Open Letter to Shareholders and Corporate Update from Newly-Appointed CEO

Strong Roots and
New Growth for 2020

Dear Valued Shareholder,

It has been just over 30 days since my appointment as CEO and during that time, I have had the pleasure of meeting with employees, business partners and key customers, as well as experience first-hand our vast operational presence. We have successfully integrated our Toronto offices, bringing many of the Starseed and WeedMD professional teams together for more efficient collaboration and to streamline costs.

During this time we also announced the addition of four strategic partners and their benefits providers. To recap, we welcomed:

  • LiUNA Local 1059 (London, Ontario)
  • myHSA
  • The International Union of Painters and Allied Workers
  • The Insulators Local 95 Health and Welfare Trust Fund

Likewise, our production facilities in Aylmer, Bowmanville and Strathroy completed their integration during this time to better support the increasing product demand that we have been experiencing with this uptick in new patient registrations.

Over the last couple of weeks, we have also established a number of protocols and risk mitigation strategies to ensure the health and safety of our employees and communities as a result of the COVID-19 global pandemic. Our top priority is ensuring our employees have the information they need to remain healthy so they can continue providing our customers with the outstanding products and service upon which we have built our reputation. I wish you and your families stay safe and healthy during this period.

Barring the global volatility created by the coronavirus, it is clear that the cannabis market in Canada has experienced growing pains for several other reasons: pricing inconsistencies, retail outlet constraints in some provinces, and limited quality supply in certain consumer product segments. While these factors have tempered short-term market expectations – creating pressure on equity valuations across the board, longer term we are confident that WeedMD will emerge as a formidable leader in Canada’s ever-evolving cannabis space.

How will we get there? WeedMD is widely lauded for its focus on high-quality cultivation, processing and product development, which remains intact today. Our infrastructure and operations are some of the most impressive operations I have seen. Since legalization, WeedMD’s business model has mainly centered on wholesale or “LP to LP” product distribution, while this is a great way to move inventory, it generally carries a lower margin. With the addition of Starseed, we have now integrated a critical element of the value chain – new and direct channels to a patient base with insurance coverage for medical cannabis.

This access to a substantial and direct consumer audience of over 350,000 individuals will drive growth, margin expansion and set us on a path to profitability. WeedMD is now expanding its best-in-class sales and marketing strategy and distribution channels by commercializing a cultivation platform that is the benchmark in Canada.

2020 is about executing our commercial plan:

  • Scaling our unique medical distribution business model via paid benefits;
  • Delivering quality cannabis to the adult-use market via Color and Saturday brands; and
  • Launching quality, customer-focused cannabis products in traditional and new formats to drive greater revenue across all markets.

We are trending towards profitability as follows:

  • Sustaining and operating a lean and efficient business across each of our sites;
  • Capturing higher-margin products rooted in our low-cost quality cultivation platform; and
  • Securing an estimated $10 million in SG&A cost reduction run-rate by the end of 2020.

At this time, I would also like to more formally welcome the LiUNA Pension Fund of Central and Eastern Canada (“LPF”) as our largest shareholder. Liquidity and capital constraints have put the cannabis market under pressure and LPF’s investment strengthens our balance sheet to further support our growth.

I am truly honoured by this opportunity to serve as WeedMD’s CEO. As both the CEO and as a shareholder, I look forward to working with our talented team in leading the Company through our next phase of growth. I am very excited about WeedMD’s strong prospects and the many opportunities ahead to build further value for our shareholders. In the coming months my team and I will be making a dedicated effort to share our evolving WeedMD story with new and prospective investors.

I’m pleased to provide a more detailed corporate update below. Thank you all for your trust and support.

Angelo Tsebelis
Chief Executive Officer
WeedMD Inc.

Medical Product Integration

In addition to our office and production site integration, I’m thrilled to confirm that one of our key priorities was to enhance the product line-up of our medical e-commerce platform. We continue to build our processes to ensure that a consistent supply of quality products is always available to all our clients.

Our Starseed patients are beginning to have greater access to WeedMD products on the Starseed medical platform. Most recently, we introduced Umbra (Pedro’s Sweet Sativa) and Ghost Train Haze to Starseed’s online platform and both have been received very favourably.

More news about products and services, including information about the North Star Wellness platform, will be sent directly to all our medical patients. As we continue to onboard new patient registrations from all of our partners, we will also be introducing client support services to WeedMD patients to align with Starseed’s offerings.

Cultivation Readiness &
New Strains Coming

An external question I often get is how will WeedMD supply all of its channels?

I’m pleased to confirm that we have 17 cultivation rooms that are all cycling through various stages of production alongside our mother room and two propagation rooms in our hybrid greenhouse in Strathroy, Ontario. Our teams strategically stagger our rooms so that harvest schedules are spaced out for ease of production and packaging, expediting our speed to market. With the 10 additional rooms that came online in the second half of 2019, we are now seeing the full production capabilities of our cultivation platform as we brace for a major production surge.

New strains in Strathroy ON.

As you know, our industry continues to experience a shortage of quality cannabis products and we continue to adapt our product portfolio based on feedback from our customers. Stay tuned for more details as we will be introducing new strains to both the medical and adult-use markets. These strains grew beautifully outdoors and likewise, have taken well to our greenhouse.

New Product Formats:
Pre-Rolls and Ready-to-Roll

Ghost Train Haze outdoor strain

High-THC strain, Ghost Train Haze, harvested outdoors in Strathroy, ON slated for pre-roll cannabis products coming soon

Ready-to-Roll and pre-roll products in production for Color Cannabis & Saturday Cannabis brands

While on the topic of new strains and products, we are gearing up to launch new adult-use formats under our Color Cannabis and Saturday Cannabis brands. We’ve enhanced our pre-roll production and I am pleased to confirm that a significant portion of our outdoor Ghost Train Haze (one of the highest THC strains from the outdoors) has been allotted to our pre-roll cannabis product line and will be available in provincial stores soon.

Our teams are producing well over 12,000 pre-rolls a day and continue to fill the high demand of “Ready to Roll” products sold under the Color Cannabis brand. More news will be forthcoming about other new Color products and formats.

As for the remaining outdoor harvest – a significant portion has now been sold to a third party for extraction, in addition to keeping some for our own extraction destined for CX Industries.

CX Industries & Extraction

CX Industries Extraction Team Collage

CX Industries extraction operations underway in Aylmer, ON.

At our CX Industries facility in Aylmer, Ontario, I was pleased to see our Vitalis Q-90 extractors in action. Now that we are operational, we are fine tuning our standard operating procedures (SOPs) to ensure we are well positioned to capture a number commercial opportunities currently under negotiation. As we advance these discussions, as well as launch our Cannabis 2.0 vapes and topicals, we will ensure to issue market announcements accordingly.

Bowmanville Research Licence

Meanwhile in Bowmanville, Ontario, the site of the original Starseed Medicinal facility, Health Canada recently granted the site a research licence. This gives way to further research activities and allows for the administration and distribution of cannabis to human research subjects for assessment of taste, sight, smell and/or touch. This means we can now conduct sensory (focus group) testing with vape product development in mind. We look forward to using this customer feedback in our product development for vapes. And yes, we are also eyeing new cannabis products such as rosin and hashish.

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