Canadian cannabis tech company Trait Biosciences closed an oversubscribed C$12 million ($9.61 million) seed round to boost its R&D efforts to convert cannabinoids to water soluble molecules. The funding and capital will be used to enhance the outfit’s scientific team and to establish a state of the art research facility.
The company’s incoming executive team of cannabis business experts led the round, joined by Green Acre Capital, CannaIncome Fund, and senior executives from many of Canada’s largest licensed producers.
“Over the last two years, we’ve had the opportunity to vet hundreds of cannabis companies and technologies,” said Ronan Levy, chief strategy officer of Trait. “For us to be joining the executive team at Trait and also to be leading the current investment round, speaks volumes to the profound and immediate impact we expect Trait to have on the industry.”
Levy, CEO Joseph del Moral, and Hannan Fleiman who will serve as Trait’s president, co-founded cannabis medical services company Canadian Cannabis Clinics, and sister company Canvas RX, which served as a technology and education platform for Canadian Cannabis Clinics. In 2016, Canadian cannabis production powerhouse Aurora Cannabis acquired CanvasRX.
Why would fat-soluble cannabinoid molecules need to be converted to water-soluble, you might wonder? Ask anyone who has ever consumed an edible or ingestible cannabis product and they might regale you with tales about having an unpredictable experience when it comes to the timing and effects of the edible.
“Delivering a predictable and repeatable safe experience is one of the biggest challenges for edibles,” Levy told AgFunderNews adding that this often results in consumers having a bad experience from consuming too much THC. “Our conversion process can take the fat-soluble cannabinoid and convert it to water-soluble cannabinoid in a fermentation process so you will have a product with an earlier onset [usually it takes 30 to 60 minutes to take effect meaning consumers take a second dose]. It will also have a better shelf life.”
Easy Fundraising
The fundraising process was a breeze, according to Levy. The biggest issue they faced was being twice oversubscribed within four days and having to make sure they took in enough capital to advance while dialing people back or cutting them out if they didn’t meet Trait’s strategic goals. He anticipates the raise will provide the team with at least one year of runway, although the company will likely raise further funding in a few months ahead of a public listing, which Levy and the team is tentatively planning for 2019.
The change in the legal status of cannabis in Canada, where the federal government approved a bill to legalize the recreational use of cannabis earlier this year, was a positive signal for Green Acre Capital, which focuses exclusively on the cannabis industry in Canada.
“We see opportunities from all verticals in the space, but the sectors we identify as the most exciting are hardware and accessories, private retail in certain markets, CBD infused products, and the fourth would be plant sciences,” Matt Shalhoub, managing director at Green Acres, tells AgFunderNews. “We have dialed in on this last sector as one where there hasn’t been a lot of attention or capital dedicated to it based on prior federal legal status, but with that changing in Canada at least, we think there will be huge value created there. There is work that needs to be done in the space to allow people to have a more predictable and reliable experience.”
Shalhoub’s respect for the incoming management team who he’s known for roughly a decade, the sophistication of the science team, and the commercialization process were also key attractants to Green Acre, which sees up to 25 inbound investment opportunities a week.
The Technology Platform
Trait’s Consumer Division is developing enhanced cannabinoids to have improved taste, scent, onset, bioavailability and stability. It also has a proprietary process for generating water-soluble cannabinoids that does not rely on nanotechnology. The team also anticipates that this will improve the flavor of the cannabinoid because the conversion process attaches a sugar molecule, mitigating some of the grassy taste that people associate with some edibles.
Initially, the product will be targeted at beverages, which Levy sees as the lowest hanging fruit and the most natural place that customers will go. After all, most folks are comfortable with the idea of having a drink after work or hanging out at a local bar.
“A lot of people are betting that it will mostly be consumed as a drink,” he says. “Our initial path to market is going through existing producers. We want to be a branded ingredient so people recognize Trait, or whatever trademark we attach to the water-soluble product, as being a meaningful product like ‘Intel Inside.’”
There haven’t been many challenges during the R&D process, which he attributes mostly to the well-known science that underlies the product. Although the lead scientist has been working with the constellation technology for 30 years, applying it to cannabinoids is a novel endeavor. The team’s R&D efforts have focused on reducing the time it takes to convert 100% of the fat-soluble molecules to water soluble molecules. Currently, it takes about 48 hours.
The solubility technology is only part of the company’s technology and patent portfolio. Its Producer Division is working on two other products. First, it’s developing what it dubs ultra-high yield “Super Producer” cannabis plants that can generate dramatically greater yields
“It turns out the process by which we create water-soluble cannabinoids, which I should point out is how the body processes them by constellating and attaching a sugar, can be used in the plant itself and you can cause the plant to grow cannabinoids in every cell as opposed to just the flower or trichomes,” explains Levy. “The other big challenge in the cannabis industry, and you see it happen in the states now, is that eventually part of the industry starts to get commoditized and there will be downward pressure on pricing, so finding ways to increase yields and lower costs will be critical to viability.”
The second product uses RNAi plant protection technologies that reduce the accumulation of toxins in cannabis plants without the need for pesticides or fungicides.
“This suite of technology is more producer-focused and uses the plant’s biome to block the transmission of diseases or elements of diseases. This is especially important with outdoor grows.”
Cannabis Outlook
Countless eyes are watching the cannabis industry as it matures from a nascent and underground industry to a more mainstream institution with ancillary businesses and its own distinct ecosystem. In recent months, there have been several news items that have called into question whether hype surrounding the space is outpacing its actual momentum. While Shalhoub recognizes some instability, he thinks there’s plenty of opportunity that remains in the private market, particularly when it comes to non-cultivation businesses doing more innovative things.
“Our view is that, at least in the Canadian market, it will be overcrowded and you will see pricing compression, and this is the type of innovation that will be necessary,” says Shalhoub. “I think it will be a far different industry in five to 10 years and it will require scientific breakthroughs like what Trait is doing to get there.”
