The Key to Cannabis Success in the NEW California Market

George Mull knows California cannabis.

A practicing attorney with 25+ years of experience in California’s cannabis industry, he founded the California Cannabis Association. Mull, President of Alternate Health Corp. (CSE: AHG, OTCQB: AHGIF, Forum) has as clear an understanding of California’s cannabis industry as anyone in the sector. He shared this perspective with Stockhouse editorial.

"At the heart of the California cannabis industry are the small-scale cultivators, the mom-and-pop dispensaries and the quality-minded customers. Our business model drives manufacturing and distribution revenues by embracing and connecting these cannabis pioneers in one comprehensive software system, complete with digital logistics and payment technology."

Lots of growth/revenue potential, but highly fragmented. With the still-hostile federal climate for cannabis in the United States and a complex (and evolving) state regulatory structure, this has impeded capital formation. Consequently, the world’s single largest cannabis market is still largely characterized by “mom and pop” operators, with rudimentary business operations.


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Clearly, there is enormous potential in the California cannabis industry. However, capitalizing on this potential requires the right strategy. Complicating this scenario further, a new state code for cannabis cultivation is creating enormous turmoil as industry players endeavor to comply with these stringent regulations. More on this later.

Alternate Health strongly believes it has the right strategy, the right personnel and the right technology to capitalize on this cannabis opportunity. This is a cannabis company (active in this space since 2014) with a heavy software/technology focus. The Company’s largest operational footprint was previously in Florida, where Alternate Health’s operations have been targeting the medicinal cannabis market. AHG’s “FlorPass” platform is the only medical cannabis e-commerce platform that has been approved by the Florida Department of Health.

However, as opportunities expand with respect to the adult-use “recreational” cannabis market, the Company has decided that California presents the greatest near-term opportunities for operational and revenue growth. With a fully developed medicinal cannabis industry in California and an evolving (legal) adult-use market, it wasn’t just the size of this market that attracted Alternate Health, but also the synergies with its own business model.


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Alternate Health’s Founder and CEO, Howard Mann, saw the California cannabis market as being ripe for consolidation. However, as a small-cap corporation, Mann concluded that the best avenue for consolidation was not through an acquisitions-based strategy but via a cooperative business model.

Hub-and-spoke business model

Because of the under-capitalization and fragmentation within California’s cannabis industry, this is still primarily a cash-based industry – a large cash-based industry. There also remains a very significant grey-market cannabis industry in the state, with an estimated $5.7 billion in unregulated sales just in 2016 alone.

This means that for the state government there is also a major problem with lost tax revenues. From both the government end of the industry and the operator level, there was an enormous need for modern software solutions to move this industry into the 21st century. Enter Alternate Health.


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The Company is supplying a software solution for these Mom-and-Pop operators that is a one-stop platform incorporating supply-chain management, retail sales and all other facets of day-to-day operational management. This not only streamlines these operations. It also provides a modern database of revenues that simplifies taxation for the operators and provides a comprehensive database for the state. This assures California’s tax collectors of the legitimacy of the taxes remitted by these small-scale operators. Win, win.

Applying its cannabis-tech expertise, Alternate Health provides the proprietary software for these cultivation operations, obtaining a recurring revenue stream in the process (SaaS). A “win” for AHG’s shareholders. This hub-and-spoke model also extends forward, into the retail side of the industry.

Alternate Health’s software allows (primarily) cash-based dispensaries to move to a deferred-payment model, more in keeping with standard business practices. This streamlines operations further for both cultivators and dispensaries alike, facilitating sales and expansion. But that’s only one portion of the Company’s California Strategy. This is where the consolidation portion of the business model enters the picture.

Alternate Health supplies more than an efficient software platform for these cannabis cultivation operations. It also boasts a centralized manufacturing and distribution facility – the “hub” for all of these cannabis spokes. The Company operates a 14,800 square foot (fully licensed) manufacturing, processing, packaging and distribution facility.

In this cooperative model, the facility serves as a nexus: funneling the cannabis from these cultivation operations in, then distributing both raw cannabis products and manufactured cannabis goods to retailers. More revenue streams.
It’s complete supply-chain management. The Company’s CEO offered investors a famous parallel and also connected the dots on revenue growth.

"While preparing our California cannabis strategy, we asked ‘what makes Walmart, Walmart?’ and ‘what makes Amazon, Amazon?’ We believe the success of every modern distribution market leader is based on the efficiency, security and reliability of its software and supply chain systems."

That’s the overall strategy. This leads to the important regulatory change in California that is reshaping the cannabis industry in this state. California is producing industry-leading standards for cannabis quality control, with a strong focus on the cultivation end of operations.

CEO Howard Mann explained to Stockhouse Editorial that up to 80% of the cannabis currently being cultivated in the state does not meet these new, stringent quality-control regulations. It’s nothing less than a crisis for many cultivators, but from crisis arises opportunity.

The Humboldt Advantage

Once again, George Mull’s knowledge of the California cannabis industry plays into the Company’s strategy. Within California, there is an “Emerald Triangle” known for both its high-quality cannabis and pristine operations. Included within this Emerald Triangle is Humboldt County, a cannabis-friendly local government.


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As a small-cap corporation, Alternate Health isn’t going to consolidate the entire California cannabis industry itself. It chose to launch this business model in Humboldt County. With thousands of small-scale farms within the County, this provides an abundant opportunity to capitalize on Alternate Health’s SaaS solution.

Much of the cannabis grown in this agricultural district is grown in conformance with organic standards by growers who have been instrumental in developing sustainable growing practices in the region, such as permaculture. The Company’s Humboldt County operations have a clear focal point: the massive Greater Los Angeles market for cannabis. Cannabis sales for just this one market are projected to hit $1.6 billion by 2019.

Alternate Health has established its own premium brand of cannabis flower to service this market: Humboldt Ave Kush. With its long cultivation history and counter-culture heritage, this is an easily recognizable brand within the California cannabis market.


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In a state that is already seeing a major supply-crunch, Alternate Health is positioned to consolidate supply from one of the California cannabis industry’s prime cannabis cultivation districts – and into its richest retail market.

Retailing/product development

Adding greater depth to the Company’s California operations (and adding additional value for shareholders), Alternate Health is establishing full vertical integration, with both a retailing and product-development footprint in the state.

On November 20, 2018, Alternate Health announced an agreement to acquire a majority interest in Kare MMJ, a private California cannabis company. Included in this deal is Bionic Bee, billed as “California’s premier flavoured cannabis extract manufacturer.”


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Bionic Bee’s extracts are not only a direct conduit for retail products to the California cannabis markets. These extracts are also inputs for additional cannabis value-added products. Alternate Health is already busy on additional product initiatives.

On the retailing side, Alternate Health also operates a 5,000 square foot facility within Los Angeles, set up for both manufacturing and distribution. This begins with Bionic Bee’s existing product lines.

Then there is REC PIZZA.

Cannabis + Pizza

In researching the California cannabis market, Alternate Health asked consumers a question. What consumer product did they see as the most natural complement to cannabis consumption? The answer was “pizza”.

REC PIZZA is a California chain of pizza, cannabis, and cannabis edibles outlets, with initial locations in Los Angeles and Humboldt County. It’s a software-heavy retail platform that enables in-person or online ordering – with payments made via Alternate Health’s Zi App payment system.


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Bolstering this cannabis + pizza retailing angle, the Company has initiated “aggressive advertising”, combining both endorsements and loyalty-rewards incentives to build this revenue base.

In recent years, many cannabis companies have asked the question: how to succeed in the California cannabis market? To date, only a limited number of cannabis companies have been able to supply a good answer to that question.

Now a different question is being asked in this industry. How do you succeed in the new California cannabis market? As this entire industry scrambles to address issues surrounding new cultivation regulations, Alternate Health is finding opportunity amid this regulatory chaos.

With a comprehensive cannabis strategy, strong positioning and full vertical integration, Alternate Health provides investors with a unique opportunity to gain exposure to this massive cannabis market.


www.alternatehealth.ca




FULL DISCLOSURE: This is a paid article of Stockhouse Publishing.