A Message from CEO David Attard, October 2020
Welcome to our Investor Update newsletter. Our goal with this initiative is to engage with you on a more regular basis, keeping you informed about the developments and progression of PharmaCielo and the Cannabis industry. Within this newsletter, you will find a variety of individual business updates, including a brief message from former U.S. Congressman, and PharmaCielo advisor, Dana Rohrabacher about his perspective on the U.S. marketplace in the face of the current electoral cycle. If you have any comments, feedback or would like to see something additional, please share your thoughts with us at email@example.com so that we can incorporate into future editions of our newsletters.
Moving to business matters, it is important to note the progression of the company in 2020. Despite facing many headwinds, like managing through a short attack along with the economic and operational challenges associated with COVID-19, we believe that the company has begun to turn a corner, which has been reflected in some of our recent announcements. First, the Colombian Government officially recognized PharmaCielo as a Project of National Strategic Interest. Having this designation is in recognition not only of our status as the industry leader, but also of our importance to the local economy. Having this designation affirms the government’s commitment to assisting PharmaCielo in overcoming and accelerating regulatory challenges faced by the company and the industry as a whole. In addition, we were also able to announce a significant expansion of our product portfolio of commercial extracts.
These developments are just two examples that highlight our continuing momentum as we continue to strategically build out the company for global growth. As we enter the final months of the year, we are happy to report that we have begun closing out the necessary infrastructure development and have now shifted our efforts towards commercialization through product sales to an ever-expanding global marketplace for the years ahead. Setting the challenges inherent in developing a new company within a new industry aside, we remain very excited about what lies ahead for PharmaCielo and look forward to updating you over coming months on our progress.
In the first half of 2020 we generated just over $1.7 million in revenue from sales, compared to approximately $787,000 revenue in all of fiscal 2019. While this is nowhere near the potential of our platform, it represents a promising start in our 2020 transition from infrastructure development to a commercial sales focus that will become the dominant focal point of 2021. Since the Company’s founding, we have built for the future and are now especially focused on filling our sales pipeline to drive results for shareholders.
Our team is working hard to expand our revenue base through the balance of 2020 with continuing geographic expansion. Earlier this year we signed separate agreements to sell product into Europe beginning in late 2020 with expanding volume in 2021, and we have continued to deliver against U.S. market agreements with spot orders. Despite slowdowns on business development efforts due to COVID-19, we remain intensively engaged in discussions with multiple partners in multiple geographies with the intent to close out by year end, having addressed all the necessary regulatory import/export requirements.
What is most significant is that on July 8th, in support of our German market sales agreements, we announced the receipt of the Colombian government’s authorization for 10 tonnes of high-THC cultivation and extract production for export. While this approval is important specifically for our sales relationship in Germany, we expect it to also assist our sales efforts elsewhere in Europe and beyond. We expect to continue growing commercial sales into 2021.
The ability to produce high-quality products is firmly entrenched within our DNA at PharmaCielo. Having proven that quality with our CBD Isolate, and validation from third-party laboratories from around the world, PharmaCielo has now expanded our product portfolio to meet the demand of current customers and accelerate the closing of late-stage sales opportunities. These focused efforts have led to the development of a significantly expanded range of extract products that began with CBD Isolate and now includes Broad Spectrum Oil, CBD Distillate, Water Soluble CBD, Standardized CBD, Standardized CBD Distillate, Full Spectrum Oil, THC:CBD Ratio Formulations and THC Distillate. Not only will these products help meet market demand, but these products also offer consistently higher margins for PharmaCielo than the production and sale of CBD Isolate.
This year we have made two significant announcements about expanded cultivation, which are important to ensure that we can feed the processing and extraction centre as sales continue to grow. As previously mentioned, the first such announcement was that the Colombian government granted PharmaCielo a commercial cultivation quota for 10,000 kg of THC-dominant biomass, allowing processing and exportation of THC-dominant extracts.
Complementary to the expansion of our psychoactive-dominant cultivation, on August 13th we also announced the commissioning of our first non-psychoactive contract cultivation, representing a 32% increase in the Company’s current cultivation footprint to 1.6 million square feet. The intent is to further expand this to 2.6 million square feet, pending receipt by the contract grower of technical licensing for the additional area, which is expected by the end of 2020.
Processing and Extraction Centre (PEC)
Our team in Colombia has worked diligently despite COVID-19 limitations (with appropriate health protection measures in place) to complete the PEC. Installation of the complex HVAC systems necessary for GMP certification have been completed, transfer of existing processing equipment from the transitional site has sufficiently progressed to begin processing production, and commercial shipments from the facility have commenced. Additional equipment installation and technical requirements to enable full processing capacity are in the final stages, and we expect to file application for GMP certification in Q4. Over and above this, we have also validated that we can produce over 30,000kg of extracted product annually from this facility, which will be able to support short- and mid-term demand before expansion is required. Below is a current photo of the core facility’s exterior – the effective heart of the 30,000+ sq. ft. PEC.
On April 15th and July 3rd, we announced the closing of two small equity offerings. As shareholders ourselves, we are certainly disappointed with the current trading range of the Company’s shares. However, we concluded that it would be prudent to raise a modest amount of capital at the time to ensure that we were positioned to continue ramping up our operations, particularly given the uncertainty regarding COVID-19. Both 2020 and 2021 are very important for PharmaCielo from a financial perspective, and it was important to further strengthen our balance sheet and enable the Company to maintain the necessary focus on infrastructure building that has brought us here.
We have also made progress on the talent front. As we continue to scale it is important that we strengthen our leadership team with qualified individuals that will help us get to the next level successfully as an organization. On May 4th we announced that Henning von Koss, a proven 30-year veteran of the pharmaceutical, chemical, and healthcare industries and a PharmaCielo board member, had agreed to join the management team as president. Henning is an experienced senior operator and is assisting in ramping up our processing extraction facility, overseeing global operations and supply chain and ensuring further expansion is squarely in our sights as we exit 2020.
As a final item, and a more detailed reiteration of my opening comments, the industrial and economic importance of the cannabis extract industry to the nation of Colombia was recently recognized as a “Project of National Strategic Interest” (Proyectos de Interés Nacional Estratégicos). Significantly, in the context of this announcement PharmaCielo was individually identified and was the recipient of a dedicated designation, which specifically reflects complete government structural and policy support for industry progress, a commitment to streamlined government decision-making and removal of red tape impediments. As I noted in our press announcement, “this designation places the legal cannabis industry in Colombia on similar footing to that of the mining, coffee and avocado industries, which have become global export leaders, with significant benefit to the domestic economy and the people of Colombia. We also appreciate the Government’s recognition of PharmaCielo as a trailblazer having unique and immediate business needs separate from those of the broader industry, given its globally oriented business model and scale.”
I have said it before, and I’ll say it again. PharmaCielo’s business model has a substantial amount of operating leverage available to it. We can achieve profitability and be cash flow-positive on a relatively modest level of annualized revenue. As such, I am a firm believer that as we see measures to control COVID-19 begin to ease, and as we begin to ship larger product volumes, particularly given the addition of new higher-margin products to our portfolio, the market will recognize the near-term revenue and cash flow-generation potential of our business as well as the scalability of our platform, with a corresponding expansion of sales relationships.
Stay safe and healthy.
David Attard, CEO