VIDEO: FluroTech (CVE:TEST) Launching Cannabis Testing Devices

Midas Letter
Midas Letter
VIDEO: FluroTech (CVE:TEST) Launching Cannabis Testing Devices

FluroTech (CVE:TEST) COO Rex H. Kary explains the company’s target markets and main products ahead of its October product launch date. FluroTech’s primary target market is growers; its products reduce growers’ average testing wait time from 10 days to 15 minutes. FluroTech’s device allows growers to test for THC/CBD potency and for contaminants such as heavy metal and pesticides. FluroTech is using this existing technology to develop a roadside test for law enforcement agencies, which Kary estimates is a $150 million market in Canada. FluroTech’s biomarker allows producers to put unique signatures on plants at the cellular level, enabling producers to track their plants through all levels of production and acting as an anti-counterfeiting measure to aide law enforcement agencies.


James West:   Hey, welcome back to Midas Letter Live. My guest this segment is Rex Kary; he’s the Chief Operating Officer of FluroTech, which does cannabis testing, and they are publicly traded on the TSX Venture under the symbol TEST. Rex, welcome.

Rex Kary: Thank you. Thank you for having me this morning.

[stock_chart symbol=”TEST:TSV” align=”left” range=”1M”]

James West:   You bet. Why don’t we start with an overview exactly how your business runs, and what it is you do.

Rex Kary: FluroTech is a startup. What we do is, we test cannabis with a device; that technology came from the University of Calgary. It developed into a device that will test plants; we can test for THC/CBD potency, and then we can test for contaminants such as heavy metal, pesticides, microglutenol, ethyl toxins…we have whole range of tests that will come through.

James West:   Interesting.

Rex Kary: When we’re testing, we actually reduce the plant material down to a fluid. Because it’s in a fluid, the step for us then to take it to saliva is actually fairly easy, so the next product that we’re coming out with is a roadside test, and we’ll have roadside tests that will go with law enforcement that’ll be coming out by the end of the year. Once that device is complete, we then take it to the industry for industry testing anywhere that there is hazardous or safety-related jobs.

James West:   Oh, that’s interesting. So that solves two big issues. I mean, in Canada, we’ve got testing pretty much under control, but I know in California, for example, the increased testing requirements have caused 80 percent of the supply to be illegible for distribution through the medical system. So is that your target market?

Rex Kary: Our target market right now is the growers, when we’re testing the plants. And the large problem that growers have right now is, when they’re sending the tests off to certified labs, there’s a wait time. It can be anywhere from three days to three weeks; we often hear of 10 days. What sets us apart is, we’re an in-house testing system, and the results are in 15 minutes.

James West:   Oh, wow.

Rex Kary: So often when I talk to producers, I ask them how often they test, and they said ‘we test just before we’re ready to sell, so that we’re compliant’. When I ask them how often would you test if you could be testing or get the results in 15 minutes, they said ‘we’ll be testing something near every day’. We look at it that it’s going to change the way the producers actually conduct themselves. If they’re able to get tests and see the results in 15 minutes, they can start to optimize their crop. They can change the lighting, they can change the water. They can actually find the optimum time for harvest. We’ve got some clients that are wanting to test for early detection of heavy metals such as cadmium. Cadmium can be carried through in some of the nutrients; they want to see that in the first week of growing rather than after the harvest has been completed.

James West:   Sure.

Rex Kary: So it’s both a risk mitigation as well as a optimization for them.

James West:   Hmm. So is this, then, the fastest way to test your cannabis for all of these substances, for THC/CBD content as well as pesticides? Is this the fastest technology available?

Rex Kary: I don’t know if it’s the fastest; it’s certainly one of the most accurate. We only test one thing at a time, but because we only test one thing at a time, it’s extremely accurate. As an example, when testing in for heavy metals, much of the regulation is in parts per million; ours tests in parts per billion. And the test, from start to finish, when I say it’s 15 minutes, 10 minutes of that is just in preparation of the sample. When it’s in saliva, when it’s already in the solution form, so it’s down to about four minutes.

James West:   Right. Okay, so if I wanted to test some cannabis that I’d purchased from an illegal dispensary, or from a legal dispensary, would I be able to send it to you as a service and you would test it for me and tell me exactly what it was made of, and what the contaminants might be?

Rex Kary: No, we are not a lab that you send – that is not our role. Our role is to sell the device to growers so they can use it, or extractors.

James West:   Okay. So if I’m a dispensary operator and I’m intaking product from a range of suppliers, I might want to have this advice so I could actually know what I’m getting.

Rex Kary: You may very well want to have this device, and you could check the potency clearly. And more importantly, if there is any suspicion of any contaminants, you can check that very accurately.

James West:   Interesting. And so how much does it cost to test a sample?

Rex Kary: Our model is, we sell the device itself; the device currently the pricing is going to be finalized in October, when our first sales will be, but it will be in the order of $20,000 for the device.

James West:   For the device.

Rex Kary: And then there’s a consumable that goes with it, and that’ll be in the order of $50 to $60 for the consumable.

James West:   Okay, so $50 to $60 per test. And so where will these products be sold?

Rex Kary: Originally we were going to be going into market in November; it’ll be in Canada, Western Canada. Q1 2019, we’ll be coming back to Ontario and Quebec, and then we expect a lot of the micro-producers, or the craft producers, will start to open, and we’ll be surfacing those clients. Later, in the last half of 2019, we’ll be going to all other jurisdictions that are legal, to begin sales there as well.

James West:   Okay. So how many devices are actively in use by police forces in North America now for roadside testing of sobriety?

Rex Kary: There’s only been pilot programs. There has been some devices gone out; they have tested some other companies, or some roadside testing. But it would be just a nominal amount for testing the devices to see if they actually work.

James West:   Right. So there has not yet been a device tested that has been then subsequently commercially adopted by a police force for regular use?

Rex Kary: I understand that there is one that may be adopted by the Federal government, and they’re in negotiations with their agreement. What we have been told is that the Federal government will probably take three or four different companies; it makes sense not to have a concentration risk of your supplier. One of our Board members on our company, Rick Hanson, was the former police chief in Calgary, and he’s been a wealth of information to help us develop this device.

James West:   Interesting. So of the two sort of business lines, which do you see being the most lucrative for the company going forward?

Rex Kary: Actually there’s three business lines, but I’ll come back to that. There are really different markets. Testing the plant and going to the growers, we have been told by, we’ve researched many reports, and it looks like about 5 percent of the overall cost or the retail value of cannabis will go into testing. So for round numbers, if we got a $6 billion market in Canada, that’s $300 million; how much of that would be in-house? A third to half of that is in-house. So the market is about a $150 million market, just in Canada. When you extrapolate that out to other jurisdictions, the numbers become quite staggering.

James West:   Right, okay.

Rex Kary: The roadside testing, last reports I saw, the Federal government was budgeting in the order of $80 million for roadside testing.  Just to –

The third product that we have is, we have a biomarker. And what we do is, because we can test and we can see anything that we’re looking for, we can put an attribute into the plant. So a water soluble, something that is absorbed into every cell in the plant. Then we can see it. So what this is does is, it would be like having a diamond and it’s got a polar bear etched into it; you know it’s a Canadian diamond. This allows any producer to put their own signature, their unique signature on that plant, and then track it all the way through.

James West:   At the molecular level?

Rex Kary: At the cellular level.

James West:   The cellular level. So would this be something that could be used in life sciences medicine development? Like, we’d want to see where this molecule, how it affects cells in different parts of the body?

Rex Kary: Where we would actually be used probably in a greater part is in law enforcement and in customs. They’ll be able to detect if it has been produced by a licensed producer or it’s produced on the black market. What we have been advised is that there is some black market are using counterfeit packaging. So this allows the manufacturer or the producer to not only track the package, but to track the plant, as well.

James West:   Interesting. I see. So can I buy one of these devices, because I encounter a great deal of product that people bring to me and say, you know, this is the best you’re ever going to have, this is organic, this is sun-grown with no chemicals, and I would love to have – like, there’s nothing to stop me legally from buying one of your devices and having some guy make a representation about some product and me testing it on the spot, is there?

Rex Kary: There’s nothing stopping you at all.

James West:   Here’s my – I’m placing one order for one machine, please.

Rex Kary: That is great, because I’ve been telling everybody, Halloween we’ll make our first sales. So you’ve just upped the game for us.

James West:   Yeah, no, there you go. I love the fact that I’m at the front of the line now. So Rex, you are just starting up; you haven’t sold any machines yet. You’ve got a working, tested prototype that is ready for commercial distribution?

Rex Kary: That’s right. What we have is the first set, first series of production is underway; actually I just got the email this morning that all parts are in.

James West:   Oh, great.

Rex Kary: So the assembly of it will occur through September, and when it’s assembled, we do have to have some approvals of the CSA approvals; it is an electronic device. So we’ll be going and getting our approvals completed. While we’re doing that, next week we’ll be going to five LPs, and those five LPs will take the device and look at our tutorial apps, run it, go through the traps, and make sure it does everything we say it does. We believe that anybody can watch the app and, within 15 minutes, conduct a test.

James West:   Oh, wow.

Rex Kary: And then ensure that the packaging is working as well as we expect it to work. Once that’s complete, there’ll be heavy metals this week, THC and CBD will come out just shortly after Labour Day, and then we’ll finalize all of our packaging, finalize our pricing, and be ready for market November 1.

James West:   Interesting. What’s the margin on your devices and on your consumables?

Rex Kary: We exceed 50 percent.

James West:   Okay, great. Well, that’s really great. I mean, I see that the company has recently started trading, you’re new to the market, and I’m kind of excited about this product because it’s something I’ve been looking for. And so I’m going to follow the story with interest, and I’m going to invite you back now in four months’ time and when you’ve got a product, bring it with you, and we’ll test some product on the show.

Rex Kary: I look forward to coming back. Take care.

James West:   All right, thanks, Rex.

Rex Kary: Thanks.

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