“Tiny Company Extracting World’s Most Valuable Commodity”

Checking out the new teaser pitch by Danny Brody's Cannabis Inner Circle -- What's the "tiny $4 company" who could produce this "rare extract?"

By Travis Johnson, Stock Gumshoe, August 17, 2020

And lo, as the cannabis promoters try to ramp up interest in their sector again after a long dormancy, we are presented with yet another “secret” pot stock to sleuthify.

The ad I’m looking at today is a teaser pitch from Don Yocham, Executive Director of the National Institute for Cannabis Investors (NICI), hosting an “interview” with Danny Brody, who calls himself a cannabis venture capitalist and has been affiliated with NICI for a couple years and played roles in several different major marijuana companies, most recently as VP of Investor Relations for The Green Organic Dutchman (TGOD.TO, TGODF). (Not sure what has happened with that company of late, by the way, but I do see that the stock is down about 95% from its high two years ago).

And the service they’re pitching now is yet another “upgrade” for cannabis investing enthusiasts to buy into ever-more-secret information, they call it Danny Brody’s Cannabis Inner Circle, a “new private wing of the institute” — it will run you $1,950 per year, and it’s not technically a “no refunds” offer but it’s certainly not an “easy” refund… the refund pledge is full of conditions, and also requires you to try the service for a full year first.

To my mind, NICI is mostly just a gussied-up name for a high-end marijuana stock promotion outfit, and I’ve mostly been unimpressed with their wild overpromising in the past — calling something a “club” makes you feel like you belong, à la Oxford Club… calling something an “Institute” makes it seem legit and independent, like maybe it’s even a think tank or a nonprofit, but from all indicators it’s really just a publishing arm of Money Map Press. That might be a bit unfair, maybe it’s just the bad taste of their last “Cannabis Venture” pitch that’s making me look at this with an extra furrow in my brow — most publishers use wildly overhyped promises in their ads, but the NICI stuff stands out for me as being even more over-the-top.

But anyway, this pitch is that there’s a super-rare substance that one company can make, and it’s going to shake up the cannabis industry and make us all rich. Here’s a little extract of the pitch:

“This Rare Extract Costs $2.1 Million PER OUNCE…

“Leading Scientific Institutions Are Clamoring for It…

“And Now, in a Stunning Breakthrough, One Tiny $4 Company Could Now Produce It ON DEMAND…”

And they pile on with the hyperbole…

“The way I see it, not since the advent of penicillin has there been a quantum leap of this magnitude.

“Quite frankly, this can change everything.”

That’s a frequently-used promise, as you might imagine — I did a quick search through my archive of old teaser pitches, and came up with at least 25 different teases in the past five years that include some variant of “not since penicillin” or “greatest breakthrough since penicillin.”

When people are daydreaming about turning $500 into generational wealth, well, you’ve got to go big to get their attention.

More about the race to develop this “rare extract”

“At this moment, the scientific race is on, and leading institutions are clamoring for this rare compound.

“Harvard Medical School has unleashed a cadre of top neuroscientists…

“MIT is doing the same…

“UCLA has launched an unprecedented initiative staffed with 37 experts in the treatment of cancer, diabetes, neurology, and brain science…

“And NIH has thrown $140 million into 330 projects spanning all of medicine…”

And about the miraculous things that it (might) be able to do…

“Scientific testing shows this rare compound to be capable of killing cancer cells – without dangerous chemotherapy.

“It has shown the potential to treat Alzheimer’s…

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“And Parkinson’s disease.

“It can kill pain without narcotics, potentially ending America’s opioid crisis.

“Plus, because it’s such a powerful sleep inducer, it could help the 60 million Americans with insomnia throw their dangerous sleeping pills in the trash.”

And, duh, we know that this is a pitch for cannabis investors… so it’s clearly one of many spiels about the many miraculous capabilities, both proven and suspected, that lie within not just CBD and THC, which are well-known and in major production from the plants, but also the magic weed’s hundreds of different obscure cannabinoids.

But it’s really about a bioengineered way to produce these cannabinoids — without using acres of marijuana plants… more from the ad:

“… in a stunning breakthrough in metabolic engineering, a UC Berkeley chemist has invented a way to make this compound on demand.

“And now, the tiny $4 company he founded holds 871 patents, is producing this compound for $15 an ounce… that’s a staggering 99.99% cost reduction…

“And is setting up the investment play of the millennium.”

Some more clues from the interview for you…

“DANNY: Don, that’s the most important point. YES. This is starting to happen right now, as we speak. Already, a tiny $4 company behind this opportunity has the power to disrupt one of the fastest-growing industries in the world.

“DON: A $344 billion industry.

“DANNY: That’s right. They’ve got 871 patents. They’ve signed a major deal with a partner and have already made their first shipment.

“DON: In other words, time is of the essence.

“DANNY: Time is of the essence because industry insiders are swarming. Folks who move fast will be able to grab a ground-floor position.”

Some other bits from the ad, to whet your appetite…

“THC and CBD have become the face of cannabis NOT because they are the most powerful cannabinoids. They are popular because they are the MOST ACCESSIBLE….

“It would cost $2.1 million an ounce to produce these other powerful cannabinoids.

“And when you consider what these rare cannabinoids can do – when it comes to cancer, diabetes, sleep, pain, weight loss – you can understand why they are so valuable.

“DON: No doubt. But you simply can’t produce that for public consumption. Not in any sustainable way. They just aren’t viable.

“DANNY: Well, they haven’t been viable until now…

“In a stunning breakthrough, a renowned biochemist from the University of California, Berkeley has developed a way to bioengineer cannabinoids WITHOUT growing a single cannabis plant.”

How does this company do it? Yeast, according to Brody:

“This tiny $4 company uses patented DNA sequencing technology to take the genes out of the cannabis plant and inject them into the DNA code of yeast….

“And because yeast reproduces so quickly…

“It’s possible to mass-produce all cannabinoids. And these are IDENTICAL to the cannabinoids grown in cannabis plants.”

Which apparently creates the business opportunity, by making production far more efficient:

“THC and CBD can suddenly be mass-produced – FASTER and CHEAPER than was ever possible. Let me put it in perspective. GW Pharma currently has to grow 18 hectares of cannabis to produce its CBD epilepsy drug, Epidiolex.
That’s 23 football fields of space! With bioengineering, it will take a fraction of the space – about one end zone of sterile vats – to produce the same amount of CBD. And you have no worries about droughts, insects, and sunlight. None of it! ….

“DON: And while it would take months to grow and process the cannabis and extract the CBD, bioengineering can get the job done in less than five days!

“DANNY: And while it costs about $196 an ounce to grow and extract CBD, bioengineering reduces the cost 10-fold! Down to a mere $15 an ounce!”

They also talk about the importance of biosynthetic ingredients for all the future use cases of THC and CBD — with the argument, for example, that not everyone likes the skunky aroma of fresh cannabis…

“Using bioengineering, you can produce THC without the odor or taste. This is huge because most people – I’m talking about the mainstream market – they don’t want to smoke weed. They want to ingest the benefits of cannabis through food or beverages. And these folks want a brownie that tastes like a brownie. Not a brownie that tastes like pot! Same with drinks. You want a THC-infused lemonade that tastes like lemonade… not bong water.”

And Brody predicts a 7,500% revenue surge for the company — which he implies, of course, is a “conservative” assumption given the role it might play in cannabis as well as pharmaceutical development.

More from the ad:

“The company has already made the first shipment of bioengineered CBD. Plus, they’ve signed a megacontract to supply bioengineered CBD to four major global markets, including health, beauty, food & beverage, and pharmaceuticals. Right now, the CBD market is projected at $22 billion within the next few years. The cost advantage this tiny $4 company has over growers is tremendous. It costs growers $196 an ounce to produce CBD. This company can use their patented technology to produce the exact same CBD for $15 an ounce. And it’s 100% pure and tasteless. With this partnership, they could dominate the market.”

And one final hint…

“Right now, they have $152 million in revenue.”

So what’s the story? There are a bunch of synthetic biology companies who have tried to make a run at cannabinoids, including Precigen (PGEN — which used to be called Intrexon (XON)), little startup Willow Biosciences (WLLW in Canada), and still-private unicorn Ginkgo Bioworks, which partnered up with Cronos…

But after just a bit of cogitating, the Thinkolator sez this really has to be Amyris (AMRS), which is a perfect match for the clues. It did post $152 million in revenue in 2019, though that number has been very lumpy, and it’s not really particularly levered to cannabis and cannabinoids just yet… but it could be in the future. And yes, the “871 patents” clue is a match as well, with the company claiming “633 issued u.s. and foreign patents and 238 pending” as of their 2019 10-K (the Thinkolator can do math! Even in August!)…. though few of those patents have any specific connection to marijuana or cannabinoids.

Here’s how the company describes itself:

“Amyris is a science and technology leader in the research, development and production of sustainable ingredients for the Clean Health & Beauty and Flavors & Fragrances markets. Amyris uses an impressive array of exclusive technologies, including state-of-the-art machine learning, robotics and artificial intelligence. Our ingredients are included in over 3,000 products from the world’s top brands, reaching more than 200 million consumers. Amyris is proud to own three consumer brands – all built around its No Compromise® promise of clean ingredients: Biossance™ clean beauty skincare, Pipette™ clean baby skincare and Purecane™, a zero-calorie sweetener naturally derived from sugarcane.”

And there is some movement on the CBD front, as teased — Brody says that “The company has already made the first shipment of bioengineered CBD. Plus, they’ve signed a megacontract to supply bioengineered CBD to four major global markets, including health, beauty, food & beverage, and pharmaceuticals.”

And, yes, they’ve done that — their first shipment of fermentation-derived cannabinoids to their partner, LAVVAN, came at the very end of last year.

More recently, they also announced a “breakthrough in CBD delivery,” with their Neossance Squalane providing better and faster penetration of CBD into the skin than other oils.

Amyris has been around for a long time, and did have its roots in the pioneering work of Jay Keasling and his students at Berkeley — with the first molecule they created, using funding from the Gates Foundation, being a biosynthetic artemisinic acid that helped to dramatically decrease the cost of treating malaria. The big push after that was mostly for biofuels, which I’d say was a long-running financial disaster (well covered by Fast Company here a number of years ago), but they have recently been focused on health and beauty ingredients, and particularly on building their own brands in that space.

(The story in some ways brings to mind the disastrous Solazyme, which was heavily hyped coming out of the financial crisis by David Gardner and others at the Motley Fool, among other pundits, as they were building giant plants in Brazil to use algae to make its synthetic oils. Conceptually that’s not so different from the yeast-derived oils being developed by Amyris, but after failure there they changed their name to TerraVia and shifted that technology to algae-based “superfood” ingredients — though it didn’t stop them from going bankrupt as the economies of scale from their algae production never emerged).

Recently, Amyris has even made a push to get some “COVID” connection — they launched their own hand sanitizer back in March, and have done initial testing to use their squalene as a vaccine adjuvant, including partnering up with IDRI and its RNA vaccine platform technology with the goal to “create semi-synthetic squalene-based adjuvants at scale.”

Will the CBD production end up leading to anything, or will they eventually develop other cannabinoids using their yeast-engineering technology? I don’t know, but I guess it’s possible. It’s a cool technology, and they’ve done some impressive things and even built a few brands that seem to have gotten some traction in the consumer marketplace, which is impressive and probably important given the competition (being an ingredient supplier can quickly become a commoditized, low-margin business), but it’s also a tiny company competing in a huge marketplace for ingredients and consumer health and beauty products… and there hasn’t been a lot of evidence, at least just yet, that they can generate revenue at a much larger scale.

Amyris has significantly improved its balance sheet, so that’s positive — though they had to sell a lot of shares to do so, and they continue to have a meaningful amount of debt as well as some pretty big tranches of outstanding warrants from past financings.

If you’re looking for a rosy take, then I’d say the fact that they’ve “fixed” their balance sheet for now and built up some cash for the next wave of work means that they’re pretty well-positioned IF they make a larger deal to license out their technology at a larger scale, or are able to substantially ramp up their branded products… and they’ll at last be in position to keep their work moving forward for the foreseeable future. I haven’t looked into LAVVAN in much more detail, but that’s where the big potential opportunity probably lies, since the indication was that LAVVAN was going to do the heavy lifting and Amyris would provide just expertise and licensed technologies. LAVVAN is not public, so we don’t get a lot of detail other than the articles covering their initial deal with Amyris.

CBD in general is also still in a bit of a holding pattern when it comes to FDA regulation, which has hurt all the companies who have been promoted as leaders of the next wave of CBD consumer products (Charlotte’s Web (CWEB.TO, CWBHF) was arguably the most promoted non-marijuana CBD name, though there are many others in the space, too), especially when it comes to edible and beverages. And, of course, specifically synthesizing and commercializing any of the other cannabinoid compounds beyond CBD or THC is possible, but probably many years out in the future when you’re talking about medical uses or nutraceuticals — those compounds are not nearly as well-understood, so great things might be coming eventually… but the FDA won’t want us sprinkling them on our corn flakes anytime soon.

There are a couple analysts covering Amyris stock, Rodman has been calling it a buy for years and Oppenheimer initiated coverage late last year, the published forecast from those analysts is that they’ll hit $400 million in revenue by 2022 and will be generating positive cash flow by then… and Danny Brody isn’t the only fan in pundit land — there’s also at least one Motley Fool writer saying it could be “the next big pot stock.”

It’s still quite risky to speculate in “emerging platform” companies like this who have not been able to prove up or commercialize their technologies over a long period of time, however, so anyone investing in this kind of company should be mindful of the risk… and try to figure out what timeline of commercialization seems reasonable, or which catalysts might turn a long-time R&D project into a viable and profitable business.

In my brief time looking into the stock for an hour or two this morning, I can’t say that I’m there yet — I keep reflecting on the fact that the technology is amazing, and the maybe-someday possibilities are pretty cool, but it seems like the revolutionary promise has remained persistently well ahead of reality… and there isn’t any obvious end to the trend of losing more and more money, with nearly $2 billion spent so far in trying to build the company over the past dozen years. Of course, I also would have said the same thing about Tesla (TSLA) five or ten years ago… so perhaps this caution just represents the failure of my imagination.

It’s your money, of course, so it’s your thinking that matters — ready to bet on Amyris and its vats of CBD-creating yeast? Think their lotions and oils and other bio-engineered molecules will be profit centers in the future? Let us know with a comment below… and thanks for reading!

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