In the first of a two-part interview with Cannabiz, Medcan Australia managing director Craig Cochran recalls the journey from cash-strapped start-up to last month’s successful harvest of the company’s first crop.
It was all looking rosy for Craig Cochran and Gareth Ball when, in mid-2019, the business partners embarked on a capital raising expedition to Canada, then the undisputed investment centre of the cannabis world.
For the best part of three years, the duo had self-funded the business activities of Medcan Australia, a Queensland-based start-up they had launched in 2016.
The time had come to seek serious Canadian cash. And the prospects were looking bright.
“I think it was in July 2019 when we were in North America and doing a deal with a Canadian company,” Cochran recalled. “But as it turned out, the timing was appalling.”
What had looked so promising was about to unravel. A month or two later, in August or September, the initially positive discussions collapsed amid an unfolding bloodbath in the Canadian market.
“It was right at the start of the Canadian capital market crash. They lost their funding, we lost our funding and we had to return to financing the business ourselves,” he said.
That involved the courageous but risky move of taking out second mortgages and, as Cochran described it, “liquidating assets to keep the business afloat”.
“From a grassroots perspective, we really did struggle,” he said. “I think we had the third licence application for cultivation in front of the ODC… but we did have some false starts. We had some other early investors who were looking to come in but couldn’t raise the money. A lot of things fell through.”
Yet here they still are. And it makes events of recent weeks all the more satisfying.
Last month, Medcan hit not just a company milestone, but arguably one for the Australian industry, when it harvested its first crop of cannabis plants. In doing so, the company looks primed to become one of the few local producers to commercialise a dried flower product for Australian patients.
Developing the fundamentals
Medcan’s vision, said Cochran, was to become revenue-generating early on and, while the industry was – and remains – in its infancy, adopt a vertically integrated model to leverage all links of the supply chain.
It started importing oils, dried flower and capsules from a Canadian partner under a white-label agreement, and has sought to develop the “fundamentals” of a viable business.
That strategy reaped rewards mid last year when “significant” backing was secured from private investors. And it has laid the groundwork for further, future investment when the time comes.
“We wanted to establish the fundamentals of a business with short-term revenue strategies, brand awareness and market penetration, which we’ve now done,” explained Cochran.
“The import and on-selling model was working well for us and the next step was to get our cultivation up and operational, which we’ve also done.
“When we go back to the market – and we will do another raise at some point – we can say we are a 100% Australian-owned private company with revenue, that’s making a net profit and has done what it said it would do, with minimal funding.
“We haven’t raised shareholder money and blown it. We’ve run a tight ship, have GMP manufacturing and cultivation and just completed our first harvest. It puts us in a strong position to go back to the market.”
The two faces of quality
Medcan’s strategy has centred around indoor, boutique-style cultivation that at least matches what Cochran regards as the “best quality” dried flower shipped from Canada.
Australian consumers have become accustomed to high standards of imported flower, he said, which sets a high bar for Australian producers.
Such a view appears out of step with some voices in a local industry which is often dubious as to the quality of imported medicinal cannabis.
“Quality has two faces,” Cochran explained “Quality has what TGO 93 stipulates and then what the patient believes is good quality, and they can be worlds apart.
“You could have a 5% THC dried flower product that adheres to TGO 93, is GMP compliant, and GACP certified, but the consumer may not accept it because it’s not a high enough potency or the quality they want. That’s the two faces of the quality argument.”
Besides issues of quality, Cochran believes the general lack of locally manufactured flower product needs addressing.
According to data from FreshLeaf Analytics, of the 32 flower products available in Australia in the first quarter of 2021, only four were cultivated locally, highlighting the heavy dependence on imported product, particularly from Canada.
More than four years after medicinal cannabis was legalised in Australia, Cochran expressed surprise that so little local flower had come to market.
“Some cultivators have been licensed for a number of years and gone through many harvests yet still haven’t got a product to market,” he said.
“We’ve been cultivating since September and harvested our first dried flower which is now out for testing, and I believe it is going to be of a quality that could be released to the market.
“As we know, there’s been supply chain issues and companies have run out of dried flower in Australia. The only way to really attack that problem is to have Australian cultivation.”
Dried flower product ‘this calendar year’
Cochran said he has been delighted with the quality of the company’s flower, stressing its GMP cleanrooms, vertical farming techniques, LED lighting technology and environmental control systems have helped produce a high-grade product that will be “reproducible”.
Grown at Medcan’s 6,500kg-capacity facility in Brisbane, the flower was sent for testing this week, with Cochran confident it will not disappoint.
“I’m secretly hoping we’ll get above 25% THC with some of the strains, but we’ll be extremely happy with 22% to 25% THC,” he said. “Anything above that would be a bonus.”
“This first crop isn’t what we would consider a commercial crop, but we believe we’ll get these strains to Australian patients within the calendar year.
“Once these products become available for Australian patients it will help us along the path to fulfilling our vision of providing high-quality, fair-priced products which will further drive down the price [of medicinal cannabis] for Australian patients.”
As for any expansion of its facility – small by some standards – Cochran expressed caution. The option remains to build out capacity but not for capacity’s sake, he said.
“We’ve done what the market requires as the market requires it. So rather than punching out six-and-a-half tonnes from day one, we’ve scaled up so we’re doing things in a more sustainable way and in a more commercially viable way.
“Our model is producing high-quality, reproducible conditions for high-quality reproducible products to bring the price down for patients.
“We’re not interested in massive amounts of biomass simply for extraction. That’s not who we are as a business.”