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VIDEO: Cronos Group Inc (TSE:CRON) Developing Biosynthesized CBD Products

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

Cronos Group Inc (TSE:CRON) (NASDAQ:CRON) (FRA:7CI) CEO Mike Gorenstein discusses the global footprint of Cronos and the opportunities legalization presents leading Canadian LPs. Cronos recreational products are available to customers in British Columbia, Nova Scotia, Ontario, and Prince Edward Island while the company’s medical products are available to patients across the country. The company’s Peace Naturals currently supplies medical patients with seeds and clones for home grow. Cronos has a partnership with Ginkgo Bioworks, the largest DNA printer in the world, to sequence Cronos genetics. Once sequenced, products can be replicated at low cost using cannabinoids and terpines, which have significant implications for the development of new medical treatments. Gorenstein believes Cronos will produce biosynthesized cannabinoids products within 3 years.

Transcript

James West:   Hey, welcome back to Midas Letter Live on this Legalization Day. It’s Mike Gorenstein is here; he’s the CEO of Cronos Group. Mike, welcome back.

Mike Gorenstein:   Thanks for having me.

James West:   Mike, tell me: how has legalization changed the outlook for Cronos?

Mike Gorenstein:   This is something we’ve been looking forward to for a long time; we’re extremely excited about. For us, this is really a watershed moment, and it means a few things. I think the first, the world is watching Canada, and we really believe that this is something that’s going to be a huge catalyst. There’s a global tailwind that we see, and this gives us the opportunity not just to start getting products out in Canada and start being able to really feed customers that have been looking forward to for years, but also to pilot products and be able to scale them across our global platform as other markets come online and take Canada’s lead and follow it.

James West:   Cool. So there’s a lot of – there’s sort of two camps out there. One camp says that this is all going to end in tears like the dot-com era, and the market’s over-bought and it’s just a matter of time. Then there’s the other side that says no, this is actually the evolution of a product the likes of which humanity has never seen before, and this is just the beginning. Which camp are you in?

Mike Gorenstein:   I’m in the latter, and I would say that, you know, it’s the evolution of a product, but it’s one that at least the base of it – you know, the original sort of non-disruptive product – the world has seen, and the world certainly uses and there’s a ton of demand for it. So you know, I think we’re going to see that continue to progress as we get into, you know, more innovative form factors. You’ll see this market continue to grow. And if you’re looking at it – and I think people just start looking at the industry and go, well, let’s look at where things are, and, you know, how many people are in Canada, but you miss that, you know, the Canadian LPs are really global companies now.

And this is just an opportunity to keep expanding, and we’re very excited. This really still the beginning.

James West:   All right. So, where can we buy Cronos products as of October 17th?

Mike Gorenstein:   You’ll be able to either go into stores in Nova Scotia, PEI, you can, of course, go into a store in BC or order online, same with Ontario, and then medical patients across Canada, and you know, unless you have viewers in Germany, it’s just Canada today.

James West:   Very cool. So you brought some product, here?

Mike Gorenstein:   Yeah, I brought you a gift for October 17th.

James West:   Look at that? That’s gorgeous packaging; is this something that one can purchase? Whoa, whoa, functional food – I see what you mean! It’s a chocolate bong, how about that! Now, is this something that we can buy online at Cronos right now?

Mike Gorenstein:   This is not, this is, you know, when we think of Cove, the brand, it’s really about making each experience a discovery. So you’ll see a lot of things where, you know, it’s not, again, just selling flower; it’s discovering new experiences. We really take an explorer mindset, and so you know, there are a lot of different things we do with the brand. It’s really, overall, about building this relationship with the consumers, focusing on the experience, and we have a lot of interesting things in store.

James West:   Sure. So this isn’t something I could actually pack that bowl full and light her up, is it?

Mike Gorenstein:   Uh, I think you probably can.

James West:   Really? Would it melt the chocolate? No, I guess not, eh? Interesting.

Mike Gorenstein:   I mean, look: we can’t infuse chocolate for another year or so. It doesn’t mean that you can’t.

James West:   Good point.

Mike Gorenstein:   But what you do, we’re disclaiming anything, so that’s up to you.

James West:   Sure. One of the questions I’m asking all the LPs on this historic day is, are you guys going to be in the market of supplying clones to people who want to grow at home, or seeds, or anything like that?

Mike Gorenstein:   It’s something that we actually do for medical patients through Peace Naturals, and you know, we have for, you know, quite a long time. But as far as the recreational market, our focus is really on flower, pre-rolls and oil.

James West:   So if I was a medical patient/client of Cronos, I could order four clones?

Mike Gorenstein:   Yeah.

James West:   Really? Well, I’m going to sign up tomorrow. I’m feeling very painful in my back. Interesting. So you guys have really started to make some lateral moves in the industry, and I’m really interested particularly in the Gingko Bioworks one, because of the implications. And obviously the sort of objective of that is sub-penny per gram of input cost for cannabinoids, or something like that, is that accurate?

Mike Gorenstein:   You know, for us the objective, we really think about, you know, what’s the vision, where do we want to end up? Cost of production is really execution of that vision, and for us, it’s being able to have something that’s consistent, so then it’s scalable. And really something that allows us to differentiate the products. So being able to get access to these other cannabinoids – THCV, CBC – is very, very important to being able to give people different experiences. And it’s really that focus on different occasions that we care about, and certainly, you know, in order to that and make the products affordable, it does help to be able to have a more efficient input cost.

James West:   Right. So tell me about how the Gingko system works. Like, what is the process that they actually employ? I know I’m comparing it for the sake of comparison to Hyasynth Bio, who grows cannabinoids using genetically modified yeasts and enzymes. How does that compare to Gingko’s system?

Mike Gorenstein:   So you know, Gingko, it’s a unique platform. It’s an established sort of – it’s the largest printer of DNA in the world, so between 38 and 40 percent of the world’s DNA is actually printed by Gingko. And really what they’re doing, and they have this metagenomic library. And if you think what a metagenomic library is, all these different organisms in nature, and it’s really a database they can search through. And what we’ve been doing at Cronos over the last year and a half, two years, is doing genomic sequencing of all the different genetics that we have. And we’ve mapped out the actual metabolic pathways, the biosynthetic pathway, how is THC produced, how is CBD produced, what enzymes, what mutations, change that efficiency.

We’re then cross-referencing it. And about a quarter of Gingko is actually their computer programmers, right? So it was founded by five MIT PhDs, and mixed between biologists and artificial intelligence guys. So it’s really the sorting through that data and then figuring out what are the most efficient genes, really, that you’re going to put into a cell, and you’re printing different DNA sequences. And what’s unique about Gingko is really the speed at which they can test out these strains.

So tens of thousands, you know, in a month, and it’s the highest throughput we’ve seen. So you’re basically siphoning through all these different potential strains and picking what the most efficient one is, and similar to Hyasynth, you know, any company that would biosynthesize really anything using engineered yeast.

But what’s really important isn’t just the yeast, it’s what the actually DNA you’re printing. So rather than doing this by hand, like PhDs wold do – going okay, let’s move liquid to liquid and see what happens – they’re using a whole system of automation, robots, and really computer program to accelerate that.

James West:   So better chance of knowing what you’re going to get as opposed to seeing what you get after the fact?

Mike Gorenstein:   Right, it’s increasing your shots on goal, and I think that’s what’s important. And really, half of the work is done because of what they’ve done with terpenes. I think we’ve talked about before what they did with Roberte and rose oil, being able to make these different terpenes. And you know, that’s applicable. You can use a lot of that technology, or that code base, you know – it’s just like computer programming. When a lot of the work for a website is already done, you can still pull from that code, and DNA is really just a code.

James West:   Interesting. So then, does that mean at some point in the near future, I’m going to be able to look at my wall and say, Joint, White Widow, 15 percent, Joint Size, you know, X, for one, and it pops up like a replicator on Star Trek?

Mike Gorenstein:   Well what we’re doing – if you think about what White Widow is, right, like what do any of these strains mean? And there’s probably 50 different White Widows; what it is? It’s really, you pick a strain, and if you want to know what’s really in that strain, you take it to an HPLC machine, you know, you go in one of the labs, and you can test it out.

James West:   HPLC?

Mike Gorenstein:   Yeah, it’s one of the methods for lab testing. So you go to a lab, you test something out, and you find out there’s X percent THC, CBD, CBC, THCV and a lot of these minor cannabinoids really do – it’s what people refer to as the entourage effect. But they really, it’s like the ingredient list.

So, once you understand that ingredient list, you could pick the best White Widow you’ve ever had, and as long as we had the opportunity to take that, test it, we could then replicate that using different cannabinoids and terpenes.

James West:   Okay.

Mike Gorenstein:   So we won’t actually be making the flower; flower still will be grown, and you know –

James West:   Okay. So you’re just making the elements.

Mike Gorenstein:   So right. So one of the things we do now is strain-specific extraction. So our oils will replicate the effects you would have from the flower, because we take out the terpenes, take out the cannabinoids, and we then re-combine them to give you, you know, that same experience. We can then, instead of having to extract from the plant, accomplish the same goal using biosynthesis.

James West:   So I guess this has profound implications for medical science in that we identified some of these minor cannabinoids have a very positive effect on certain cancers, and other sort of life-threatening illnesses.

Mike Gorenstein:   Absolutely.

James West:   And is that sort of part of Cronos’ game plan, is to focus on, perhaps, the generation of proprietary molecules that you can patent as a medical sort of biopharma company, as a result of this relationship?

Mike Gorenstein:   That’s certainly a part of a bigger-picture strategy, but we’re actually doing right now, these cannabinoids, they exist in the plant today. And you know, one of the things that’s important for path to market is that, you know, under the Health Canada regs – and we expect those regs will be mimicked elsewhere – is, it’s a phytocannabinoid. So the THC that we’re producing is identical to the THC that you would get from a plant. It’s not a synthetic; biosynthesis happens inside of plants. So we’re really producing the came cannabinoids, it’s just the efficiency and the purity that we’re able to accomplish it at, and instead of having to build massive grow facilities and massive extraction labs everywhere around the world, we can go to use existing infrastructure and really replicate it.

But you know, what’s important is, how do those cannabinoid mixtures work together to deliver the effects you’re talking about? You know, what we’ve seen is, it’s not just cannabinoid isolates. So that’s actually work we’re doing in Israel right now for topicals, for example, where we’re actually creating organoids, which basically is, we’re creating a cell. So you create a disease cell with acne, for example, and once we have this organoid, we’re using all these different iterations of cannabinoids, in isolation and in combination, to understand what actually will un-block pores.

So it’s the same thing: you’re using data, and you’re getting more shots on goal, rather than having a theory, testing it out over years. We can actually accelerate that model.

James West:   Hmm. That is some fascinating shit, Mike, there, I got to say. So okay, so how soon till you actually roll out a product with biosynthesized cannabinoids in lieu of plant-generated cannabinoids?

Mike Gorenstein:   Sure. So you know, we say three years is the timeline for a commercial scale. Now what we’ve seen is, that can rapidly accelerate, especially given Gingko’s platform. You know, that’s sort of an assumption based off of how many iterations till we get to what we think is the optimal strain; it’s possible that it’s earlier, but I think that’s the time frame that we use, and it’s a probability, not a certainty. But that’s, I think, our best estimate.

James West:   Okay. Well, sounds like as ever, you guys have a million things going on, and it’s fascinating to hear about it all the time. Mike, we’ll come back to you again in due course. Thanks for joining me today.

Mike Gorenstein:   All right, hey. Thanks for having me.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.