James Black (00:00):
Welcome back to the Exchange for Entrepreneurs™ podcast. I'm your host, James Black, and this is our second episode of the year 2023. This is going to be a follow-up conversation with one of our guests from last year, Ilan Sobel, CEO of BioHarvest Sciences.
(00:15):
Ilan exemplifies everything that we want from a guest on this show. He's passionate, and he has a business that he believes is a world-changer. This is the kind of conversation that I want to have all year as we stand at the intersection of entrepreneurship and the public markets.
(00:30):
Now, before we get into the conversation this week, I wanted to provide some context about the company and their mission. It's best served if I add a clip from last year's show where he talks about his company's core mission of unlocking human utility value.
Ilan Sobel (00:45):
What I say to my team every time I'm connecting with them, which is pretty much at least on a weekly basis, sometimes on a daily basis, and we sitting down and we're talking about the business, the number one communication is around our need every single day to focus on building human utility value. So you might be asking, "What are you talking about? What is human utility value? What is this guy talking about?"
(01:14):
Well, human utility value is a term that I guess I've come up with. I use it all the time, and I talk to my shareholder partners about this all the time. Human utility value is our ability every single day to leverage the power of our technology to bring unique, active ingredients from the plant kingdom to the consumer, which is going to provide them with transformational health and wellness benefits. I always say if we're focused on building human utility value, we will generate significant shareholder value, and it has to be in that specific order.
James Black (01:52):
I think with that information in mind, it actually colors the conversation that we have this time about the company, where it's come over the last year, and where he's steering things in 2023. So there's a lot of great nuggets in this episode, and hopefully, you walk away from this with a better understanding of not only of the company, but some of the learnings that he's brought to the table as a committed entrepreneur. So without further ado, my conversation with Ilan Sobel, CEO of BioHarvest Sciences. Enjoy.
(02:20):
All right. Well, welcome back to the show. This is James Black, your host, and I'm with Ilan Sobel, CEO of BioHarvest Sciences, all the way from Israel. Now, Ilan is a repeat guest. He was with us a year ago on the show to talk about BioHarvest and what they were working on, but a year ago feels like 10 years ago.
(02:38):
Maybe just describe to me, because we were in the midst of Delta, I mean the variant that was running its course... And I can imagine last year, just based on your press releases and your updates, a lot's happened. So maybe just try to paint a picture for our viewers who maybe were there with us a year ago, what's happened in the last year, just some broad strokes, and we'll go a bit deeper from there afterward.
Ilan Sobel (02:56):
Well, look, BioHarvest had an absolute cracker of a year in 2022, and that's just because we are super focused on executing our strategy and over-delivering on the guidance that we're giving our shareholder partners. In 2022, the big wins for the business really were on our polyphenol antioxidant vertical. As everybody knows, BioHarvest is a biotech company. We're the global leaders in plant cell biology. We are a company that has platform technology, and the platform technology today we operate in two verticals, polyphenol antioxidant vertical and soon-to-be, James, cannabis vertical.
(03:54):
So in each of these critical areas, we really had some significant achievements. In our polyphenol antioxidants vertical, where we delivered north of $5.6 million of revenue with literally one SKU, which is our unique VINIA polyphenol antioxidant red grape cell proposition, our biggest achievement really was around scaling the business in North America, massive scaling that we started the third week of August, starting with TV advertising, supported by social media, and literally recruited north of 21,000 new customers on VINIA in that short period of time.
(04:38):
That was supported by the scaling efforts of our manufacturing organization. As you know, we have recently opened our new 25-plus-ton facility. For $4.5 million, we produced a facility. That's a one-time investment, I should say, of roughly $44.5 million. We have opened a facility that can produce roughly 25 tons of VINIA every single year.
James Black (05:09):
Wow.
Ilan Sobel (05:09):
That facility was up and running. And really, James, it's just been hand to mouth the entire period to deal with the overwhelming demand that we've received from US and Canadian customers since we started to scale the marketing efforts of the business. Really, I guess we're not surprised just given the demand.
(05:40):
But as a result of just the feedback we are getting around the overall efficacy and the impact of VINIA, which is backed by clinical trials, all double-blind placebo, and that's why we have a rating of 4.8 out of five, a verified rating of 4.8 out of five. I suggest to all your listeners to go to our website. Go to vinia.com. Have a look at our website. Have a look at the reviews. Read the reviews, and you'll see the significant positive impact that we're having on people's overall health and wellness.
(06:13):
So it was a big year for VINIA. It was a big year for the scale-up, and 2023 is just 3Xing it. Again, that's all we do here. We've 3Xed in 2022. We 3Xed 2021, and 2023, the plan is once again on VINIA to 3X. Then in addition, we will be bringing to the North American market a grade of cannabis that the market has never seen before with a unique blend of cannabinoids that we are bringing to the market, which we shared to our investor partners about two, three months ago. That's a big focus for us in the second half of the year to start to execute and operationalize our three-pronged cannabis strategy.
(07:03):
But 2022 was a huge year for us from a cannabis commercialization perspective where we started off by demonstrating to the world how we broke biological barriers, how we made biological history by being the only company in the world that can grow trichomes in liquid media. In fact, James, we grow 93% trichomes. These are our dry trichomes here and-
James Black (07:32):
Ilan, what's a trichome? What's a trichome?
Ilan Sobel (07:35):
Great question. A trichome is a mini-factory in the cannabis plant that actually sits on the outside of the plant, and it's the mini-factory that produces the cannabinoids, the terpenes, and the flavonoids. And with our technology, we figured out literally in massive bioreactors how to grow cells of the cannabis plant and then to get these cells to grow trichomes, these mini-factories. Over literally a three-week period, we were in continuous flowering, which in a normal, traditional indoor agricultural cycle will take anywhere from 12 to 16 weeks. We do it in three weeks. Each one of our bioreactors, which is... I'm-
James Black (08:32):
Explain that to me. What's a bioreactor as well? That was one of my prep questions.
Ilan Sobel (08:36):
Right. Okay. Well, [inaudible 00:08:37] why the-
James Black (08:37):
What is a bioreactor? Is it a Petri dish, or is it something else?
Ilan Sobel (08:40):
Okay. It all starts in a Petri dish, okay? That's our process. And we have this unique capability to get out of the Petri dish and to just do massive scaling into large-scale bioreactors where the cells are suspended in liquid media. We're controlling all the critical variables that are so important for the overall growth and development of the cell and the elicitation of the cell, in the case of cannabis, to produce trichomes, and then for the trichomes to produce the different cannabinoids.
(09:15):
So we're controlling all these critical variables so that after three weeks, we have 93% trichome material that's then dried and ready to go to market, whether it's to be smoked, vaped, just consumed in a capsule. There's multiple different consumption routes that our material is able to perform. So it was a monumental year for us because we were able to be the first company in the world to be able to grow trichomes in liquid media.
(09:51):
Then we were able to demonstrate as well in 2022 the unique composition of our trichomes, getting to 36% cannabinoids. We took a hemp plant with 3% cannabinoids, and we moved it up to 36% with very significant levels of CBD, THC, and the varins, like CBDV, THCV, which you know today sell for 30, $40,000 a kilo. We have high levels of that in our composition.
(10:18):
So it was a major year for us from a manufacturing scale-up, a major year for us as far as building the commercial machine to be able to sell vignette direct-to-consumer and direct-to-doctor, which are our two critical channels, and a major year for us in cannabis commercialization, which, right now, we're busy double-downing on to bring our cannabis portfolio of products to market in the second half of 2023.
James Black (10:48):
Okay. That raises a question for me then. So did you guys learn something through the commercialization process of VINIA that you're now going to apply to your cannabis execution strategy for commercialization?
Ilan Sobel (11:00):
Yeah. Now-
James Black (11:01):
Is there something you can report from that to this?
Ilan Sobel (11:04):
It's a great question. We pride ourselves on being a learning organization. And so where there are learnings, we need to make sure we're stepping back and looking at those learnings.
(11:15):
I think there are a number of synergies between, call it our cannabis scale-up and our VINIA scale-up. Those synergies exist really in two major areas. Firstly, manufacturing, okay? Whatever improvements we do in driving scalability, in driving overall cost improvements on our technology... Because it's a platform technology, cost savings in our drive on VINIA, and we really focus on doing that, they literally go straight across into cost savings on cannabis, which is why we can produce cannabis today, we believe, at by far the best cost-per-kilo at scale versus all other players in the North American market. Manufacturing, there's a lot of learnings.
(12:06):
The other area where there are learnings from, I would call, a consumer and a route-to-market perspective is on the e-commerce side. In the last 18 months, we have an amazing team of marketing team and commercial and e-commerce team. We built an e-commerce machine, e-commerce demand creation and selling machine, which has just done an amazing job bringing people at the top of the funnel and moving them very quickly down into a conversion with conversion rates that are best in the industry, whether it's Amazon or whether it's our own vinia.com site.
(12:43):
So with those learnings, what it means now is with a customer base of north of 25,000 customers and growing by thousands every single month, we're laying the pipes into the North American market for us to layer on other products. So one of our core strategies in the broader cannabis strategy is entering into the market with unique hemp plus premium products with unique hemp-based cannabinoidal blends that the market has not seen before. Obviously, in the US market, it's federally legal, CBD plus. Therefore, we can push it through the same e-commerce machine and start to really leverage those learnings.
(13:32):
Similarly, we're also developing products, which bring the power of our cannabis proposition together with the power of our polyphenol antioxidant world because they go so well together in addressing a number of critical health and wellness indications. So where there's synergy and learnings, we maximize. In other areas where there are not, obviously, we have to go through the learning curves.
James Black (13:59):
Right. So why do you guys want to be in the CPG side of things and integrate that far down the chain? I mean, I'll let you answer it, but to me, I mean, it seems like you could have just licensed out the technology or wholesale sold it. You've decided to go direct-to-customer. What motivated you to do that, knowing full well your experience in a past life at Coca-Cola?
Ilan Sobel (14:21):
It's actually a great question. In routes to market, you have many different models. You have classic B2B models. Being more of an industrial product and ingredient, you have direct-to-consumer. We had to make some choices.
(14:39):
Now, we've decided in the case of VINIA to go with a strategy, which is direct-to-consumer-oriented. I think that was the best decision that we made back nearly three years ago in Israel when we first launched VINIA. In our first four months in Israel, we did roughly 100,000 US dollars in little Israel of sales orders.
(15:07):
I really realized the power of going direct because you're able to control the entire consumer experience. You're building brands. You're maximizing margins. Remember, we're in business to change people's lives, but, ultimately, we've got to earn a good return for our shareholder partners. So your margin optimization is there when you go direct-to-consumer, and you can do that efficiently.
(15:33):
Then there's the gift factor. James, what do I mean by the gift factor? The gift factor is really around direct-to-consumer. You get direct opportunity to get feedback from your consumers, whether it's emails to you, whether it's actual verified customer reviews, whether it's on the phone through your customer call center. That's really why today from feedback and understanding our customer base exceptionally well, we realized after being in this business for two years that VINIA as a product was delivering significant benefits outside of our core cardiovascular claim areas, which are driven off the clinical trials that we've done in the cardiovascular space.
(16:27):
And what we realized was the blood flow opportunity was so much greater given consumer needs around addressing major health and wellness challenges or related to blood flow. For example, we learned that there are many of our customers that are utilizing VINIA for health and wellness conditions linked to blood flow that we don't talk about because our clinical trials are not in that area.
(16:57):
I'll give you an example, erectile dysfunction. We understand today, and you can see it on Facebook, many people call us the purple pill because, at the end of the day, our clinical trials demonstrated that after taking one capsule of VINIA... And in one capsule, we have all the benefits of one bottle of red wine, no sugar, no calories, no alcohol, and the key benefits are derived from the piceid resveratrol. In one capsule, you have the same amount of piceid resveratrol as one bottle of red wine, no sugar, no calories, no alcohol, plus a matrix of other polyphenols including catechin, quercetin, anthocyanins, and tannins with amazing solubility and bioavailability.
(17:36):
What we realized is that as a result of our clinical trials, which showed our ability to increase the dilation of one's arteries by 70% versus baseline, after taking one capsule every day for 90 days, and with that increasing dilation of your arteries, you have way more blood flow in your body. The more blood flow, the more oxygen and more nutrients going to the body's tissues and orbits.
(18:03):
So we started to get feedback that, wow, this product is amazing to address, call it, sexual performance or erectile dysfunction, depending if you're coming in from a dietary supplement side or a disease side. We started to understand that consumers were using it for that benefit. We started to realize consumers were using it for gingivitis. Gingivitis is a lack of blood flow to the tissue around your teeth. We started to realize that consumers were getting amazing benefits from VINIA as a result of Raynaud's syndrome. Raynaud's syndrome is a lack of blood flow to your fingertips and to your toes.
(18:38):
So we started to realize, "Wow, the size of the prize and the opportunity isn't just around cardiovascular health and energy where we focused." And if you go to our website today, that's all we talk about, all right? And now, it's a huge space. In the US, that's roughly a $10 billion opportunity, but that opportunity could be extended with more clinical trials based on the amazing feedback, this gift, going back to the gift of feedback from consumers where we were realizing that our product was working in so many different areas that we hadn't really considered before.
(19:15):
So as we move forward in 2023, we're now going to do the required clinical studies to be able to demonstrate with empirical evidence the benefit of our product in these areas. Then based on this, we will decide how we leverage these learnings into either new products or additional claims we start to make on VINIA or even potentially to move up to look at the botanical drug route if we see that the studies are really able to deliver transformational results across the different indications that we're going to be looking at.
(19:54):
So it's super exciting. You can see we're operating as a supplement. We can move up as well into the botanical drug area, again, an area we're starting to really understand and spend a lot more time. But the good news is the hardcore revenue comes from the dietary supplement because that's revenue today and tomorrow. Obviously, on the botanical drug side, it's a longer period of time, and it's a longer bet. So in our financials and our projections, we don't even look at that. That's like icing on the cake.
(20:24):
Also, our B2B business. We do have a very strategic B2B business with our partner Batory Foods, who's the largest food ingredients distributor in North America, an amazing company. We've developed a very clear strategic architecture of specific categories and customers we're willing to actually partner with from a long-term perspective because, obviously, we want to partner as a intel inside in certain areas which are complementary to our dietary supplement business. We don't want to do anything that's going to be cannibalistic to our existing supplement business.
James Black (21:05):
Yeah, beautiful stuff. Obviously, just a little lesson at the beginning of that about parsing through data and avoiding confirmation bias so you actually can find new sales opportunities if you take a wider look at what it is your product is doing for customers. I think that's really important.
(21:21):
The unintended consequences of what that product could be doing for your business is... You got to have your blinders open. You can't have your mind closed to that. And that's about being willing to hear the feedback. I'm sure some of the feedback you got over the time wasn't all positive, and you have to be okay with that as well, right?
Ilan Sobel (21:37):
Well, one of the deep beliefs I have and just I guess a learning... Some people think I'm crazy about this, but that's fine. I'm happy for them to call me crazy.
James Black (21:45):
Yeah, fair enough.
Ilan Sobel (21:45):
It's that when you're building a business that's so transformational with the technology that we have, you cannot outsource your customer success side of the business because you have to be at the coalface, at that moment of truth with the end consumer or the end customer. You have so many of these companies out there that basically they produce, and they outsource, and they land up outsourcing so many of these functions.
(22:12):
We have an amazing customer success team led by Jackie. We have a large customer base, so we have a significant team. They're at the coalface of the business, and the feedback that we get is tremendous as it relates to our US business. In Israel here, we have an amazing team led by Michael and Itai. In the case of Israel, we actually also sell a lot over the phone.
(22:44):
Israeli market's a little bit different. We do about 60% of our sales over the phone, so we're talking directly with customers. We know for every single customer that's logged into our systems exactly why they're utilizing the product, how they use the product. Again, it's this feedback, it's this triangulation of data that really helps you understand the opportunities and to be able to really scale your product by making sure that one product is delivering on multiple different benefits of the consumer and having that interaction. So if there is ever a need to engage, you have that direct ability all the time.
James Black (23:21):
Yeah. I want to ask you about Israel. So from the cannabis perspective and its role globally, is Israel a place where great technologies are developed and then it's used as a proving ground? Or do you see it playing a different or bigger role in the cannabis space globally?
Ilan Sobel (23:39):
Israel, I guess in the case of cannabis, is a little bit different to other industry. In a previous life, I was high tech. Literally, from a high tech perspective, in all the areas that Israel is really strong in high tech, basically the R&D is all done here, and then given the size of the market, literally, all the pilot studies and the scaling happens outside of Israel. In fact, there are many Israeli companies that literally do massive exits, and they haven't sold one shekel inside Israel.
(24:12):
Cannabis is a little bit different because a couple things. Firstly, cannabis has an enormously rich heritage here in Israel. Professor Raffi Mechoulam in the late '70s, early '80s discovered the endocannabinoidal system. And as a result, there's really, I guess, a real pioneering spirit in the medicinal cannabis space here in Israel, and to be able to really push boundaries, whether it's in the area where we are, which is basically the botanical space, or in synthetic or biosynthesis. You have the whole spectrum here in Israel. Just given the rich history you have and the infrastructure you have, you have a lot of breakthrough technologies coming out of Israel.
(25:06):
At the same time, the Israeli market is a decent size market. You have 120,000 medicinal cannabis users here. The Israeli mindset is, I guess, more open-minded from an integrative medicine perspective than the more traditional markets. So you do have the opportunity in Israel to very much test and learn and then scale. It's a great laboratory, a testing and learning laboratory with a significant market to have scale, and then to just get success, and massively scale outside of Israel.
James Black (25:43):
Yeah, that's a great insight. And having done business there, I've seen it firsthand. In fact, I will be visiting you very soon, hopefully March, to see firsthand.
Ilan Sobel (25:51):
Oh, we look forward to hosting you at our state-of-the-art GMP facility. Obviously, no cameras. We'll have to search you Israeli-style just to make sure that you're not-
James Black (26:04):
Not my first time.
Ilan Sobel (26:06):
... infringing on our IP or anything like that, but we look forward to having the opportunity to host you.
James Black (26:11):
Okay. Well, that's great. You know what, Ilan? I'm going to leave it there. I think there's going to be more interviews. There's a lot to bite off with your company, BioHarvest Sciences, BHSC on the CSE, and obviously a lot more to come in the coming year. Hopefully, there's not so many deviations in the global market as far as conflict and disease. We can just get down to business and get things done.
(26:32):
Once again, thanks for joining us on the CSE's Exchange for Entrepreneurs™ podcast. Once again, this is James Black, your host. Thanks so much for watching.
(26:43):
Thank you again for listening to the Exchange for Entrepreneurs™ podcast, a proud presentation from CNSX Markets Inc, operator of the Canadian Securities Exchange. As a reminder, the viewpoints on this show do not reflect those of the exchange, and are solely those of the guests, and do not constitute investment advice. For more information about the exchange, and services, and listed companies, please visit www.thecse.com. Until the next show, thank you for listening, and don't forget to hit the like or subscribe button on your favorite listening platform. Thank you so much.