Adastra Labs CEO: Positioned to Lead the Cannabis Extracts and Analytical Testing Market

- January 16th, 2020

Adastra CEO Andy Hale joined INN to discuss how the company is seeking to position itself as a viable competitor in cannabis extraction and analytical testing.

Adastra Labs Holdings (CSE:XTRX) co-founder and CEO Andy Hale spoke with INN about the company’s co-located extraction and analytical testing facilities, the dedicated team’s recent accomplishments and the upcoming catalysts for 2020.

Adastra Labs Holdings is one of the few cannabis companies to have co-located extraction and analytical testing facilities. The company’s Health Canada license applicant Adastra Labs Incorporated’s standard processing facility and its Chemia Analytics fully licensed testing lab share the same address, which Hale said should reduce costs and enhance Adastra’s ability to provide high-quality cannabis extract formulations.

This past year, the Adastra team progressed toward some major milestones, including obtaining a Health Canada analytical testing license for Chemia Analytics. In 2020, Adastra expects to receive its standard processing license and become a fully operational cannabis extracts and analytical testing provider. The company has established relationships with licensed cultivators to provide flower for its facility, which has the ability to process 400,000 kilograms of dry cannabis annually, translating to more than 30,000 liters of highly refined cannabis oil each year. Hale said Adastra is also developing international contacts for expansion into South America and potentially Australia.

Below is a transcript of our interview with Adastra Labs co-founder and CEO Andy Hale. It has been edited for clarity and brevity.

Investing News Network: Please provide our investor audience with an overview of Adastra Labs.

Adastra Labs Co-founder and CEO Andy Hale: Adastra Labs Holdings is a company that owns a Health Canada license applicant and a licensee. Our subsidiary Adastra Labs is an extraction and cannabis distillate products formulation and development company, and a standard processing license applicant with Health Canada since October of 2018. We are in the final stages of licensing now. We also own Chemia Analytics, which is an analytical testing lab that was licensed by Health Canada on October 25, 2019. They are co-located in a 13,000 square foot site in the Township of Langley, in British Columbia’s Lower Mainland region.

We chose to co-locate those testing services with the extraction company to reduce costs. When we started looking at the business model for a large-volume cannabis extraction company, the actual cost of paying third parties to perform analytical testing drove a lot of the bottom line down. We really wanted to squeeze the best margins we could out of our business model, so we decided to develop Chemia Analytics as a co-located analytical testing lab. While not a unique thought, it is unique in that we believe we’re the only company with a lab literally steps away from the processing facility. In this way, the uniqueness of the formulations will provide the standard processor the ability to improve in-process quality as well as defer or reduce the costs of in-process and final third-party analytical testing. So that’s the value proposition that Adastra Labs brings, not only the extractions expertise but the quality and the cost reduction associated with having a co-located analytical testing site.

INN: Adastra’s processing facility is one of the first successful site-specific rezonings for cannabis operations in British Columbia’s Lower Mainland. Please tell us more about that big win for Adastra and your plans for the facility.

AH: Yes, that’s a great point. We’re very excited to be working hand in hand with the local community. The Township of Langley has been very supportive of our rezoning. We started the process at the beginning of 2018 and within about four and a half months, we were rezoned to site-specific cannabis standard processing and analytical testing. The site was previously zoned for light industrial. Many companies try to slide in either under agricultural-related zoning or industrial. However, we decided that for us to really have a successful business in the local community, on top of volunteering with the local charity programs, we also needed to make sure that the local community leadership was aware of and supportive of what we were trying to do.

We spent a lot of time working with the Township of Langley staff to really meet the requirements that they had outlined. First, by locating our facility in an area where they were trying to cluster any cannabis-related companies. We were the first to actually dip our toes in that pool as it were. We took the necessary steps to help alleviate their concerns and provide them with the right information. We spent a lot of time making sure our designs not only met the code requirements, but went the extra mile for air quality management as well as security and aesthetics. As a result, we think we have a really good relationship with the community. We recently hosted Mayor Jack Froese at our facility and he was very impressed. We think it’s important that cannabis companies not only involve local community leadership, but also participate in local government to bring education and awareness that ensures the past stigma of cannabis use is not dragged into the legal market.

INN: Adastra Labs recently marked a critical milestone with Health Canada granting Chemia Analytics an analytical testing license. Please explain what this means for Adastra and its shareholders.

AH: I think most importantly it brings to the forefront the message that our team can achieve the goals we’ve set out to accomplish in the cannabis industry. We submitted the application back in October of 2018. Health Canada basically had not done anything with any company’s license applications for nearly a year before coming out with revised guidelines. As soon as Health Canada came out with their revised guidelines for analytical testing, we were essentially licensed within four weeks of that release. We had as few as three requests for more information and we were able to answer every question in less than 24 hours. We didn’t have to do any redesigns or any kind of significant changes to what we had submitted.

I think that accomplishment speaks to the dedication of our team. We’ve got a very strong Head of Lab for Chemia Analytics, Priyanka Nalawade, who has a Ph.D. in Polymer Engineering. She comes from Sherwin Williams in the United States where she worked in the extraction side of the paint industry to get the right color formulations. She worked with quality control, so she brings a very good analytical testing background. She’s also the alternate for our standard processing license applicant as the quality assurance person.

We’re very excited to have her on board. Having her and our other star players at the helm was key to our successful submission as well as having a really solid application when we went in. I think it tells our shareholders that we can assign ourselves challenging goals in our business plan and achieve them.

INN:  Please tell us a little bit more about the other star players on Adastra’s roster and what they bring to the company.

AH: Our quality assurance person for Adastra Labs’ standard processor license applicant is Donald Dinsmore, who has a master’s degree in Plant Biochemistry from the University of Calgary. His skill set also includes a heavy analytical testing background. During his master’s programs, he worked on testing and analytics of plant materials for the genetic testing of poppy plants. His practical experience includes the cannabis industry as an operations manager for a farm in Northern California. He’ll help provide the in-process quality and the seed-to-sale accountability of the process that we’ve outlined to Health Canada. He’s also the alternate for Head of Lab for Chemia Analytics.

On the business side, we’ve got a very experienced chief financial officer from the mining industry, Stephen Brohman, who’s helped us with our reverse takeover. He has also helped us with building a really tight financial model and corporate structure so that when we do go public, it’s most beneficial to our shareholders. We are maintaining a very stable stock price with good goals for the coming year to ensure shareholder value has been built along the way. As for myself, I’m experienced in leading technical teams in challenging environments with my nuclear submarine background in the US as well as my more recent Canadian shipbuilding expertise in Vancouver shipyards. I believe that a combination of those two puts me in a good position to help lead the technical personnel in the right direction. It’s all about driving results in a positive way that builds a good culture in the company.

INN: Looking forward, what are Adastra’s goals for 2020 and beyond?

AH: Our first priority is to obtain a standard processing licensed for Adastra Labs, which will allow us to start generating positive earnings before interest, tax, depreciation and amortization. We’ve spent a lot of capital investment in renovating our facility and getting it ready for processing. We’ll also get Chemia Analytics up and running to provide analytical testing services for not only Adastra, but for other third parties. So goal number 1 is to get operational, and I’d say goal 1A is really to dial in the processes that we’ve spent a considerable amount of time developing as a team. In that way, we hope to get the best return on our investment and the best margins we can possibly get as a standard processor, whether we’re contract processing for someone else or we are processing cannabis into extract products for our own product lines.

Adastra will be able to not only provide crude distillate that’s been winterized, but we can also provide distillate that’s been highly refined up to 95 percent purity. This can then be formulated into either distillate bottles with droppers, cartridges for vape pens, or formulations for B2B products or consumer packaged goods such as vape kits to be sold to the various provincial boards, or even the active pharmaceutical ingredients to go into edible formulations. Our primary goal is to get operational and processing into the positive margin areas.

In parallel, we’ve already been establishing relationships with licensed cultivators that are coming online with a couple million square feet of growth operations that will be able to maximize our capacity. Our facility has been designed and built to process 400,000 kilograms of dry cannabis annually, which would deliver over 30,000 liters of highly refined cannabis oil in a year. We’re starting out with about a sixth of that capacity initially, and we will organically grow throughout 2020 and 2021 to meet the market demands. We have a secure storage facility that’s over 13,000 cubic feet, which allows us to both store incoming material for processing and outgoing product that’s been developed and formulated.

The remainder of the runway is really about operational excellence and then organic growth as we deliver more contracts. We are also developing international contacts for expansion outside of Canada, both into South America and potentially across the water to Australia. We’re looking forward two steps down the road beyond our initial operational excellence to acquire and develop some of our own brands that we can sell to the provincial boards locally. We’re very excited about the future for Adastra and we think it’s very bright for our shareholders.

INN: Do you think you will focus more on the business-to-consumer (B2C) products or on the business-to-business (B2B) white labeling?

AH: It will be a combination of the two and obviously our margins are better in B2C than B2B, but we believe the B2B will get us on our feet operationally as we develop the B2C in-house, which will allow us to jump into the B2C space with a highly refined process. Then back and forth between the two until we’ve refined our processes for maximum efficiency so that we can then be extremely competitive on the open market against the few players that are of the same ilk as us in the Canadian cannabis market. There’s really not a lot of companies that are focused solely on standard processing and even fewer that have the co-located testing services. So we believe we can compete with the Valens GroWorks (TSXV:VLNS,OTCQX:VLNCF) and Medipharms (TSX:LABS,OTCQX:MEDIF) of the world by the end of 2020.

INN: That’s a good comparison. Will you focus on CBD extractions as well as THC?

AH: Yes. Our current focus is on cannabis that generates THC, but if there are CBD-dominant cannabis strains, we’ll focus on those. We would love to process hemp, and our equipment can. Unfortunately, Canada currently doesn’t have very high CBD yield hemp strains that are legal, and that does hamper the hemp market in that production requires very large volume ethanol-type extraction equipment. We have decided to go with CO2 supercritical extraction equipment for a number of reasons. It’s the most popular for medicinal extractions, and it also allows us to provide a safer work environment than some of the heavy, more flammable, more explosive hydrocarbon and/or ethanol extraction equipment. We think it’s safer, but we’ve also built our facility to be good manufacturing practices (GMP) compliant, and that’s an important element of our renovation. It allows us to not only appeal to folks that want to do business in the medicinal market, but also allows us to achieve eventual European Union and North America GMP certification so that we can then have a much broader foundation of importing and exporting our products.

Disclaimer: This interview is sponsored by Adastra Labs Holdings. This interview provides information which was sourced by the Investing News Network (INN) and approved by Adastra Labs Holdings in order to help investors learn more about the company. Adastra Labs Holdings is a client of INN. The company’s campaign fees pay for INN to create and update this interview.

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