Re: Medical Marijuana Inc. 2014 Annual Report
As the new Chief Executive Officer (CEO) of Medical Marijuana, Inc. (OTC: MJNA) I wanted to discuss with you, our shareholders, the 2014 Annual Report on the operations and condition of Medical Marijuana, Inc. as well as our future and the future of the cannabis industry. When reviewing the Annual Report, it becomes apparent why the Company has made changes and additions to the Management Team, including myself as President and CEO. We are currently seeking additional manpower in charge of operations and are putting new initiatives in place intended to improve financial and operating performance going forward.
I apologize to our shareholders for the tardiness of the annual report. Having taken the helm as CEO in mid-March, well after the close of fiscal year 2014, along with the addition of three new members to our Board of Directors, I felt it was important to do a fresh, careful review of our Q4 2014, year-end 2014 and Q1 2015 reports before releasing our Annual Report. I’m committed to taking appropriate steps to improve all aspects of our reporting with a goal of greater transparency, clarity and timeliness. As part of that commitment, although not required, we will strive to act as a fully reporting company as we move into the future. I am enthused by the changes and progress that we have made to date in 2015 and especially enthused about our long-term future. I believe that we have the most diverse investments and highest quality products in the industry. We remain the unquestioned leader and innovator in the sector and the Company’s untapped potential, through its operations and investments, is enormous. I would like to thank our shareholders for their continued support as we strive to solidify our market position and the position of the industry as a whole. You should be proud to know that your investment impacts the lives of people around the world through its innovative products and initiatives.
Strong Industry History, Commitment to our Shareholders and Clients
Medical Marijuana, Inc. is a company of firsts. It was the first publicly held company vested in the cannabis and industrial hemp space in America. Though CBD-containing products have been marketed and sold as food and supplements for generations, the company was the first to develop a significant standardized manufacturing pipeline. We were also the first national and international distribution company (through our subsidiary HempMeds™) fully focused on this industry and we now ship to more than 45 countries.
We developed the world’s first patent-pending cannabinoid-rich hemp oil vaporizer product called HempVAP ®, which has had significant success in the market. The Company has formulated and developed over 150 products, most of which were or will be first to the industry and market. The true value of most of these products has yet to be realized.
Our direct investments have led to the patent of the first cannabinoid-based chewing gum, CanChew®, has been initially developed as a food – and is now a pharmaceutical formulation is undergoing clinical drug development in Europe.. We have developed the world’s first complete cannabinoid oral care line. We developed the first hemp-based anti-aging cannabinoid skin care line including products for troubled skin.
Portfolio investment Company KannaLife Sciences Inc. was the first biotech company to receive licenses from the National Institutes of Health (NIH) to develop the U.S. government’s patent on the therapeutic usage of cannabinoids (US Patent # 6,630,507). To date, they have garnered one exclusive license and one non-exclusive license from the NIH.
We were the first public company to provide management services to the cannabis industry through our Wellness Managed Services subsidiary. Our MPSI division was one of the first dedicated security and risk mitigation provider companies exclusively for the cannabis industry.
Regarding patents and trademarks, we were one of the first companies to receive a U.S. trademark for a cannabis-based product and have developed many such marks over the years.
These “firsts” were no easy accomplishment – building an industry never is. There have been hundreds of articles published worldwide that boosted our industry as a whole – as they knocked down generations of stigma and created a new awareness throughout the globe. Our efforts were instrumental in changing the legal landscape for cannabis and industrial hemp in the United States, a necessary accomplishment in order to have an accessible American CBD, hemp and cannabis market in the first instance. There have been hundreds of news articles around the world about the company and its products – and how they have impacted people’s lives.
We assisted with the drafting of legislation in many states and foreign countries (more will be discussed about this in the coming months). Our Company developed every aspect of production; from seed to eventual product sale. The team has been dedicated and driven to reach these accomplishments so that we can build shareholder value – by providing life-changing products for people around the world – and we will continue on this course.
The Year That Was
2014 presented challenges for Medical Marijuana, Inc. and some of its subsidiaries. Our wholesale and retail product business was brought under attack from several fronts, including the unfortunate Project CBD Report titled “Hemp Oil Hustlers.” Most concerning was the fact that up until the release of the report the Company was not contacted for comment. Up until that time, we as a Company had supported the efforts of Project CBD, a group of individuals whose focus (such as ours) had been on the education of the public regarding CBD and other cannabinoids for therapeutic use. Sadly, the report was filled with inaccuracies and false accusations that created unnecessary doubt about the Company and its products.
While the initial intent of the article may have been for the good, facts arose that utterly refuted the article’s claims, and the handling of the situation had a significant negative impact on Medical Marijuana Inc. Despite our efforts to resolve the situation amicably, the Company eventually had to file a lawsuit to protect the credibility of our products, our brands, our Company and to preserve the value created for our shareholders. The temporary damage to our Company’s reputation caused by these false and misleading charges caused sales and revenues to fall significantly short of expectations. As we knew all along, the accusations about the quality of products were shown to be unfounded when the testing lab that was involved in part of the article, explained that the products are safe and well within tolerance. To date, two parties have settled in our litigation.
For MJNA’s statement, click here.
For CannaVest’s statement, click here.
Another unfortunate and unexpected event involved our former partner firm, CannaVest Corp., when it cancelled our exclusive CBD hemp oil supply contract whereby they were to sell us a pre-arranged supply of CBD hemp oil. The net result for the Company was reduced sales revenue as we temporarily lost our entire supply channel (we are presently in litigation with CannaVest Corp. over this issue and expect this matter to be resolved in short order).
Though the year had its challenges, the Company still posted nearly a 300% increase in product sales versus the prior year to $14 million in 2014. Note that in 2013 we had extraordinary an gain of $24 million from the licensing of Phytosphere Systems to CannaVest Corp. (MJNA at the close of the year holds over $8m worth of seasoned securities in the public company, CannaVest.). In 2014 we re-launched Dixie Botanicals, wrote down and made inventory adjustments to reflect our new and lower cost of materials, upgraded computer systems, negotiated and acquired Kannaway – our biggest investment yet. Further, we launched five new product lines with over 20 SKUs.
Suffice it to say that the negative impact of prior events is now mostly behind us, illustrated by the fact that our new manufacturing of cannabinoid-rich hemp oil is of the highest quality – now available in nutraceutical products … and significantly less expensive. We are able to increase margins, pass savings to consumers and partners, and, in turn, we expect increased sales in the coming quarters.
The Year Ahead
2015 will be a year of redoubling our efforts to insure that Medical Marijuana, Inc. maintains its position as the industry leader and a remains a company of firsts. Our HempMeds™ sales operation has been greatly streamlined and we have cut back on inefficient expenses. The world is waking up to the vast untapped potential of cannabinoid-rich hemp oil and our flagship product, Real Scientific Hemp Oil™ (RSHO™), continues to show increasing demand. Combining our reduced manufacturing costs with increasing demand by lower retail prices – we expect to see improving gross margins as the year progresses. Over the course of the last year we have been able to decrease our retail sales price by over 30% while still increasing margins and overall volume.
Medical Marijuana, Inc. continues to seek ways to reduce costs, maximize efficiencies then expand our distribution platform, expecting to significantly reduce administrative costs and expenses as the year unfolds. In 2014, one significant cost was our legal and consulting expense of $2.5 million due to ongoing litigation. We are also evaluating steps to improve our balance sheet in order to provide us with greater financial stability. Opportunities in the marketplace continue to show promise so we continue to evaluate potential joint venture, as well as merger and acquisition partners. We spent over $700,000 in 2014 on travel and lobbying expenses to help legalize Puerto Rico and several U.S. States as well as a few other markets we will touch on later in the year.
In late December of 2014, the Company completed the acquisition of Kannaway, LLC, a multi-level marketing company. At present, we are working on integrating operations and maximizing Kannaway’s performance. We anticipate this taking no less than 6 months to complete. Kannaway provides us with an extensive line of additional hemp-based products that are marketable within the Kannaway MLM channels, which support our other traditional consumer distribution pipelines and overall company-wide sales revenues.
Kannaway has recently been given several industry awards, such as MLM start-up of the year and ranked eighth of 150 companies in 2015’s Top Direct Selling Compensation Pay Plan Poll. At the recent Expo West Natural Products trade show, Kannaway’s anti-aging skin care line was selected as a nominee for the “Whats Next” or “Nexty” awards. Our Kannaway products have been featured in many national publications such as USA Today, Allure Magazine and others.
We have recently contracted with GH Investment Advisors to assist in our effort to better communicate with shareholders. GHIA is a third-party advisory service whose management has extensive experience in the securities industry.
The company also upgraded its website to better serve and communicate with shareholders. The www.medicalmarijuanainc.com site now allows a shareholder the opportunity to communicate, the opportunity to purchase company products at a discount as well as provides updates and current news. We appreciate the support and loyalty of those who have shared our Company’s vision and encourage you to get involved with the company via that platform.
In summary, I want my fellow shareholders to rest assured that MJNA has no intention of allowing a hurdles in 2014 to prevent it from capitalizing on and expanding upon its position as an industry leader and innovator. We intend to improve our top and bottom line, improve financial reporting, deleverage our balance sheet and set ourselves on a prosperous future course that doesn’t just build value but also helps make the world a better place.
I believe that it is critically important to again remind shareholders to keep their eyes on of the future potential of MJNA’s impressive portfolio of investment holdings. I’m concerned that shareholders might allow 2014 results to inadvertently deflect attention from MJNA’s long-term potential. My concern is heightened by the fact that both the Company and the industry remain in their infancy and at a stage where an over-emphasis on fundamental analysis (much of which is written about by so-called analysts covering the medical marijuana space) may divert one’s attention from the enormous developmental potential for the Company and industry. Your Company’s investments in Canchew® Biotechnologies, LLC, Kannalife Sciences, Inc., Marijuana Protection Services, Inc. (“MPSI”) and recently AXIM Biotechnologies, Inc. present enormous future potential to increase shareholder value.
CanChew has just received their U.S. Patent grant as of May 5, 2015 (US Patent # 9,023,322) titled: Chewing Gum Compositions Comprising Cannabinoids. CanChew will soon release a new version of their CBD hemp oil chewing gum and we eagerly await this improved product. CanChew™ Gum supported the Adopt-A-Soldier program with a generous product donation, expanding awareness around CBD hemp oil in the convenient form of great-tasting chewing gum. For more information visit the Company’s website at www.CanChewGum.com.
KannaLife Sciences Inc.
KannaLife Sciences is a late-stage biotechnology company involved with the pharmaceutical development of new therapeutic compounds based on cannabinoids. KannaLife has garnered a licensing agreement with the United States National Institutes of Health (NIH) for two indications: (1) Hepatic Encephalopathy (HE) and secondly for traumatic head injury, known as (2) Chronic Traumatic Encephalopathy (CTE). Dr. Bennet Omalu, the head pathologist who first discovered CTE in postmortem examinations of deceased NFL football players, has recently joined the KannaLife Scientific Advisory Board. Soon there may be hope for improved quality of life for these affected individuals. More information is available at: www.kannalife.com.
AXIM Biotechnologies, Inc.
Recently the Company has acquired ownership interest in AXIM Biotechnologies Inc. (OTC: AXIM). Shareholders can view various filings that relate to the ownership interest that MJNA holds in AXIM (currently 47% as of 10-K for year end 2014). AXIM is engaged in numerous initiatives including the development of pharmaceutical, nutraceutical, dental, oral care and cosmetic products. AXIM also intends to build a modern manufacturing facility in The Netherlands, where it will produce products for internal and external use – this facility is also intended to be a location for clinical trials on various products. Company website: www.aximbiotech.com.
Our MPSI (Marijuana Protection Services Inc.) group provides another aspect to the overall MJNA portfolio. Their security, transportation, risk mitigation and industry logistical services will continue to expand as more facilities, more states and more nations decide that the “War on Drugs” has been a failure – and that products from cannabis and cannabis extracts are rapidly expanding. More information on the company website: www.security-mpsi.com.
I encourage you to read more about these extremely exciting portfolio companies in our Disclosure Statement and to not let the challenges of 2014 distract you from the potential of these holdings.
It is of particular importance to note that the value of MJNA’s stake in these investments, as determined by independent third-party valuations, far exceeds the total current market capitalization of MJNA.
MJNA Leadership and Innovation
As a result of the Company’s groundbreaking efforts in being the first to market certain hemp-based nutraceutical products, consumer interest and worldwide public awareness has increased significantly. Recent legislation allowing for low-THC, high-CBD marijuana oil has been approved for limited use in 14 US non-medical marijuana states. Initially we supported these moves and many states took our direction to use including 0.3 percent THC as a defining line to delineate the concept of non-psychoactive cannabis and what is not defined as industrial hemp. We supported initial moves for a few states as it showed increasing awareness and compassion in states that were generally not considered cannabis-friendly.
Recently our CBD-only support continues, but at a tempered pace, as we question certain motives, unsubstantiated product claims being made and political maneuvering tactics by those within our industry. Please let it be clear that we do support more than just CBD-only laws, we support the full legalization of all medical cannabis and industrial hemp products. Far safer than alcohol, consumers are demanding alternatives and the world is ready. There are those who continue to hold onto the propaganda of yesteryear and believe the failed “War on Drugs” is the answer. We urge citizens to “follow the science” as our President suggests, to read the U.S. Government’s “507 patent” and further their education. The results from Colorado’s “experiment” have been extremely successful – overall crime is down, teenage marijuana use is down nearly 20% and there is no evidence of “reefer madness” that opponents warned us of. Colorado state government has stated that it helps their economy, increased funding for schools and municipalities and are even considering crediting back a substantial amount of the taxes collected. We believe that is the future for many states and countries.
“Doubling Down” on Medical Marijuana
Dr. Sanjay Gupta described it best with his now-famous pronouncement that, “I am doubling down on medical marijuana.”
I feel it is important for me to make perfectly clear that although Medical Marijuana, Inc. is not in the business of directly selling or dispensing marijuana while it remains a federally controlled substance. However, we are poised and consider ourselves well-positioned for eventual cannabis legalization. We have a plan for that eventuality, and intend to leverage our relationships and expertise to help advance a truly legal cannabis industry when the day comes. Once legalization occurs or becomes better defined regarding states rights – we can quickly implement entry into this new market. Rescheduling – if not full de-scheduling – from the Controlled Substances Act would signal the clear demarcation point of our entry into the space.
Similarly, the Company also has plans for a repeal of Industrial Hemp Farming Prohibition. The numerous uses involving biomass-to-fuel, building and construction materials, textiles, bio-plastics and others – will all be part of the future of the company. Various Congressional bills are under consideration by our nation’s lawmakers. If for no other reason than to clean up toxic soils and provide an agricultural rotational crop – the Federal Prohibition of Industrial Hemp farming needs to end. The ancillary businesses, clean, renewable and sustainable – will create a huge number of new entrepreneurial enterprises and potentially a revitalization of our overall U.S. economy. It will be interesting to see the increase in overall national GDP numbers, should we allow hemp to be grown nationwide by our agricultural industry.
Given the social success of the marijuana markets in Colorado and Washington – lower crime rates and a decrease in teen marijuana use, and the overwhelming medical benefits – we feel there is public enthusiasm and momentum behind the new cannabis industry to temper the skepticism of previous years. From our industry vantage point, we are seeing tremendous enthusiasm for a return of industrial hemp farming to America and similarly seeing increasing nationwide support for a regulated medicinal / recreational marijuana marketplace. In polls this year, 85% of Americans were in support of Medical Marijuana and an astonishing 50% plus were in favor of full recreational legalization. Though we do not see recreational legalization happening anytime soon, we do see the industry splitting into three distinct segments: (1) Medical Marijuana (2) Industrial Hemp and eventually (3) decriminalization or legalization of recreational marijuana. I encourage you to keep in mind this is not just a subject in America but is also at the forefront of nearly every country in the world.
Based upon legal Colorado cannabis market projections, we predict that the market for all-natural CBD hemp oil products, when similarly developed over the coming years, will represent about half the projected medical marijuana market, if legalized. This current cannabis market, if legalized nationally would be $35 billion by our internal estimates (based on Colorado numbers) – making a future, developed CBD market worth about $17 billion in annual sales. Our company expects to receive its proportionate share of these future sales revenues.
I invite you, our shareholders, to join with me in creating a Company that will revolutionize our world through sustainable and renewable practices involving industrial hemp – America’s first industry now making a comeback. I look forward to providing MJNA shareholders with exciting developmental and partnership announcements in the coming months and years – and do hope to announce in the near future an end to the federal Prohibition of cannabis – including Marijuana and Industrial Hemp.
Stuart W. Titus
President and CEO
Medical Marijuana Inc. (OTC: MJNA)
View the Medical Marijuana Inc 2014 Annual Report.