BioHarvest Sciences (CSNX: BHSC) is a rising star in the food, nutraceutical and cannabis industries. Through its intellectual property, it has developed a shortcut that could lead to cost savings and larger gross margins for its partners and future clients as well as a level of consistency, cleanliness and concentration not seen yet in the industry (see 6C’s on Website). At its core, cannabis is merely an agricultural business. And with any agricultural business comes certain challenges and restrictions. There is a growing season that requires a substantial amount of time and resources. Time that results in a company’s input materials sitting in the ground as unfinished inventory for months. That unfinished inventory takes up space, requires resources such as water and requires substantial machinery and man-hours at harvest time. There is no guarantee that the finished product will meet consumer’s or regulator’s requirements for quality and consistency. Finally, when that growing season is done, the company’s land sits dormant.
BioHarvest has invented a workaround to these issues through its fully validated industrial scale plant cell technology platform. The company attests that it can basically grow plant cells and their multiple active ingredients at high levels of concentrations without even growing the plant. While this applies to various types of plants, the most recent focus of their research has been on cannabis compounds. In 2019, BioHarvest was the first company to stably grow Cannabis cells in liquid media and produce six distinct cannabinoid molecules - THCA, THC, CBDA, CBD, CBN, CBC – with an identical cannabinoids profile to that of the source plant[1].
This technological breakthrough means that a business requiring cannabis or nutraceutical inputs may be able to create them itself while using only a fraction of the conventional farming resources and may be able to be “grown” anywhere. This technology can be of particular interest to businesses in Canada and the Northern United States which have to deal with long winters when agriculture is basically dormant. I can imagine in places like the far north in Canada where Native populations have limited access to fruits and vegetables - the people living there would love this technology. In places like California, access to water is the major issue for farming during times of drought. BioHarvest’s technology requires only a fraction of the water and the land and hence the cost for the same amount of ingredient output. The process is GMP and ISO certified and can provide a consistent source of full spectrum cannabis at industrial scale output.
BioHarvest recently undertook a reverse takeover to list on the CSE in Canada, but its origins are from Israel. Israel is one of the leading countries in the world for research and development in cannabis and other health-related technologies, so it’s no surprise that BioHarvest has come out of the country. However, many young, R&D-based companies have problems with turning their “science project” into a sustainable business. They must constantly dilute to fund their operating losses at the expense of long-suffering shareholders who believed in a concept before a viable business model. This is where I am optimistic that BioHarvest can stand out. The company is working hard and moving fast to start commercializing its products.
Its leading product soon to be sold in North America and Israel over the next 6-9months is VINIA®. VINIA® is meant to emulate the French Paradox of 2-3 glasses of red wine daily being good for your heart. It contains a concentrated level of Resveratrol, the plant compound that acts like an antioxidant as well as other important polyphenols. One capsule of VINIA contains the equivalent amount of Resveratrol as in 1,000 grapes or one entire bottle of Red Wine, but without any sugar or calories[2]. BioHarvest believes that it will be straightforward to market to consumers as the message is simple; it has all the benefits without any of the drawbacks of red wine. BioHarvest has backed up these assertions about VINIA with clinical trials that support the structural and functional claims. A total of eight scientific studies and 4 clinical trials with three peer-reviewed papers have been published about it in major scientific journals. Finally, VINIA is produced in compliance with the FDA, and has the Generally Recognized As Safe (GRAS) designation. This designation is not the FDA’s stamp of approval over VINIA’s efficacy, but BioHarvest has already gotten something even better. A legitimate and respected distributor on board
The company has signed a performance-driven distribution agreement with Batory Foods, a leading food ingredients distributor in the United States and one of the top three companies in the nutraceutical and beverage ingredient segments of the market. Microcap stocks have an interest and a legal requirement to press release material developments. But Batory, as a private entity, also issued its own press release. Its excitement and respect for BioHarvest’s technology was apparent, calling it a “major vote of confidence in the scientifically and clinically proven advantages of BHSC’s Biofarming technology and portfolio of products”[3]. BioHarvest states that Batory Foods is the perfect partner for it in order to disrupt the Nutraceutical Ingredients Industry and solidify its capabilities to offer Hemp based CBD with less than 0.3% THC content at a consistency and cleanliness that’s unparalleled in the industry. Batory is probably not wasting any time to move forward with this agreement as its sales team will commence sales of VINIA to a targeted list of customers.
BioHarvest believes that this partnership will enable the company to quickly grow to manufacturing scale and achieve an estimated 60% to 70% gross margin[4]. In order to maintain certain exclusive rights to sell BioHarvest products in the United States, Batory must purchase a minimum of $18.6 million CAD of Nutraceutical products over a seven year period.
The final piece of the puzzle would be to secure a manufacturing agreement so that it can produce VINIA and other products at scale. That was achieved through the partnership with Sugart Ltd that was announced several weeks ago for the building of a 20 Ton per year manufacturing facility. Sugart will be in charge of construction of the new manufacturing facility and provide all logistics and warehousing services to support BioHarvest’s products. BioHarvest will reimburse Sugart for all costs incurred as well as provide a service fee equal to 10% of COGS. BioHarvest will purchase the required capital equipment for its BioFarming technology as well as pay for the appropriate upgrades needed for the facility. The monthly lease will be the equivalent of $16,000 CAD[5].
These immediate commercialization efforts should lead to near-term impacts on the bottom line. Management has released guidance of US$2.5-US$3.5 million in revenue for 2021. The Superfruits Nutraceutical vertical is expected to be cash positive next year, while the combined business of Nutraceuticals and Cannabis is expected to turn cash positive in 2022[6].
Ilan Sobel was appointed CEO in June 2020, and I interviewed him as part of his “open door” policy of being transparent with corporate performance and growth planning. “I feel privileged to lead this company and represent the breakthrough work of some of the most talented scientists in the world. After years of R&D, BioHarvest Sciences has become the first and only company that grows cells of plants at industrial scale in liquid bioreactors in order to produce the active secondary metabolites that are so critical to support and improve our wellness. We do all of this without the need to grow the plant itself. We are on a mission to positively change the world via our superfruit nutraceutical products,in the cannabis space and beyond. This Biofarming platform we have invented and patented has very broad utility and in the future we will choose to play only in those business verticals which have the greatest Human Utility Value. This will ensure we deliver on our promise to make a positive difference to the world, whilst maximizing shareholder value”.
Investors should note that Ilan Sobel has 20+ years of extensive experience in General Management, International Sales and Marketing, Manufacturing and Operations following 18 years as an international employee of The Coca-Cola Company. He more recently served a 6 year stint as Chief Operating Officer, transitioning to Chief Commercial Officer over the last two years for Weissbeerger, a disruptive BIG Data, IOT & Software Company servicing major Beverage players which was recently purchased by Anheuser Busch InBev. In the three months since his appointment as CEO, the company has already secured major manufacturing and distribution agreements.
It’s clear to me that BioHarvest is doing what it needs to do in order to transform from an R&D company into a fully commercialized and profitable business that will be of interest to speculative microcap value investors. It has the patented process and products. It has manufacturing and distribution partnerships in place. It has announced financial guidance that shows strong margins and that profitability is within reach. Finally, it continues to work in order to bring a disruptive cannabis/CBD product to the market in the near future. It is a company to watch.