Cura and welcome to this episode of Shed Lunch where we delve into the world of medicinal cannabis. It's a market that's said to have lots of promise, but it's proving quite tough for New Zealand companies. I'm Helen Madison and I'll be talking about this topic. We see you are rue of Bioscience, Paul Neasky.
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Welcome Paul. How are things in the Escape today?
Ellen?
A little bit wet and overcast, but we're boxing on. We've had our fair share of RAINO the last few weeks.
So Paul, before we jump into finding out what Ruer Bioscience does, tell us about your background and how you came to be in this position.
Yeah, good question.
I think my mother asks me that quite a bit. Actually, how did you end up being CEO of a cannabis company? Yeah, so I've lived in Tarrafti for ni on eighteen years. In that time, I've got to know a few people and done a bit of business here. And as Marnham and Parnaper, who were the co founders of the company, started the company, they reached out to me in the
early days and sort of said can you help? And I thought that what they were doing was excellent and brilliant and I'd been watching what they'd been doing and it was super exciting.
So your background is it forestry and what else would you say that you've done? What's your skill set?
So yeah, I did a forestry degree in Australia many many moons ago and came over as a young graduate in my early twenties with Fletcher Forests, and I started off in forestry, but I moved into sales and marketing roles, business development roles, then Fletcher Paper and then Fletcher Building corporate roles, management roles, and so in tai Arfiti, I moved to Tyrafiti work for an agribusiness corn company and from there did a little bit of other consulting work and then landed myself.
In medicinal cannabis.
So I've got a well rounded set of skills in terms of business. So I've done a bunch of different things.
There's a number of companies in New Zealand in the medicinal cannabis market, as it were, all there supplying that market. At least three of them are listed. Your model is slightly different and it's changed recently, so can you tell us about that model? But also how are you different from your competitors?
Yeah, a good question.
Well, oll, we have changed and we listed in twenty the end of twenty twenty, and we started off like a this is a new industry and no one really knew how it was going to go. But we started off with a sense that we wanted to test manufacturing and test cultivation, and so we set up small cultivation
and small manufacturing facilities in our region. And we've subsequently, as we learn more about the market and you delve into the nuances of the market and how it's all going, you soon realize that actually we've taken a view that New Zealand is not going to or we won't be able to get a great return on capital if we manufacture products here in New Zealand.
You've heard it ad nauseum.
The regulatory environment in New Zealand doesn't lend itself well towards export, and yes, there has been some changes recently, but as you sort of work into the big wide world of cannabis, that's a very competitive world out there, and New Zealand is going to be a minnow in the scheme of things. So we've taken a view that we can't really get a return on capital for manufacturing products here in New Zealand, and we looked at our strengths and we've got sort of our home and heart
is in real Tortia. As you know, the founding story of the company is about the dream of creating jobs for the people of the East Coast, particularly Rhuatoria, and building on the strengths of the community as it relates
to cannabis. And so we looked at what we were good at relative to others and we've landed on a business model which, yeah, it is different, and the way it's different is we've we've if you think about the value chain of like normal agribusiness, like if you took apples, for examples, you'd have apple seeds and then you'd sort of grow apple trees and then you'd create apples.
Which would go into apple products.
What we've done is we've sort of said like that that middle part of commercial cultivation and commercial manufacture, we're not going to do that.
We're going to outsource that to others. But what we're really good at is we've got some.
Links with good apple seeds or good cannabis genetics, and we've got distribution agreements with partners in the market, so we know sort of what distribution agreements distribution companies look like in overseas jurisdictions. And so we're going to outsource the capital intensive heavy bit in the middle, which is cultivating the apples or manufacturing the apples into apple pies if you like. But we're going to link our apple seeds cannabis genetics with apple pies or cannabis products in
different markets around the world. Now that means we reduce the amount of money it takes. And so we've got a small team which works with cultivation partners to take our genetics and turn them into crops and products for overseas markets.
What do you define as cannabis genetics just for listeners, so we understand.
Yeah, well, cannabis genetics is either like a cannabis seed or a small cannabis plant, like if it was an apple, an apple seed or a small sort of apple plant ready to go. Cannabis is easily cloned, so you can sort of take clones and tissue cuttings off the plant and export that, or you can sort of go to other people and so to say take this plant and propagate it into a commercial crop, please.
So that's what we're doing.
So are the hundreds of varieties of cannabis in that you could be finding unique strains and you're discovering and breeding those. That is that a fear summation of what you're doing?
Hundreds probably thousands, like yeah, and it's really it's it's fascinating because you know, like apple's there's like standard breeds and Cawi fruits have got certain varieties, and but like cannabis is is it's really exciting because it's been in the black market for nine on seventy years all around the world, and like you've got this whole industry which is essentially coming out of a black market. So how do you define a cannabis variety is a real curious question.
So there's lots of people who've been growing cannabis, as we know, in the community for like all those years, and in the black market, and so it's they've got varieties and cannabis genetics that they've been breeding for a long period of time. So we're using some of those and taking them into the market. And New Zealand's really quite unique New Zealand. One of the good things about the New Zealand regulations that they put.
In place that.
Was the fact that you're allowed to under the regulations bring illicit genetics from the black market into the legal framework and all of a sudden, it's legal now Canada, but Canada had a similar amnesty situation, but that lasted
for six months. But what we've done, we in New Zealand have a permanent amnesty if you're like so with links to the black market and links to some illicit growers, we can bring varieties into the legal framework that aren't necessarily available to other consumers around the world or patients around the world.
Now, there's also a couple of aspects to your model. There's a breeding and development which you've just explained, but there's also you on sell products from other manufacturers. Can you tell us a bit about that?
Yes, so part of our strategy.
So what I just outlined is our is our absolute commitment is to take strains from our community, varieties from our community.
Outsource the cultivation.
And manufacturing, and deliver those products into the markets that we choose, which is UK, Germany, Australia and New Zealand.
But of course that actually takes time.
Now, the thing with cannabis, it falls under a medicinal or a pharmaceutical regime that the process of doing that takes time. But in the meantime, heck, we need money. We're absolutely focused on sales and revenue and getting a return for our shareholders in the very short term. What we do is we call it we set up the pipelines, and that's basically ensuring that within each of the key
jurisdictions that we operate in. In the first instance, we might have to buy someone else's genetics if you like, the apple seeds, if you like. So we use someone else's to get the pipeline going, and then we are filling those pipelines over the next one two, three years with genetics from our community. So that's quite that's quite different. We're sort of not sort of saying we're going to
manufacture everything ourselves. We're saying we're going to work with other manufacturers and cultivators to create products using our genetics.
So we think about those markets, then whats of relationships you have in those markets with new distributors. I mean, how does that work, because that's pretty key obviously if you're wanting to generate revenue and also what would be the revenue split. I mean, as you say the cultivation or the breeding sorry and the like does take time at the moment, would be the revenue that's coming more from those cultivars and the light that you're sourcing from other companies.
Well, look, if he questions about like.
Where do we think the relative profitability and sales are going to come from in the future, just walking through it, we've got four key markets that we're focused on Germany, UK, Australia and New Zealand, and we think fundamentally in the short medium term Germany and Australia are going to be the key key drivers of revenue and therefore associated profit margin. Germany, we launched our first product there last year. We're launching our second product there in Germany next week, and that's
a really exciting market at the moment. As of the first of April, the regulations changed in Germany which allowed cannabis. Like, there's a lot of detail, but fundamentally, what it's meant is that cannabis is now more widely prescribed than it was before the first of April.
There is very.
Strong demand in Germany and launching product.
Can we just be clear the reason that is in demand is for what mainly pain relief?
Yeah yeah, yeah, pain relief.
It's all through a medicinal framework, so you have to have a doctor's prescription no matter what. So what's happened is because, like I said, it's a little bit in the.
Detail, but it's it's rigid.
It's come down the schedule of controlled drugs, which has made it easier for prescribers in Germany to prescribe cannabis.
And what that's done is.
It's opened up opened up more patients and more avenues for doctors to prescribe.
It's a little bit easier.
So what's that You've got an increase in demand since the first of April for patients predominantly, seventy percent of the prescriptions are for pain relief, typically chronic pain. You've got a next twenty or thirty percent is for anxiety stress PTSD, those sorts of conditions. So Germany is a very strong market at the moment and we're really excited to be actually putting a product in there next week.
We think that that's going to go really well.
Nimbus Health where are distributors over there, really supportive, extremely professional, and we've got a really good relationship with them, so that'll go well.
Australia is.
A very big, strong, growing market. It's got lower regulatory hurdles, easier to get into the market, so it's actually a lot more competitive. And we've got a guy on the ground over there who is our business development manager and he's got a number of distribution channels that we work with and the sales are growing over that over in Australia, but it's a slightly different environment insofar as the regulations
that are in place. So because of the size of it, we think it's just going to be a bit of a cornerstone of our revenue and profit margin going forward. And those are the two, like Germany and Australia are the big ones, and then you've got UK, which is in general terms, i'd sort of say two or three years behind Australia and Germany in terms of its growth. It's got a different environment so far as the specialists
have to prescribe the product. But what that means is is that as they build up the systems, that's only going to yield growth in so far as it's a very big market. You've got a population of sixty sixty odd million people and we know that there's demand and the graphs are all going up in the.
UK that BIG's a question too about New Zealand is if those are the three markets, with Germany and Australia being the top ones, is there any potential here or is it more that you're focused on the export well.
From an early early stage in our development, we've always realized that we have to focus on export markets to get a return on capital. I love New Zealander bits, it's awesome, and we will be bringing product to the New Zealand market, but we're never going to be able to get a return on capital that we need we focus on export markets and so yes we will be we will be bringing product to the New Zealand market.
In fact, we've got to approved recently by the New Zealand Ministry of Health or Medicinal Cannabis Agency, and those products come in to market very soon, but we do know in our spreadsheets and our graphs it's always going to be a lot smaller. It's the population, of course, but it's our home market and we have a compassionate access program here which we certainly want to support local members of our community. So yeah, and in terms of profit margin, it's number four, but it's necessary.
And we're talking cannabis oil, are we and the flowers? The dried flowers. Is that what a patient might use or a doctor might prescribe.
Yeah, So the product formats in all four key markets, you pretty much have two main product formats. Dried flour as a herbal medicine which you would vaporize, and oil which you would put under your tongue oral oil basically, and those two formats are the dominant ones. You're seeing a lot of growth in Germany and dried flower formats and that's where our genetics from the community sort of play into that sort of format more so than the oils.
Okay, So in New Zealand, particularly with the listed companies, it has been pretty tough. As I said at the beginning, you've got a number of companies and we've had quite a tough time in terms of raising capital for those companies. Sheer prices have been in the dul drums. Let's get real, there's been nothing too great there for retail investors. You're pretty confident that you can turn things around. We've obviously
had recently with cheeses investors. A lot of them are in Canna South and they have obviously in bonduntary administration. So the environment is quite tough and particularly for retail investors trying to figure the out. But you you seem to think that right, okay, we've changed our model, we can actually go of a different path, and you're pretty confident that you can, you know, reap some rewards.
Oh look, I'm extremely confident because we took a really hard decision as a company eighteen months two years ago. You know, there's a tough decision to shut down our manufacturing because you know, I mean I myself basically designed it, planned it.
We've been working.
For years on what we're going to do in manufacture in New Zealand and that was the hope and the dream.
But is that the real plant?
Paul Letson Realtoria, is that the no, this one's in Gismon, So just a Yeah, we've got two facilities a cultivation and realtorting and manufacturing which looks like extraction and bottling an aspect like that in Gisbon.
So we had to shut the Gismond one down. I mean, the reality is costs a lot of money. So we made the decision about eighteen months two years ago. And we've been talking with this tub is in Germany and Australia for a number of years, so we're sort of we understand where we think we can add value. So so yeah, I'm confident because A we've got a low cost base and b we're in three markets now and by October we'll be in the.
UK with a portfolio of products. So in three to.
Four months time we'll be in four markets with four revenue streams. Now the challenge will be like growing those sales and telling the rule story. And we've got some we've got something different. We're actually different to many other cannabis companies in New Zealand and around the world insofar as we've got genetics on the front end of the value chain and we've got distribution channels out the other with a strong grounded brand in our values basically and
we're linking the two of those up. There's lots of companies who do distribution, lots of companies have got brands, lots of company are telling a unique story, and lots of companies are doing genetics on their own. But there's no one doing genetics on the one hand and putting that through a value chain and branding it out the other end with a strong New Zealand centric brand focused on sort of our founding community and telling that story proudly.
So yeah, I do think we're extremely different, and I do think we've got a bright future for sure.
No one's saying it's tough, not tough.
It's definitely tough, and I honestly we've been at this for five years and look at where we are now. We're still like some of the markets where we're just getting into the UK. So it's long and tough and arduous, and that's necessarily it's the face of this industry because of the fact it comes under a pharmaceutical medicinal regime.
I mean, there's no I mean, I can't change the regulations as much i'd love to, but we're playing within the sandpit that we've got, and within this sandpit We've got some fence posts and some guardrails which are governed by governments and regulator around the world, and we've just got to play with that, which means, yes, it does take time. And I'm really sorry to investors for that, but that's the reality.
These things just do take time.
I suppose there will be some proof in the pudding, and maybe it's too soon come into August when you announce your full year results. I see that you don't give forecasts. That's quite tough for retail investors. I mean, how do they become informed and how do they know that what they're backing, you know, has some substance if.
You like, Yeah, that's a good question. We're loath and reluctant to put out forecast. This is like, I mean, I still think this industry is a very new and early industry. We're starting to bed down some of the pipelines and bed down the processes and it's.
Becoming a little bit more systematic and formulae.
Just wondering though about your model you talk about in your commentary being capital like, can you kind of explain what you mean by that?
Well, we've got very low overheads, we've.
Very small number of employees relative to our potential. I mean we've got I think thirteen people, not all full time. We as I said, we've closed down our manufacturing facility and we're looking to sort of capitalize on that and sell that and turn that into cash.
We've got our Rualtoria facility. When we built the Rualtoria facility, we're.
Well conscious of sort of saying let's let's let's not over capitalize, which build a small, minimum viable sort of operation sort of to prove, to prove what's possible, because we didn't really know how the regulations we're going to go. No one knows how the market's going to evolve. So that's what we mean by capital We've spent small amounts in Rutoria and we've got a small team. We don't have a large manufacturing environment, so that's what we mean.
What about cash, Boon and Kesh, if you don't give forecasts, can you tell us a bit about those?
Yeah, So I mean I can answer that sort of. You know, over the last eighteen months.
To two years, we've reduced our cash bean by about fifty percent were we were consuming about you know, three point eight million in cash in a six month period.
Two years ago.
Now we're down to less than half that, at sort of about one point six million in a six month period. So yeah, we've taken the view that we cannot keep spending the amount of money.
That we were inevitably leads me to think that you probably need to capital raise. I know that you are looking at various options. Can you shed any light on that for us?
Well, no, I can't really go into a lot of details, suffice to say that yet we are looking at options. I mean I look at all the options for our cash in and our cash out, and as we increase sales, obviously we need less cash and we're on the cusp of increasing sales as sort of in Germany in the UK. So yeah, at this stage, nothing much to add apart from we're in conversations with larger shareholders of course looking at options. But yeah, nothing more to add than that.
Just one thing too that might be or might not be material, is that I know you've got a bit of a court case happening in Victoria and Australia with a supply agreement. Can you give us any update on that.
It's with the lawyers, we're going through the process. We feel like we've got a very strong case, but yeah, we will inevitably end up in mediation and they're not too distant future, and I suppose after that mediation we'll have an update for the market.
Then what I can.
Say is we've basically it's a disagreement over the territory. We feel we've got rights to the Australian market, and yeah, we're we believe we've lost out because of that.
If we look at the Australian market, though, you do think there's promise there in terms of both supplying the genetics and also selling hot act.
Look, and I'd say, like for all markets, that there's one there's one fundamental thing about all the cannabis markets that we operate in and probably all the cannabis markets that we don't operate in that you know, across Australia and New Zealand, Germany, in the UK, A lot of the data that I've seen is that the current medicinal cannabis market is approximately ten percent of the illegal black market.
So there is what's fundamentally driving it is that the legal framework is in almost every jurisdiction in the world is opening up the pie for legal cannabis is only going to get bigger from this point on, and you were seeing that in Germany and what that is having a flow on effect to other markets in Europe, for example France's and January twenty twenty five loosening its grip insofar as it's now allowing specialist doctors to prescribe medicinal cannabis.
Just to finish pool, I want to talk about what you're bringing to the community, particularly Rebatoria, the use cape and also I think we talked about the sponsorship of patients for those who need medicinal cannabis but perhaps can't afford it because I imagine it isn't subsidized in this country. Can you enlighten me there.
Most medicines have lots of clinical trials, lots of data, lots of evidence backed up by years and years of research. Medicinal cannabis by virtue of the fact that it's been in the black market and there's not a lot of research being done on it, it falls in an area called Section twenty nine or an unapproved medicine, so it falls within an area of medicine that basically means that patients.
Have to pay for it. It's private pay.
And that's the same in the UK, same in Australia, same in New Zealand. So so, but we know it does have benefit for a number of a number of patients. And when the company was started, when we got our first products into the market through our own manufacturing, Yeah, the company started a compassionate access program responsor thirty patients in our community that can't afford it.
So it's all driven by doctors.
If a doctor sort of says that this patient can't afford it and I think they would benefit from medicinal cannabis, they apply to it, apply to the scheme to get the patient approved and that patients on the list. It's a small cost of the business, but we think it's
worth it for our community. I think we're going to fifty two patients with another supplier that's actually come on board, so it's a sort of it's a small give back to the community, but we passionately believe that this medicine makes a difference to people's lives.
So, Paul, there has been some changes to the regulations in terms of medicinal cannabis and New Zealand just recently. Can you tell me what sort of fit that is going to have.
The big overarching change if I was to summarize it fundamentally, the regulations are tweaked such that it's easier for New Zealand manufacturers to export products to the world, much much easier.
Thanks Poor for your insights today. It's been great to have you on no worries, and thanks everyone for tuning in. You can watch shed Lunch on YouTube or follow the podcast on your favorite podcast app. Leave us a rating and a comment about what you'd like to hear about next. See you next time.