Office of the CEO
December 29, 2015
Fellow DigiPath Shareholders:
It has been a year of tremendous progress for DigiPath, Inc. In 2015 we successfully opened our first cannabis testing facility, gained an audience of hundreds of thousands for our cannabis media outlet, and restructured our business units to focus entirely on this rapidly expanding industry. We anticipate that we will reap the rewards of our hard work in 2016—the cannabis sector is about to bloom, and we are ready for the harvest.
2015 in Review
After many months of intensive planning, we opened the flagship location of our cannabis testing unit, DigiPath Labs, in June. We chose the Las Vegas location because Nevada was developing the nation’s most stringent policies on cannabis safety, and our dedication to reliable, replicable testing results fit perfectly with the State’s goals for patient safety.
DigiPath Labs began earning substantive revenue in October, and has now tested more than 250 cannabis flower samples, representing over 1,250 pounds of cured flower from many of the 16 growers now licensed by the State of Nevada. We continue to add new customers as they come online, and work with The Association of Commercial Cannabis Laboratories and the Coalition for Responsible Cannabis Production to instill good laboratory standards and practices around the country.
In 2015 we broadcasted over 50 interviews with luminaries, CEOs, movers, shakers, and decision-makers on our online news and interview program, The National Marijuana News (TNMNews). We grew our audience to over 150,000 listeners per month, and we maintain an active fan base on social media, with more than 124,000 likes on our Facebook page. In July we launched the TNM News app for iPhone and Android, which allows listeners to tune in on the go and even call in to voice their opinions. Our website receives over 400,000 page views each month resulting in the beginning of some ad revenue.
In October, we restructured our business units to focus our resources on expanding our thriving medical cannabis testing and media business units. To that end, DigiPath, Inc., entered into agreements ceding majority control of Digipath Corp., which focuses on digital pathology solutions.
We also named Joe Bianco as our new Chairman of the Board. Joe is a business visionary with great experience in “roll-ups”, including one for which, as CEO, he made a dozen acquisitions and aggregated over $700 million in sales. A graduate of Yale Law School, Joe possesses a wealth of knowledge he gained from both his academic background and his officer and consultant roles at numerous public and private entities. In this new role, Joe will oversee our expansion opportunities, as we seek to replicate the DigiPath Labs model in other cannabis-legal states.
Looking Forward to 2016
We believe the medical and recreational cannabis industries are set to experience explosive growth in 2016. Right now 23 states and Washington, DC, allow the use of medical cannabis, and four states allow recreational adult use. Florida voters will consider legalizing medical use in 2016, and recreational use will likely be decided by voters or legislators in Nevada, California, Arizona, Connecticut, Maine, Massachusetts, Michigan, Missouri, Ohio, Rhode Island, and Vermont.
Just recently, the federal government removed a major obstacle to cannabis use by including a provision in a spending bill that prohibits federal agents from raiding medical marijuana establishments, effectively giving state laws precedence over federal law in this area. Many advocates view this as an important step towards full federal decriminalization.
DigiPath, Inc. has anticipated these trends and is ready to take advantage of the expanded marketplace and friendlier legal conditions.
Nevada has issued 117 cultivator provisional licenses in 2015, and more and more of those entities are becoming operational every month, and we see it increasing in 2016. Every cannabis product sold in the state must be tested. According to the Nevada Department of Public Health, the expected demand in 2016 will be 540,000 pounds, which represents over 100,000 tests. DigiPath Labs has signed contracts with cannabis producers and expects to sign additional contracts with many of the new grow facilities, and as a result, perform a significant number of these tests. If full legalization passes in November, as is expected, the need for testing will soar, and we will be fully prepared to meet demand.
As noted above, we plan on replicating the DigiPath Labs model in other states. Under the leadership of Dr. Cindy Orser, CSO of DigiPath Labs, we hope to open a testing facility in 2016 in Denver. We are also exploring opportunities in other states, including New York, Illinois, and California.
According to GreenWave Advisors, a comprehensive independent research firm focused on the emerging legal cannabis industry, cannabis testing is projected to generate north of $850 million in revenue by 2020. Analysts believe that there will be a little more than five million pounds of marijuana to be tested nation wide in 2020, which – when combined with data analytics, consulting, and other services – could generate more than $850 million.
“It’s an exciting time to be in lab testing, because it’s one of the subsectors within the cannabis industry that we believe is sustainable as laws change,” said GreenWave Advisors Founder Matthew Karnes. “We view this as the most attractive subsector of the industry.”
It has been an incredible year of growth and change for DigiPath, Inc., and we are deeply grateful for your support throughout 2015. We are creating a new paradigm for medical cannabis, and we expect that 2016 will be the year it takes hold nationwide. I thank you, our shareholders, for joining us in this exciting venture, and I expect to keep you updated regularly as we usher DigiPath into its next phase.
Information about Forward-Looking Statements
This letter contains “forward-looking statements” that include information relating to future events, and future financial and operating performance. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in, or suggested by, the forward-looking statements. Important factors that could cause these differences include, but are not limited to: the demand for the Company’s products, governmental regulation of the cannabis industry, the Company’s ability to maintain customer and strategic business relationships, the impact of competitive products and pricing, growth in targeted markets, the adequacy of the Company’s liquidity and financial strength to support its growth, and other risks that may be detailed from time-to-time in the Company’s filings with the United States Securities and Exchange Commission. For a more detailed description of the risk factors and uncertainties affecting DigiPath, please refer to the Company’s recent Securities and Exchange Commission filings, which are available at www.sec.gov. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.