420 Investor Interview: Tom Bollich, CEO of Surna

Surna (SRNA), based in Boulder, CO, addresses one of the key challenges facing the cannabis cultivation industry: Energy consumption. The company, which began operations this year, has technology that it has acquired that will help growers reduce one of the largest costs in their business. CEO Tom Bollich, perhaps best known for his role as co-founder of Zynga, took the helm earlier this year.


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Alan: Thank you, Tom, for taking the time to tell us about Surna. Before we get started, can you tell us about your background?

Tom: Thanks for having me, Alan. I began my career in robotics engineering, specifically artificial intelligence. I co-founded and acted as CTO and Studio Head for Zynga, which developed online games – like Words with Friends, FarmVille, and DrawSomething. Zynga created some of the first games that you saw on Facebook and top games on mobile devices. After I left Zynga, I created another gaming company based in Toronto called HugeMonster Inc. I still sit on their Board as Chairman. I also sit on the board for Fatty Crew LLC, a group of multinational restaurants.

In 2013, I saw the cannabis industry taking off, so I packed up and moved out to Boulder, Colorado.

Alan: Why did you decide to enter the MJ industry?

Tom: I’ve seen the birth of an industry before during my time at Zynga so I know what it looks like. All the signs point to cannabis being the next big industry, maybe the biggest since the explosion of the Internet. The main difference between this and online gaming is that people get tired of games, but I haven’t seen many people get tired of cannabis. It’s amazing when you think of the potential for this industry. The numbers are astounding and the societal push is leaning heavily toward an open, regulated, market.

Alan: So what is Surna, how did it get started, and who are the key people involved besides you, Tom?

Tom: Surna is focused on bringing disruptive technology to the cannabis marketplace through manufacturing and engineering. We see a gap where the commercial cultivation technology lags way behind the product demand. Right now, we are focused on climate control systems and reducing the massive energy costs associated with cooling an indoor garden. Ultimately, we hope to provide everything people need to set up a grow. We want to be the ‘GE of cannabis’.

We’ve been aggressively selling our systems and supporting that with an even more aggressive IP development platform. We have a stellar R&D team behind the scenes actively developing revolutionary technology that’s going to make growing way more efficient. We see ourselves as a one-stop shop for everything a grow needs to scale with the industry.

As for our team, in addition to myself, we have a distinguished management team in place. Tae Darnell, our VP and General Counsel, was one of the first cannabis lawyers in Colorado, and was incremental in creating the legalization we now enjoy. He also has executive level experience running companies. Our CFO, Doug McKinnon, comes from public accounting, telecommunications and oil and gas industries and has a long public company history including the management of a 12.5 billion dollar market cap company.

Alan: You aspire to be the ‘GE of the cannabis industry’. What is the opportunity that you see?

Tom: Cannabis is an industry that’s really in its infancy. There is infinite possibility, but not for long. Just like we saw with the internet, there’s going to be a period of very intense growth and big players are going to become apparent. The methods grows are using right now work at a small scale, but the technology needs to be updated. Streamlining and efficiencies need to happen. We want to be the source for that technology and have consumer confidence that we are always working to make the grow operation better.

Alan: You have completed one acquisition so far. Tell us about it.

Tom: We recently closed the acquisition of Hydro Innovations, a company that specializes in climate control technology for indoor gardens. They’ve been in the legal cannabis sector for seven years so it provides a backdrop, a knowledge base that not many companies have. What makes them even more special is that their products were developed with the garden in mind and thus offer advanced, grow-specific benefits. Their co-founders have joined the Surna team as our VP of Sales and VP of R&D. Having them on board has allowed us to quickly move forward with selling our systems. Sales have been great so far. It also streamlines the development of new technology without having to reinvent the wheel.

Alan: What is Hydro's value proposition to growers, and how do you get this story in front of your potential customers?

Tom: Our value proposition comes straight from a grow operation’s energy bill. We have the capability to save large commercial grows who are using traditional HVAC 30% (or more) in energy consumption, which is a huge monthly savings. Our chilled-water climate control system is designed for the indoor garden and is perfectly suited for the environment. Our system actually does things like 24-hour dehumidification and is scalable as operations grow, meaning it can handle a small grow or the biggest grow you’ve ever seen. HVAC is simply not built for this sector.

Our biggest early challenge is education. Right now, people are pulling tactics from their basements and thinking they can use them to produce commercially. That's simply not the case. We are educating people on the efficiencies and improvements that are out there. Once people learn about our systems and see them in action, they buy them. We’re finding that word of mouth is spreading quickly and, coupled with our marketing campaign, which includes print and direct-to-end-user campaigns, the excitement and sales are building quickly.

Alan: Should investors expect M&A to be a core focus of yours, or will you be developing new products internally going forward?

Tom: We are always looking into what the next best technology will be. If that means creating it ourselves or acquiring an existing company, we will pursue it. My background is in robotics engineering, so I have a lot of plans that I’m excited to develop internally. However, I’m a big believer in strategic M&A, and it is definitely a focus for Surna. We are certainly acquisitive once we’ve identified the right companies with the right teams. Our goal is to offer the best technology available to the industry. I expect that we will have exciting news in this area as the company progresses.

Alan: You have about 100mm shares outstanding. How big is the float, and what steps, if any, can you take to improve the trading volume?

Tom: Our float is roughly 20mm shares. Day-to-day, we’re focused on creating value for our shareholders. For us, we’re striving to create the best company with the best products. It’s really our belief that if you run a company with solid fundamentals and create the infrastructure to support positive growth, the rest will follow. We see this industry as a long-term play, not just a flash in the pan. The potential for scalability into other industries is profound and the growth of this market is consistently positive. Our mission is really to create share value for our investors based on the integrity of the company, not excitement over a market. As we continue to grow, it is our belief that the volume and value will increase holistically.

Alan: Let's talk about capital needs. I assume any acquisitions would be for stock, but do you have material capital expenditures ahead? How do you plan to fund your operations in the near-term as you scale up?

Tom: Our plan for acquisitions does include cash consideration as well as stock as a currency. In addition to acquisitions, we will need a significant amount of capital to satisfy our organic growth. As a result we have engaged the investment banking firm Newbridge Financial to augment the convertible note private placement we are closing out. With the strength of Newbridge behind us, we feel that we will able to meet not only our acquisition goals but also to the capital needs for our exponential internal growth.

Alan: Investors have a lot of choices in the cannabis sector. What are some of the reasons that they should consider SRNA?

Tom: In the end, by investing in Surna you are investing in the ultimate infrastructure approach, as we don’t deal directly with the end product. We are well ahead of the game from the perspective of R&D, we have active sales and we have a constantly expanding team that understands the cannabis market and business as a whole. There are not many opportunities to get in on the ground level with a company that intends to dominate the infrastructure of a multi-billion dollar industry. Beyond cannabis, our products hold great potential to move into other markets including server farms, commercial agriculture, and other technology fields. We truly believe we are creating a GE-type opportunity for cannabis. It is the ultimate picks-and-shovels opportunity backed by the most sophisticated engineering team in the industry. Couple that with great early sales and the size we anticipate this market becoming, the sky's the limit.

Alan: Thanks, Tom, for taking the time to discuss Surna. We look forward seeing your progress!

For more information on Surna:

Posted to 420 Investor on Sep 10, 2014 — 8:09 AM
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