Matthew: Hi, I’m Matthew Kind. Every Monday, look for a fresh new episode where I’ll take you behind the scenes and interview the insiders that are shaping the rapidly-evolving cannabis industry. Learn more at cannainsider.com. That’s C-A-N-N-Ainsider.com. Now, here’s your program. Many new business models are emerging in the cannabis and hemp ecosystem. Here to tell us about his Hemp Service Provider is Eran Sherin of UrbanXtracts. Eran, welcome to “CannaInsider.”
Eran: Thank you, Matt. Good to be here.
Matthew: Give us a sense of geography. Where are you in the world today?
Eran: I’m in UrbanXtracts’ offices in Midtown, Manhattan. We’re on the corner of 39th and 5th Avenue. It’s a rainy day here today, and that’s where our office is. That’s where I am. We actually grow upstate, but we operate out of our facility here.
Matthew: Okay. And I’m an Edinburgh, Scotland where it’s 4:00 p.m. and pretty much already fully dark. So, what is UrbanXtracts at a high level? Help us understand that.
Eran: At a high level, we’re a service provider. And what that really means is whether you want to grow, process, develop, or market, we’ve got business models that engage you and enable you to get into the industry.
Matthew: Okay. Can you share a little bit about your background and journey and how you got into the cannabis space and started UrbanXtracts?
Eran: Sure. I’ve been an entrepreneur since I was a teenager, and I’ve had two successful technology startups in the hotel technology space. I’ve also been a hotel developer. I’ve developed two boutique hotels. And I was actually working on a concept of a new glamping resort where we wanted to integrate a farming initiative into the concept. And through researching different farming opportunities, I came across Governor Cuomo’s industrial hemp program in the State of New York. And I found it very intriguing at to learn about it, and so I applied to obtain one of the licenses when they first opened it up to private businesses. And I was very fortunate to receive one of a few combined licenses, which are licenses that allow you to both grow and process.
Matthew: Okay. Interesting. And where are you from originally?
Eran: Well, I grew up all over the place. I was originally born in Israel. However, I grew up in Australia and South Africa and I got to the United States in ’92. And I had a great experience of living both in Texas, and California, and Florida. But I’ve always found New York to be home, and I’ve always resonated with the city and the state now. And I feel very lucky to be living out here.
Matthew: Yeah. So, what was your experience like with the American culture when you first landed here? I mean, I always like to know like what’s that like? What were you kind of not prepared for that kind of shocked you?
Eran: Look, you know, growing up in Australia, you know, America being the land of opportunity, and especially, like I said, I’ve been an entrepreneur at heart from the very beginning at high school. And so, I was looking forward to coming here and seeking opportunity, and I’ve been involved anywhere from real estate to technology and now into a new emerging industry, cannabis, which is very exciting.
Matthew: You know, it seems like, I always wanted to have like a very liberal immigration policy because immigrants build so much of our economy. It’s amazing. I think about like Surrogate Brin, and Elon Musk, and all these guys, and it’s crazy how immigrants build stuff. But then the second, third generation, we get a little lazy. I even think about like, you know, my ancestors came over from Ireland. They were a lot more industrious than I am. So, it’s like what do you think that is, I mean, because you still have that in your head? Like, you came over and you saw opportunity. What is it that you saw that you said, “I can just jump in here and make a success of it?”
Eran: So, you know, first of all, this is one of the reasons why I resonate with New York because it’s such an immigrant-driven city that allow people to come here and seek and capture their opportunity. I think, you know, one of the exciting things that I saw in this hemp/ cannabis industry is that it’s so early on. It’s seldom that you find opportunities as an entrepreneur really that you could capture the infrastructure side of the business as opposed to, you know, on-top services of an industry.
And so, what excited me specifically about this industry and really for me, it was also a big transition being in technology, being in hospitality and migrating into a new industry and identifying with that, I think, embracing that identity. You know, I knew that I needed to do that if I wanted to be a leader and innovator in this emerging industry. So, really, you know, the opportunity I saw in New York was really building a company that can service the industry as an infrastructure.
Matthew: Okay. And I want to talk a little bit about that, what Hemp Service Provider means. Now, you just gave us a little high-level overview, but give us a little more detail on what that means. Like, if we were to walk into your facility and, you know, meet you there, just walk us around virtually what that’s like.
Eran: So, as a service provider, what we want to do is really build a transparent and quality supply chain. And if we capture every aspect of that ecosystem, whether it’s grow process, develop a market, and we’re involved and engaged in all of those aspects of the industry, we can really create quality, create transparency, and create consistency in that supply chain, which I think is what we need to do to elevate this industry and to give it the quality that it requires to produce great products. And so, specifically, on the growth side, us as a company, we own and license exclusive strains, cultivars, that yield high amounts of different cannabinoids, whether they’re CBD or other cannabinoids. And so that growth side, we enable farmers by supplying them genetics.
And we have different business models with farmers. We have some farmers that know what they’re doing and they just want to buy genetics from us, which we do in the form of clones. So, we produce those genetics from other plants that we cultivate. We propagate and produce these clones. And so, farmers can either purchase those clones outright if they know what they’re doing. Or certain farmers, we revenue share with them on a business model where we supply the genetics and they do their part of farming, and harvesting, and drying, and then we support them in selling.
And then we go further in certain areas and we create a proper co-operative where we share in the risk of the growing. And not only do we supply them the genetics, but we also supply them financial assistance throughout the growing season and then we share in the profits as we sell them. So, that’s on the growth side. Processing, we process our own inventory that we produce with our cooperative farmers. We also toll process and revenue share with third party farmers that have produced biomass and want to increase the value of that biomass by processing with a partner like ourselves.
And, on the development side, again, we want to be a wholesale supplier. We believe that we don’t need to take products all the way to shelf. We can enable brands and marketers to leverage off white-labeled products or leverage off our infrastructure to develop and formulate their own products within our processing and development center. And that’s on the development side. And on the marketing, you know, at the end of the day, everything is all about sales. A successful business is about driving sales and having those distribution channels. And so, that’s something that we’re building and building with retail partners and distributors.
Matthew: Okay. This is kind of an interesting model and a little different. Do you feel like working with farmers in the way you do helps you kind of de-risk a bit and focus more on the big picture?
Eran: I think that’s what we’re ultimately trying to do, is there is tremendous risk as I’m learning more and more in farming. And, you know, so we wanted to work with farmers because, again, if we want to provide a transparent supply chain, we feel that we need to be engaged in the growing side of the business. We need to…you know, it all starts from the genetics, from the seeds, a plant coming out of the ground, us processing. At the end of the day, we get what’s called a cannabinoid profile of our extract.
And so, you know, we want to manage what profiles we have so we can have the highest quality to put into our products. So we feel that we need to work with farmers. Plus, it’s very important to understand that this whole hemp industry is really an agricultural initiative. This is all about farmers. This is all about the states empowering their own farmers with new cash crop opportunities and giving them an opportunity to prosper. And so, we want to be aligned with the state that’s licensing us to do this.
Matthew: Okay. And how many plants total do you expect your harvest size to be or maybe kilograms, and maybe a bit better, or pounds?
Eran: So, our first year of harvest was in 2018, and we grew 36,000 plants. That covered just around 20 acres. This year, with the knowledge and experience that we had last year, we were able to scale up. This year we grew 100 acres encompassing 170,000 plants. So, that’s how we’ve scaled up based on the experience, and knowledge, and education that we’ve received over the last couple of years.
Matthew: Okay. And so, I understand the State of New York put $10 million of funding in for hemp. Can you talk a little bit about where those funds are going and, you know, what you like most about it?
Eran: So first, I think it’s important to… You know, there’s about 30 states already that have a hemp program in place, and New York is one of the only states that’s actually backed it with capital dollars to help grow and provide the infrastructure for the industry to expand. They’ve split the $10 million, half of it going into companies like ourselves that are building processing plants to help them with the capital support to build the infrastructure for the processing and get the equipment. And the other half is really in the knowledge and experience of growing it.
And the state engaged Cornell university to be an education hub and a resource and a data hub to gather information on what grows best, how can they best manage this industry as it grows. So, I think, you know, that commitment in New York State to the industry is very telling. And also, the other distinction with the program in New York compared to some of the other states is that it’s highly regulated here, and we see that as an advantage because regulation will be across the board as this industry grows. And it allows us to really build our infrastructure with that in mind, that all, you know, the FDA regulations that are coming down the road, we’re perceiving what that will be and acting accordingly today already.
Matthew: Okay. So, you have raw materials, crude, hemp oil, distillates, isolates, this is kind of interesting because you can see what’s selling or where there’s market interest and then just invest more in that piece as it grows. Is that part of the strategy?
Eran: Yeah. I mean, I think like any business, you see where the supply and demand is. We’re growing this year our crop that’s going to be dried and cared for that’s going to be in a biomass format. There’s demand for biomass. We’re going to sell some as biomass. We’re going to further downstream the rest and extract it into crude oil. There’s going to be demand for crude oil. We will sell some of that, and then we’ll further process that crude oil and refine it and have our distillates.
And there’ll be demand for that. And, in some cases, we’ll further distillate into what I would call customized oils based on customer needs, whether it’s water-soluble, water…things of that nature, as well as putting it into white-labeled products and allowing brands and marketers to get into the game and leverage on what we’re able to do. So, we try to de-risk throughout the whole cycle of improving the product and selling some often, and refining it, and taking it further downstream.
Matthew: You have like rework style collaborative setting. Can you talk a little bit about that and maybe some of the things you’ve seen grow out of it? Relationships with different farmers or different people, and what’s kind of excited you about that?
Eran: So, similar to how we grow with farmers in a cooperative manner, and that helps to de-risk both ways, we wanted to do the same thing with development. Development of new products is all about innovation. And, you know, us being the infrastructure company, we want to provide the space and the opportunity for innovators to come in and leverage on the state of the processing and development center that we’re building that will have the resources, and the space, and the labs to develop and formulate innovative products. And so, we don’t see us doing everything, but we see us being an enabler and empowering others to leverage off the infrastructure. So, partnering with them, supporting them, and then ultimately really securing the distribution of our raw materials into various products.
Matthew: Okay. And where are you in the capital-raising process?
Eran: So, we’ve done a seed round and a friends and family round in the past where we’re in early… In Q1 of 2020, we foresee ourselves doing our series A round. That’s really when we also see ourselves opening up our processing and development center. I should note this, that we were very fortunate in the farming community that we grow in, which is in Orange County in a region called the Black Dirt Region.
The town saw what we’re doing with farmers and understood that we wanted to build a processing facility, and they approached us that they have a former prison in the town that they want to repurpose into a business industrial park. And we were brought in as an anchor-tenant and that received some grants and funding from the town and county as part of an economic redevelopment project to convert this prison into an industrial park.
And so that facility is opening up in Q1, and we’re very excited about that. It’s a state-of-the-art facility. And once we’ve opened that facility, we foresee ourselves doing our series A round and really having a lot more credibility in the industry by having a facility that’s built from the ground up that’s very, very efficient in its cost structure, able to handle 2,000 pounds on an 8-hour shift. And we’re able to scale up on a second and third shift cycle. So, we’re very excited about those opportunities in Q1 coming up for us
Matthew: Well, some poetic justice in there. I mean, considering, you know, that very plant put a lot of people in cages, now that prison is being transformed for the production of the same plant. So, that’s really cool. Did it take a lot of architecture and general contractor work to get the insides of the prison suitable for everything you’re doing?
Eran: From a construction perspective, we were actually very surprised how solidly they built these buildings back in the 30s. Some of them were very structurally sound and actually complimented the efforts that we needed to make this into a modern state-of-the-art facility. But what’s interesting is as we learned more about the history of this place, we really learned that this building was originally built, these buildings in the prison were originally built as a rehabilitation center, as a school that was actually from an organization that was backed by Eleanor Roosevelt, where, in the 1930s, kids that couldn’t find themselves, maybe turned to crime, were sent up there and were given an opportunity to learn new skill set and used the barn that we’re converting into a processing facility as a place to learn farming practices and so on.
And so, there was a real social justice component to this facility to start off with. And then over the years, it eventually turned into a prison, and we have the opportunity to really bring it back to its purpose by providing jobs, providing opportunities for people and bringing some of that social equity component back to it.
Matthew: Okay. How do you see the market for hemp evolving over the next three to five years, not just in New York, but just, you know, on a national level, and even on global level?
Eran: So, I think, as I said, we’re at the very beginning of the cycle. And, most people are turning today into CBD cultivation because the footprint can be very small and the profits seem relatively high right now. But as the infrastructure for growing and processing this plant expands, you know, the migration into other exciting components of the plant, really on the fibre side, we’re really growing. The infrastructure will be there, and there’s so many industries that could really be innovated and evolved using the byproducts from the fibre, whether on the fabric side or whether in construction material on the hard side. I think that’s very exciting opportunities that will emerge.
Matthew: Okay. I’d like to ask a few personal development questions, Eran, if that’s okay. Is there a book that’s had a big impact on your life or your way of thinking that you’d like to share?
Eran: So, I’m actually re-listening to a book I read years ago called “A New Earth” by Eckhart Tolle. I read it years ago. It’s a great book. I read it years ago and now actually listening to the audio version of it. And, you know, so often with these books, you know, as you read it a second or third time, there’s so many other insights. And, you know, for me that’s been a very impactful book and guidance. And really, again, for me, you know, being an entrepreneur and being very passionate, you know, my business is my life in a way. So the way I create business models and the way I create a partnership with people is really the essence of the business and of who I want to be. So, having, you know, that book and being reminded now with some of those tools is being very good for me.
Matthew: And his voice kind of lulls you into a state of calmness. It’s like a cross between Stephen Hawking and Yoda.
Eran: Yes. I think that’s a skill that you need to learn. And once you, you know, obviously tap into that space, you now naturally kind of resonates that way.
Eran: I think, you know, what I’ve noticed as I’ve traveled, you know, throughout the country and gone and attended various shows and expos and education, I’ve really got to see how people’s lives are changing, how people are finding purpose, how people have been in a different industry and are now finding new identity, new passion in this industry. How people are finding jobs that they feel comfortable, that’s part of their lifestyle. And so, I’ve really enjoyed seeing that, and also, in my business, providing those opportunities. So, that’s been, for me, very, very telling about, you know, how meaningful this industry, not only from the value that the products provide, but also that this industry is really, you know, giving people purpose.
Matthew: Yeah. Here’s a Peter Thiel question for you. What is one thought that you have that most people would disagree with you on?
Eran: Putting the farmers first. You know, that’s something that I’ve always had a hard time from an investor perspective, you know, really showing them that. A lot of people look at our business model and say, “Hey, you know, you could just buy this raw material much cheaper, and you don’t need to get involved that much on the growing side.” Again, I’ve always seen this as an agricultural initiative is about the farmers.
It is about seed to market. It is about transparency, and the way to do that is really to partner and empower farmers. And I think that’s being something that we’ve held strong and continue to do and learn from too, you know, working with farmers. I learn every day about, you know, what can work and what can’t work and how we could better, you know, be a service provided to them, but putting them first as being that an important part of our evolution.
Matthew: It sounds like you get out and, you know, you see a lot of New York State. Is there any place, other than New York City, that you consider kind of like your happy place, maybe in the Hudson Valley, or upstate, or…that you consider like, “Hey, maybe the public doesn’t know so much about this area of New York State, but it’s really pretty and worth visiting?”
Eran: I think the Catskills has a lot of opportunity. You know, also, with my background in hospitality, the Catskills in the 30s, 40s used to be a big destination, a resort destination, especially for the summers. So, you know, with prices so high in real estate and probably everywhere other than the Catskills, I see a lot of opportunities there. And again, this industry, this hemp industry is revitalizing some of these neighborhoods and giving them opportunities to prosper and bring in innovation as far as what attracts people to come out to these places. So, I think the Catskills is underrated. It’s got some opportunities still left in it.
Matthew: Yeah. It used to be super popular way back when, and they had beautiful resorts up there and everything. And you just don’t hear much about that anymore.
Eran: Yeah. That’s correct. But I do think that those can reinvent themselves, and I do think that this industry bringing life to some of these regions will help with that.
Matthew: Eran, as we close, can you tell listeners how to find out more about UrbanXtracts and connect with you online?
Eran: Sure. So, the best way to find out about us is really to follow us on social media. We post really good content and educational content and our progress on how we’re doing, whether it’s growing, processing, developing, or marketing on Instagram, and that’s UrbanXtracts. That’s U-R-B-A-N-X-T-R-A-C-T-S on Instagram and also on our website, urbanxtracts.com.
Matthew: That’s great. Well, good luck to you and everything you’re doing. I’m really excited to see the pictures of this prison project and how you’re going to get it fixed up and ready for hemp.
Eran: Well, Matt, we look forward to talking to you again, and maybe the next time we’ll do it face to face at the processing facility in Q1 when it opens up.
Matthew: Oh, that sounds great.
Eran: Wonderful. Thank you very much.
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