A former health minister, a comedian, a radio host and a cannabis executive walk into a bar. This is not the beginning of a joke, but a description of the leaders of Canadian psychedelics company Red Light Holland, which is taking the recreational psilocybin market in the Netherlands and potentially further afield, by storm.
As investors increasingly look to companies in the psychedelics industry with the potential for revenue and market expansion, Red Light Holland has attracted significant interest. The attention is certainly made greater by the unique group at the center of the company, which includes former Canadian health minister Tony Clement, comedian Russell Peters, radio host Todd Shapiro, who serves as CEO, and cannabis executive Bruce Linton, co-founder of Canopy Growth.
Red Light Holland went public on the Canadian Securities Exchange (CSE) in May 2020 after securing CAD$4 million in funding. Four months later in September 2020, the company launched its iMicrodose truffles product in the Netherlands, selling each bag for €25 (approx. $30).
A package of iMicrodose comprises 15 grams of Psilocybe Galindol truffles—15 doses of 1 gram as per Dutch guidelines on truffles. The Netherlands allows for the sale of the underground mycelial root structure or “truffle” of the fungi, but not the fruiting body of the mushrooms themselves. Red Light Holland focuses its efforts on the growing interest in “microdosing”— a method of taking psilocybin in lower doses to achieve a milder psychedelic effect.
In the Netherlands, people experiencing more intense psychedelic states from purchasing psilocybin mushrooms have caused controversy, resulting in the banning of mushrooms which contain a higher dose of psilocybin. Red Light Holland is embracing the legal market for lower dose truffles in the Netherlands and presenting them in high tech packaging for recreational use.
“I met [the company] a year and a half ago in Toronto,” Simeon Schnapper, managing partner of the JLS Fund, told Lucid News. “The CEO of the company and the guys behind the scenes were very successful in cannabis and they saw the potential of recreational psychedelics and specifically truffles. They are one of the only companies and I really liked that.”
Schnapper, who professes an interest in psychedelics dating back 30 years, didn’t invest in the company, but says he appreciated the potential of Red Light Holland, as did other investors. As of January 2021, Red Light Holland had secured more than CAD$10 million in a bought financial deal—Investors Eight Capital agreed to buy 23 million units of Red Light Holland’s offering at a price of $0.44 per unit.
What is the Strategy Behind Red Light Holland?
Red Light Holland is an example of a new business model emerging in the psychedelics industry. The business is positioning itself as a hybrid between a healthcare company that embraces pharma financing strategies and an unapologetically bohemian brand endorsed by celebrities and social media influencers. According to its website, Red Light Holland positions itself as a leader in the emerging recreational industry, while focusing on effective mass-production, compliance, distribution and marketing.
CEO Todd Shapiro is a former radio show host and marketing entrepreneur. According to Proactive Investors, Shapiro began exploring the world of psilocybin through conversations with guests on his SiriusXM radio program. While he sensed a business opportunity, Shapiro says he never considered selling truffles as jumping on a trend. In an interview with Proactive Investors, Shapiro says his desire to go into the truffle business was about “making a difference” and driven by “empathy, compassion and providing access” to psilocybin. Shapiro and Red Light Holland declined to comment for this story.
Shapiro says that Red Light Holland’s long-term goal is to, over time, “help make the relatively unknown ‘magic truffle’ a familiar name across the world.” Shapiro also emphasizes directing further attention to “the legal and responsible use of magic truffles.” He echoed this perspective in an interview with Proactive Investors, saying that he would like the company to be a part of “helping to prove how psilocybin can help human beings” not only therapeutically, but recreationally.
Company president Hans Derix is a certified Substance Abuse Therapist (APCB) and member of the Association of Addiction Professionals (NAADAC), with over a decade of experience in the field of addiction treatment. A founder and managing director of Sensum, a treatment provider for addiction in Thailand, Derix says on the company website that Red Light Holland is recognizing the “huge potential of natural remedies including magic truffles” especially in treating people suffering from mental health disorders.
Derix is presently overseeing a 1,000 square meter truffle farming facility in the village of Horst in the Dutch province of Limburg. According to Dutch News, the facility has harvested its first 1,000 kilograms of psilocybin truffles, and Derix says the company is looking to harvest a minimum of “3,000 kilos of truffle per year” which is based on three annual grow cycles.
Red Light Holland has also established its own research and development (R&D) center in Europe. Scarlette Lillie Science and Innovation, a business unit within Red Light Holland, will supplement the company’s core business by supplying the medical market with naturally occurring non-synthetic psilocybin.
While most clinical trials involving psilocybin use synthetic compounds, Red Light Holland says it will explore the benefits of natural forms of psilocybin, focusing on the potential “entourage effect” of whole fungi medicine. Derix is a strong advocate of exploring the entourage effect, which is a synergistic interaction of two or more different molecules that occur in fungi and plants. The company also intends to grow medical-grade truffles.
Scientific advisors Joseph Geraci, CEO of NetraMark Corp and a Professor of Molecular Medicine at Queen’s University, and Sarah Hashkes, CEO of Radix Motion, are currently working with the company to understand the potential health benefits of truffles, including as a treatment in age-related and mental health disorders.
What Does The Future Look Like For RLH?
Any form of market expansion will be impacted by funding and regulation, but Red Light Holland is taking steps to further expand into the recreational psychedelic market. Red Light Holland recently announced a supply and collaboration agreement with Revive Therapeutics which focuses on cannabinoid-based treatments for rare inflammatory diseases.
“The entire psychedelic market is going to be a small sliver, but [RLH] will be able to own a lot of that because they’re doing a lot of partnerships [and] they’re aggressively acquiring real estate,” explains Schnapper of the JLS Fund, who is also an investor in, and advisor to, Lucid News. “There’s a lot of movement in decriminalization [of magic truffles] which is usually a predecessor for laws and legislation policies to shift.”
“That’s not going to happen overnight but Western decriminalization is major for the legalization of psilocybin,” says Schnapper. He points to the recent passage of Measures 109 and 110 in Oregon which became the first state to decriminalize the possession of formerly illegal substances and legalize the therapeutic use of psilocybin mushrooms. These measures came into effect on February 1, 2021, and are supported by several healthcare associations in the state.
“You’re just going to see a lot of momentum as money comes into any agreement and any relationship in any dynamic that usually helps to accelerate it,” says Schnapper who has looked closely at the company. “So you’re definitely seeing Red Light Holland capture the imagination of retail investors, some institutional investors. [Its] stock keeps on going up [and it] keeps on raising more money.”
While the company has attracted the attention of investors and partners, there is some concern that the company is burning through cash quicker than it’s raising it.
According to Simply Wall Street, Red Light Holland spent CAD$2.0 million in 2020, with 3.4 years of cash runway. In September 2020, the company had CAD$6.7 million in cash and no debt. The investing website also says that the company’s cash burn increased by 2,005% in the last year, with no profit or sales declared, which in turn will decrease the company’s available cash reserves.
Analysts following Red Light Holland don’t think this is a significant issue, although they concede that some shareholders might be worried about the increased cash burn rate. “Given that [cash burn which is 7.2%] is a rather small percentage, it would probably be really easy for the company to fund another year’s growth by issuing some new shares to investors, or even by taking out a loan,” reports Simply Wall Street.
As it enters the securities market, Red Light Holland’s share price has seen a lot of movement of late. According to Simply Wall Street, the company’s shares have been more volatile than 90% of Canadian stocks over the past three months, typically moving +/- 33% a week.
Red Light Holland’s market strategy and potential for both medical and recreational products appears to excite investors, including a partnership with Radixmotion, to develop virtual reality headsets that mimic the experience of a “trip” for those unsure of whether they want to ingest magic truffles.
So where to next? According to Schnapper, there are a number of other markets that the company can target for potentially welcoming regulatory environments outside the Netherlands.
“Brazil has activity, Bulgaria as well as the British Virgin Islands, Samoa, a lot of Caribbean Islands,” says Schnapper. However, he cautions that these regions are more “test beds” for Red Light Holland, as sales and revenue will be limited.
In time, Schnapper says, the company could crack the Canadian market or other states in the U.S. “Although that’s [tied to] legalization and somewhat tied to psychotherapy, which Red Light Holland is not really exploring,” he says.
With such a unique product and strategy in the recreational market, anything is possible, says Schnapper. “If Red Light Holland is also developing other business models, one mail order with the support of virtual reality and telemedicine for some of their sessions, it would be incredibly disruptive.”
Schnapper explains that this innovation could potentially help change regulation to “allow certain psychedelics approved through your physician to be sent to you at home” and administered by the patient, using a virtual reality app.
“That’s not today,” he teases. “But it could be very soon.”
Image: Red Light Holland