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Stratos

by Eric Peterson on August 7, 2017, 09:43 am MDT

www.stratosthc.com

Pueblo, Colorado

Founded: 2014

Privately owned

Employees: 29

Industry: Cannabis

Products: Cannabis-infused tablets

CEO Bradley Orr is helping create a whole new subcategory in cannabis edibles with the company's pharmaceutical-grade tablets.

Founder Jason Neely and a half-dozen Stratos employees combine for more than 80 years experience in the pharmaceutical industry. "It's critical to what we do," says Orr.

After serving as CFO since shortly after the company was founded, Orr assumed a second role as CEO in 2016. His background was in investment management, but his wife's experience with medical marijuana after she suffered a a stroke pushed him to make a career change.

After doctors prescribed her "as many Percosets as she could take," she tried medical marijuana. "It was like a light switch, nothing short of a miracle," says Orr. "It really saved our  family's life."

Stratos’ flagship line of tablets includes three varieties: Sleep, Energy, and Relax. The first of the three is indica-based, the second sativa-centric, and Relax is a hybrid, says Orr. "The product names are analogous to the effect consumers can expect. . . . We're not strain-specific but we've identified characteristics of strains."

"What's different about Stratos is our tablet delivery and our formulation," he says. That's where the team's background in pharmaceutical comes into play. "Pharmaceuticals do a very good job delivering active ingredients to the body," says Orr. "A tablet allows for rapid delivery. Fifteen to 30 minutes is a consistent report we get from consumers."

Gluten- and sugar-free, "The tablets are extremely consistent, not only tablet to tablet and batch to batch and market to market, but also within the tablet," he explains. "You can cut the tablet in half and expect the same distribution of THC and CBD."

The Sleep tablet was formulated for efficacy that ends before morning. "It doesn't leave you with that hangover you tend to get with a lot of edibles," says Orr. "We have a lot of testimonials of people getting off Ambien and other sleep aids."

Stratos also has a line of CBD tablets and new-for-2016 Ascend effervescent tablets. The Alka-Seltzer-like tablets "are very difficult to formulate," says Orr. "That's new and indicative of the product-development plans we have."

Pueblo was chosen in part for its sunlight. "We have two greenhouses," says Orr. "It's nice to have that low-cost input."

But other factors played a role in site selection, he adds. "Pueblo County was very friendly to cannabis companies and land was cheap."

The company's two-acre property also includes a 5,000-square-foot manufacturing facility for carbon dioxide-based extraction, mixing the extracts with pharmaceutical-grade excipients, and a tablet press. Orr says six employees work in the growhouse, six in the office, and 17 in tablet production.

"We have a vertically integrated operation, all the way through delivery of our product to retail partners," says Orr. "That's turned out to be a good decision."

And it plays into Stratos' broader strategy. "We are very long-term minded," Orr adds. "We are in this business for a lot of reasons, but short-term gain isn't one of them."

"We have fairly full distribution, but it took a long time to convince people of this delivery method because cannabis is anti-pharmaceutical in many ways," says Orr. "What really changed the game was getting samples out."

Growth "has been above 100 percent year over year," says Orr.  About 750 of Colorado's 900 dispensaries stock Stratos' products and growth has accelerated thus far in 2017.

According to BDS Analytics, the cannabis pills subcategory grew by 180 percent from 2015 to 2016, and Orr says the Colorado market will total about $3.5 million in 2017. "Stratos was a significant portion of that, well over half," says Orr.  "Despite the growth, we feel we've barely scratched the surface."

Challenges: "When I was a small-cap manager, one of the biggest pitfalls for companies was trying to grow too fast," says Orr. "That can sink a company. That's a challenge we need to be aware of."

"Competition is always something to be concerned about," he adds. While Stratos was a first mover in the cannabis space with tablets, "There are a few competitors that appeared in the last few months."

Consumer education is a third challenge. Cannabis tablets are "a brand-new category, so it's going to take a lot of time and resources to grow."

Opportunities: "New markets, developing Colorado, and going deeper in distribution," says Orr. "They're all important. I do believe there's a lot of market share to be had. It's up to us to dive the subcategory into the broader market."

He describes a "hub-and-spoke model” for Straton in other states. "What we do in Colorado, we plan to export to other states," he says. "We plan on being a national or even international brand." Stratos will do equity deals or joint ventures with out-of-state partners, with Hawaii, Arizona, and Oregon partners slated to bring products to market by the end of 2017.

Orr points to new products as another vehicle for Stratos’ growth, and teases a new "medical-centric" line coming to market in late 2017.

Needs: "You take capital when the market gives it to you," says Orr. "I'd be happy to go down that road to bring in new people and new systems to aggressively go after new markets."

"We're always looking for good people," he adds. "We have a good culture, and I would give Founding Partner Jason Neely credit for creating this culture."

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