A sizeable hole exists in the CBD market that needs to be addressed, and a lot of money rides on the solution.
The reason is a tale as old as time. A new market gets a lot of rapid attention, the gates burst open, and companies gallop into the fray with their sights on the finish line. In their rush to join the fray, they overlook the setup and proper support systems that help the markets function.
When CBD exploded into the mainstream in the US following the passage of the 2018 Farm Bill, companies and investors alike rushed to the new CBD market. Many were eager to be the first to market with their hemp and product supplies, but their rapidity made for problems down the line in the form of poor crops and a lack of credibility.
For the management at
Alternate Health Corp. (CSE:AHG, OTC:AHGIF, Forum), they quickly realized there was a void to fill. The company had been in the cannabis and CBD business for a few years providing tech and laboratory solutions for the medical cannabis industry when the market for CBD opened up. Seeing the opportunity on hand, both in terms of fewer legal roadblocks and greater options for value-added manufacturing and seeing the opportunity on hand, management decided to double down on the new market.
(Image via Alternate Health)
One of Alternate Health’s biggest strengths, and what made the Company stand out in the world of CBD, was an established network. Using its software program to connect with doctors and clinics around the US, the Company was able to establish and grow a large database of potential clients and end-users for products.
As the Company was transitioning, however, the team started understanding that the medical CBD market was still in its infancy in many ways. Howard Mann, the CEO of Alternate Health, spoke with Stockhouse Editorial about how the Company was able to find a space for itself in the CBD market.
“The farm act here in the United States opened up hemp-based business pretty substantially, and we saw an opportunity. Our goal was to be able to manufacture products of a quality patients would find if they were in a doctor's office with our Electronic Health Record system. Our goal is to empower doctors to make recommendations directly to their patients on the potential benefits of CBD. We're in a very unique position to have a relationship with that physician to be able to supply him with CBD medicine. Most of the ones we work with are relatively familiar with CBD and its medicinal potential, and they can end up either selling directly to patients or referring them to a sales engine we provide.”
With experience in the medical side of cannabis and with the regulatory side of the market, Alternate Health’s management came up with a strategy that was unique for CBD. A lot of people wanted to take part in the market, but far less wanted to put in the effort of obtaining regulatory approval or understanding its benefits. That’s where the Company would create a massive market advantage.
Over the last year, Alternate Health has diligently carried out its strategy. On June 20, the Company announced it
had completed the acquisition of pharmaceutical producer
Blaine Labs Inc. In addition to an existing portfolio of over 50 SKUs that are both FDA-registered and produced in cGMP-certified facilities, the Blaine Labs acquisition also provided Alternate Health with an existing revenue stream through relationships with some of the largest retailers in the US.
Unlike other CBD companies that have to establish relationships with retailers from scratch, Alternate Health is able to leverage Blaine Labs’ existing footprint. The pharma company’s list of retailers includes
Walmart,
Walgreens,
Rite Aid, and
CVS. In 2018 alone,
Blaine Labs generated approximately $14 million in gross revenues from non-CBD products.
(Image via Alternate Health)
Next up for the Company: hemp plants. As the team at Alternate Health worked to produce their own CBD products, ordering hemp from cultivators proved to be troublesome. Not only was it a significant cost, but the rush for growers to hit the market led to poor sourcing of hemp seeds.
That led to the
late September launch of
Alternate CBD, the Company’s own
wholesale CBD distribution line. Based in the Blaine Labs campus in California, the subsidiary works with hemp cultivators to manage the extraction, production, and distribution of hemp biomass, sharing the revenues earned from the final sale.
Compared to other wholesale hemp distributors, Alternate Health has two significant advantages. For starters, the Company’s extensive pharmaceutical experience ensures its products are properly tested and quality assured, and through Blaine Labs the products are packaged according to FDA and cGMP standards. Taking it one step further is Alternate Health’s seed-to-sale tracking system. Through the innovative use of blockchain, the Company can track and trace all transactions in the CBD business cycle, giving it a big advantage in handling product logistics and compliance regulations.
The final piece of the puzzle was a vetted CBD manufacturer, which Alternate Health found in California-based
Mr. Custom White Label (MCWL). On Oct. 30, the Company announced it
signed an agreement to acquire 51% of the private label manufacturer of hemp-derived CBD products and its
product line of over 200 SKUs, including CBD gummies, chocolates, tinctures, and lotions.
(Image via Alternate Health)
Now, the impressive level of Alternate Health’s vertical integration comes to the forefront. Through Alternate CBD, the Company has access to wholesale CBD isolate and distillate. It is then able to directly supply the Company’s CBD manufacturer MCWL and pharma company Blaine Labs with high quality ingredients, which are turned into FDA and cGMP-certified products distributed through a mix of patient networks, online and direct sales, major retailers, and private label contracts.
What elevates the Company even further ahead of its competition, however, is a strong technological foundation. Alternate Health’s foundation in medical blockchain solutions give it a complete system of e-commerce, point-of-sale processing, inventory management, and up-to-date testing and license certification.
(Image via Alternate Health)
Given its robust solutions offerings, Alternate Health made itself attractive for clinics and doctors working in medicinal CBD. This culminated in the Company’s proprietary CanaPass Patient Management System, which is used by clinics for managing CBD patients and licensed producers in a controlled and regulatory compliant method.
Alternate Health has been able to use these connections with clinics to grow its footprint. Through the CanaPass system, the Company works with clinic operators to facilitate CBD sales to a highly targeted database with over 30,000 patients. The program is so successful that a Florida-specific adaptation called FlorPass is the only software system approved by the Florida Department of Health and endorsed by the American Medical Marijuana Physicians Association.
For Alternate Health and its investors, the future is clear. Financially it is supported by a strong existing revenue base from its acquisitions, with its
recent fiscal Q3 results reporting a
year-over-year increase of quarterly revenue from $520,000 to $3.1 million and significant reduction in quarterly operating expenses from $4.9 million to $2.3 million.
Now, with the hard part of putting together the vertically integrated CBD machine behind it, the Company can focus on putting it to work. Through Blaine Labs, Alternate Health has started expanding on its existing products by infusing them with CBD, beginning with a pain cream that it has listed with the FDA. By leveraging its existing retail base and FDA licensing, the Company plans to slowly add more CBD products to the portfolio and directly to retail pharmacy shelves.
(Image via Alternate Health)
Thanks to the combination of its wholesale hemp distribution and CBD product manufacturing, Alternate Health has also generated significant interest from other manufacturers in the market. Mann told Stockhouse Editorial that MCWL and Alternate CBD are set to play pivotal roles in exponentially growing the company in the US and beyond.
“We are out there in discussion with some of the largest CBD manufacturers who are interested in hiring us to do their white label manufacturing. These are groups that do tens of millions of dollars a year in sales, and so their contracts are worth millions of dollars a year. We want to manufacture for them, and then have a series of brands and products that we manufacturer for ourselves. Then we're also joint venturing with companies that have licenses for import in foreign markets, looking to penetrate the European market in fairly short order. As well. As soon as it's online and available moving in the Canadian market, the CBD isolate and distillate sales will probably be a significant revenue stream going forward.”
Perhaps the biggest strength that Alternate Health has for the future, however, is the CBD market itself. The Company established a strong position in the market after getting a good understanding of its operations and where value was missing, but the market still has a lot of room to grow.
Many investors might think that the 2018 Farm Bill was the signal that the CBD market was completely open for business, but operators in the field have quickly realized that instead it signalled a first step. Given CBD’s association with cannabis and the federal restriction on cannabis-derived CBD, as well as the relative recency of the decriminalization of hemp-derived products, the market still has many gates left to open.
That’s why Alternate Health’s business strategy has already started to pay off. Consumption of CBD is estimated to reach 100 million US customers by 2022 only as quality regulations strengthens and customer confidence increases. Doctors are interested in recommending more CBD but need the legitimacy provided by certifications, and the FDA needs established pharmaceuticals with proper operating procedures to start vetting more CBD products.
What’s being described is a potential chain-reaction that will send the CBD market skyrocketing. Companies like Alternate Health that operate in the
right way are the driving forces behind this market wave, and in turn, are positioned alongside it for success.
FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.