve Looi 51:06
That’s really interesting that you mentioned that. Yeah, it seems like super overkill. And I wonder if anybody has ever started up or is even using SAP right now for it for this kind of thing.
Hamish Sutherland 51:16
Absolutely Canopy is rolling SAP out through their entire network.
Steve Looi 51:21
Oh, really interesting. Interesting.
Hamish Sutherland 51:24
Now I don’t know successful that’s going I and I’m sure if you ask them they say it’s going fabulously well. But it’s a real challenge because you know, when they started putting this in place, they had facilities. Pick a number I really don’t know 15 facilities in Canada and now they’ve closed down the two BC ones. I don’t know what Metro is doing. I don’t know what are trees is doing are prairie Canopy prairie. I don’t know what’s happening in Newfoundland. So their their facility base has shrunk considerably. And I don’t know that something like SAP might not be overkill,
Steve Looi 51:58
Right. Fair enough. Fair enough. So Hamish that’s um, was really great. Thank you so much for spending time with with us and chatting about that stuff. Are you headed or speaking at any events coming up?
Hamish Sutherland 52:13
I do some speaking at a with a group called Cannabis 10-X. They are a US organization that brings together companies in various sectors of the cannabis industry and runs the allows them to do presentations to a jury in a panel. They choose a winner and that enables those winners to to brag about their ability to work with and articulate their perspective and view and their business case. There’s some very exciting folks there. I’m I’ve not done any of the other MJ Biz online forums in a while. We’ll see how that goes.
Steve Looi 53:01
Yeah, no problem. So will people be able to go check you out? At the Cannabis 10-X thing?
Hamish Sutherland 53:07
Steve Looi 53:09
Great. Would you have a website handy?
Hamish Sutherland 53:11
Cannabis10x.com and the 10 is a one zero. Okay, awesome.
Steve Looi 53:15
So everybody can go check Hamish over there. And yeah, thanks again. Hamish for the time spent. It was great chatting with you and yeah, all the best.
Hamish Sutherland 53:25
Steve great talking to you. Take care and be safe during COVID.
Steve Looi 53:32
Thank you. Likewise.
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