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Entourage 07/01/2021

WeedMD Shareholder Newsletter:
2021 New Year – Great Expectations

As we kick-off 2021, in what we expect to be a banner year, I wanted to reach out to thank you all for your unwavering support throughout 2020 – which turned out to be a memorable year in itself, for so many reasons.

I recently assumed the role of Interim CEO, taking over for Angelo Tsebelis, who was instrumental in our successful year-long integration of WeedMD and Starseed Medicinal. On behalf of our Board, I want to thank Angelo for his leadership in 2020 and I look forward to continuing to work with him in his new advisory role.

Heading into 2021, we are continuing to make operational improvements in the best interests of our shareholders with a focus on increasing revenue, while maximizing margins and taking the necessary steps needed through optimization measures to get us closer to profitability. We are taking steps to ensure our state-of-the art, fully-licensed cultivation and production sites in Strathroy and Aylmer, Ontario are fully utilized and operations are efficiently centralized. Our corporate team is also being re-positioned to operate and support the organization more efficiently.

My promise to you, as a large shareholder with a strong vested commitment in WeedMD, is that we are focusing all of our efforts on trending towards profitability as quickly as possible.

We are forging ahead as a fully-integrated organization, having merged two businesses under one entity. With our medical platforms now under one Starseed Medicinal framework, we are a much stronger company going into this new year.

Even so, the challenges we and our communities faced from the global coronavirus pandemic was not what anyone expected. The Canadian cannabis market, already experiencing growing pains, fell under additional pressure – impacting equity valuations across the board.

To our shareholders and cannabis community, we thank you for your continued support!

Taking proactive steps to improve our cultivation and production operations, have already contributed to our revenue growth with net revenue for our fiscal third quarter rising 59% year-over-year. Furthermore, we achieved a two-fold sales increase in the first nine months of 2020, compared to the full year 2019.

We are starting 2021 with increased brand recognition and retail engagement across Canada for our premium adult-use brand, Color Cannabis. Recently, our Color Cannabis cultivar, Pedro’s Sweet Sativa, was awarded Top Sativa Flower in Canada at the inaugural awards for KIND Magazine, Canada’s pre-eminent premium cannabis lifestyle magazine.

With our Color Cannabis-branded 510 vaporizer cartridges now available via Canada’s largest retail distributor, the Ontario Cannabis Store (“OCS”), we are executing our Cannabis 2.0 product strategy. In fact, within its first week of availability, our Color vapes landed in the “Top 5” status when compared to over 30 available vape brands according to OCS-provided data.

We’ve expanded our line-up with our terpene-infused Saturday Cannabis-branded vape product line which together with our other Cannabis 2.0 products, are all produced at our Aylmer-based extraction hub, using our own input biomass. Our teams across the board are doing a fantastic job responding to consumer demands –bringing cannabis-Canada the products they want.

To our patients, benefits partners and consumers, we thank you for your support!

We closed the year off having entered into a number of commercial agreements and strategic partnerships that will start to see the full benefits in 2021:

  • Cannabis 2.0 supply partnership with Pax Labs, Inc.
  • Commercial arrangement with leading Canadian retailer, Fire & Flower Inc., to manufacture, package and ship the retailer’s Revity CBD™ product line with more coming.
  • Exclusive production and licensing of Mary’s Medicinals to bring consumers and medical patients these award-winning products to Canada in 2021 now that production will be kicking off soon.
  • On the medical side, we signed four strategic partners and their benefits providers to exclusive supply arrangements – with more coming in 2021.
  • And lastly, we expanded into an important new market in Atlantic Canada, under the purview of cannabis medicine specialist and advocate Dr. Julie Hildebrand as we expand our footprint into new provinces.

In summary, WeedMD is well-positioned to kick off 2021. With the infrastructure improvements and ramp up of our cultivation, we are now producing and shipping more product than we ever have before at a lower cost to produce, while maintaining the quality for which WeedMD is known. Our Starseed, Color and Saturday labels have garnered greater brand recognition with patients, retailers and consumers across Canada driving increased sales, expanding margins and stronger revenue performance for the year as we progress forward to profitability.

A more detailed corporate update follows below. Again, we are sincerely grateful for the continued support from our customers, financiers, business partners and shareholders.

Lastly and most importantly, our success this past year could not have been achieved without the unsurpassed professionalism and dedication of our employees. They have worked tirelessly to meet and surpass the very highest standards of operational excellence we have established as one united company. Winning in the marketplace means first, winning in the workplace.

So to all our employees, keep winning and a very heartfelt thank you!

On behalf of the entire WeedMD team, I wish everyone a happy and healthy 2021 and I’m looking forward to ensuring we keep you updated on our monthly progress.

George Scorsis
Executive Chairman and Interim CEO
WeedMD Inc.

Outdoor Cultivation

In addition to our indoor harvesting, an essential part of our success over the last two years has been our low-cost outdoor cultivation program. We recently completed the second-year harvest of our Strathroy, Ontario outdoor crop in record time. Based on data available to date, we harvested approximately 19,000 kgs of dry biomass this season at a cost of about $0.10 per gram. Our team did an exceptional job building on our previous year’s experience, and we are extremely pleased with our results. We planted and harvested seven terpene-rich, high-cannabinoid strains that includes our signature Pedro’s Sweet Sativa, GTH, Mango Haze and our newest strain Black Sugar Rose. While this biomass is once again slated for extraction and Cannabis 2.0 products, we also expect to use a significant portion of this terpene-rich cannabis towards pre-roll and ready-to-roll products.

Our outdoor production post-harvest procedures are just like our indoor ones. We hang dry, cure, dry-trim by hand and package. It’s what we’re recognized for and this has not changed.

Automation, Packaging & Distribution

During the first half of 2020, we focused on increasing production capacity and optimizing our operations. Historically, WeedMD has been known for its focus on high-quality cultivation, processing and product development, all of which is still true and is continuously improving. We conducted an extensive review of all our infrastructure and operations, streamlining facilities where it made sense while enhancing efficiencies through increased automation and optimization of our Aylmer and Strathroy facilities. Presently, we are harvesting product from 18 rooms in our greenhouse, which is more than we ever have before.

We also switched our packaging to include nitrogen-infused pouches to retain the freshness of our dried flower and integrity of our terpene profiles. The added bonus, the pouches produce 80% less waste than plastic containers and boxed packaging.

Also, starting in early 2021, all medical packaging and labelling activities will transition to our Aylmer, Ontario site. While it was a difficult decision to withdraw from our Bowmanville facility, in the long-term we believe these cost-savings initiatives will improve our efficiencies, cash flow, expand margins and move us to profitability.

We are already seeing benefits from these initiatives. We are operating a leaner and more efficient business across each of our two production sites, while producing higher-margin products rooted in our low-cost, quality cultivation platform for which WeedMD and its brands are recognized.

Adult-Use Products, Strains and Expanded National Team

In addition to the launch of Color and Saturday vapes, we recently began shipping our newest cultivar Black Sugar Rose to the Ontario Cannabis Store for sale to provincial retailers under our Color brand. We are extremely proud of the success our products have enjoyed, which reflects the increased brand recognition and strong consumer interest in our quality-derived products.

It’s important to note in 2021, we believe dried flower will continue to be the dominant product format, followed by vapes and pre-roll products. While we will produce topicals and tinctures under the Mary’s Medicinals brand, as their exclusive Canadian producer and distributor, we also see a market for what we believe is an underserved self-care segment. The line-up mentioned above is what will make up the majority of our production in 2021.

The team that is expected to sell and market our adult-use product portfolio has expanded five-fold this past year under National Sales Director Norman Wright (pictured on the left). We have sales executives covering Canada from coast-to-coast, together with our marketing team led by our Head of Adult-Use Sales and Marketing, Joseph Mele (pictured here left-to-right alongside Hanna O’Neil, Social Media Specialist for Color and Saturday, and Nikki Thomas, Trade Marketing Manager for Color and Saturday, and Joe Mele).

Joseph Mele, Head of Adult-Use Sales and Marketing: “Our goal for 2021 is clear – build awareness and drive trial for Color and Saturday brands. The strategy is two-pronged: engaging digital content for awareness coupled with effective shopper marketing tools at retail. We now have the expanded product portfolio and cultivation credentials, including our recent Best Sativa in Canada Award, to command a much greater market share this year!”

Medical Team & Upcoming Initiatives

Our medical team has been making some wonderful breakthroughs with our partners as we look to new therapies for pain management. With opioid use and addiction an affliction that continues to plague Canadians, we are thrilled to welcome Dr. Julie Hildebrand, widely recognized in medical circles for her research and work in opioid cessation and alternative treatment options. Dr. Hildebrand is based in New Brunswick and specializes in chronic pain, diabetes and runs the Saint John’s Methadone Clinic and Opioid Cessation Treatment Centre.

I am extremely proud of the work the Starseed team is doing to raise awareness and develop education programs to assist our medical professionals and our patients with news coming soon about our commitment to opioid cessation and pain management alongside a well-known clinic in Canada.

The team is led by our Chief Customer Officer and Head of Medical Sales, Moe Jiwan. Moe works closely with his team to support our patients and their care groups. Our patient groups will soon be hearing more from Moe and team as we expand our offerings to include Mary’s Medicinals products for our medical patients – who will be able to utilize the benefits in different formats including topicals, and transdermal patches.

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