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Chemistree Technology (CSE: CHM) President Karl Kottmeier on Chemistree’s All Star Team, Recent Entry into the California & Washington Cannabis Markets, & Plans to Expand into More Markets

December 10, 2018

Gerardo Del Real: This is Gerardo Del Real with Small Cap Stock Digest. Joining me today is the President of Chemistree Technology (CSE: CHM)(OTC: CHMJF), Mr. Karl Kottmeier. Karl, how are you today?

Karl Kottmeier: Gerardo, I'm great. How are you?

Gerardo Del Real: I'm doing fantastic. It's a heck of a day to have you on. Altria just made a $1.8 billion marijuana deal. Of course, it's also simultaneously dumping some tobacco products, which I believe is a preview of a trend to come. I'd love to get your take.

Before we talk about what you do and what the company does, I'd love to get your take on the news today because everything, including your stock, is up at least double digits today.

Karl Kottmeier: Well, first of all thank you so much for having me. I know you're a busy guy, and I really appreciate the interest and the space that you're making for it.

This is a huge announcement. This is following on from what Constellation has already done quite some time ago. You're seeing big companies make selections for investments into what they think are the best in class at the senior level of this industry. And I think that's going to continue. There's a lot more big companies that need to get into this space, and that's just going to trickle all the way down to midsize companies that – certainly by Chemistree's standards – are still enormous. But the feeling very much is that this industry is growing, the market is huge, and if you're not in it you're going to suffer.

You made a good point, dumping some other tobacco related investments or components of their business model, is important in order to make space for cannabis, because cannabis is a big market and it's only going to get bigger because it's so multi-faceted as well.

Gerardo Del Real: Chemistree's a young company, but you've done a brilliant job of really setting yourself apart from some of your peers. I want to talk about that. Before we do however, I'd love to know a little bit more about your background for people that may not be familiar.

Karl Kottmeier: Sure. My background is corporate finance. I was a broker in Vancouver for 10 years. And back in those days we ran the corporate finance department. I was in that, as I said, in that business for 10 years. A number of very successful deals that we did, and then I went to work for a client of mine when I was a broker and set my life up as sort of a public markets corporate finance guy. We had some very good success with him early on. Set out and did my own couple of deals with two very, very loyal and fantastic partners that I'm still with to this today, and helped bring in a very sort of what we think is a methodical and logical approach to the public markets.

We're not interested in super high levels of promotion and razzmatazz. We're interested in building businesses. Through Chemistree we've come into the cannabis space, arguably a little bit slowly, but we wanted to see how it was going to go and we spent a lot of time developing our business model and our business plan and then taking on some fantastic cannabis industry guys to round out our team.  And then went forward with a view to the United States, where we think opportunity is the greatest.

Gerardo Del Real: Let's talk about that team, and then let's talk about the business. Because I think just this week, you've had two announcements. One was an update on your Washington State operations. I actually just returned from Spokane, did some due diligence down there, and I can tell you you're active and you're doing a heck of a job there.  You also had news yesterday, I believe, acquiring the global rights to the Sugarleaf brand, entering the California market. Obviously two huge markets.

Before we get to that though, tell me a bit about the team in place that's helping you scale out this business model.

Karl Kottmeier: Our Chairman, Justin Chorbajian, is an industry executive and successful guy for 25-plus years. He's the co-owner, along with another one of our partners, Steve Betts, in a company called Green Planet Wholesale. They represent and manufacture – they're on a proprietary basis – their own nutrients, lights, tables, trays, whatever you have into the support of the cannabis industry, and have done very successfully for quite some time.

So Justin and my partner Kirk Gamley have known each other for quite some time, and they were talking about the cannabis space. Justin said, "Look, I got a great team of guys that wants to get going." So we had a very successful initial discussion almost two years ago now.

A couple guys on Justin's team, or one of the highlights is Dennis Hunter. Dennis Hunter owns CannaCraft out of Santa Rosa, California. And I think he's the biggest processor of cannabis products in the United States, certainly in California. What Dennis doesn't know about the cannabis business, frankly, isn't worth knowing.

Jeremy Deichen, who's fantastic, he runs the company called Growing Exposed, which is a video series in looking at peoples grows ops, looking at their processing facilities, looking at their marketing schemes. It's tremendous access into the cannabis industry that Jeremy gets by literally doing video interviews, and then he puts them on his website, they get picked up by High Times.  So in an industry that's tough to advertise, Jeremy's got a really fantastic niche.

Another one of our partners is Sheldon Aberman, who arguably is the number one cannabis cultivation facility consultant in the United States. He's worked on facilities from New Jersey, Massachusetts, Michigan, Florida, Washington, Oregon. Of course he's focused predominately in California, being a California resident. But a tremendous wealth of intelligence in the space that our team is possessed of and is bringing to Chemistree.

Gerardo Del Real: It's a heck of a team. Let's talk about where the attention is focused. I mentioned just this week, the update out of Washington State and the update out of California. Can we talk a bit about that, and what the focus is moving forward, Karl?

Karl Kottmeier: Yeah, definitely. When we got into Washington State, which is our initial transaction into cannabis space, we came in as a partner with a company called Sugarleaf that had fallen on a bit of hard times. They were a bit stretched, but had developed a nice garden in northwest Washington. We came in and bought the asset base from the licensee, which is the most we can do in accessing the Washington market as a Canadian company. So we put some capital in there to help them improve the quality of their garden, to revamp their physical facility, and that's really starting to pay off for us.

They had what we thought was a beautiful brand in Sugarleaf. It was initially very well liked in Washington. Because they had some hard times financially, in terms of developing their management capacity, Sugarleaf sort of fell a bit into disarray. So we've come in and got that back turned around, and are really leveraging that brand experience for consumers, pushing it back into the Washington market. And then as you mentioned on the back of our recent other announcement about taking Sugarleaf and the rights to it globally, our first point of access is into California, obviously such a massive market. It's a $5 billion-plus dollar market.

We think that the brand will resonate very well. It's a very clean and logical flower-based brand. However, we've also done a deal with a processing company in Arcata, California, which is deep in the heart of Humboldt County where the best cannabis is grown, arguably. I think I'll definitely get some push back from some of the growers in southern California.

Gerardo Del Real: Yes, you will.

Karl Kottmeier: But definitely Humboldt's always been sort of the cradle of northern California cannabis production. Our partners there will be assisting us with producing a manufactured product for Sugarleaf as we go into the California market, as well as helping us partner with cultivators to access the flower market as well.

So again, we're really trying to use a top down business approach. What can we do? How can we help existing businesses make their business better by bringing our capital to them and our introduction powers through our team, some of the guys that I've mentioned, and really providing as much leverage as possible for Chemistree shareholders as we go into these various markets?

We've got a number of other states that we're in process with various business opportunities right now. And we're also looking at adding additional people to our team, so we can go down the road of being a distributor, getting better access for our producer partners. And really looking at things outside of the core of our business, we want to go into the CBD side of things. We're having some discussions with some fantastic people in California about helping them develop what their dreams have always been in the CBD space.

We like the people approach because it's difficult to grow this product well. It's difficult to grow this product consistently. It's difficult to market. I mean, this is not an easy business, just like most businesses. And like most businesses, you should be really focused on your people and building your team.

Gerardo Del Real: Absolutely. These are multi-billion dollar markets that you're targeting in a variety of jurisdictions. What's your current market cap, Karl?

Karl Kottmeier: Current market cap today, we're still quite junior. We're sitting around $17.5, $18 million Canadian.

Gerardo Del Real: That's a lot of runaway. That's a lot of runway.

Karl Kottmeier: Yeah, and I think it's important to know as a corporate finance guy and as an ex-broker, I always like to see management owning large parts of the capitalization. My management team and I collectively, we own probably about 50% of the stock. We've paid for all of our stock ourselves. There's no free stock in our company. We've tried to take dilution at every increasing valuations in order to do the best for our shareholders.

Gerardo Del Real: That was my next question, you beat me to it. The next one I'm going to ask you, is everybody fully reporting, Karl?

Karl Kottmeier: Yes, sir.

Gerardo Del Real: Fantastic.

Karl Kottmeier: Absolutely.

Gerardo Del Real: Fantastic. I love it. That's the right way to do it. What do the next six to twelve months look like? What can shareholders, or people considering being a shareholder, look for here in the next six to twelve months?

Karl Kottmeier: I think what people can look forward to is a continuance of this aggressive approach to access new markets, to back filling the markets we're in as I said through adding people to our teams, both in Washington and California. As I mentioned earlier, we're looking at two other states right now, one of which is a game changer for us. So really the simple answer to that is, a ton of news and a ton of activity from this company. We are by no stretch of the imagination are we even close to being done with what we think we can do to build this company significantly higher market cap.

Gerardo Del Real: Karl, thank you so much for your time. Again, it's Friday as we speak. A heck of a day in the cannabis space. I get the feeling you and I are going to be chatting many, many times in the months to come. Thank you again. Anything you'd like to add?

Karl Kottmeier: Nothing. I just want to thank you. I really appreciate the time that you're making available for us, and if any people out there are interested, by all means please get in touch with our investor relations team headed up by my partner Kirk Gamley, Fred Chabot out of Montreal, or by all means call me any time. Emails are appreciated as well.

Gerardo Del Real: Fantastic.

Karl Kottmeier: Happy to chat with anyone.

Gerardo Del Real: Excellent. Love it. Karl, thank you so much.

Karl Kottmeier: Gerardo, thanks very much man. Have a great weekend.

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