RMR Laboratories – Angel Investment Deal Memo

 

Over 90% of our users felt relief from pain within 10 minutes.

Quick Overview

Minimum Investment
$100

Funding Goal
$50k – $1.07M
($16M Valuation Cap, 0% Discount)

Date Funding Closes
Sunday, Dec 31, 2017 at midnight ET

Crowdfunding Platform

https://republic.co/rmr-laboratories

Company Website
https://www.rmrlaboratories.com/

Deal Positives

Reasons in favor of RMR Labs

  • Intercellular Delivery – focused delivery mechanism
  • Plasebo is powerful – large / majority of effect of asprin / ibuprofen for most people
  • Emerging industry not yet solved or saterated
  • CBD now, could include THC in the future
  • Roadmap of additional products beyond pain management (muscle recovery, anxiety, insomnia…)
  • Major influencer partnership – Mike “Big Mike” Straumietis, CEO of Advanced Nutrients
  • World-wide, exclusive, perpetual license to the technology
  • 15 IRB-approved studies with positive, statistically significant data from over 1,200 patients.

 

Deal Concerns

Challenges RMR will face

  • Industry doesn’t materialize fast enough in US to support hyper-growth needed
  • $16M valuation cap and no discount for a company with no revenue
  • Product launch (at scale) is delayed
  • Talking about getting funding from public markets in 3 – 5 years (fast IPO)
  • No Patients granted to licensor yet
  • RMR does not hold any patients
  • The exclusive distributors don’t meet minimum $2.2M in orders of initial contract (duration unspecified)

 

 

Investment Summary – TL;DR

First, what is CBD and THC anyway? Cannabidiol (CBD) and Tetrahydrocannabinol (THC) are natural compounds found in cannabis plants. CBD is a nonpsychoactive compound and best extracted from hemp plants to be turned into oils, gels, and supplements. THC is the primary psychoactive ingredient in marijuana and can also be extracted into various forms.

Both CBD and THC are known for their medical benefits and bind to the same receptors in the brain. However, CBD doesn’t cause the euphoric “high” that THC does, so some people prefer it as a treatment for a similar list of conditions without the “mind altering” side effect. This allows for frequent use as a treatment without being inhibited while going about with daily life.

RMR Labs has what they are showing through trials, a unique way of delivering a topical CDB treatment for chronic pain. They call this Intracellular Delivery that rivals the results requiring injection by needle.

Combine with this differentiated approach and the changing sentiment and laws towards CDB and THC, RMR Labs is starting with a product launch focused on chronic pain sufferers, and leaves themselves plenty of headroom for additional product lines to treat everything from migraines to anxiety.

Lots of risk in this startup. Bet on the market materializing, a determined founder, a differentiated delivery mechanism of the CDB, and come along for the ride.

 

Product Stage

Existing product, product-market fit, traction in users or sales?

RMR is in final stages of production for a Q1 2018 launch. No sales to date to speak of. The CEO did reference that RMR has been tested in 15 IRB-approved (FDA definition) studies with positive, statistically significant data from over 1,200 patients.

 

Market

Size, Growth, Maturity, Competition, Alternatives?

The legal marijuana market was cited at $6.7B in 2016 with forecasts of as high as $20B in 2022 or even $50B by 2026 as more and more states legalize the sale of marijuana.

Something else to keep in mind, MarketWatch reports that Market Research Engine projects the Pain Management Therapeutics Market as a whole to reach $83B by 2024.

As of September 2017, recreational marijuana is legal in Colorado, Washington, Oregon, California, Nevada, Alaska, Maine, and Massachusetts.

According to Fobes, it’s likely Vermont, New Jersey, Michigan, Oklahoma, Utah, Missouri, and Virginia join the list of states in 2018 that legalize marijuana for recreational use. Lower probability, but possibly based on focus from advocate group, Ohio, Connecticut, Delaware, Illinois and Rhode Island may join the list.

This is all great news for RMR’s over-the-counter alternative to ingesting CBD (and possibly eventually THC) vs what most people think of which is eating or smoking marijuana to access these medicinal compounds.

There is already competition in the market advertising pain relief using CBD in the form of oils, creams, pills, sprays, edibles, and lotions. It will be important for RMR to differentiate itself in the marketplace with its patented intercellular delivery that makes it more effective.

Team

Key team members. Ability to execute?

Mike Lui (CEO) is very well spoken, former US Army Veteran that’s likely very disciplined and determined. He’s worked as a management consultant for Deloitte, launching new product lines with companies like Amazon.

It looks like he is working with a couple other people experienced in R&D for skin care as well as brand and consumer research, but Mike will need to round out a team of experienced full-time employees to scale up this business.

 

Business Model

How do they make money and is it fiscally sound? Previous Revenues? Unit economics and Forecasts?

To date, the company has not made any revenue based on available information. This is typically concerning but the company appears to be in deep final stages of product launch and has secured distribution commitments for Q1 2018.

RMR has secured two distributors for their initial launch in Oregon, California, and Colorado. These two distributors are under contract for $2.2M in minimum wholesale purchases from RMR over an unspecified contract length in order for these distributors to keep their exclusivity. RMR is not looking to push the legal bounds of distribution during their initial product launch. They are staying with states safely established at legalized for recreational use.

We are working with two distribution partners right now that want exclusivity to launch in Colorado, Oregon, and California. The pipeline accounts for our minimum order quantities for these distributors over the life of the initial contract term. The $2.2M is at the low end of the volume projections that would need to be met to maintain exclusivity in those markets.

…said CEO Michael Lui in a reply to one of the comments on the Republic crowdfunding page.

It’s great this distribution has been secured with minimum orders, but there is still a real risk to the company that the distributors aren’t able to move the product fast enough to meet these minimums. Even though that would release the exclusivity agreement, it still puts a burden on RMR to find a replacement distributor that can meet forecasts.

This could mean a period of time when projected revenues dip well below forecast and put cashflow at risk. Depending on the situation, the distributor may not exit the exclusivity commitment quietly and could result in a legal dispute wasting RMR time and money.

A more likely problem new startups face is not being abe to produce the product fast enough for the distributor to meet the forecasted minimums. This could be due to production quality issues, slow turn-around time by the manufacturer, constrains on cashflow, or constrains on raw materials.

Final pricing and packaging isn’t locked for RMR, but based on responses from the CEO in the comments of the Republic crowdfunding page, a single can of lotion will retail for $80 – $100. This seems to be a product that’s trying to occupy a premium space in the market.

If it does work as effectively as advertised, it could receive great word of month from affluent and influential people. This is not a product you just tack on to a purchase at checkout to see if it helps your bum knee that’s hurting because it’s getting ready to rain (again) in Portland.

This is a product that will require expensive consumer education that will significantly eat into initial margins as RMR is establishing a brand and an entire industry.

Prior Funds Raised

Publicly available info

Based on available information and statements from the CEO, no other funding rounds have taken place and RMR is not currently pursuing institutional investors. They believe the crowdfunding campaign will provide 2 – 3 years of runway. They may look to VC funding at that time. They also believe they will need access to public markets (IPO) in 3 – 5 years from now, which seems aggressive.

Traction in this Repulic equity crowdfunding campaign speaks well as a proxy for the demand and belief in RMR Laboratories products with nearly $800,000 committed.

Exit Opportunities

Who would acquire this company? At what stage? Or is this IPO material?

Even though the CEO states a couple of times that he would like to look to the public markets in 3 – 5 years for additional funding, an IPO in that maturity timeframe for a startup that hasn’t launched a products seems very unlikely.

Typical trends in startups staying private longer and the massive amount of scrutiny and management overhead that comes with running a public company would likely make their offering unattractive and distracting from accelerating this business into what it could become.

A more likely exit opportunity in 3 – 5 years would be an acquistion by one of the major companies that already has a large stake in the OTC pain management industry like Bayer pharmaceuticals. As preferences shift, this would be a great way for Bayer or someone like them to ensure their marketshare isn’t cannibalized by cannabis and they are left on the outside looking in.

Another interesting possibility is CVS acquires them to lock down exclusive distribution. CVS continues to progress towards offering a small local clinic on every corner for those in favor of convenience vs visiting a primary physician. CVS keeps expanding their locations that include Minute Clinics and pushing that they are the place for preventative care.

Big Vision Upside

What the company could become in an ideal world beyond launch product?

As more and more consumers turn to organic and wholistic solutions for managing their health and wellness, RMR Labs has a chance to build product lines addressing several different needs with CBD and progress into products with THC.

It’s early days and there are no dominant winners. A combination of distribution in stores and direct to consumer podcast style advertising could create a level of trust in premium products as knock-off competitors are sure to follow.

So many categories of health and wellness that CBD and THC have been shown to help improve – muscle pain, chronic pain, arthritis, migraines, anxiety, depression, and insomnia to name a few.

There are varying levels of strengths the treatments could be formulated for based on the amount of CBD and if long-lasting is preferred over fast acting.

The forms of delivery could move from topicals to shampoos, bath bombs, patches or pills.

RMR could come out the other side with a preferred delivery mechanism and strength for everyone, dominating the shelf space with their brand and the pharmacy’s white-labeled version like most every other OTC solution sits in the pharmacy today.

Disclaimer

The information on this website is for entertainment purposes only. Neither the author or this website offer professional investment advice. Information contained herein is not intended to be a source of advice or credit analysis with respect to the material presented, and the information and/or documents contained in this website do not constitute investment advice. At the time of reading this, the author or Angel Memos teammates may be investors in this company. Always do your own diligence and seek independent professional advice before investing.

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