The Key to Cannabis Success in the NEW California Market
February 27th, 2019
George Mull knows California cannabis. A practicing attorney with 25+ years of experience in California’s cannabis industry, he founded the California Cannabis Association. Mull, President of Alternate Health Corp. (CSE: AHG, OTCQB: AHGIF, Forum) has as clear an understanding of California’s cannabis industry as anyone in the sector. He shared this perspective with Stockhouse editorial.
The American Medical Marijuana Physicians Association (AMMPA) is pleased to endorse your cannabis-specific electronic medical record system, CanaPass, and its U.S. equivalents, as the most physician-centric cannabis management system we have seen on the market thus far.
Technology companies like Alternate Health (CSE: AHG, OTCQB: AHGIF) command the largest market caps in the sector.
The legal cannabis market is often divided between producers and cannabis science companies. A great deal of investor buzz has surrounded these producers, but surprisingly, technology companies like Alternate Health (CSE: AHG, OTCQB: AHGIF) command the largest market caps in the sector.
Alternate Health’s management believes it is the focus on value-added technologies that drives investor interest in cannabis science companies. These technologies may promise higher margins and growth opportunities in the long term, especially with so much room for innovation.
Understanding Alternate Health’s business model requires stepping back and viewing the various parts as the puzzle-pieces of a larger business strategy. Why not simply focus purely on cannabinoid pharmaceutical research? Why develop a “fully integrated” business model? Two reasons: profitability and efficiency.
The Company wanted to fully integrate its cannabinoid science business in order to capture the maximum amount of revenue potential from this sub-sector. Simultaneously, AHG is exploiting that integration to expedite and optimize its cannabinoid research initiatives. More specifically, Alternate Health has devised a three-pronged strategy:
Data software, collection, and analytics
Researching/developing/licensing cannabinoid drugs and then marketing those products
The starting point is laboratory services. Any pharmacological research is expensive, and cannabinoid research is no exception. Where do those research dollars go? The largest percentage goes into laboratory testing. Alternate Health’s management team estimates that as many as 60% of research dollars are ultimately funneled into laboratory costs.
Alternate Health Labs is the Company’s laboratory services unit. It specializes in blood and toxicology laboratory testing. Having its own lab doesn’t merely eliminate the huge cost of farming out laboratory services.
It is a revenue cash cow for AHG. What are “costs” for pharmaceutical companies are revenues for Alternate Health Labs. In making this the first prong of the Company’s foundation, AHG has been able to move to cash flow positive operations – virtually right out of the starting block.
Alternate Health Labs accounted for the majority of the Company’s revenue for the first quarter of 2017. These revenues have been derived from performing laboratory services for a variety of companies, with inquiries starting to come from even other cannabis companies.
What’s next? Management’s development strategy is both prudent and methodical. Laboratory operations were the top priority because the Company knew that this was the quickest/easiest path to putting AHG onto a profitable footing.
The data software, collection, and analytics division is Alternate Health’s next priority. This is because management has calculated that this is the next-fastest branch of its operations that can be made cash flow positive. This aspect of AHG’s operations requires some explanation.
The realm of medicinal cannabis is still in its early stages of evolution. Many of the therapeutic applications for its use are derived from nothing more than anecdotal empirical observations. Similarly, treatment regimens for medicinal cannabis are still more or less ad hoc. What has clearly been missing here is a more rigorous scientific approach.
This is where better data enters the equation. A June 14, 2017 news release updates the latest developments here and also includes an informative clip on AHG’s data services.
Alternate Health has developed proprietary software to facilitate monitoring of the use of cannabinoids among the patients being prescribed this therapy. Coupled with this is a system for the real-time reporting of data to the prescribing physicians.
For the first time, there is a reliable means for medical practitioners to monitor and track cannabis use among the patients to whom it is prescribed. More exact information for practitioners translates into greater certainty throughout the treatment process.
There is better information on the quantity of dosage and the frequency of dosage. Equally, patients can report the efficacy of their cannabis treatment in real time – rather than having to recall those details days/ weeks later in a doctor’s office, or keep their own journal.
Better data leads to better treatment results, providing a strong incentive for all practitioners and institutions prescribing medicinal cannabis to incorporate this software into their medical practice. That’s how AHG’s software division leads to better outcomes at the individual patient level.
Marketing and monetizing this software translates into a second cash-flow positive platform for the Company’s operations. Management is still just beginning market penetration of its software but is confident that this branch of operations can become revenue positive in the next year.
This is just one part of the synergies from Alternate Health’s data collection operations. At the individual level, data collection is a boon for medical practitioners and patients. At the collective level, the data gathered can be fed back into AHG’s research division – facilitating the identification of especially promising cannabis therapies.
Alternate Health’s profitable laboratory services have already become an operational success and the data collection services can soon become profitable. This sets up the Company for success with respect to the heart of its business: designing, licensing, and marketing cannabinoid pharmaceuticals.
While commercializing its laboratory services and data software/collection services have been Alternate Health’s top priorities, AHG’s research team has not been standing still. Again, management has put in place a comprehensive strategy to maximize shareholder value in this branch of operations.
The Company’s initiatives in its R&D division can also be broken down into a few, broad categories:
Identify and deploy a superior delivery system for cannabinoid medications
Target high-margin medical applications for cannabinoid medicinal therapies and develop proprietary cannabinoid medications to address those markets
Promote cannabinoid pharmaceuticals, both in general terms and with respect to AHG’s particular cannabinoid research initiatives
Here the methodical nature of Alternate Health’s corporate planning is on display once more. The Company is focused on bringing the best cannabinoid formulations to market. However, producing the best medical results and commercial success from these cannabinoid medications requires an optimal system for delivering these cannabinoids into our bodies.
Management has identified the hi-tech method for optimizing delivery of cannabinoids in the future by looking at the low-tech methods that have been delivering cannabinoid medications in the past.
Orally ingesting cannabis
Why has smoking cannabis been the preferred/traditional method for the users of medicinal cannabis to obtain its therapeutic benefits? Simply, smoking (and inhaling) cannabinoids is one of the fastest and most-efficient means of getting cannabinoids into our bloodstream.
This is a basic function of our biology. When we ingest anything orally, this means the substance passes through our digestive tract. There are two problems with this method of delivery in terms of medicinal therapies.
First of all, this path through the digestive tract necessarily involves a significant time lag before the cannabinoid medication actually reaches the bloodstream and begins to produce its efficacious result. Secondly, our digestive tract filters out (via the liver) a large percentage of the cannabinoids that enter our digestive tract, reducing the potency of medication.
Conversely, inhalation provides immediate absorption into the bloodstream and thus a faster and stronger medicinal effect. But inhalation is not the only biological means of rapid delivery into the bloodstream. Beneath our tongues, the tissue is especially permeable. This results in rapid and direct absorption into the bloodstream of any liquid or dissolvable substance placed under the human tongue. This is the delivery system on which Alternate Health is focusing.
The Company has executed a ten-year renewable licensing agreement with Sentar Pharmaceuticals. This provides AHG with the exclusive right to use Sentar’s “sublingual tablet” technology in the distribution of CBD and THC nutraceutical compounds.
What about Alternate Health’s specific research initiatives? Management’s goal, obviously, is to produce cannabinoid medications that deliver strong, consistent health benefits to the patient user-base. However, not all medical ailments are curable.
Cannabinoids are already being frequently prescribed (and used) to provide strictly symptomatic relief for particular medical disorders. Chronic pain is perhaps the best-known example. The point here is that cannabinoid medications that are being used to provide symptomatic relief will be required by patients on a long-term basis – perhaps even permanently.
Being the first company to bring any innovative cannabinoid pharmaceutical to market will be positive for revenues (and shareholders). Bringing cannabinoid therapies to market that require long term/permanent use have even more lucrative potential.
Although acute Zika infection is usually self-limiting, some patients can experience prolonged periods of severe fatigue, joint pain, loss of appetite, anxiety, depressive state, and lethargy after clearance of acute viral symptoms. It is these symptoms in this subset of Zika-infected patients that Alternate Health evaluated in its initial cannabinoid-based, Institutional Review Board (IRB) approved research study.
PTSD is another endemic health disorder that generates a wide range of disabling symptoms for its sufferers. This makes the condition another strong candidate for cannabinoid therapy. Here AHG has already been at work in promoting this branch of its operations.
Alternate Health’s three-pronged strategy for becoming a successful fully integrated medical cannabis services company is already well advanced. It is developing a strong revenue base to minimize shareholder dilution as it begins work on its proprietary drug pipeline.
Compare this to GW Pharmaceuticals LLC, the world’s largest bio-pharma by market cap, at over $2.5 billion. Revenue for 2013 was $13.3 million (USD), virtually nil in relation to its huge market cap. That company reported a loss of $82.2 million. Its robust drug pipeline may eventually produce stellar returns, but how much more dilution will shareholders be forced to absorb in the meantime?
There is still one more element in the Alternate Health game plan: its own chain of clinics. More synergies. Vertically integrating its own clinics with the Company’s laboratory services, proprietary data services, and cannabinoid drug pipeline offers further opportunities for maximizing operating margins.
Here AHG has already completed its first acquisition. On May 5 2017, the Company announced an agreement to acquire the Neubauer Hyperbaric Neurological Center in Florida. The Neubauer Center was explicitly targeted to help facilitate AHG’s Zika virus research. Going forward, however, it provides even further revenue generation for operations.
Alternate Health: A Focus on the medicinal aspects of the cannabis plant
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