Last year in October, Canada became the world’s largest nation to legalize cannabis. Now, the race is on to produce the highest quality pot and at the same time drive down the price of legal cannabis so low that the black market ends in smoke.
As competition is set to increase significantly among licenced cannabis producers, profit margins are expected to dwindle over time. The common business mantra “don’t mine for gold when you can sell shovels during a gold rush” may also hold true for investors in the cannabis space going forward.
Those companies providing state-of-the-art technology to significantly reduce operating costs and increase yields for licenced producers to become more competitive will flourish, possibly even stronger than some producers.
One of those tech companies aiming to make the cannabis space more efficient is Braingrid Limited, which started trading on the CSE on December 28, 2018 under the symbol BGRD, providing “investors with a unique opportunity to invest in a precision agricultural company focused initially on the cannabis sector”.
With 16 employees and a proven technology commercialized in 2015, the Toronto based company offers cannabis growers an affordable, versatile, scalable and easy-to-install wireless sensor platform to monitor the most critical factors to a successful production facility, such as power consumption, temperature, humidity, CO2, pH, and much more. Its data analytics and artificial intelligence technology captures real-time data needed to increase revenues, reduce costs and risks, and connects cultivators to their grow on a microclimate level.
The problem is omnipresent in today’s cannabis industry: Licenced producers struggle to efficiently produce consistent yields, face expensive operational risks and will increasingly compete on costs as the industry matures.
Growing cannabis on an industrial-scale to achieve economies of scale requires reproducible environmental conditions (temperature, humidity, CO2 levels, light quality, and much more), in-plant monitoring (pH, EC, etc.) as well as costly utility usage. Existing environmental monitoring and control systems are not designed, nor equipped to provide comprehensive data and insights at a microclimate level.
Braingrid has developed a cost-effective solution to easily overcome such difficulties. Its patented technology helps growers increase crop yields, decrease energy usage and predict harvest time, harmful grow conditions and equipment failure.
Due to the high-value nature of the crop and high-risk aspect of the grow, Braingrid targets licenced cannabis producers to obtain revenue through a one-time set-up fee along with a monthly recurring service fee for access to data, reports and mobile alarm notifications.
What makes Braingrid so compelling is that competitors, such as Argus and Priva, provide limited sensing technology. Unlike Braingrid, such systems are merely focused on control of equipment, not on capturing and analyzing comprehensive, timely data out of the grow. Therefore, such systems are expensive, create a disruptive install, are not easily scalable after installation, and are incapable of producing real-time data and analytics that empower pre-emptive decisions before yield is negatively impacted.
Braingrid’s current customers include Natural Resources Canada (a ministry of the government of Canada), LEAF California, Viridium Pacific Group Ltd. (TSX.V: VIR) and Up Cannabis Inc., as well as WeedMD Inc. (CSE: WMD) and Beleave Inc. (CSE: BE), two leading licenced cannabis producers in Ontario. A strategic alliance has been formed with Ample Organics Inc.
In October 2018, MGX Minerals Inc. announced that its wholly owned subsidiary ZincNyx Energy Solutions Inc. (recently renamed as MGX Renewables Inc., with plans to be spin-out as a return of capital to shareholders of MGX Minerals) has signed a Strategic Partnership Agreement with Braingrid to co-develop and market a packaged energy management product offering for the cannabis cultivation market. This partnership will leverage Braingrid’s technology and MGX Renewables’ modular energy storage systems, which provide scalable regenerative zinc-air flow battery for mass storage of energy, to provide cannabis cultivators with renewable solutions for cultivation.
Canada’s legal system requires that cannabis be grown indoor by licenced producers. Naturally, indoor growing costs are much higher than outdoor operations, first and foremost due to the vast amounts of electricity needed to grow the crop. According to a recent article by USA Today, indoor growers of both legal and black-market cannabis consumed 4.1 million megawatt-hours of electricity last year in the US, roughly equal to the total electricity generated annually by the Hoover Dam.
In light of cannabis cultivation sites growing exponentially in cultivation square footage in North America, the electrical grid is incapable of supplying the demand or storing excess renewable production, especially in rural areas. As a matter of fact, ideal cultivation zones which have inexpensive land and low community impact do not have access to the electrical grid to support an indoor growing operation. Energy efficiency is complicated and costly, however low-cost energy solutions are required.
According to BDS Analytics, legal cannabis prices in Colorado peaked 6 months after cannabis became legal there (due to supply shortages), but have been plunging ever since due to more competition entering the market to address the shortages. In Washington State, prices peaked a month after legalization in mid-2014, whereafter it fell from $23/gram to $5/gram by late 2017.
Cannabis cultivators intending to survive the upcoming oversupply and the resultant “race to the bottom” will need to become extremely rigorous in reducing the cost per gram. Therefore, cultivators who have a fiscally driven understanding of their energy “footprint” and are independently autonomous from utility market prices through local storage and cogeneration will ensure their viability now and into the future.
Cannabis cultivation is highly energy intensive. A single pound of dried cannabis flower consumes around 2,000 kWh, equivalent to the energy consumption of a typical home for 2 months. In the US, cannabis cultivation already amounts to approximately 1% of the US electrical grid, which translates to about $6 billion USD.
Due to high market prices of cannabis and a focus on expanding output during the first market cycle – which is arguably ending – most growers have been neglecting energy efficiency. New laws are emerging in certain geographies which mandate cannabis cultivators to employ real-time monitoring of electricity and water use. Already, there are many government and utility incentives available to encourage a reduction in environmental impact.
Electricity prices range from about $0.07 CAD/kWh to more than $0.15/kWh with more than 66% of cannabis cultivators paying about $0.14/kWh base. Peak demand charges greatly increases these costs. Cannabis cultivators will be forced to utilize on-site cogeneration and peak shaving technologies such as solar, diesel, gas turbine (syngas/natural gas) to offset energy costs and make up for the utility grid stability. Energy overproduction often occurs for solar systems requiring energy storage for maximum benefit.
Braingrid’s Founder, CEO and President, Michael Kadonoff, previously worked as a professional hardware designer at General Electric Grid IQ on the premier design team for energy grid automation and control products. With this background, Mr. Kadonoff is a perfect match to understand the vast market potential of the energy storage technology from MGX Renewables and to bring Braingrid a second, potentially major source of income.
MGX Renewables has developed a patented regenerative zinc-air flow battery that efficiently stores energy in the form of zinc particles and contains none of the traditional high-cost battery commodities such as lithium, vanadium, or cobalt. The technology allows for low-cost mass storage of energy and can be deployed into a wide range of applications.
MGX Renewables’ modular Energy Storage System (ESS), designed to deliver backup power in the range 5 to 100 kW over extended periods of time. The decoupling of storage and the power generation is key in driving the cost of storage way down, i.e. additional storage is very cheap to add. For more information, visit www.mgxrenewables.com
Unlike conventional batteries, which have a fixed energy/power ratio, MGX Renewables’ technology uses a fuel tank system that offers flexible energy/power ratios and scalability. The storage capacity is directly tied to the size of the fuel tank and the quantity of recharged zinc fuel, making scalability a major advantage of the flow battery system. In addition, a further major advantage of the zinc-air flow battery is the ability to charge and discharge simultaneously and at different maximum charge or discharge rates since each of the charge and discharge circuits is separate and independent.
Other types of standard and flow batteries are limited to a maximum charge and discharge by the total number of cells as there is no separation of the charge, discharge and storage components. The MGX Renewables mission is to provide cost-effective, long duration and reliable energy storage systems for markets involving renewables firming, peak shaving, diesel generator replacement, telecom facility back-up, electrification of ferries and tug boats and electric vehicle charging support.
With a portfolio of 20 granted patents and an experienced management team, MGX Renewables has begun mass production (see press-release and Rockstone Report of August 9, 2018). The new design of the regenerator and fuel cell parts will provide 4 times the capacity of earlier models, a landmark achievement which comes at a perfect time when other mass storage battery-type manufacturers, based on lithium-ion, are facing supply constraints and production delays, with the consequence of long waiting times for end-users.
Due to the current delays of the Powerwall and Solar Roof, Tesla may have lost “first mover advantage” after creating interest in such categories, says Dylan Miller, solar research analyst with Ibis World, “People will gravitate to whoever has product if the savings are there to be had now.”
Smartly monitoring microclimates is key for the legal cannabis industry to reach new highs. (Above picture not from Braingrid but from Zapp2Photo)
On January 8, 2019, Braingrid launched its new self-powered “Sentroller S”, powered by a solar panel (without power cords or the need to change batteries), differentiating Braingrid from the competition.
“Braingrid came to us at the right time,” said Roger Ferreira, Chief Science Officer and Director at Beleave Inc. “We were looking to upgrade our sensor platform immediately. Braingrid was able to meet our needs, install and begin monitoring our grow right away. Their system is intuitive and easy to use, we are already seeing value! We have been working with Braingrid for several months now and have already seen the benefit of real-time data collection. Taking it one step further has the potential to help us optimize our grow unlike ever before.”
“We are proud to say we are early adopters of the Braingrid solution,” said Keith Merker, CEO of WeedMD Inc. “The long-term, historical data we have been collecting is a great asset to mine for insight into lowering costs and increasing yield.”
Braingrid and Ample Organics Inc., the most widely adopted enterprise seed-to-sale cannabis platform in Canada, entered into a strategic partnership in 2017, whereby Braingrid would leverage its data collecting sensor platform to enhance Ample Organic’s customer offering with grow data analytics. “Early on, Braingrid and Ample Organics recognized an unprecedented opportunity for mutually advantageous success through a strategic partner-ship,” said John Prentice, CEO of Ample Organics. “We are pleased to see this project underway and even more excited to see the results it yields.”
Braingrid provides meaningful, predictive insights that aim to increase yields and energy efficiency while at the same time reducing crop risk. This innovative technology provides a competitive advantage unlike other analytics tools available to the cannabis market.
“We’re seeing the square footage for cannabis cultivation explode and it’s hard for growers to keep an eye on everything, all the time,” said Michael Kadonoff, Founder and CEO of Braingrid. “Our mission is to give the growers better intelligence to easily protect their bottom line wherever they are in the world.”
“At Beleave, Braingrid is an integral part of our everyday operations. We rely on them to keep us alerted to any environmental changes or risks. Having Braingrid on-premise has made our jobs that much easier!” (Roger Ferreira, Director & Chief Science Officer at Beleave Inc.)
“Integrating the capabilities of Braingrid’s platform sensor is our first step toward deploying machine learning to drive harvest analytics and forecasting.” (John Prentice, CEO of Ample Organics Inc.)
“I sleep better at night knowing that Braingrid technology keeps a close eye on over $1M in crop.” (Dr. Luc Duchesne, Chief Science Officer, RPIC & Quality Assurance Person at WeedMD Inc.) “As an innovative producer of medical-grade cannabis, we’re a long-time partner of Braingrid starting with our best-in-class indoor cultivation facility in Aylmer, Ontario. We are finalizing a production capacity expansion at our 610,000 square foot, state-of-the-art greenhouse in Strathroy, Ontario – incorporating the latest advancements for precision cultivation including Braingrid’s innovative technologies. We’re very pleased with the results so far with over 110,000 square feet of production space progressively online.” (Keith Merker, CEO, on January 9, 2019)
“Real time monitoring and dynamic automation are important ingredients in creating a resource efficient future for cannabis and smart agriculture. RII appreciates members like Braingrid who are advancing this future today.” (Derek Smith, Executive Director at the Resource Innovation Institute)
Meet The Brains Behind Braingrid
On December 31, 2018, it was reported that Ken Kadonoff has filed an Early Warning Report in respect of the acquisition, acting jointly with certain joint actors, of an aggregate of 10 million shares and 1,790,902 options of Braingrid Ltd. The 10 million shares represent 21.9% of the issued and outstanding shares (45,737,103) of the company. In addition, assuming exercise of all 1,790,902 options held by the acquiror and joint actors, the aggregate holdings would represent 25.8% of the issued and outstanding shares. The common shares and options of the issuer were acquired by the acquiror and the joint actors in connection with the business combination completed on December 28, 2018.
#100 – 150 Bridgeland Avenue
Toronto, Ontario, M6A 1Z5 Canada
Phone: +1 647 727 8844
Shares Issued & Outstanding: 47,278,751
Reserved for Issuance: 17,917,582
Fully Diluted: 65,196,333
Canada Symbol (CSE): BGRD
Current Price: $0.055 CAD (01/23/2019)
Market Capitalization: $3 Million CAD
Fully Diluted: $4 Million CAD
US Symbol: Not Listed
Germany Symbol / WKN: Not Listed
Stephan Bogner (Dipl. Kfm.)
8260 Stein am Rhein, Switzerland
Disclaimer: This report contains forward-looking information or forward-looking statements (collectively "forward-looking information") within the meaning of applicable securities laws. Forward-looking information is typically identified by words such as: "believe", "expect", "anticipate", "intend", "estimate", "potentially" and similar expressions, or are those, which, by their nature, refer to future events. Rockstone Research, Braingrid Ltd. and MGX Minerals Inc. caution investors that any forward-looking information provided herein is not a guarantee of future results or performance, and that actual results may differ materially from those in forward-looking information as a result of various factors. The reader is referred to the Braingrid´s and MGX´s public filings for a more complete discussion of such risk factors and their potential effects which may be accessed through Braingrid´s and MGX´s profile on SEDAR at www.sedar.com. Please read the full disclaimer within the full research report as a PDF (here) as fundamental risks and conflicts of interest exist. Part of the author’s responsibilities at Zimtu is to research and report on companies in which Zimtu has an investment or other kind of interest. So while the author of this report is neither paid directly by Braingrid Ltd. nor MGX Minerals Inc., the author’s employer Zimtu will benefit from appreciation of MGX’s stock price (Zimtu holds a long position in MGX Minerals Inc. but currently not in Braingrid Ltd.). The author also owns shares of MGX Minerals Inc. and Zimtu Capital Corp. (but does not hold any equity of Braingrid Ltd.) and thus would also benefit from volume and price appreciation of its stocks. MGX Minerals may pay Zimtu to provide this report and other investor awareness services. MGX Minerals has a strategic partnership with Braingrid. Overall, multiple conflicts of interests exist.