A Case Study on Matt Bowden: Stargate International

Developed for International Business 705 Assessment at the University of Auckland

By Jess Maher, Øyvind Bjørnsmoen, Chelsea Griffin & Samira Ibrahim

22 November, 2010

EXECUTIVE SUMMARY

Stargate International was established by Matt and Kristi Bowden. After witnessing a variety of

horrific incidents and effects of the use of methamphetamine, Matt recognized an opportunity to

provide a safer legal alternative for drug addicts. In this case study, we retrospectively explore two

initial attempts Matt had at cracking this industry. The first began in 1997 when he began

distributing legal alternative pills in New Zealand by both order/delivery based sales and then

eventually also retail stores began stocking his products. Matt was met with many legal &

competitive issues throughout his time in the industry. After spending some time in Australia after

his first failed attempt, Matt returned to New Zealand in 2000 at which time, he began producing

and distributing party pills with the chemical Benzylpiperazine (BZP). In 2005, the Misuse of Drugs

Amendment Act created a new class of recreational drugs in New Zealand, however later in 2008

the Government decided to change their minds. His first stint lasted six months but Matt’s second

attempt catalyzed the growth of a successful industry and an eight and a half year business. Matt’s

overarching goals of harm minimization continue to prevail, despite the legislative reclassification

of BZP to an illicit substance. This case talks about opportunity recognition and legal reform in the

party pill industry of New Zealand. It explores how a social entrepreneur can drive change in a

small economy, upholding a strong sense of motivation and determination in the face of adversity.

INTBUS

705

FROM LEGAL HIGHS

TO LEGAL REFORM

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Introduction

Those who have not had the chance to meet Matt Bowden may perceive him and the industry he is affiliated with negatively, as they get away with the unthinkable, literally selling you legal speed. However, this is a far cry from Matt’s vision; which is evident in the charismatic persona he exudes not to mention his passion for social change. He is now a stay at home family man who works with what he is truly passionate about, his music and his children. Yet the experience and stories Matt shares of his initial years in the business paint a rather tumultuous picture of his involvement with the recreational drug industry. With various tales of drug abuse, violence, prostitution, crime and even death, Matt found himself reaching some alternative understandings and perspectives on the matter of drug reform which continue to act as one of main elements of opportunity recognition in his career. Matt is a true social entrepreneur who believes that he was put on the earth to achieve a purpose which has overrode a lot of the obstacles and challenges he has faced in his life.

Background: The first pursuit of the legal drug alternatives

In the midst of 1997 – 1998, Matt was advertising for Performance Car Magazine when a client with a business proposition approached him. This was the first opportunity point in Matt’s entrepreneurial expedition. The product was a stimulant that upon testing, Matt realized was not your everyday pill. Matt instantly saw an opportunity, realizing that this pill had a purpose and could be used. He saw it as a potential safer legal alternative to drugs in a society where a methamphetamine explosion and an accompanying surge in violence was prevalent. This idea came to fruition when he began importing merchandise from England and distributing it to his known target market, those suffering from drug addictions. He began by advertising on websites and on the radio, with call centre and courier deliveries set up to facilitate sales and distribute the product. A support line and a F.A.Q were also set up.

To spark retail interest Matt offered businesses such as The Hemp Store a 100% mark up on the pills. This strategy saw Matt’s product rapidly become a significant contributor to their cash flow, to the point of reliance on it for profit. At this point the venture began to attract media attention. He was approached by a journalist, named Greg Boyd who conducted an interview with Matt regarding his new venture. Unfortunately this first media contact was not the ideal coverage he was hoping for. His statements regarding the substance he was marketing were taken out of context and a misrepresentative story was portrayed to the public. The power of editing demonstrated statements being made about what the pills were capable of doing. This became problematic for Matt as under the Medicines Act 1981 law, it was illegal to make any claims regarding the effects of a substance.

Media pressure drove the Ministry of Health to take the issue to the courts. Matt substantiated his claims with both legal and scientific facts. However on investigation, the pills were found to contain a substance called ephedrine and a nationwide recall of the product ensued. Matt’s first attempt at cracking into a legal drug substitute market was only a six-month stint, but a profound interest was sparked in the legal side of this industry. However, this was not last both the government and the industry would see of Matt Bowden.

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A socially inspired return

Later Matt was approached by an Australian investor who suggested marketing a product that was in an area of Matt’s expertise. After careful consideration and advice from his accountants, Matt decided to move to Sydney in 1999. There he pursued the idea of again providing a cheaper and legal alternative to harmful drugs. While amidst this environment he was exposed to a darker, unregulated side of the industry that shocked and moved him. He witnessed a number of terrible incidents involving methamphetamine, some concerning people close to him. This was the motivation he called upon to return back to the industry he had previously failed in.

He was inspired to try to find some form of safer stimulant that didn’t result in the horrific effects seen with methamphetamine use. With the strength of his convictions Matt Bowden believed that “if we could meet the consumer need without the harms, we could build a better society”. Adopting the motto that “if you believe in something strongly enough, you can do anything” he began to pursue this idea.

Bringing BZP to the market

While still in Australia, Matt aligned himself with a neuro-pharmacologist and together they began to search for an alterative drug that they could use to fill this niche. Soon they discovered the drug Benzylpiperazine, a non-addictive euphoric stimulant and so they began the pursuit to transfer this into a marketable product. Known colloquially as BZP this substance had been scientifically tested through clinical trials and was proven not to be a danger to consume. Research also indicated that in 1973 trials that were conducted with amphetamine users, they had indicated a liking of the drug BZPi. They knew that with this compound they might have been on to a winner in their search for a legal alternative substitute. They attempted to approach the Australian government, but they were not receptive to it.

In order to tackle the escalating methamphetamine problem that was in existence in his home country, Matt returned to New Zealand in 2000. He was then able to gain access to the substance BZP and began to make some pills. He decided to “make a product for people that are choosing psychostimulants like amphetamines and give them a safer alternative”. Soon Stargate International’s new product had became a social, legal substance that was been taken by current drug users. Matt’s product was meeting the same stimulant need to keep them awake between the desired hours of 12 am and 6 am in the morning. It became evident that consumer and behavioral trends were changing, seeing a shift away from the intake of harmful drugs. Research was reporting the pills to be a success, with around 20 million tablets consumed in New Zealand and no reported fatalitiesii.

Media and government pressures

While the business seemed to be flourishing there were other political issues that needed to be addressed. One of Matt’s major retailers The Hemp Store was part owned by a member of the Green party, Nandor Tanczos. The Sunday Star Times published an article that involved Matt and his business, with the main goal of “having a go” at Nandor Tanczos. The

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article attempted to discredit the politician by associating him with selling drugs that were illegal overseas. The media had its own agenda regarding the politician and thus Matt became once again caught in the middle of media and political cross fire. The New Zealand government and the Ministry of Health again got involved with the claims and started an investigation. This time around Matt had learnt a bit about how to deal with the media and government and attempted to go straight to the source of the problem. Matt and his wife, Kristi, traveled down to Wellington and explicated his mission.

Matt & Kristi spoke to the government ministers stating; “This is what we are trying to do, a lot of our friends are addicted to methamphetamine, some of them are actually dying around us… as methamphetamine users, we can't really put up our hands and ask for help because we are technically criminals now... Society’s way of dealing with our problem is to lock us up in a cage and we think that’s wrong, so what we are doing about it is we are making a safer alternative”.

The laws of supply and demand

The objective of Stargate International and Matt’s focus has been on harm minimization, with a stated aim at addressing the drug demand reduction strategies; his product was a addressing demand reduction. This aligned with the New Zealand National Drug Policy, which has three pillars, Matt felt that short comings of this policy was identified ultimately at demand reduction, which his product was addressing harm minimization.

“If you reduce the supply without reducing the demand, the quality comes down, or the price goes up. Now once you put the price up and it's worth more, then even though you might have been thinking about the fact that it's a couple of years in jail if you get busted, you might think more about that it might be worth it. The demand's going to stay there, because users are going to run out and want more...eventually you're going to get to the point where it's worth it to crank out a few more grams, if they're worth thousands of dollars each... When these pressures exist the quality of the drugs is reduced and therefore more health risks emerge for people. This trend happens all around the world, these laws or trends are basic laws of economics. They are as set in stone as the laws of gravity and so politicians trying to ban substances and effectively start a drug war have proven to be a totally ineffective policy” (Matt Bowden, 2010).

He also identified another document, which aligned with his purpose. The

Methamphetamine Action Plan was an initiative, which invited community groups to come forward with solutions regarding demand reduction. Matt proceeded to identify himself as a representative of the “dance community” a group who don’t like to drink alcohol but instead prefer to take stimulants and socialize from late in the night until early in the morning. He indicated that this community would not be able to stop and believed that the use of a demand reduction strategy for them was offering a safer alternative. They responded by researching further into the topic.

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Research showed that people had stopped taking illegal drugs and in fact were using Stargate International’s product instead. 44.1% of party pill users who also used illegal drugs stated that they now mainly used party pills insteadiii. Because of these newfound trends which supported Matt’s argument, the Government decided to not prosecute and to instead move toward changing the laws to accommodate Matt’s vision.

The turf war begins

Competition arose when rival industries such as liquor stores began to feel an economic sting. The booming party pill trend was seeing in some cases, that half the money usually being spent on alcohol going into the pockets of Matt’s industry. At the same time as this Matt states that “Research started coming out from the fingers of the liquor industry, alcohol advisory groups and so on, saying party pills and alcohol shouldn`t be combined”.

A turf war was happening between the party pill and liquor industry. However with Matt’s excellent legal representation he again fought back. “A rival industry, missing out on its revenue started pushing back and silently behind the scenes driving the whole campaign that party pills are dangerous, they’re bad, they’ve got to go” (Matt Bowden, 2010). This was substantiated with the valid argument that no one had died from taking party pills, a statistic that the liquor and tobacco industry could not claim. They recognized that Matt’s industry had sold 26 million pills in New Zealand, which were consumed over eight and a half years by 400,000 consumers with no deaths and no lasting injuriesiv.

Matt then withdrew some of his brands from the market, having disagreements with his distributors in the process. This was because the industry became too widespread with pills being sold in dairies and to the general public, no longer just to his original target market. As he had not put any patents on his intellectual property, the marketplace had exploded with competitor products. He had begun to feel that it was working contrary to the original mission. His original mission was still strong in his heart and so he identified a way to continue with this while not having his products sold within the industry. He approached all his competitors and negotiated arrangements so that they would help establish a collective fund to pay the legal fees for the industry, as Stargate had effectively been dealing with the government on behalf of the whole industry, not to mention that the industry was based on intellectual property developed by Stargate.

Establishing ‘Class D’

In return he hoped to stop the government from shutting the industry. At this point the industry was facing an imminent shut down with the government preparing for a nationwide recall of the products due to the pills apparently breaking food safety regulations. The food safety authority was arguing that the pills were not classified as a food group. Matt’s defense was that this was not the case and ingeniously relabeled the products as “social tonics” and wrote on the back that this is a harm minimization initiative so that it was really clearly labeled not as a food or dietary supplement. They were lacking in a category for them so they wrote one up and put it in place.

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As a result of this action it became apparent that the industry didn’t fall under a specific jurisdiction and instead needed a new category with the Misuse of Drugs Amendment Act 2005. By taking this action, the NZ Government accepted that there was a clear need for ensuring that some kinds of standards and regulations were to be in place. In 2005 the restricted substance category or Class D was put in place, as a regulatory tool for lower risk substances deemed not harmful enough to be illegal. Class D could regulate it being illegally sold to someone under the age of 18, not being allowed to advertise on the TV, radio or magazines. Yet after creating the laws, they still continued to foster a type of no man’s land for the product where no formal regulations were in place.

By 2006 BZP pills were a commercial success with the industry estimated at being worth £ 8 million annuallyv. After seeing a surge in the number of competitors, the “party pill” industry grew, broadening markets and uncovering some unfortunate events which were a result of youth combining the use of alcohol and BZP. As the industry and markets for it grew, so did the evidence of unethical behaviors. Without restrictions on the strength or quality of these products, there was evidence of some competitor’s pills being up to 16 times stronger than Stargate Internationals. Matt formed The Social Tonics Association of New Zealand (STANZ) to encourage best practices within the industry.

The ongoing unethical and dangerous behaviors of competitors fueled the cause for media to continue pressuring the government for further attention and enquiry into BZP. A request for research was arranged which was enthusiastically supported by Matt, mainly because he had already extensively researched the cost to benefit analysis of this product and approach. Clearly the lesser harm of the “social tonics” industry products when compared to alcohol was something he was excited for the researchers and policy makers to explore.

All the independent research came back confirming that the pills were of very low or as low as practically possible risk, but one commercial institute with strong ties to government came back with claims of serious adverse events. Matt suspected that this research was somehow flawed or misrepresented, which became clear at a later stage when a whistleblower leaked information about the research. “The research failed at peer review stage but was used as a political and media tool. The ban happened as part of a lead up to an election.” Before Matt and his lawyers could counteract this, Jim Anderton passed a new piece of legislation banning party pills and it was voted through in 2007 and came into force in 2008.

Onwards and upwards…

Having set backs is not a concept unfamiliar to Matt Bowden. Now days his expertise in government lobbying and intellectual property on the relative issues of legal alternative drugs has been in high demand. Other countries facing similar issues such as Canada and the United Kingdom have called upon him for help. His entrepreneurial actions have transformed New Zealand into a representative sample. Now other countries are able to learn from New Zealand in the battle to minimize the harm caused by illegal drugs. He is also continuing to build New Zealand regulation systems by keeping a safe natural drug within the Class D category.

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Matt aims for the industry and government approach to eventually set examples for international standards around drug policies. He is very proud to have set up his enterprise in New Zealand, remarking on how cool it is that you can just pop down to parliament and with time and patience you can have some impact on laws and regulations for the better of the country. This is not something that can be done in larger countries so he urges people to take responsibility. He hopes that people try out new policies and do things that are quite progressive, as we have a small enough infrastructure to allow this to happen.

“That’s my feeling, we have just got to stand up and that for New Zealand as a country we have to stand up…I feel like in a sense we have done that and I think that the mission worked in that sense”.

Now in 2010, he is in the process of recording a rock album, which will continue to carry on his message. He feels that if he has music out there he can be perceived more like an artist. Then when he makes a media statement he will be seen differently, as there is a different facet between being a businessperson and a rock star. He believes that having a commitment to social responsibility through regulating and operating to best safety standards, you can end up with an industry that is not only sustainable but also beneficial to society.

Notes

The authors wish to thank Matt Bowden for his valuable assistance in the preparation of this case. All direct quotations were taken from interview with Matt Bowden, conducted in his home on the 28 September, 2010 - unless otherwise stated.

i Lynn Theron, Karl Jansen, Jennifer Miles (2007) Benzylpiperizine-based party pills' impact on the Auckland City Hospital. Emergency

Department Overdose Database (2002–2004) compared with ecstasy, Retrieved from: http://www.nzma.org.nz/journal/120-1249/2416/ ii Lizzi May (2006) This Man wants to sell you legal ecstasy, Remix magazine , Retrieved from: http://www.mattbowden.com/Rebirth/wordpress/?page_id=105 iii Chris Wilkins, Melissa Girling, Paul Sweetsur, Taisia Huckle, Dr. John Huakau (2006) Legal party pill use in New Zealand, Centre for

Social and Health Outcomes Research and Evaluation & Te Ropu Whariki, Retrieved from: http://www.shore.ac.nz/publications iv Peter Cresswell (2008) Retrieved from: http://pc.blogspot.com/2008_03_09_archive.html vLizzi May (2006) This Man wants to sell you legal ecstasy, Remix magazine , Retrieved from: http://www.mattbowden.com/Rebirth/wordpress/?page_id=105