Q&A: Brent Charleton, CEO of EnWave
Written by Jeff Klingman
“I always refer to EnWave as a 20-year overnight success story,” says CEO Brent Charleton.
The key to the Vancouver-based technology company’s success has been the development of its Radiant Energy Vacuum, or REV, system of modular, scaleable drying machines that maintain the inherent properties of whatever it is you want to dry. REV started in the late 90s as a research and development project in the labs of the University of British Columbia, and was initially designed as a more efficient way to produce dried snack foods. EnWave followed that original intent to big success in the food market. They’ve secured licenses for their technology with a number of commercial producers, partnered with the United States military to make higher quality dried rations for troops, and watched Moon Cheese, a gluten-free cheese snack they developed to prove their machines worked, become a multi-million dollar hit.
But the legalization of recreational cannabis in Canada provided an even bigger opportunity—a new industry, exploding in size, that could benefit from large amounts of raw material being dried much quicker than the current standard. EnWave secured a licensing agreement to provide REV tech and expertise to Canadian cannabis leader Tilray in 2017, allowing them to become a sub-licensor to other cannabis companies looking to adopt it. “Tilray was the first company to really step up and provide us with that raw material, so we could take it through our pod scale units and get the qualitative data that would justify using it on a larger scale,” says Charleton.
Earlier this year, EnWave landed a global partnership with multi-billion dollar Canadian cannabis giant Aurora, that came with an additional $10 million investment. This news sent the company’s stock soaring, which strengthened their place in the market even further. It’s looking like REV may be the future of the cannabis industry, and the cannabis industry is certainly the future of EnWave. (And to be fair, those robust sales numbers for Moon Cheese may also be benefitting from cannabis, indirectly.)
We talked to Charleton about the advantages of using their REV machines for cannabis processing, the tricky barriers that have prevented EnWave from breaking into the cannabis market in the United States, and his company’s road to discovering that the application of radiant heating went far further than Moon Cheese.
Was the potential use of REV technology on drying cannabis plants something that had occurred to you in the early stages of development, or did that come into your plans only after recreational marijuana was legalized across Canada?
Ha, I’d be lying to you if I said that we didn’t have inquiries prior to legalization. But, certainly, we had to wait until the ecosystem evolved, and we were able to legally get our hands on the material to test and to make sure that the technology was actually appropriate. We had done work with hops, which is not the same but similar in trying to retain some of the key components. So we thought about this, yes.
Once you had the material, how long was the testing process before you felt confident that cannabis drying was a viable application for REV?
It was about three months of testing, going through several trials at facilities, using the pod-scale unit. Honestly, it wasn’t necessarily us that were compelled it was Tilray, based on the results that they saw. They wanted to move quickly and shore up a license to access the technology for processing.
What is the industry standard for drying cannabis right now, for producers who aren’t using your tech?
The most frequent processes we’ve seen is the traditional [method]. Take the plant, put it on a rack, slip that into a controlled air-dryer, and let it sit for several days. There’s some new innovative air dryers on the market, one that comes to mind is Harter air-dryers out of Germany. Although limited in scale they do a great job of reintroducing terpenes. So, certainly there are competitive platforms.
But if a company is dealing with significant amounts of cannabis that need to be dried quickly in order to push through their other downstream processes and get to market fast? Then we’re definitely, I would say, the best option. Right now we’re currently negotiating roughly two dozen licenses and, obviously what I’m hoping as CEO of the company, is that it’s kind of a snowball effect and more and more companies will deem this appropriate for their business.
Is it fair to say that the main differentiator for REV dryers is the speed of the process?
Yeah, it’s speed, which translates into a reduced footprint than is usually necessary to derive lots and lots of product, and allows more square footage to be dedicated to growing operations.
We’ve done some calculations with our partners in order to actually get hard numbers on cost savings. From a footprint standpoint, typically, about 20 percent of the [grower’s] footprint is allocated for drying at a normal facility. That’s reduced to about 5 percent using our equipment. Another 15 percent can be reallocated.
Is the end product the REV produces comparable to what you’d get with more traditional processes, or are there inherent advantages to the quality of the plant itself when dried through your system?
Full transparency, the first couple rounds we did, the terpene levels weren’t optimal. We had to do some refinement in the process in terms of gentler and longer time periods for drying to ensure that the product quality was going to be close to par with air-dried cannabis. But we have achieved that with certain strains on the extraction side. Funnily enough, we didn’t expect this result, but the THC content seems to be higher than traditional air-dried methods. Not materially higher, but 5-10 percent more. That was an interesting use.
Business-wide, more companies are currently using the REV machines for food production as opposed to cannabis. Internally, is EnWave considering the cannabis application to have the biggest potential for growth and investment going forward?
Yeah. Of the 28 licenses we’ve granted, 25 are food-based. That being said, the machine sales from our company have been dominated by cannabis companies in recent years. It’s vastly different in a food company, they need to develop the new product, they need to market test it, they need to create a differentiation strategy, the whole meal deal. That process can take 2-3 years, which is painstaking.
One piece to the company, just on the side, is Moon Cheese. That was a proof of concept project that we started in 2013, that’s turned into a golden goose for us. It went from a couple hundred grand in sales for 2013 to last year just north of $16 million., and this year is projected to be north of $35 million. That’s still a key contributor to our financial performance.
In cannabis, they are looking at this as a process that’s not going to dramatically change the end result of the product quality or product form, they’re just cutting costs and cutting time. It’s a different acceptance cycle which allows for quicker adoption. We’re predicting that, come a year or two, is that machine sales will become a primary driver of our business, while the food business grows pragmatically.
The licensing agreements you have in place now are all in non-U.S. markets like Canada, Australia, Europe, and South America. Are there plans to enter the U.S. market, or pending licenses with U.S. producers?
The current scenario is problematic, in that it’s still not federally legal in principal. As a Canadian company selling machines into the space, it would theoretically be fine if we weren’t implementing this license and royalty business model. A royalty being paid back can be deemed an ownership interest in that company and therefore expose our company shareholders and board to undue risk.
For the time being hemp is fine, obviously the [latest] Farm Bill made that happen, so we’re looking at some sales there. But so far as marijuana is concerned, we’ll have to wait for it to become federally permissible before entering the market. That’s just the current scenario, unfortunately.
So federal status is the threshold for you. It’s not like a theoretical tipping point where, say, it’s 2023 and more states are legal than not, and the risk proposition has gone down?
We’ve gotten several legal opinions on how to potentially enter individual state markets, but as of now we haven’t chosen to execute any of those strategies, just because they carry too high of a risk. But we understand that this is going to evolve into a huge portion of the global business. it’s painstaking to sit on the sidelines right now, as the market’s blowing up. But, saying that, there isn’t a lack of opportunity to grow the business currently with the markets we can access legally.
How often do you guys go back and reassess that risk profile?
We’re reassessing it right now!