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A Message from CEO Henning von Koss

December 18, 2020

Fellow shareholders,

First, I would like to thank you for your trust and support of the Company and its management and employees. 2020 has been anything but a normal year in terms of the challenges we all faced as individuals, as a company and as part of the cannabis industry. But we prevailed, and as we turn the page on 2020 the future looks brighter.

Earlier this month, I had the honour of assuming the Chief Executive Officer role of PharmaCielo Ltd. As you probably know, I am no stranger to PharmaCielo, having served as its President since May and as a member of the Board of Directors since 2017.  My mandate is clear – to guide PharmaCielo into the next chapter in its evolution from a startup medicinal-cannabis extracts producer to an industrial-scale global provider of high-quality medicinal-grade cannabinoid extracts to pharmaceuticals, cosmetics and health & wellness CPG manufacturers.

This next evolutionary chapter is clearly focused, and to enable it to come to life we have concentrated activities on the structural and systemic approach necessary to enable it.  Building on the experiences to date, we have refreshed our go-to-market strategy, bringing a systemic approach to our internal processes and ensuring the alignment of objectives and priorities across the organization.  In doing so we have ensured that both efforts and resources support commercialization and sales – the key objective of this next chapter.  As of today, while we still have work to do, we are on track with improved performance from an operational as well as a sales and business development perspective.

On a global level, we have recently witnessed a few major developments that represent the continuing evolution of the marketplace.  In the United States, the American people have brought a new administration into the White House, and our advisor, former U.S. Congressman Dana Rohrabacher, leveraged his electoral experiences and cannabis perspective to pen a column in this Investors Update edition that sheds light on the future of cannabis legalization in the U.S. under the Biden-Harris administration’s leadership.

In Europe, the United Nations Commission on Narcotic Drugs (CND), in a truly historic move, voted to accept the World Health Organization’s recommendation and remove cannabis from the narcotics drug list. This vote, recognizing the therapeutic benefits of cannabis, is considered a watershed moment for the industry and is expected to accelerate acceptance and legalization of cannabis in many jurisdictions around the world. Preceding the CND vote was another landmark ruling by the Court of Justice of the European Union determining that CBD is not a narcotic drug and as such can be marketed within the EU and is protected by the free movement provisions between member states.

Internally, since our last communication update, PharmaCielo has made significant advancements on a few fronts ranging from sales to operations to product offerings, strengthening the leadership team and capital positioning.  Below is a more detailed update I’d like to share with you, our shareholder, about the advancements we have made in key areas of the business since the last message, which are the precursor for what is to come in 2021.

Sales

On November 18th we announced our entry into the UK market following a sales agreement with a leading British wholesaler and white-label manufacturer of wellness and cosmetics products. As I am writing to you, we have already completed the first announced shipment of 500Kg with an additional delivery of 500Kg en route and expected to be completed by year-end. These two shipments will positively contribute to our 2020 revenues and cashflow.

In addition to these shipments, we signed an interim sales agreement with this UK distributor for continued shipments during the first quarter of 2021. Simultaneously, PharmaCielo is in the process of applying for Novel Food Certification with the UK regulator. Once accepted, it will further expand our continuing sales potential on the island and provide greater exposure in the EU market.

Operations

Our new Processing and Extraction Centre (PEC) is officially completed, is fully operational and already processes the newest yields from our greenhouses. In fact, PharmaCielo boasts the largest and most advanced processing and extraction centre in Colombia with its 30,000-square-foot state-of-the-art facility, capable of producing north of 30,000Kg of extracts annually. With the PEC completed our operations are Good Manufacturing Practices (GMP)-compliant, and we are now moving forward with the application for GMP certification.

In the same vein, we recently secured a Good Agricultural and Collection Practices (GACP) designation for our Colombian operations, which is a key step in achieving EU-GMP certification, which will enable the Company to further expand its exports into Europe.

Product Offerings

Following the Colombian government granting a high-THC quota to PharmaCielo in July of 2020, the Company commenced its first commercial cultivation of psychoactive proprietary cultivars in 5.5 hectares of its open-air greenhouses in Rionegro. I am pleased to share with you that we are now completing the first cycle harvest of this new crop that is expected to yield more than 10 tonnes of dry flower for extract processing, destined for export. These high-THC extracts are an important addition to PharmaCielo’s expanded product portfolio, as we discussed in our most recent Investors Update.

Leadership Team

Last month we welcomed Marc Lustig to our Board of Directors as Lead Director. Mr. Lustig is a respected leader in the cannabis industry with expertise and a proven record in both capital markets and health sciences. Mr. Lustig’s deep experience and involvement in the global cannabis industry brings unparalleled bench-strength to PharmaCielo’s leadership team and will play a vital role in the continued management of the Company in the international marketplace.

Capital Positioning

Since our October communication, we have continued to strengthen our capital position in parallel to focus on strengthening of operations and sales.  To this point, we announced a private placement closing of $10 million (CDN) and establishment of a non-dilutive $3 million (CDN equivalent) loan from the Colombian state-owned Banco Agrario with favourable terms.

As I noted previously, from the business perspective, our installed capacity, operational efficiency and this healthy financial structure give us the needed resources to concentrate on reaching a positive cash flow as we expand our commercial efforts and grow our revenue line over the next several quarters as a global preferred supplier of large-volume medicinal-grade cannabinoid extracts. Across the board – both internally and externally – we see signs that the tide is shifting and positive momentum in making a comeback. The challenges faced in 2020 have not deterred us; they have only made us more ambitious and committed to achieving the goals we set. I am optimistic we will see continued and strengthening traction on those goals as we enter 2021.

In closing, I would like to take this opportunity to wish you and your family and loved ones a joyful holiday season and a happy, healthy and prosperous new year!

Sincerely,

Henning von Koss
CEO, PharmaCielo Ltd.