Medicine Man Technologies, Inc.

Good afternoon and thank you for joining us. First, I’d like to begin today by discussing the global pandemic, COVID-19.

We continue to monitor the outbreak in our thoughts or with those affected; the professionals on the frontlines and the communities doing their part to help those most at need. Here at Medicine Man Technologies and our retail operation, the Big Tomato we’ve enacted measures to do our part to slow down the spread of the virus, ensure the safety of our employees and protect the health and well-being of the communities in which we operate.

Additionally, we are collaborating with state and local governments to develop and implement rules and regulations for the key end of this industry throughout Colorado during this time of uncertainty. As you could imagine, this is an ever changing situation, but our goal is to protect our patients and recreational consumers, protect our employees, and protect the public safety.

To date, Medicine Man Technologies has not seen a significant negative impact to our business. More importantly, we’ve actually seen a spike in orders from our hydroponics store, the Big Tomato and from our [nutrient wide], Success Nutrients.

At this time, we believe these purchases could be considered pantry loading or we’re confident that our teams will continue to pull the levers needed to ensure we remain stable during this time. With regard to industry performance, I want to share what our research analyst for low in the cannabis industry published last week, which we found very enlightening.

Long-term, we believe that the need for better tax revenue, the pay for [indiscernible], the need of further liberalization of cannabis on a state and federal level. This may get delayed in some areas in the short-term as local governments marshal resources to fight the pandemic.

Multiple points of the anecdotal evidence of higher sales proves out that the theory that cannabis will prove defensive in the face of an economic downturn. Further, as more markets open up, cannabis has the potential to prevent [indiscernible], which may be difficult to find going forward during this downturn, and in general users are likely to sacrifice other activities during periods of economic stress and maintain consumption.

While this pandemic is unprecedented in every way, I truly believe that the cannabis industry will be even stronger at the end of it. To echo the analyst sentiments, this industry is a growth driver both from a job creation standpoint, as well as a major tax revenue source for states.

In addition to the necessary business levers, we continue to pull through this time. I would be remiss if I didn't mention the best-in-class leadership team we’ve created that have dealt with past national crisis, and while this is unique and unprecedented, we’re managing through it as we go.

Since becoming Chief Executive Officer in December, we've added numerous leaders to our team that bring both the cannabis expertise, as well as the business acumen needed for us to realize our potential. From working industries such as Tech during the late 90s bubble to leading operations for grocery retailers facing E.

coli outbreaks and hurricanes to managing the uncertainty following September 11 and the air wide industry, our team's experience working through times of change and uncertainty is virtually unparallel. I am confident in the team that we have assembled and their ability to lead Medicine Man Technologies during these times and prepare us for future growth.

These individuals possess Fortune 500 experience, mergers and acquisitions and integration expertise. Along with cannabis know-how coupled with entrepreneurial backgrounds that we will leverage to buy integrate, synergize a portfolio of terrific assets.

I would therefore like to take a minute to introduce our new leaders to you. Nancy Hubert was promoted to Chief Financial Officer in December.

Nancy joined the company last August as Senior Vice President of Finance and a smart and effective and a strategic leader with more than 30 years of experience with significant expertise in consumer packaged goods. Bob DeGabrielle was appointed Chief Operating Officer in December.

Bob is a trailblazer in cannabis industry as the founder of Los Sueños Farms, one of the largest outdoor grows in North America. He also has more than 40 years of experience in acquiring, developing, managing, and selling commercial and residential real estate.

Brian Ruden was elected to the company's board of directors in December. Brian is the Co-Founder and CEO of Starbuds chain of dispensaries and a recognized business leader in the cannabis community with extensive regulated cannabis knowledge and expertise.

Since 2010, Brian has owned and operated cannabis businesses under the Starbuds brand, which is grown into a multistate operation. Prior to entering the cannabis industry, Brian was a tax attorney in Colorado.

Shane Sampson joined the company as Chief Marketing and Merchandising Officer. Shane has more than 35 years of experience building iconic brands, leading innovative and totally integrated marketing to merchandising programs and strategic operations.

Most recently, Sampson serviced as Chief Marketing and Merchandising Officer for Albertsons companies. There he was instrumental, leading the company during a period of monumental growth for strategic merchandising approaches, over saw significant development, and innovation through digital e-commerce strategies, radically scaled its private label brands and build customer and associating associate engagements across 2,300 stores.

And finally, Nirup Krishnamurthy joined the company as Chief Integration and Information Officer. Nirup has over 25 years of experience and innovation, technology, integration, restructuring and M&A at Fortune 500 companies.

As Chief Information Officer of United Airlines Nirup was a part of the management team that undertook one of the largest turnaround restructurings in corporate America. He used technology, business analytics, and process improvement as major levers to drive cost reduction and revenue enhancement for the airline.

As you can see, these individuals bring us exceptional experience and track records of accomplishment that position us well for revenue enhancement, increase profitability in the media to actionable growth. I’m confident between our team and our targeted acquisition partners we can deliver on our aggressive growth strategy.

We in the consolidation and growth of cannabis started in Colorado and then the U.S., before ultimately becoming a worldwide leader in the industry. Turning now to the business itself.

We’re very confident that our 2020 is going to be a milestone year for our company, our employees, our shareholders our communities, and above all cannabis consumers. Our confidence is based on our hard work building a strong agile infrastructure that will support our growth initiatives.

Specifically, we have been laser focused on finalizing diligence and integration planning with our acquisition partners, deploying our operating playbook and implementing our new enterprise ERP platform. As you know, in response to the legislative change last year with Colorado House Bill 19-1090, we’ve entered into agreements with 11 premier cannabis operators across the state of Colorado to become one of the largest vertically integrated seed-to-sale operators in the global cannabis industry based on revenue.

Our latest investor presentation indicated 2019 pro forma revenues were $144 million with healthy EBITDA margins. In accomplishing our acquisition goals, we intend to leverage our collective experience in buying, integrating, and synergizing assets in other industries where we delivered outsized shareholder returns.

We believe Colorado is the second largest cannabis market in the U.S., is an attractive geography to start our story as many participants are sophisticated profitable and then weathered the boom and bust economic cycles of early cannabis. Once complete, these agreements will enable us to offer cultivation capabilities of 13 indoor greenhouse and outdoor facilities totaling 2.1 million growing square feet and generating more than 50 tons of cannabis annually, extraction and production capabilities of five facilities, totally 23,000 manufacturing square feet with more than 100 flower and non-flower products across leading growth categories.

34 dispensary operations totaling 64,000 retail square feet and product development and innovation capabilities. Upon completion of our acquisitions, we will be the number one dispensary operator measured by store count in Colorado with 6% of all stores.

Number 1 in retail cultivation sites in Colorado nearly doubled the next closest competitor. The Number 1 brand portfolio in Colorado penetration across multiple key product categories and many awards, and the number two producer of non-flower products in Colorado with pro forma 2019 retail sales of 46.5 million and over 2,600 units.

In other words, we have a unique opportunity to lead the Colorado market with a significant advantage in terms of scale operational excellence and attractive asset base. As you know and understand the process to close on these acquisitions which [wanted the tails] above state and local government approval.

I am therefore pleased to share that just a few weeks ago; we announced that the marijuana enforcement division, the MED, a division of Colorado Department of revenue approved our application for suitability, a critical step in realizing our acquisition strategy. The state mandated review is designed to ensure that a company, its officers are suitable to run and above board and compliant cannabis company.

We’re proud to be the first publicly traded company to receive such approval. This approval was a huge milestone for our company and paves the way for the additional approvals that are needed.

In November, Medicine Man Technologies submitted the change of ownership applications and both the state and local levels from its organics. Mesa Organics operates four dispensaries in Southern California and also operates a business unit under the name Purplebee's, which is a leading pure CO2 and ethanol extractor and manufacturer.

I’m pleased to share with you that we’ve received approval from not only the state, but also three out of the four local jurisdictions. We are optimistic and working with local jurisdictions for the final approval.

I want to reiterate that we’re creating something new and exciting. And as I look to the playbook we’re implementing, I’m blown away by the level of execution and the progress our teams are making.

We’re making a company that positioned to become a market leader not only in Colorado, but across the nation. I also think it’s worth mentioning that while our immediate focus is on the State of Colorado, the business model that we’re creating across retail, wholesale, and services is transferable beyond the state and we ultimately aspire to facilitate a multistate expansion.

Our retail strategy will be customer centric supporting the health and well-being and happiness of our customers with products and experiences that deliver beyond their expectations. We will do so by delivering what, where, when, and how they wanted through an omni-channel presence and store formats that fit their lifestyles.

Our wholesale operational leverage best practices and our sales organization, account management, incentive practices, and cross-selling. We will also demonstrate our ability at simplifying vendor management, including new business-to-business products and growing capacity for medical cultivation.

Finally, our leading cannabis consulting practice, which services a full range of cannabis operations, including licensing, design, engineering, and retail and cultivation operating best practices will be a key enabler of all of our growth. This practice has earned its deep frontline understanding of national products and retail experience trends, along with insights into market dynamics, cannabis regulations, and procedures across 22 states that we can use to identify partnership and attractive acquisition targets.

I’m excited about our opportunity within Colorado and beyond. With that said, I like to turn it over to our CFO, Nancy Huber to review over 2019 financial performance.

Thank you, Justin. 2019 revenue was $12.4 million, a 31% increase over 2018 revenue of $9.4 million.

All areas of the business, product sales and consulting were up year-over-year with the exception for the one-time sale of the Canadian master license last year of $3.5 million. Cost of goods and services for 2019 total $7.6 million, compared to $2.6 million during 2018.

This 195% increase was due primarily to increased sales of products. Gross profit was $4.8 million for the year ended 2019, compared to $6.9 million for the year ended December 31, 2018.

Gross profit was down as a percentage of sales due to the increase of product mix in 2019 and a one-time licensing sale in 2018. Operating expenses for 2019 were $21.9 million, compared to $4.7 million during 2018.

Increase was primarily attributable to non-cash stock-based and derivative compensation of $12.7 million and $6.8 million of costs associated with activities related to building an infrastructure to ensure a seamless integration of our numerous pending acquisitions. We are building a robust platform, including teams for M&A, integration, marketing and merchandising, FP&A, IT and more, which will allow the company to close on our acquisitions and integrate them quickly.

This platform is an investment for our future and will enable sustainable, organic, and acquisition growth for the future. That loss for the year ended December 31, 2019 was $17 million or a loss of approximately $0.50 per share on a basic and diluted weighted average, compared to net income of $0.9 million or $0.04 per share for the year ended December 31, 2018.

We had $11.9 million classified as cash and cash equivalents as of December 31, 2019 and $0.3 million classified as cash and cash equivalents as of December 31, 2018. This is an improvement in the year-over-year cash position of $11.6 million.

I would also like to mention that as we navigate through this pandemic, we continue to review over cash needs and have plans in place that include contingency plans should we need additional cash resources. Now, I’d like to hand the call back over to Justin for his closing comments.

Thanks Nancy. The cannabis industry is right for consolidation and our management team is uniquely positioned to bring together a group of experienced cannabis industry pioneers and the leading brands they’ve created.

By combining to create a single publicly traded organization, we can increase the collected efficiencies and profit margin over time. Let me conclude our formal remarks by expressing our confidence and optimism regarding the numerous opportunities that lie ahead and for the overall growth of our industry supported by further legalization of the state and federal level.

We’re preparing for the closing of our named acquisitions by building the necessary infrastructure so that we’re ready to go on day one to execute and to drive performance. This will best position us to drive sustainable EBITDA and long-term success.

Moreover, I believe that we're in a stronger position than others, not only because we have a first-mover advantage in Colorado, but also because of our unparalleled team comprised of leaders with decades of cannabis experience and leaders with previous experience executing successful acquisition strategies. We’re fully aligned, incentivized and passionate about the long-term potential of medicine and technologies.

With that, I'd like to thank our investors for their continued support and look forward to sharing updates on business developments, including the completion of our pending acquisitions when appropriate. For now, we would be happy to take the questions.

To ask a question, please click on the link on the Investor Relations portion of our website and submit. Thank you.

Okay. Now begins our question-and-answer portion of the call.

We will start off with the first question that come in thus far. Justin, this question is for you.

Thanks for social distancing measures remaining – will remain in effect through April 30. Why do you think that you will be able to move forward with according to your previous schedule?

Yes, great question. Thank you, Raquel.

We understand that social distancing measures have been extended through the end of April. With that being said, we're still hard at work internally with our acquisition partners to work through the closing activities.

I will tell you, we have not stopped on the work front, so people are working incredibly hard, and I'm really proud of them. Additionally, the MEDs offices are physically closed, but they're still processing applications, paperwork and also approving licenses.

So at this time, we believe we’ll remain on schedule. We're going to continue to work hard towards that schedule.

Thank you.

Thank you, Jonathan. Next question.

How do you believe the cannabis market is reacting during the COVID-19 pandemic?

As we mentioned on the call, we believe the cannabis industry will fair fairly well on the other side of this pandemic. In general conversations with the market, we still see tremendous interest in cannabis and more specifically in our company Medicine Man Technologies.

So, we think canvasses is here to stay and it's an important part of the economy.

Great. Thank you, Justin.

The next question, do you think that an acceleration in sales is purely pantry loading, or do you think that new customers have been brought into the industry and the view of the shelter in place policies?

We – our current retail businesses, so the Big Tomato and on the nutrient side with Success Nutrients, information that we're tracking leads us towards, there's certainly been a build up and certainly pantry loading for a number of our customers. Regarding the consumers, a number of our acquisition partners are anecdotally seeing a mix of long-term consumer stocking up, but also starting to see new customers to ease their nerves and to make life a little easier at home.

So, we're seeing both. So, we're seeing good pickup in terms of demand.

Thanks, Justin. Next question.

How would you characterize your Q4 and 2019 results as expected or better or worse?

I'm proud of the report that we just delivered for the Q4, and for 2019. We're ahead of expectations all areas, but product sales and consulting performed very well for the year and for the fourth quarter.

So we're – I think, we're ahead of the expectations and we look for 2020 to be a historic year for us.

Thanks, Justin. Next question.

How much money are you looking to or needing to raise in order to complete the [periods] of transaction? Will these transactions take the form of cash equity or a combination?

We've shared this with our investors and with the market. Transactions will take form of a combination of cash and equity, which is estimated about a 60/40 at this point.

We've not specifically discussed the total amount of cash or equity needed to close all the acquisitions. So we're not able to do so at this time, but we feel like the acquisitions were in great shape.

We prepared for them and we're very optimistic.

Thank you. Next question, is the MedPharm deal still on the table?

We extended the term sheet for MedPharm, and we continue to do work and do due diligence. We're doing due diligence on a number of our acquisitions and MedPharm being one of them.

Great. Another question that came in, what is the timeline to complete the acquisition?

We're – there's a number of variables that drive when these acquisitions can be completed. I would tell you we're doing everything within our control and doing a very good job of that.

The – I’ll tell you the government at the state and local levels have been very supportive and moving with speed that we're happy with and pleased with. So, I think this – at this time, next report, we're going to have a lot more to say, and we'll have some things certainly have acquisitions under our belt.

And I think we're going to have a very, very busy summer.

Thanks, Justin. A follow-on question of that is, when do you think you will complete the integration process with the acquisition?

Yes. I think we've not laid out specific dates for the market, but I would tell you, we hope to have most of them done by late summer would be our general estimate that things could move up, move back, depending on the various state and local governments approval processes.

But we're optimistic we feel we've been working extraordinarily hard. The team has done a great job coming together.

We're ready to go. Our integration processes in place.

We know exactly what we've got to do, when we've got to do it by our acquisition partners are ready to go. So, I really think we're going to have a good, a really terrific next couple of months.

Great. Thank you.

Justin, we've got time for one more question. So, I'll ask that and then you can wrap it up.

So the question is, management is aligned with shareholders, but how or what has been done to make sure the frontline employees of the acquisition have the same commitment?

Well, we certainly, once we integrate the businesses, we will – we're offering very fair benefits for our employees. They will certainly be incented to help drive the business or there’s going to be a number of career opportunities and growth opportunities within our business as we expand.

So, we're really excited. We see nothing, but great talent in the acquisition companies and we – we’re going to need them.

We're going to continue to grow the business. And we have great hopes and aspirations for folks to take over more responsibility and grow with the company.

So, we expect that in what they've been doing, they're going to continue to do that plus more and we're excited about it. But we're going to have great wages.

We've got a great benefit package, and there'll be lots of career growth and learning opportunities. So people that want to grow and work hard and be a part of something terrific, I think, they're going to be very excited about joining the team.

Great. Thanks, Justin.

That concludes our Q&A portion, if you want to go ahead and wrap up the call.

Very good. Well, we thank, everyone, for being on.

We thank our investors. We thank our employees and very proud of our management team, very proud of our employees for stepping up during these unprecedented times and supporting their employees, families and communities.

So with that, we appreciate everyone's support. We wish you well be safe, and we'll look forward to speaking to you soon via releases, as well as our next earnings announcement.

Thank you very much.