Given the popular term to describe the advent of the cannabis industry, and the wealth-creating potential it supposedly has, the origins of Australia’s newest cultivator, Spring Sciences Australia, could hardly be more appropriate.
It was around 2012 when ‘Green Rush’ entered the cannabis vernacular, the name taken from the Gold Rush phenomenon of the 1800s. Then, as now – or at least before 2020 when reality began to hit home – there was a belief that a get-rich-quick story was emerging.
So it seems somehow fitting that an idea hatched by Dr Steve Newbery and Sheldon Kirkpatrick to enter the medicinal cannabis industry should have its roots in the gold mines of east Africa.
“Sheldon and I built a gold mine in Tanzania, and as part of the licensing process, we had to submit a closure plan, designed to support the workforce and surrounding community once the mine closes,” Newbery explains. “We looked at what industries could achieve that and concluded that agriculture was the way forward.”
But what to grow?
It was around this time that the Canadian cannabis industry was exploding. The Green Rush was in full swing, not just recreationally, but awareness was rising of the plant’s medicinal properties. It had not escaped the attention of Newbery and Kirkpatrick. But that’s as far as it went.
“We made representations to the minister for agriculture and the minster for health, and in many respects it was of more value than the gold mine,” Newbery recalls. “But such are the vagaries of African politics, it kind of went nowhere.”
The duo put their cannabis plans on the back burner until a former associate, Robert Gerhard, got in touch to discuss – as chance would have it – a cannabis-focused business venture.
“I laughed when he told us he was investing in the cannabis sector,” Newbery says. “We exchanged stories and it went from there.”
Gerhard had invested in a Michigan-based cultivator, Driven Grow, which was looking to expand. After being introduced to Andrew Driver, Driven Grow’s chief executive and founder, Newbery and Kirkpatrick travelled to the facility, studied its strengths and weaknesses, and presented plans to replicate the Michigan model in Australia.
Spring Sciences Australia was born.
That was 2019. Today, a fully automated, climate-controlled indoor facility with capacity to produce 10 tonnes of dry flower is tucked away off a country road near Caboolture, midway between Brisbane and the Sunshine Coast.
But in a salient reminder – if one were needed – of just how arduous it is to establish a medicinal cannabis cultivation business, it is only now that the operation is moving towards the commercialisation of crops, a timeframe impacted by floods, Covid, and the Office of Drug Control (ODC), where the smallest amendments to previously agreed plans can take months to be approved.
The protracted nature of the development is not lost on the management team, or its approximate 50 shareholders, which include themselves, friends and family. As with so many cannabis firms that have come before, Spring Sciences’ timeframe blew out, by almost two years.
“It was a constant battle with the ODC, and some of the shareholders who were with us from the beginning occasionally raised questions over how long it was taking, and that’s understandable,” Newbery says. “But we’ve actually been very lucky in the sense that our shareholders are successful people in their own right. They understand the dynamics of business, many of them are medicinal cannabis patients, or have relatives who are, and are committed to the success of the industry.
“We’ve spent quite a bit of time keeping people informed on our progress. We adopted many of the practices that you would associate with an ASX-listed company. We put out quarterly reports and Sheldon was always on top of our financial reporting. We basically run ourselves like a professionally listed company.”
Such a disciplined approach has several advantages, he adds. Not only will it serve the company well should it decide, at some future date, to become publicly listed, but it demonstrates a competence that builds trust with shareholders and potentially makes them more amenable to participating in capital raises.
“We’ve been very successful in getting repeat investments sometimes two, three or four times,” Newbery says.
Overall, Spring Sciences has spent north of A$10m in capital expenditure on the project, Kirkpatrick reveals, a figure set to rise to more than $12m when all five grow rooms are up and running.
“There’s no doubt we had some high-stress periods, but we took our principals from the junior mining industry where you say what you’re going to do, raise the money, and do it,” he says. “Our shareholder base has grown incrementally over that period, and as we’ve built confidence, people have realised that what we’re doing makes a lot of sense.”
And it’s not just management and external investors who will benefit from the success of Spring Sciences as it expands production. The majority of the workforce has skin in the game, with many investing “significantly”. The company also has an equity plan which is linked to employees’ base salary and vested over three years.
“Every day they come to work they’re earning equity and sharing in the value uplift and success of the company,” Newbery says. “It’s part of a longer-term wealth creation scheme for the employees and is an important part of our recruitment strategy.”
In addition to attracting staff, it also helps with retention, another “critical goal”, he adds.
Among the key members of staff are head of cultivation Josh Waldron, head of tissue culture Dr Lennon Matchett-Oates, and general manager Tony Saw, who have all been instrumental in getting the company to the cusp of commercial production.
“They’re smart people and understand what we’re doing and why,” Newbery says.
That, however, was not always the case, even among the senior management team of Newbery, Kirkpatrick and Saw.
As Spring Sciences drew up plans for its super high-tech, but modestly sized indoor facility – inspired, as it was, by their visit to Michigan – others in the medicinal cannabis sector were plotting huge greenhouses with capital expenditure to match. Self-doubt, on occasion, crept in about the Spring Sciences strategy.
“When we saw friends looking to build massive facilities with $70m or $80m capital requirements, we seriously questioned what we were doing, and whether we had the right approach,” Newbery admits. “Having said that, we fundamentally knew it was a successful business model in the very competitive US market. So we stuck to our guns and continued to refine the facility. And as we did, one by one those other projects either didn’t get off the ground or fell by the wayside.”
Spring Sciences’ business model has shifted over time. Initially, plans were hatched to create its own product range, under the Spring Sciences brand, using “the best flower in Australia and at least on a par with the best international flower”.
Marketing experts were drafted in as conversations turned to achieving market penetration and cut through with doctors.
But as the Australian industry evolved, it became apparent that a new approach may be more fruitful.
“When we started to look at the economics of our facility and our ability to drive down production costs to the point where we were more than competitive against a greenhouse, we realised that the time and resources necessary to develop a brand really didn’t fit for us,” Newbery says. “Domestic players who had spent a lot of time and energy and money in developing their brand were struggling against foreign players. They needed our products if they were going to compete.
“So we went from a company planning to go from seed through to products on the shelf to a firm which is aiming to be the best cultivator in Australia, producing world-class bud, and working with people who already have established brands.”
That changed the dynamic overnight, with suppliers approaching the cultivator and wanting to do business.
“As a consequence of that strategy shift, we were approached by our peers because they no longer saw us as a competitive threat,” Newbery says. “We’ve subsequently struck agreements which will allow us to not only develop our own cultivars, but take other people’s cultivars and grow them to a higher specification which allows them to be more competitive in the market.”
That will also ensure continuity of premium-quality supply, something that appears to have hampered local players.
“You can spend months or years building a brand around a particular cultivar and suddenly it’s not there,” Newbery says. “Or it may arrive and is sub-standard. When that happens, they’ve got absolutely nowhere to go and they’re dealing with brand reputation damage.
“By working together with these firms it’s a win-win for everybody. They’re making good money and building their brand with consistent, premium product and we’re getting reliable cash flow at a good price.”
The Green Rush is about to get real in Caboolture.