Advanced Nutrients Reorganizes for the Future | Cannabis Business Executive – Cannabis and Marijuana industry news
Founded in 1999 by CEO Michael “BigMike” Straumietis, West Hollywood, California-based Advanced Nutrients has been a staple of the cannabis industry for as long as there has been an identifiable industry. Straumietis is not called BigMike for nothing, of course. He is a large man who built his business up to become an omnipresent fixture…
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Founded in 1999 by CEO Michael “BigMike” Straumietis, West Hollywood, California-based Advanced Nutrients has been a staple of the cannabis industry for as long as there has been an identifiable industry. Straumietis is not called BigMike for nothing, of course. He is a large man who built his business up to become an omnipresent fixture in hydroponics stores around the world, with Advanced Nutrients currently generating “nine figures in annual sales from 110+ countries,” according to the company. Advanced Nutrients also has been visually pervasive for years, its signage often gracing the outside of stores, its booths a prominent fixture at trade shows, and Straumietis himself over the years cultivating a larger-than-life character via social media who threw massive parties at his Hollywood Hills manse, where the young and beautiful gathered to party. As the industry has changed, however, Advanced Nutrients has had to evolve as well, and as Straumietis explained during a recent call with CBE, the moves he is putting into play are typically large and ambitious in order to meet the challenges and opportunities that will face businesses in the cannabis industry in the years to come.
“Four or five years ago, we were just hovering around $90 million a year,” said the former grower when asked what has changed since 2018. “Last year, our numbers were $173 million that we did in business. This year of course is down as compared to last year, but we do have a new go-to-market strategy that will absolutely get our numbers up. This is the first year where the regulated market is now surpassing the unregulated market, and it’s very, very interesting. We’re looking at the regulated market a lot differently now; we figured out a way to empower the hydroponic store owners to help the regulated market instead of looking at them as their adversaries. Because one of the things the regulated market has to realize and must realize is that the best growers in the world are sitting in hydroponic stores, and they don’t want to go into the hydroponic stores because they don’t want to deal with a middleman, which is fine, I understand that. So, we have a new pricing structure and way of going to market that’s going to eliminate that, and there’s 15,000 LPs in America alone. We can’t get to them fast enough.”
Against that backdrop the number of hydroponics shops is in steep decline, said Straumietis. “I’ll tell you, three years ago there were about 1900 hydroponic stores in America; now it’s down to 950, and by the end of next year, it’s going to be somewhere under 600.”
Where are they going? “Some are consolidating, some are getting bigger, and a lot of them are just folding up shop,” he said. “And the reason is because a lot of these guys just aren’t good business guys, and don’t have a head for business. Their way of going to market is, ‘I want to beat the guy down the street on price’ and a race to the bottom is not the way to do it. And also, we see the hydroponic store owners not engaging with the clients when they’re coming in. They go, ‘Whatever they want, we’re selling them.’ And what we’re teaching them is, you better be reducing some of your SKUs dealing with the top brands, getting your knowledge base really well-structured on the products that you do have, because there’s going to be two segments that are going to be very profitable for you. One is the home grower. Right now, in the 18 states and DC where there is recreational or adult use cannabis, we’re seeing these home-growing markets thriving, and powerfully growing. And eventually, you’re going to have home-growers in every state wanting to grow a couple of plants in their backyard, just like they grow tomato plants.
And interestingly enough, most tomatoes in America are grow in people’s gardens and not in big manufacturing facilities. So, we know that the home market, which we’ve surveyed extensively, is going to be a huge sector. So, they’re going to have to dress up their stores, and they’re going to have to change their attitudes; they’re going to have to be polite and engage with the clients, with these home-growers coming in. They’re going to have soccer moms coming in, and they don’t want to come into a place that looks like how they look now. Not all stores are like that. There are some very nice hydroponic stores that get it.
“And then the other segment is going to be selling to the LPs, because the LPs have a big pain point,” he added. “Sure, they have lead cultivators, but the real experts who’ve been doing it for 15-20 years are the owners of the hydroponic stores. And let’s just call it what it is; a lot of these hydroponic stores were fronts for guys who had large grow operations, and guys with large grow operations have massive skill sets. They could easily go in and start working with these LPs and taking their product to the next level.
“What we see happening is there is a cry for quality out there,” he continued, “and the smaller guys, the craft growers, if you will, the guys who were black market and decided to go into the regulated market, are doing extremely well growing top-shelf product and getting a lot of money for it. I know one black-market guy who is still getting $6000 a pound. He sells to the Hollywood crowd, but you’ve got other guys getting $3000-$4,000 a pound for their product, because they grow differently, they know the genetics; they understand what’s going on, and there’s a whole plethora of these store owners that aren’t being utilized properly. There’s kind of a clash of cultures going on; you’ve got the money guys who look at the store owners with disdain and then the store owners are looking with the disdain back at the LPs and the regulated market.”
Are we really talking about the larger companies, the MSOs? “The MSOs are having a real quality issue” said Straumietis. “They should be going into local hydroponic stores and working with them or at least hiring them as consultants. They know product lines, and they know what’s going to make and produce the best quality product that’s out there. Absolutely. The MSOs probably grow – and I hate to say it – but they grow the poorest quality product that’s out there.”
Had he figured out the reasons why they’re not producing quality? “Yeah,” he said. “CFOs who look at fertilizer as a line item. What they’re not understanding is how their decisions – when it comes to fertilizer and manipulating that plant through every stage of its development and the products that are out there to do it – have a bearing on the end-result and the value of the end result. They are pinching pennies and losing dollars on the other side of the equation, and they don’t understand that. So, what we realized is that there has to be an education process put out there, and that’s one of the things that we’re doing. We are now certifying stores to be Advanced Nutrients technicians that can go into these LPs and help them out and will help their bottom line. They’ll be profitable dealing with the LPs. They’re not going to be making the margins that they will with the home-grower, but they will have that home-grower market where they will be making substantial margins and they will be making a lot of money with the LPs because they order more. They’ll be making smaller margins, but they’ll still be making very good profitability because of the quantities that they’re ordering.”
I asked if it was a similar dynamic with the big box retailers, like Grow Generation. “We no longer do business with Grow Generation, and there’s a reason for that,” said Straumietis. “They are looking at the bottom line, and they’re bringing out their own line of fertilizer. We’ve checked it out, and again, they think fertilizer’s fertilizer. They’ve made the fatal error that a lot of these LPs have made. And so, what they’re giving the LPs and the advice that they’re giving them is not helping the LPs when it comes to the quality issue. Even when it comes to the lighting, they favor all of their house brands instead of favoring the brands that actually will grow the quality product that the LPs are looking for. They’re basically shooting themselves in the foot, and so when we saw that we had long conversations with them, and based on how they’re looking at the marketplace, we decided it was a bad business model for us.”
The problem is not size but focus, said Straumietis. “Look the hydroponic store owners weren’t engaging with the LPs. The smaller LPs – I call them the medium-smalls – were engaging because those are the growers that actually went from the unregulated market to the regulated market. The big boys out there looking at everything, they think they’re just growing a plant, a weed, and they’re not looking at it with tender loving care, and understanding that this is a very sophisticated plant, especially you look at its genome as compared to other plants. It’s not just a weed that you’re growing, like lavender or some other crop, and there are many different strains and the strains have many cannabinoid profiles and terpenoid profiles. And what we’re finding is that because they’re using poor quality inputs, terpenoid production and cannabinoid production is stalling. I call it a quality stall, and it’s producing cardboard cannabis. Sure, there’s a market for that, there’s always a low end for everything, but people don’t want it. They want that smell; they want that aroma; they want the flavor; and they want to have a really good experience with that product. They want a good high, and the bigger guys are not understanding that. They’re treating it like a normal business model, and this is the mistake that they’re making. A huge mistake.”
Are they setting themselves up for failure? “So, a lot of these guys machine-trim, but if you’re machine trimming, you’re going to lose 3 to 5 percent of your THC content, and a larger portion of cannabinoid content because of the way the machines work,” he replied by way of example. “People who hang dry, who hand-trim their products, have higher cannabinoids and terpenoid ratios versus machine trim. So, they have to decide where they want to be in the marketplace. Right now, the consumer is demanding a better-quality product, and they have to realize that there’s a different way of doing business than the industrialized way they’re doing it. How do they get rid of mold on cannabis? They’re irradiating it, basically x-raying it! And by the way, if there are spider mites in there, those body parts are in the cannabis and people are smoking it. There’s a better way of dealing with pests, and you can do it on a large scale if you understand what you’re doing.
“One of the biggest mistakes I see are these huge rooms with 200 lights,” he added. “You don’t want that. You want smaller rooms you can put a lot of different strains in, where you can combine the strains to get better cannabinoid and terpenoid profiles. There are companies like Abstrax and Eybna that are terpene experts, and you can go in and you can infuse different types of terpenes that give it a better bouquet. And so, they’re not using all the tools that are available, or they’re just simply not understanding, and I believe the companies who understand cannabis and want to treat it with the respect that it deserves are going to prosper in the future. I mean, look at companies like Canopy Growth. I don’t know what their valuation was at the height – like $30 billion – and now it’s literally just a billion dollars. It’s mind blowing, and I said it years ago, that with the business they do it’s an unsustainable valuation. To me, you look at companies that are actually doing business and what kind of revenue they’re bringing in, and you base your valuation on that. The speculative days of cannabis are now over. It’s getting real, and now you’re going to see the guys who are doing well versus the guys who treated it just like a business and it was just a weed that they were growing.”
Three Technologies into One
Still, I assume Advanced Nutrients wants these large LPS as customers, so how is Straumietis going about doing that? “We’re going to get them,” he said. “The future is a lot different than people think it is right now, and Advanced Nutrients is actively working and combining three different technologies into one. Number one is genetics. We acquired Tesoro Genetics and we are now in the genetics business. So, number one, genetics. Number two, environmental controls. We are now working with Haifa Chemicals in Israel; they are a strategic partner for our inputs as well as their cleanest purest inputs. We are worried about heavy metals with patients, and we know the hydroponics now come back with zero detectable heavy metals. So, environmental. Then, we are building – I call it the brain – a crop-steering AI unit that hears the crop and uses all the technologies that are available to maximize whatever it is you’re looking for in the plant, and then marrying that with fertigation.
“The biggest problem right now is there’s not an active EC (Electrical Conductivity) runoff,” he added. “We can do the macros and we can do some of the micros in the runoff, and so we are developing a system that uses AI that runs all of the environmental controls. And let’s talk about genetics. This is very interesting, because we’ve done research, and 90 percent of the cuttings that they’re buying and people are growing are infected with multiple strains of Fusarium blight. And when you’re growing a plant with Fusarium – and I want you to think of it like cancer in a plant – it’s hard to get a quality product. But just controlling the fusarium in the plant almost doubles and in some cases does double the yield, and output of the future is going to be disease-resistant strains and very clean genetics.
“Some of these guys out here, and they got some pretty famous names, we checked and they have disease in there,” continued Straumietis. “Diseases in cannabis hide in the plant, and it’s very difficult to get a really pure clean tissue. Yes, you can do it, and when you do it, it restores vigor to that strain, and a lot of these famous stains that people have are going to have to be cleaned up. There are companies out there that are charging $10,000 to $30,000 to clean up these strains, so it’s going to be very important that not only are these strains disease resistant, but that they are pure and clean and delivered clean. Also, the grow room facilities themselves; what are they doing to keep that environment clean and disease free from the very time that you take your cutting and put it into the growing medium to how you treat the environment in the grow room? Well, we have protocols for all of that, and we are going to be going out and educating the market. You’ll see more and more of Advanced Nutrients moving in that direction, because we realize the LPs are not aware of what’s going on.”
The education will take many forms, including the highly organized. “One of the things that we’re going to be doing with CannMed this year is going to Marco Island in Florida,” said Straumietis. “Why Marco? Because the big investors, not just in cannabis but in business in general, are used to having a summit every year at Marco Island. And so, we will be inviting the big boys there, and we will be there educating them and explaining these things to them that they’re just not aware of. The marrying of the three technologies – the genetics, controlling and manipulating the plant to the environment, and fertigation with active runoff. And then here’s the big one: spectral analysis. With spectral analysis, we can look at a crop and tell you it is going to be deficient or have diseases, and all sorts of thing. That is being developed in Israel right now, and that will be part of what we will be offering: EC runoff, spectral analysis, and basically God-like control over the environment that they’re growing in?”
Is this for indoor use only? “It’s applicable to greenhouse as well,” he said. “Priva does a very good job of controlling greenhouses. I was quite impressed with what I saw. Four weeks ago, I was in Portugal in an EU GMP facility, and they were running Priva controls, which I am very familiar with. They been around for a long, long time. So has Argus. And what I saw, the detail and what they understood, was very impressive. You can do it in greenhouses, and the technology can also be applied for vertical farming indoors for any crop – tomatoes, peppers, cucumbers – so the applications that we’re working on will go beyond cannabis into other areas as well.”
Will it take a large investment of resources to do this? It’s almost like a new business added to the core business. Are you doing it because you see it as absolutely necessary to support your core business?
“Correct,” said Straumietis. “If we don’t do it, eventually, somebody else I believe will. So, we’re doing very strategic partnerships with companies, and the first one we did is with Haifa out of Tel Aviv, Israel, and we’re also working with them on putting together the AI unit that will control people’s grows and optimize them with real-time information; not just EC runoff, but you’ll be able to tell the secondary macros and micronutrients of the plants in real time with the spectral analysis.
“There is EC runoff now,” he clarified, “but it doesn’t break down the macronutrients, which are nitrogen, potassium, and phosphorus; it doesn’t break down the secondary nutrients, calcium, magnesium, and sulfur; and it doesn’t do micronutrients like iron, manganese, zinc, and cobalt. It doesn’t do any of those, but this will do that, and then we’ll also be able to analyze plants just by looking at them with spectral analysis.”
It sounds expensive, I remarked. “No, it’s not actually,” he replied. “It is going to be accessible. What we will do is charge per square foot of canopy. We’ll say, ‘Okay, you want to grow this strain of ours or the strain that you have; here’s this machine that is going to optimize it., and we know what the fertigation is for that plant based on the runoff, and we’re going to be able to steer your plant to its true genetic potential.’ Or, they say, ‘No, we want this cannabinoid profiles instead.’ And that’s okay. We can do that. We can gene-edit this plan to do that, and it’s going to take 10 or 18 months to do that. And that’s exciting. Right now, we’re working with some folks out of Spain; we have one protocol, they have the other protocol, and we’ve formed a strategic alliance with them. The problem is, once you gene-edit cannabis you have something called a construct, and getting the construct to then take hold and turn into a plant is where the challenge is. We have already figured that out, we’re about five years ahead, and we’re excited about that, but what we’re really going to get busy with is controlling the environment so we can optimize growth or whatever it is that people are looking for.”
What grow environment does Straumietis like best “It’s funny you should ask,” he said. “We’re bringing out something called the crop steering cheat sheet that explains how to manage your vapor pressure deficit. That’s how much pressure is in the atmosphere versus what’s inside of the plant. And depending on the temperature in the room and how much CO2 you’re running, you should be at this temperature with this amount of relative humidity. We talked about leaf surface temperature. We know that when applied to cannabis, you want to be about four degrees lower than the room temperature at the leaf surface and a $20 infrared gun can tell you how to do that, or spectral analysis built into that will also tell you what the leaf surface temperature is. Why? Because you want to keep the stomates of the plant open and maximize the growth of that plant. If you want shorter internodal length, you’re going to want your nighttime temperatures to be closer to your daytime temperatures. If you want longer, taller plants, you’re going to do exactly the opposite. Depending on what you want to do, all these things matter. We’re finding out more and more about cannabis as we’re investing in it.
“You mentioned investments before,” he continued. “We have a lab that will be finished by the end of this year, but probably realistically in the first quarter of 2023. It’s an over $20 million state-of-the-art investment. We will have what we call geo-proving rooms, so depending on the longitude and latitude, if you’re a greenhouse or you’re growing outdoors, we can tell you what day you have to plant and what day you have to harvest. It has that kind of controls. It controls sunrises, sunsets, the exact spectrum of what it looks like in the fall at whatever longitude or latitude you’re at. We have seven geo-proving rooms, we also have all kinds of breeding rooms for doing genetics work, and as well a tissue culture lab and all things to propagate plants with. We’re excited to get that built. It’s in beautiful Lynwood, California. By the way, in 70 percent of the cities and counties in California, you still cannot grow cannabis. For whatever reason, they don’t want it, which I find strange considering California is the largest cannabis economy on the globe right now. We’ll see what happens with Germany.”
I noted that it seems as though BigMike is returning to his roots as a grower, and in doing so is leading Advanced Nutrients in a newish direction. “Correct,” he said. “We’re going to be in the genetics business We realized that all three [parts] have to come together to give control. And so, again, genetics is always number one, environment is number two, and fertigation, which is Advanced Nutrients, is number three. So how can we marry all these technologies together and have an advantage in the marketplace? Well, that’s what we’re doing?
Is number four developing your own brands and putting them out on the market? “Well, sure,” said Straumietis. “We’ll have our own genetic brands. That’s exactly what we’ll do. And by the way, they will come to us and say, ‘We’re looking at this cannabinoid profile or terpenoid profile in the plant, can you please gene-edit that and make it happen?’ And in the beginning, it will be kind of tough, because we’re at the tip of the iceberg when it comes to understanding the genetics of cannabis. Five years from now, seven years from now, it will be, ‘Yeah, what do you need us to do?’ And we’ll be able to deliver that plant to the person, there’ll be a charge for that, and then we will give them the genetics and we’ll either do a licensing deal with the genetics or actually give them the plant that they can then ship all over America when it’s federally legal.”
Could he revisit the market with his own strains or is that out of the question? “It’s absolutely within the question,” responded Straumietis. “I’ve played around in that marketplace a little bit. There is a Big Mike’s brand we brought out, and we pulled it back. We have another brand, ADV, short for Advanced, that is out there, and we’re going after the recreational market. We realized that the outcome-based market isn’t big enough yet and the marketplace isn’t educated. Where the real money is now in cannabis is in rec or adult use. And so, we have a preroll that will take the top of your head off, because that’s what people are looking for. If that’s what the public wants, we’re going to give it to them. Who are we to argue with them? The pharma people, on the other hand; have some very specific qualities of the plant that they’re looking for, and we will give that to them with gene editing and controlling environmental mitigation.”
There has to be a rather significant IP aspect to this venture, I ventured. “Huge,” said BigMike. “The data that come off the AI system is really where the money’s at, because if they have the right equipment in their facility, we can then go in there and we can steer that equipment, that environment, to optimize the growth of that plant. There are all kinds of tricks of the trade that came out of tomato growing, like crop steering, which they’ve been using to grow tomatoes for the last 25 years, and some of those technologies are being applied to cannabis with very good results.”
I admitted it sounds like a fertile area, utilizing genetics, data, intelligence, AI, to create a better product. Are there other people working in this area? “Not that I’m aware of that have combined all three and are aggressively going after it,” said Straumietis. “There are some companies, like Aroya, which does do data collection and they’re a very good company, but no one has married the fertigation, the genetics, and the environment together yet that I’m aware of.
I noted the remarkable advances in nanotechnology, creating new opportunities for edibles and beverage makers. Did that field intersect with his? “There are companies like Abstrax and Eybna that are extracting out of hemp a lot of these different terpenes and then reintroducing them into the recreational market,” he said.. “Eybna did a deal with Coca Cola out of Israel to make a line of functional drinks that are terpene based, and so yes, we could gene edit a hemp plant that would give certain kinds of terpenes. We’re working with Abstrax right now to develop a diesel smell that is very sought after. They figured out a way of increasing certain terpene production by adding certain kinds of chemicals to the fertigation system that will enhance that impact. In fact, they discovered five different smell buckets, and the first one they worked on was this gas smell. We’re still working on getting it out to market, so your answer is yes. That is going to happen and it will be part of enhancing certain features that can be used in the beverage world.
“We also know that Anheuser Busch is working with Abstrax,” he added. “Why? Because Hops is a close cousin of cannabis and the way they brew beer, about 80 percent of the flavoring goes to waste because they’re looking for consistency. Well, they figured out that they can rebalance what they were throwing away, which really isn’t waste but just product that didn’t make the QC code, and now they can rebalance it and use it. Right now, there’s a Hops shortage in the world and so there are companies out of Germany that are looking at American cannabis companies like Abstrax, which also does great live resin extract, for an answer to their beverages. On the other side, you’ve got Eybna working with Coca Cola, so the answer is that there are absolutely spin-offs and advantages coming out of cannabis that no one could ever even have contemplated. If someone asked me five years ago if Coca Cola and Anheuser Busch would be interested in the cannabis space, I would have said probably, for beverages, but not for their actual products, not for functional drinks that don’t have THC in there, and surely not for the beer market.”
But that’s exactly the point. The Farm Bill opened up the hemp workaround. Delta 8 is all over the place as an unregulated part of the legal market. It also seems to be in BigMike’s bailiwick.
“We are in the hemp space as well with genetics, absolutely,” he agreed. “One of the things we looked at is, ‘The government seems to be really worried about THC, so what if we made a plant with no THC? Well, we actually have a plant with zero THC sitting in Texas A&M University waiting for the USDA to release it to us. We had to knock out 12 different pathways to do that and produce 12 percent CBD. Now to me, that’s a hemp plant and so it’s 100 percent legal right now, but you can also program these hemp plants to make different kinds of rare cannabinoids and grow it for pharma to use or for whatever use people want and not have THC in there. It’s going to be a very interesting frontier, and I’m very curious to see how the federal government is going to regulate it because they’re going to and that chapter hasn’t been written yet.”
Building, Educating for the Future
As Straumietis rejiggers Advanced Nutrients to meet the demands of the future, marketing and communication take on new if equally vital roles, as does lobbying, “We’re very active lobbying as a force of our own here in California,” said Straumietis. “One of the things that’s missing is a strong lobbying group for cannabis on a national level. Someone needs to get together and lead this effort and get a very strong lobbying group, and once we have that, then we can effectively change some of the mistakes that we know the government is going to make.”
A businessman with longstanding international experience, had Straumietis felt the pinch of supply chain restrictions in the tightening economy? “We had the Russia-Ukraine war, and that caused fertilizer prices to go up,” he said. “One of the things we did before all that happened was that we got together with Haifa – we knew they made the best products – and they became our strategic partner, and we’re going to take that relationship even further now with environmental controls. And one of the major shareholders of Haifa is a company called Tene, which makes a lot of investments in the agriculture sector. And so, we’re working with that group, and it was a smart move that we made, because we don’t have any issues with getting the raw materials that we need.
“But the price for shipping has gone through the roof,” he added. “It’s crazy, and because of the war, it’s raised prices on a lot of fertilizer products. We’ve seen a bit of a stabilization now in the markets for raw input ingredients, but raw inputs are just part of it. There are other substances we use to optimize every stage of the plant’s growth from seed to senescence, and that hasn’t been affected for us. But the input market has been, especially two products, calcium nitrate and mono-potassium phosphate, and of course, urea as well has been largely affected because of the war, and those prices have gotten sky high.”
Has he had to raise prices? “We did,” he said. “We had one last year we had one price increase of 10 percent, and right now we do not want to raise our prices because we have a great and solid supply chain. We are keeping our prices, we’re absorbing the cost of that, and we look at it as a competitive advantage to be able to do that.”
What about demand? The market has become so crazy, with overproduction out west, limited-license markets back east, Oklahoma is everything at once. “It drove us crazy,” said Straumietis. “So, what we did is we invested in infrastructure, and currently, with the investments that we’ve made, we can produce approximately a billion dollars’ worth of product per year. We’re set very well for the growth. We figure there’s about $700 million in the fertilizer sector in cannabis per year.”
Is that billion dollars a wholesale number? “That is absolutely a wholesale number,” said BigMike.
And then $700 million in potential sales? “$700 million is what we figured the global market is worth,” he said. “Look, as soon as the U.S. government goes legal, you already have Germany poised. They’re making the framework and they’re going to roll it out in 2024 or 2025, and it’s going to be legal. When that happens, the US and Germany federally legal and it’s active, the whole world is going to follow suit. Except for maybe some Asian countries and in the Middle East, it’s going to be a huge, huge marketplace. And there’s going to be overproduction in some places, and some people are going to go out of business, because they don’t understand how to run a business effectively with efficiencies that are going to be needed to run at scale. And we plan on being a big part of that growth, and we set ourselves up for both powders and liquids
“We made large investments so we could produce more liquids,” he added. “We’ve built a brand-new manufacturing plant in Barcelona that is state of the art that can easily produce 350 to 400 million in liquid products per year. We are building a facility right now in Las Vegas that is an 80,000 square-foot facility for doing powders.”
What is the difference between the two? “Great question to bring up because CFOs go, ‘Well, we’re not going to pay for water,’” replied Straumietis. “They’re not thinking about the ROI at the other end. And so, we’ve done our base nutrients that we’re bringing out in the powder form, and we’ve actually figured out how to put the entire line in a powdered form. That’s what Las Vegas is all about. But there are some great inputs that would add cost because they’re liquids, not powders, and we would have to get a freeze drier or evaporation unit at a cost to take these liquids and put them into powders so people don’t have to ship water. That doesn’t make any sense, so the future will be a combination of powders and liquids, just like it is in agriculture. For most farmers in America, their products come in a liquid form. Two and a half gallon jugs and two to a case. It’s quite common for them to use it, so the argument from some of the CFOs that we don’t want to ship water is irrelevant at the end of the day, because they should be more concerned with quality than whether they’re shipping water or not.”
Our time winding down, I asked Straumietis about the prospect of going from about $100 million in annual sales to $700 million, and the waiting game that entails. “We are prepared,” he said. “We see it coming, and we’re setting ourselves up to go public with an IPO when it’s federally legal. People ask, ‘What are you waiting for?’ We’re waiting for federal legalization because we realize our valuation. We will probably be doing around $400 to $500 million dollars a year in business when that happens, and we’ll be in a great position to go public and get a great valuation based on real profitability. And also, we will need that capital, because the market is going to explode globally literally overnight, and it’s going to be a rocket ride, and we want to be prepared for that tidal wave, that tsunami, that’s coming.
“By the way,” he added, “12 years ago I told everybody there’s going to be a huge shaking out, and I used to always describe it like this. I said, imagine Advance Nutrients and we’re standing up on the top of a hill and down in the valley you see everybody just beating the tar out of each other. So, there’s going to be three or four guys standing and I’m going to walk down and I’m going to say, ‘Hey, you guys, you want to make some money together? Come on, let’s go as a team.’ That’s what’s happening now; the shaking out is happening. That fight in the valley is going on right now, and we’re watching it happen, and we’re looking at companies, and that’s one of the reasons we were able to pick up Tesoro Genetics at a good price. We’re happy with the fact that we’re privately held, so that’s good. We don’t have to disclose anything. And there’s going to be another falling-out that we’re going to see over the next couple of years because of what’s happening with the economy and what’s going on in the world.”
Does that mean he thinks there will be a deep recession? “I predicted when they printed the $3 trillion worth of paper that it was going to be inflationary,” he said. “I told everybody to hang on, and sure enough, here we are. We are in a global recession right now. I just spoke to a guy in Portugal who had the EU GMP facility; he was a smart guy, and he put out a huge array of solar panels, and thank God he did, because his electric costs went from 40 cents a kilowatt hour to 80 cents a kilowatt hour. Inflation in energy costs is higher and food costs are running higher over there.
“And by the way, some people’s definition of a global recession is a depression,” he added. “I’m 62 years old. I’ve been through three recessions. I’ve never seen what’s happening in the world today. We did a deal with Ed Rosenthal. We just acquired a company from Ed. He’s 77, and we were talking about politics and what’s happening, and he goes, ‘I have never seen anything like this in my entire lifetime.’ This is a country that’s starting to be divided from the far right and the far left, and in Europe, you’ve got very conservative minds and very liberal minds. It’s going to be very interesting to see how this is all going to play out, but we are definitely in a global recession. No one wants to admit it, and it’s going to take a decade for us to pull out.”
And yet he remains an optimist building for the future. “I am,” he agreed. “Here’s what I know about human nature and people, and I’ve seen it before, in the last recession. When the economy goes down, people go to substances for comforting, and cannabis is one of them. And we know that cannabis helps a lot of people with depression, anxiety, PTSD, and so a lot of people are turning to cannabis to get through these hard times. And so, cannabis production and use are going to continue to rise during these unfortunate and very ugly times that we’re facing.”
And to be clear, did he see a political catalyst in the U.S. that will reenergize the market and open it up in the next couple of years? “That’s exactly what it’s going to take,” he said. “It will be federal legalization, descheduling, or even banking, and then the market will turn around because the availability will be there. And when you start looking globally, the whole world is hurting. There’s no sector that’s doing just fabulously, and so people are going to turn to cannabis for the depression, for the anxiety, for the PTSD, and this industry is going to keep growing. This is a great industry to be in. However, people overproduce, not understanding the limitations and what’s happening with federal law. A lot of people thought it was going to move a lot faster, including me. I thought it’d be federally legal by now. I thought that by 2023 this would be a legal plant. Now, if the economy keeps tanking even worse than it is. Joe Biden’s going to have to face reality and go, ‘We need to legalize it. We need to tax it because we need the income.’ And so that may happen as well.”
Before we rang-off, I asked Straumietis if he still has his lab and PhDs in Europe. “Well, yes and no,” he said. “I was recently in Bulgaria. I met with my former-lead scientist there, and I chose not to do business with him anymore. He’s gone out on his own trying to do his own thing. But at the lab in Lynwood, we have a great science team, and that team is the future, as is the science team in Israel. We’ve got a very strong alliance with the Israel. It’s taking everything to the next level. It’s the only way I can put it.”
And we will continue to see Advanced Nutrients and BigMike in various media sending a message of proper fertigation? “You’re going to see us start rolling things out,” he said. “I just shot the first video two days ago, actually; they’re editing it and putting sound to it now, and it’ll go out next week, where we’re now reeducating all of the store owners as well as LPs. We will be turning a lot of these hydroponic stores into Advanced Nutrients technicians. There will be a technical certification program that we put together, and they’ll have to take the test, and they’re going to have to qualify, and they’ll be in a great position. We can’t do it alone, so we’re going to take who we know are the best growers and best businessmen that are still left standing in this hydroponic world, and empower them to go in and help us out.
“From the LP side, we’re going to start educating,” he added. “We realize we must do that, and that it was the missing piece. From the consumer end, it’s going to take a great lobbying group and people putting our money together and putting out information that makes sense. There’s a lot of information out there, there’s some very good technical and business magazines, and we’re all going to have to start educating. There are a lot of people out there that are educating, and when we start to see the bigger companies come together and start putting out commercials and pamphlets and things that people can get or download and study, the world is going to change. There is a lot of information out there, and a lot of it is very technical, and it has to be brought down to a level that the average person can understand and figure out.”
And is there still a lot to learn from the legacy market? “There is, and especially with genetics,” said Straumietis. “There is so much genetics in the legacy market out west that should be coming into the commercial, and will. The reason why it’s not is because they don’t trust the money guys. There’s been a lot of guys taken advantage of in this industry over the last five years, and so it’s a cautionary tale.”
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