Cannigistics (V.CYX) sets up to ride the next BIG wave
The next wave – the BIG wave – of investor interest in the medical marijuana space will not involve growing marijuana. This is something I’ve been saying for the last year-plus. “Grow plays are no plays,” I’ve told conferences, board rooms, investors, media. “There has to be something that sets you wildly apart, or that is going to add value when the commodity price of cannabis hits $2 a gram or less.”
I’ve seen a lot of companies take this message to heart. There’s the ‘we’ll sell it for low prices’ brigade and the ‘we’ll get a premium price because ours will be better’ crowd and the ‘ours will be consumed by rockstars’ folks and the ‘we have the niftiest marketing’ gang. There’s the organic pack and the internationalists and the geo-specific plays.
Whether any of those angles will be the game-changer remains to be seen, but several groups are placing their bets not on being the #1 grower, but on being the company that the #1 grower (and #2, and #3 and so on) will need to engage to keep the wheels turning.
One of those is Cannigistics, a subsidiary of Calyx Biosciences ( TSX:V.CYX, Stock Forum). Cannigistics is a B2B services company in the weed field helping marijuana companies stay in compliance, streamline operations, and keep track of security, software and more. They’re a necessary piece of the production puzzle that a lot of companies haven’t really thought about yet, while others are learning the hard way what doing it yourself can lead to.
But let’s start out by discussing where they came from.
Cannigistics’ parent company is a drag, as far as the markets are concerned. Calyx was all-in on carinata, a crop that it was looking to turn into biofuel, with several million raised a few years ago and committed alongside other stakeholders like the Business Development Bank of Canada and the National Research Council of Canada,
The pitch was that the carinata oil could be refined and used as jet fuel without any changes to the jets themselves, that carinata was a hardy fallow crop that farmers would love to add to their fields, and that the fuel itself would halve aerosol emissions and black carbon.
‘We need to develop less inexpensive non-food biofuel options,’ said nobody, ever.
There was even a test flight, which Popular Science said was one of the top 25 scientific events of 2012.
But green energy has a long development time, and, you know, oil is cheaper than coffee at the moment, so management started digging for new revenue options.
They found one in Roger Forde, a tech entrepreneur who, having already generated some previous success, now finds himself a little more time these days, decided to set up a new biotech company. Interestingly enough, he plans to channel back most of the gains (he hopes to recognize) into an effort to support some of local charities that need help.
That company is Cannigistics.
The Cannigistics business model is one in which medical marijuana producers are able to work smarter, faster, and more profitably using their services.
Picture it: You’ve started your weedco and you have spent literally millions on software and tech and security and machinery, and Health Canada is all up in your grill whenever you cut a corner or forget to fill in a form, and there’s a constant threat that, if the inspector that just showed up at your door is having a bad day, you may be told your license is suspended.
You know, that license you spent millions and a year getting, and which allows you to actually do business.
Your security system watches who comes and go with 300 cameras, and the footage is backed up in the vault for two years, but you’ve got no way of looking at it. Your swipe cards are logged into a system that generates a paper report of who is coming and who is going, but you have no employee tasked with looking at the logs for discrepancies. Your call centre has its own software. Your accountant has his own software. Your inventory system is on another piece of software still, and your website e-commerce set-up is a free copy of WordPress with a Paypal plugin.
You don’t know it yet, but you’re 18 different kinds of endangered.
Is your grower walking into the vault nine times a day for no good reason? If you had to, how would you marry those vault visits with the massive data clusterf—k that is your video logging system?
When Health Canada shows up, are you going to drop a few legal boxes of printed swipecard logs and a cup of Tim Hortons on a card table out back and let them sit there for two days looking for problems, or would you prefer a system that instead tells you there’s a problem, shows you the problem, and lets you fix it before you get to a compliance showdown?
There are many pieces of software helping a grower grow – Bio Something, XYZ Accounting Software, and Document Management Strategy – but they don’t talk to each other. The left hand and the right hand are on separate torsos.
Some dot.bong companies have opted to make their own software solutions, but then you’re dealing with hiring a coder and waiting for them to build something from the ground up. And how many weed CEOs are qualified to vet a programmer for what their specific needs are? And what if Health Canada changes those needs and said programmer is now working for Plenty of Fish?
So many ifs!
“Cannigistics is evolving to be a platform that talks to all those elements,” said Forde when he visited the Stockhouse boardroom recently. “Our software doesn’t do everything from seed to sale, rather it connects those elements that handle each of those tasks well, so that a manager has all the information they need at their fingertips.”
“And that’s really important when Health Canada is at your facility asking who has been in your vault for the last six weeks, and why.”
Forde is beyond affable, which is nice for a CEO, but he’s also a full-on geek. When his programmers face a challenge on a given task, he doesn’t schedule a meeting; rather, he cracks his knuckles and starts to code. At 3am if necessary.
“We have a small team,” he says. “I don’t see the need to spend money before it needs to be spent. I have great people, they work hard, and they’re constantly improving the platform so what we offer becomes better and better.”
And harder to unplug from, I point out.
“Admittedly,” says Forde. “What we do is so important, and its positive impact is so heavily felt at a facility, that to turn it off a year down the line and do it yourself, or do without… that would be a really big call.”
Thus stands the Cannigistics business model.
“We tell a prospective client to bring us in to look at their facility to inspect their business processes and their set-up and, every time – every single time – we find things they haven’t thought of that we can help fix and will make production so much easier.”
And those visits all add to the platform that is Cannigistics.
“We come back and we start adding elements. How can this security system talk to this management software? How can the call centre be connected to home base so the CEO can monitor effectiveness? How can we identify that someone is trying to game the system? What is Health Canada looking for this month that they weren’t thinking about last month?”
Bottom line: Forde doesn’t want your Organigrams and Bedrocans and Wildflowers to change their system to his software. He wants his software to change so that it adds value to their system.
“The more work we put into this stage of development, the easier it is down the road. We’re already seeing it; we show up at a facility and they’re using ‘software X’ for document management and ‘software Y’ for RFID tracking and our system already marries those two without any updates. Then maybe they have another software package for something else that, with a few days’ work, we can get working with a dashboard that makes the information it gathers more useful and actionable.”
Take note, cutting crew. No more smoke breaks in the vault using the janitor’s swipe card.
Other companies are in this space, but most are sold as a one-stop, one size fits all option that can be tweaked at the client’s expense to accommodate local regulations. And none of them are setting the world aflame just yet.
“Why reinvent the wheel?” Forde says. “Maybe they do one task really well but they’re weak on another. Maybe they track ecommerce but fail on the compliance side. We say use the best systems for everything you do. Then use us to tie it all together in the best way possible, with the cleanest, tightest code, and with access to our team as you need it going forward.”
Some licensed producers are listening hard to that pitch, and one has already signed on to be the test pilot. Others are in the various stages of ‘hmm’ that come with a brand new vertical in an industry still trying to figure out how it does things. One company is into its second top-down company-wide rewrite of its entire system, and using a completely different programming language on v 2.0 than it started out with. Others are relying on paper systems in lieu of the technical knowledge needed to automate.
“We wrote our backend system using an agile framework and compile the native apps in C++,” says Forde. “That way we can adapt it to anything and make it run super fast – PC, Mac, smartphones, tablets, it’s a cinch.”
The MMPR applicant collaborating with Cannigistics right now has more than one branch – so the situation will see Forde’s team having to bring in information from two completely different facilities together into one dashboard.
It’s been a good test for his system and strategy, says Forde.
“It’s a group that has experience growing, this isn’t their first time to the show, but even with their experience we’ve found things they hadn’t thought of – or hadn’t realised were possible.”
He’s quick to point out that Cannigistics isn’t just about licensed producers, or near term applicants.
“Companies in the early planning process really need to have the discussion,” he says, “about how their systems will be put together. You don’t want to be having that talk after you’ve spent $4m on a facility. You want to be having it in the planning stage.”
And it doesn’t hurt to be having it as part of the licensing application process.
“You ideally want to be helping Health Canada do its job,” he says. “That will never be a bad business decision in the medical marijuana industry.”
Forde is expecting to be generating revenue within the quarter, signing long-term contracts with up-front, ongoing and revenue share payments as part of the agreements. Strategic partnerships are also on the table, as are acquisitions.
“I would imagine, for us, if we find a technology that is particularly useful for us, we would consider bringing that in-house,” he says.
This is the first time Forde has dealt with a public company, through all of his several decades of tech adventures. An enthusiastic chatty guy by nature, it’s taking him some time to get used to the limitations that come with that. He wants to tell the story.
“I’m working with some great people who will sometimes pull me aside and say, hey, you might want to stop talking right now,” he laughs. “But the other side of that is, being a public company, you have such an increased level of transparency and accountability. A lot of people in the tech space blow through finance like it’s going out of style. I don’t. It’s never been my style, and I think the markets will like that about me.”
To that end, the company just liquidated its interest in Agrisoma for $300K and is planning to put together a small $300k private placement. That’ll give Forde the capital he needs to expand a little.
“You’ll see most of it put into the product. We can certainly work for a long time even with an amount that small,” he says.
With stock sitting near its low at $0.04 and with the Agrisoma and carinata days behind them, Cannigistics would appear to be dragging Calyx kicking and screaming into an interesting 2015, so stay tuned..