The Pot Seat: Elixinol’s Paul Benhaim is spending to stay on top
Food & Agriculture
In India, the god Shiva brought ‘bhang’ to the people. In China, the goddess Magu’s name is actually made up of the words ‘cannabis’ and maid’. And Thailand gave the world the bong.
Elixinol CEO Paul Benhaim has spent over 25 years wandering around Asia, and most recently was in Nepal for, of all things, a hemp summit.
Mr Benhaim leads Australia’s most successful pot stock, which does not yet have feelers in Asia but owes its prosperity to another region: the US.
It’s the ‘most successful’ because he was able to bring onto the ASX in January 2018 a fledged company that was already earning revenue, when the majority of the country’s cannabis businesses were still startups or biotechs.
Elixinol (ASX:EXL) almost made a full year profit last year (it reports on a calendar year basis) on the back of its revenue-generating US hemp business.
Bell Potter had predicted in December for Elixinol to make a $1.8m profit in 2018. Instead it took home a $860,000 loss.
Mr Benhaim says the US market is growing so fast they had a choice over whether to make a profit, or spend to stay up with that growth.
“Our focus is not on profit… our focus is on growing revenues and taking advantage of the growing space to increase our market share. We feel that that is the most important thing to do right now,” he told Stockhead.
This year, nearly 20 per cent of revenue will be spent on marketing.
Elixinol started in the US with a hemp business, where it has a separate listing on the over-the-counter (OTC) market there.
It now has operations in Japan, Europe, New Zealand, and of course Australia, where it sells hemp products and has started a medical cannabis business recently re-dubbed Nunyara.
While the company is spreading its tentacles around the globe, it’s the booming and recently legalised US hemp market where fortunes are to be made.
The US Farm Bill was passed into law in December 2018, legalising industrial hemp and hemp-derived cannabidiol (CBD) — although the all-powerful Food and Drug Administration (FDA) remains unconvinced about CBD being marketed in food and supplements.
Elixinol reckons the US hemp market is about to grow from $2 billion a year to $22 billion by 2022.
Which begs the question: how does a $438m Australian company ($US315m in the US) compete in the biggest market in the world?
Already companies are trying to spend their way into the market, in the way Silicon Valley tech startups in fashionable industries such as ride-hailing and food delivery have made into an art form.
“We have a number of advantages, one is my decades of experience,” Mr Benhaim said. “Two is five years of production, research and development and investment. Three is our very well respected brand which is based on a high quality formulations, and last the phenomenal team that we’ve built up around ourselves.”
“We have a number of advantages over anyone trying to enter this market.”
Mr Benhaim believes they have a few years up their sleeve, saying few will out-spend them who also have Elixinol’s specific knowledge.
Elixinol is also trying to position itself as a trusted brand in the US as a way of staying at or near the top of the pyramid there.
They are being pedantic about current FDA regulations and trying to anticipate new ones.
“One of the biggest growth drivers in this industry will be the FDA’s clarity on their position about CBD products and what we [call] the health and wellness industry,” Mr Benhaim said.
The FDA’s current position is that medical claims can’t be made for CBD unless the product has been through a formal clinical trial and approved by the regulator, and it’s not safe for food. That means nutraceuticals and supplements can’t claim CBD will cause relaxation or pain relief.
FDA Commissioner Scott Gottlieb last week indicated that rules around CBD in food and supplements won’t be finalised for at least two years, and it’s unlikely high CBD doses will be allowed to be used in either — that field will be left open only to pharmaceutical companies.
But Mr Benhaim believes an already-multi-billion dollar industry won’t be cut down.
“I would like to see an industry that has to meet the needs of the consumer to ensure high quality products are produced and sold and sold with clear labelled guidelines, without making claims that cannot be backed up scientifically,” Mr Benhaim said.
Back home in Australia, the scene is more frustrating.
Mr Benhaim told Stockhead in January that “nearly every country in the world is far more attractive” than Australia.
“It’s been a year,” he says when asked about the cultivation and manufacturing licences they’re waiting on for Nunyara.
“The government keeps apologising to us for the delays and still will not commit to any timelines. Meanwhile New Zealand has overtaken us by allowing any doctor to prescribe any product for any use.”
Elixinol is now selling more products in New Zealand than in Australia.
“The government [in Australia] needs to allow doctors to make their own decisions about what is healthy for their patients,” he says, rather than looking over their shoulder via the Therapeutic Goods Administration-approved Special Access Scheme.
“When doctors are currently allowed to prescribe opioids but not allowed to prescribe a non-intoxicating hemp-derived CBD, even if they think it’s the best thing… then we would match New Zealand.
“What I would really like is for there to be a parallel non-medical use of CBD in Australia, similar to Europe and North America, where people can consume non-intoxicating forms of hemp-derived CBD on a daily basis, should they choose, a bit like vitamins and minerals.”
“I think both can exist happily side by side. We’re capable to have a nutraceutical form of CBD as well as a medical form of CBD, just as we do with fish oils.”
Mr Benhaim is also frustrated with the hemp industry in Australia.
Farmers can’t use the flower or leaves of the hemp plant, only the seeds and fibre, a discrimination he feels is holding the new sector — only legalised in November 2017 — back.
Mr Benhaim admitted reluctantly that they are lobbying the government for change, but doesn’t know when that may pay off.