Shareholder Q & A – March 2020
Over the past year, we have seen a lot of changes at Alternate Health. The Company closed the largest acquisition in our history, refined our exclusive CBD strategy and made huge strides towards sustainable profitability. As Alternate Health prepares for the next chapter, we’d like to answer some questions from our shareholders.
The following is a general overview of the most common questions we have received lately in a Q and A format. If you have any further questions, please don’t hesitate to reach out to us at our new, investor-focused email – [email protected].
Where is Alternate Health headed in 2019?
Last May, Alternate Health announced our exclusive focus on hemp-derived CBD product manufacturing and distribution. The Company’s roots have always been in the medical side of the cannabis industry, so we felt this was a natural move for us. Over the company’s history, we have developed relationships with thousands of doctors and tens of thousands of patients. The only missing piece has been monetization.
Alternate Health is certain that medical-focused CBD products are the solution. Building on our history as a software provider, we are implementing a new model for doctor-driven distribution. Many doctors – and especially cannabis clinics – struggle with securing predictable revenues. Alternate Health can help by offering a complete physician-to-patient CBD product distribution system, powered by our software.
The model is simple: We provide doctors with the software they need to dispense to their patients. In addition to our Electronic Health Records and Patient Management System, the Company offers point-of-sale software, credit card processing services and payment terminals. Doctors receive product samples and a branded display with information on how to purchase. After each sale, Alternate Health drop-ships the products directly to the patient.
Alternate Health has a huge advantage in this space. In addition to our existing networks, our subsidiary, Blaine Labs, already has a network of more than 10,000 physicians. And Blaine Labs’ status as an FDA-licensed pharmaceutical manufacturer offers us the credibility and authority to produce CBD products that doctors can be confident recommending to their patients.
Why did Alternate Health decide to focus exclusively on hemp and CBD?
In the short term, investing in the medical CBD industry poses far fewer legal risks than recreational cannabis, or even medical marijuana. CBD’s federal legalization following the 2018 Farm Bill has created a much more favourable marketplace. When exploring recreational cannabis, too often Alternate Health was told one thing by regulators, only to have the same rule changed the next week.
While the short-term benefits of are obvious, the Company is most interested in the long-term opportunities in medical CBD. Here are just a few of the exciting reasons why:
- Health and Wellness: The CBD industry is driven by a desire for people to feel better and healthier. Unlike recreational cannabis, public interest in CBD is focused on improving overall wellness. Society has never been so health-conscious, and we see more opportunities for growth as CBD becomes more understood.
- Price Stability: It is hard to forecast the price of CBD products, so there is some uncertainty about future profit margins. We believe medical CBD products will maintain profitability as patients are willing to pay a premium for products that actually work.
- CBD Pharmaceuticals: While it’s just beginning, there is a huge opportunity for CBD in pharmaceutical preparations and prescription-based treatments. We are interested in the potential for insurance-reimbursable CBD treatments in the future.
How significant is the Blaine Labs acquisition for Alternate Health?
Alternate Health closed the acquisition of Blaine Labs in June 2019. Since then, Blaine Labs has been a key revenue driver for the Company. Since the acquisition, Alternate Health has made strong steps towards driving efficiencies and Blaine Labs has been an important part of this process.
We are most excited about Blaine Labs’ potential for the future. This goes beyond FDA-licensing and cGMP certification. We’re just as excited by Blaine Labs’ production capacity, physician-formulated product line and networks. But most of all, we see the value in the experience and efficiency of the Blaine Labs team.
Our strategy of doctor-driven distribution fits perfectly with Blaine Labs’ business model. The staff and team have decades of experience in handling exactly the type of production and shipping logistics we are employing at Alternate Health. We are seeing a seamless transition as we move forward with CBD production and we are confident we have the resources and expertise to scale quickly.
How does the company’s software systems fit into the strategy?
Alternate Health’s software systems are at the heart of the Company’s doctor-driven distribution model. By integrating our Electronic Medical Records (EMR) platform with our payment, point-of-sale and blockchain-powered inventory software, we offer doctors a complete system for CBD product distribution. Rather than generating revenue through software subscriptions, our technology facilitates sales of our products.
Our software products integrate together, but each one can be used separately as well. In our doctor-driven model, doctors are free to choose the software products that fit best with their practice. If they already have an EMR that they know and love, no problem. They can continue to use it, while we deploy our point-of-sale systems.
How does the company’s CBD focus affect agreements in Humboldt County and Adelanto?
Alternate Health announced that the Company was not moving forward with the Humboldt County agreement on May 29, 2019. With Alternate Health operating exclusively in the hemp-derived CBD industry, there was no need to close the acquisition of Four Twenty Inc. The agreement was terminated, and all consideration was returned to Alternate Health. Four Twenty Inc.’s founder, George Mull, subsequently resigned from the Company’s Board of Directors.
Our move into CBD also gave us cause us to re-evaluate the agreements for the extraction facility in Adelanto, California. The Company considered options for hemp extraction, but the Company concluded our resources were better spent on developing our CBD business verticals. For this reason, the Company also terminated its agreement for the acquisition of DTS Lab Services, a cannabis extraction company.
What is the status of CBD product white labelling?
Alternate Health has been in negotiation with industry partners as we roll out our doctor-driven distribution model in the United States. We have also been investing in our in-house production capacity, extending our product line and our wholesale CBD packaging businesses. We are excited about rolling out these products to our physician network.
As Alternate Health has increased our own in-house white labelling capabilities, we have been reviewing the agreement for the Mr. Custom White Label acquisition. As an all-stock purchase, the Company is concerned about further dilution. For the time-being, Alternate Health may not move forward with this acquisition.
Can you provide an update on recent financing?
Within the past 12 months, Alternate Health announced and closed three financing agreements. This includes a Convertible Note with the European High Growth Opportunities Securitization Fund (EHGO) fund, advised by Alpha Blue Ocean, and a private placement and a strategic investment.
- EHGO/Alpha Blue: AHC issued 2,380,951 common shares and granted 3,348,484 warrants with at an exercise price of $0.33 in return for gross proceeds of $700,000. Alternate Health and ABO signed an amended and restated agreement in September 2019. The Company has no intention of receiving further tranches or issuing more warrants or shares.
- February Private Placement and Strategic Investment: On February 19, 2020, the Company announced a combined $4 million in financing, between $0.15 and $0.16 per share.
What is the status on the Mexican CBD distribution joint venture?
On May 9, 2019, the Company announced a proposed joint venture with Oltecate Enterprises to enter the Mexican CBD market. Oltecate Enterprises hold licenses from COFEPRIS, the Mexican equivalent of the FDA. However, there is some disagreement between the various government institutions in how CBD sales should be handled. This is further complicated by a new presidential administration in Mexico. Unless significant changes are made at the federal level, it is unlikely Alternate Health will move forward with this joint venture.