Phivida Corporate Update for Fiscal Q3-2018

Phivida Holdings Inc (CSE:VIDA) is pleased to provide a corporate update for the third quarter of fiscal 2018 and a successful transition under the new senior leadership team and is now on track for entering major mainstream commercialization. Key updates include a strong balance sheet and capital structure, positive regulatory shifts in the USA and Canada, a newly evolved board and senior executive team, and a new strategic portfolio of products and brands, comprehensive consumer research, new product development, new brand development visual identity and packaging design and an elevated national route-to-market strategy across the USA.

Key Highlights

• Capital Structure – strong balance sheet with over $15 million CAD cash and no debt or loans
• New Regulations – Farm Bill in US Senate, legalization of recreational cannabis and edibles in Canada
• Board and Executive – Strengthening of corporate governance with new appointments to its Board of Directors and senior executive management team, as well as new dedicated full-time operational roles
• Consumer Research – Extensive consumer market research study on the category, brand, products, target markets, consumer sentiment leading to new brand, packaging and product development initiatives
• Product Development – Based on the results of a consumer insight research, the new senior executive opted to develop six new flavours of CBD enhanced waters and six newly formulated flavours of CBD enhanced iced teas, under a new brand developed with the Sid Lee agency – to be launched in Q3 2018
• Brand Development – Sid Lee was retained as the lead agency of record to develop a new modern beverage brand and market positioning aligned with insights gained from the consumer market research
• Packaging Development – Mr. Brian Schmitt was retained for a creative visionary for the development of a new visual identity and packaging system consistent with the brand platform developed with Sid Lee
• WeedMD-Phivida – Management confirms that the proposed joint venture project (Cannabis Beverages Inc.) between WeedMD (TSX.WMD) and Phivida Holdings Inc. (CSE.VIDA) is still on track and in development. Management reports the cancellation of the Hiku Brands-WeedMD merger has had no material impact to date on the completion of a pending final definitive agreement for the CanBev project.
• Route-to-Market – Due to positive USA legislative developments, the new executive elevated its route-to-market strategy, replacing regional state dispensary distribution with a larger national level mainstream distribution. The new national distribution strategy will focus on major mainstream distributors and brokerage into Natural Specialty & Grocery retail channels, e-commerce and B2B direct to clinics

Capital Structure

The current cash and equivalents is approximately $15.7M million CAD with no debt or loans. Total shares issued and outstanding is 60,177,701 and the total shares on a fully diluted basis is 71,908,914. The company is well capitalized to transition to major mainstream distribution with a solid structure poised for long term growth.

New Regulations

On June 28th the U.S. Senate passed the Agriculture Improvement Act of 2018 (i.e. the “Farm Bill), lifting the USA Industrial Hemp laws to an agricultural commodity status and effectively removed hemp from the controlled substance list. In Canada, the Senate approval of Bill C-45 legalized the production, distribution and use of recreation cannabis – with edibles to be added in 2019. The bill has received Royal Assent and Cannabis will be legal as of October 17, 2018. The Cannabis act creates a legal framework for controlling the production, distribution, sale and possession of cannabis across Canada including cannabinoid infused beverages.

Board and Executive

Mr. Jim Bailey assumed the role of President in addition to his appointment role as Chief Executive Officer (CEO) in March 2018. As the newly appointed President, Mr. Bailey now oversees all operational aspects of the business and back office administration. Mr. George Kovalyov, C.A has stepped down from the Board to for proper corporate governance and financial reporting requirements. Mr. Kovalyov has been appointed to a full-time role of Vice President of Finance and Administration, supported by Chief Financial Officer Mr. Carmelo Marrelli.

Mr. Peter Simeon LLB, an active Phivida Board member, was recently appointed as the Chairman of the Board of Directors. Mr. Simeon has extensive experience in corporate governance and board management and is a partner of Gowlings WLG Law. The company also appointed Mr. Vito Piazza to the Board of Directors. Mr. Piazza is a founding partner of the Toronto office of Sid Lee, a Montreal-based creative advertising agency operating globally representing internationally-recognized brands such as; North Face, Grey Goose and Red Bull.

Earlier in May Phivida appointed Mr. Douglas Campbell as its new Chief Commercial Officer (CCO) to drive new sales revenue growth. Mr. Campbell is the former Director of Sales of Red Bull North America and managed the successful growth of several multinational beverage brands including; Diaego’s Smirnoff, Johnny Walker, Guinness, Baileys brands; Mikes Hard Lemonade (Mark Anthony Group), Brown Forman’s Jack Daniels and Southern Comfort and Stoli Vodka. This appointment is critical in establishing national distribution visa vis a new multichannel mainstream route-to-market strategy, focused on larger national level distributors, replacing the limitations of smaller regional distributors in the state legal cannabis sector, as previously announced.

Under the new CCO, a new Field Sales and Inside Sales Management team has been employed and is now full-time and fully trained on products, services and key target markets. These sales managers will report to the CCO and Director of Clinical Sales operating from a new USA field sales and operations office located in San Diego, California. This office is now open for the management of B2B sales and marketing to alternative health clinics.

The company also recently appointed Mr. Greg McCauley to the Advisory Board. Mr. McCauley brings over 30 years of experience as a sales and marketing executive in the USA beverage industry with brands such as Red Bull and Cytosport (Muscle Milk), serving as Executive Vice President of Sales and Marketing.

As founder, Mr. John Belfontaine continues to serve on the Board and assumed the role of Vice President, Corporate Development, dedicated to managing capital market media, investor relations and market communications. This new appointment provides a full-time executive role to capital market media for more consistent shareholder communications and market updates while the new C-suite executive assumes responsibility for new product and brand development, mainstream national distribution and new sales revenue.

Consumer Research

Under Chief Marketing Officer (CMO) Mr. Michael Cornwell, Phivida commissioned an extensive consumer insight and market research project. The research project was developed to generate insights on both the US functional beverage category and functional beverage consumer.  The primary research project involved both qualitative and quantitative polls and studies that focused on gaining valuable insights into consumers perceptions around the growing functional beverage categories, and the opportunity for hemp derived CBD functional beverages.

Phivida enlisted Seattle-based researcher, The Insight Inn, to perform the consumer research studies. The Phivida executive team has gained insights around target markets, consumer audiences, product development and brand and product communication that will factor into branding, marketing and retail sales promotion strategies. The research initiative is consistent with the Fortune 500 caliber market analysis and was generating invaluable consumer insights for new product development and branding.

Consumers were questioned on top usage occasions, preferred brand names, preferred competitive branding, knowledge and perceptions of CBD and functional beverages, preferred purchase methods, etc. Results from the consumer research report included an 80% approval rating score for the CBD infused Ice Teas and 77% score for CBD infused Enhanced Water. Based on feedback Phivida’s research partner, results above 70% approval are considered exceptional, reinforcing new brand marketing and product development strategy.

Product Development

Based on the insights in the consumer insight study, the new C-Suite executive has opted to develop new lifestyle branded beverages such as flavoured water and evolve the iced teas formulas. These new product lines are targeted to the health and wellness segment and ingredient conscious, “back label” consumers.  Congruent with research findings, the new Phivida executive contracted product formulation services for the development of a new proprietary line of six flavours of CBD infused waters and six flavours of CBD infused iced teas. The previously announced manufacturing of CBD infused vitamin juices and shots for distribution in California were postponed while the production team facilitated the development of these new product lines – to be launched in Q3 2018.

Brand and Packaging

Earlier in the fiscal third quarter, Phivida retained Sid Lee as its creative agency of record. Sid Lee has operational offices in Paris, Toronto, Montreal, Los Angeles and New York and is led globally by its President and newly appointed Phivida board member Mr. Vito Piazza. Phivida has also engaged the services of Mr. Brian Schmitt as the creative lead for new product packaging design and brand visual identity. Mr. Schmitt has extensive experience with globally recognized consumer brands, having worked for Nike and Apple in his career to date.

Under the direction of Chief Marketing Officer, Mr. Michael Cornwell, the Sid Lee agency was employed to use qualitative research to create a new brand positioning for a new range of CBD infused beverages which, in turn, will inform the development of creative content and collateral. Brian Schmitt implemented this brand strategy to guide new packaging design and visual identity to a new brand personality, positioning and aesthetic.

With a world-class advertising agency and designer in place, Phivida anticipates the launching of a new premium creative platform from which to position Phivida as a leader in the mainstream distribution of CBD functional beverages across the USA. Market research strongly supports a belief that newly evolved branded and targeted products will appeal to growing market segments of active, health-conscious consumers and athletes.

Post the launch of the new brands and products, Phivida plans to undertake targeted marketing initiatives to build awareness, interest and trial with the target audience. This will include assertive sampling campaigns, public relations initiatives, events and experiential marketing and partnerships with social influencers, celebrities, athletes, musicians, and other renown opinion leaders to help educate, inform and build trust around new CBD infused products.  The company also intends to build an exciting brand launch marketing campaign around the previously signed top World Surf League athlete Malia Manuel.

WeedMD-Phivida

With the passing of the Bill C-45 and the legalization of cannabis in Canada set for October 17th of 2018, the company’s joint venture with WeedMD Inc., announced on March 8th, 2018 is now progressing. Consolidation in the industry continues to occur with Canopy Growth’s announced acquisition of Hiku Brands (a transaction worth nearly $300 million). This follows Hiku’s Brand’s announcement in April to merge with WeedMD. The proposed merger between Hiku Brands and WeedMD has since been cancelled. The Phivida senior executive reports that the WeedMD-Hiku merger cancellation has had no material impact on expediting completion of a pending definitive agreement with WeedMD to consummate the Cannabis Beverages Inc. (“CanBev”) joint venture.

Upon the completion of a definitive agreement, management of Phivida and WeedMD will begin to design and engineer one of the first federally legal cannabis-infused beverage production facilities in the world. CanBev Inc. has no plans to sell any cannabis-infused products in the U.S. or any other market unless legally permissible.

Management from both WeedMD and Phivida are collaborating on design and engineering strategies and site evaluations on the 610,000 sq. ft. state-of-the art facility in Strathroy for the development of the CanBev joint venture project. As an emerging certified food grade production plant, the Strathroy facility is an ideal location and comes is equipped with extensive production infrastructure, including 50,000 sq. ft. of food production and packaging area, cold storage, loading docks, and adequate space to expand for future growth.

Route-to-Market

Numerous sources of secondary market industry research indicated that CBD-infused products are making significant gains in the Natural Products and Specialty channels. Phivida is poised to penetrate this market as quickly and efficiently as possible with new and updated products and brands.  The opportunity in these channels is significant. The industry research reports that within the Natural Foods and Specialty sector:

• The CBD market is estimated to explode from $360M to $2.1B in 2020 (Hemp Industry Association)
• Hemp-based CBD, such as Phivida’s, is expected make up 25% of total CBD sales $450M by 2020, a 700% growth (Hemp Industry Association)
• Cannabidiol (CBD) and Cannabinoids as functional ingredients in body-care and supplement categories is already showing +300% growth year-over-year (Forbes)

In response to this, the new C-suite executive has evolved route-to-market strategies for its beverage brands, whereby small regional distributors are to be replaced with national distributors. Under the new CCO, the company has shifted to larger distributor, and more modern formulation and co-packing partners for scalability to meet the forecasted growth, while global distribution partnerships and logistics continue to be developed.

Notes from the CEO

“We could not be more excited about the near term as we approach the commercialization of a newly evolved platform of CBD-infused beverages and hemp derived oil products,” says Phivida President and CEO, Jim Bailey. “We have made great strides in the past quarter by developing the board and executive, assigning new dedicated operational roles, commissioning consumer research, new product and brand development and preparing for a major shift into mainstream national distribution across the USA. Phivida continues to focus on growth markets and lifestyle and aspirational trends, while evolving and modernizing our strategic product mix and brand portfolio to ensure that Phivida’s offerings resonate with current and future consumers in key retail and clinical markets.”

Phivida Holdings Inc.

Phivida infuses CBD derived from Hemp into functional foods, beverages and clinical health products. Phivida uses encapsulated cannabinoid oils and extracts into water soluble form, enhancing bioavailability, and timed released within the body. Phivida’s CBD is infused into beverages, foods and supplements containing a proprietary blend of phytonutraceuticals studied to target a range of health conditions, from chronic pain, treatment of stress and anxiety to reducing inflammation in the body. The World Anti-Doping Association’s recently lifted a ban of CBD from hemp oil and the World Health Organization’s recent statement supports clinical benefits of CBD for athletes and active families. Celebrating; Health and Wellness, In Harmony™, Phivida’s vision is to lead the market as the benchmark quality standard in premium CBD infused foods, beverages and clinical products, with a dedication to research, education and investing back into the communities which we so proudly serve. Phivida [“fiii-vee-daa”] is a publicly traded company listed on the Canadian Securities Exchange under the ticker symbol “VIDA” and on the OTC Markets as “PHVAF”.

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