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From: Michelle Sides, Chairman, Chief Operating Officer and Shareholder
It has become apparent that the Company needs to pause momentarily and address the concerns of a number of our valued shareholders that have been posed to us from the numerous emails, postings, phone calls and the like as it pertains to the recent blog articles on MJNA. These attacks, led by a collective group of individuals with personal motives have led to uncertainty within our shareholder base. Shareholders have also expressed concerns on the failure of management to address those accusations on a more diligent basis. I will begin with a brief overview of where the Company is headed and then directly address the questions that have been presented.
Medical Marijuana Inc., is in the business of researching, developing, investing and selling products and services within the legal medicinal cannabis and industrial hemp industries. Over the past few years the Company has gone to great lengths and our team has worked tirelessly to develop innovative affective products, create supply chains that prior to our development and team's expertise did not exist. We have had to effectively navigate an ever changing legal and political environment at home and abroad, changes that have and have not affected the Company. We have had to decide which businesses, brands and products to invest in and develop, seeking legal guidance on the related matters, all while allowing us to comply with the United States and other countries' laws we operate in. The cannabis industry is ever evolving and constantly on the move politically and within the context of products (both medicinal and not).
The Company has chosen several paths to focus on. The first is our hemp based consumer products such as Dixie Botanicals (
www.dixiebotanicals.com ) and our CanChew Gum (
www.CanChewgum.com ). The second is on the raw ingredients supply chain with the development of PhytoSPHERE Systems (
www.phytospheresystems.com ) and its hemp production capabilities. Prior to our development and production of Phytosphere, the raw ingredients markets for our products did not exist. The third is actively and aggressively pursuing additional investments in companies that are in our core competency, such as our recent investment in KannaLife Sciences, Inc. ("KannaLife"). KannaLife holds an exclusive license agreement with the National Institutes of Health – Office of Technology Transfer ("NIH-OTT") for the commercialization of U.S. Patent 6,630,507, "Cannabinoids as Antioxidants and Neuroprotectants" (the "'507 Patent"). The 507 Patent includes among other things, claims directed to a method of treating diseases caused by oxidative stress by administering a therapeutically effective amount of a non-psychoactive cannabinoid that has substantially no binding to the NMDA receptor. KannaLife intends to move forward with its commercial development plan, and design a novel new drug compound for the treatment of Hepatic Encephalopathy (HE). The fourth is in the product sales, marketing and distribution pipelines for our products and within our products space. Prior to the Company's investments there was not an overall hemp based products distribution platform. Our team has spent years developing its distribution pipeline and developing the online properties the Company is in the process of launching, this includes more than 3000 online sales and informational sites that are keyword based and being developed. These properties will lead to the Company's overall sales, marketing and branding success.
CONTROLS AND COMPLIANCE
As new management was put in place at the end of March 2011, we have faced considerable obstacles such as: the present DTC Chill; short sellers who have made it a priority to relentlessly attack our Company as well as its executives for their own personal monetary gains; delays in reporting; individuals who do not like our industry as a whole and difficulties in getting products launched. Even in this volatile atmosphere and challenges, we are excited about what we have accomplished and where the company is headed. The MJNA team works literally 24/7 to accomplish these business goals and we have surrounded ourselves with professionals who are experts in their fields to ensure that what is being done is being accomplished the right way. There are times this may cause a brief unanticipated delay – waiting for legal opinion letters, product marketing approvals, auditor schedule and legal guidance, but we will do what is required to protect MJNA shareholder interest. We have created an incredible opportunity with unlimited possibilities. We would like to emphasize that all of these activities are carried on in the most ethical and transparent way and with the primary objective of developing and delivering to the public the most effective, innovative products based on medicinal cannabis.
FINANCIALS AND PHYTOSPHERE SYSTEMS TRANSACTION
There have been some questions with regards to the CannaVEST transaction with Phytosphere Systems. The current status of this transaction is as follows: MJNA currently owns and has owned 80% of Phytosphere Systems, which is a global phytocannabinoid biotechnology company specializing in the production of hemp based compounds, oils and extracts. These include Cannabidiol (CBD), Cannabidiol-Acid (CBD-A), Cannabigerol (CBG) and Cannabigerol-Acid (CBG-A) as well as other beneficial cannabinoids, terpenoids and flavinoids. The Phytosphere Systems is also developing a pipeline of Terpenoids and flavinoids. As part of the company's refocusing of management, time and capital, we decided to streamline our business focus. Prior to Phytosphere, these pipelines of products did not exist in any large quantity or steady supply. Since then, we have been able to sign an exclusive license with CannaVest Corp, which would allow MJNA the benefit of its steady pipeline, while no longer having to deal with the day to day operating challenges. The company operates in five countries and three continents. Along with the licensing agreement, the Company agreed to sell its excess inventory as well as the contracts, subcontractors and production capabilities to CannaVest as part of the transaction. This again allows the Company to no longer have to deal with the day to day operations, legal, export, import, licensing, continued development, considerable financial investments, staffing and costs associated with the logistics of the business while still owning 80% of Phytosphere. CannaVest provides the raw ingredients to the Company for the same price MJNA received prior to the execution of the license agreement. Once Phytosphere's production increases and creates a decrease in the cost of production, a drastic price reduction will be made available to MJNA and its subsidiaries. This obviously will lead to significantly increased profitability for MJNA and its shareholders. The payment structure is as follows: CannaVest is paying MJNA $35 million through the end of 2013. The payments can be made in stock or cash, or a combination of both (please look at legal disclosure for exact terms). If CannaVest pays in stock, MJNA becomes the majority shareholder in CannaVest and gets to realize a cost savings in production, while also the increase in value it may get from the continued growth of the brand. If CannaVest pays in cash, MJNA realizes a substantial increase in its cash position. To date MJNA received in the 4
th quarter a $4.5m dollar payment in CannaVest stock payment towards its licensing obligation, and as disclosed in subsequent filings, the Company has also received $4.5m and a $1.5m payment in stock from CannaVest, for a total stock payment of $10.5m towards licensing and partial inventory. The first payment of $4.5mil was 100% credited as licensing, the second and third installments are credited as an inventory purchase. The details of the transaction will be addressed in our first quarter filings, on or before May 15, 2013. The balance of the $24.5m payments\consideration will be broken up between inventory purchases first, then against the production contracts and the agricultural production team that was acquired by CannaVest as part of the transaction.
In conclusion, we feel very positive about the transaction with CannaVest. As it pertains to MJNA, we are able to maintain our cost for raw materials through an exclusive licensing agreement, and over time decrease our costs of raw materials while increasing our profit margins. This will decrease our operating expenses by over $10 million this year alone (which encompasses the cost of our next production run, new equipment, leasing and expansion), free our cash flow up for additional product launches, and no longer have the day to day managerial and operational burdens related to raw material procurements. Our team and I have been working tirelessly 7 days a week to create this raw ingredients pipeline and now that it is built we no longer have to keep up that pace, we can use that time to devote to our consumer products and clinical development.
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