Dear Stakeholders,

I hope that everyone is having a great start to the new year.

Introduction

Hemptown Organics Corp. (“Hemptown”, or the “Company”) has started the year strong, with our Kirkman business unit producing consistent quarter-over-quarter growth for three quarters in a row and is now operating on a profitable, cash flow positive basis. Hemptown Naturals Inc. (“HTN”) has continued to invest in driving sales of the hemp smoke products, as well as other innovative cannabinoid products derived from hemp. We have seen an increased demand for CBGa and CBDa since the release of research from Oregon State University showing evidence that hemp compounds may prevent coronavirus from entering human cells. The prices of CBDa and CBGa isolates have increased to USD$2500-USD$3000 per litre. We still have plenty of CBG crude and biomass which we intend to process into CBGa to capitalize on this new market.

Kirkman is participating in Innovator Think Tank with Shark Discoveries with Kevin Harrington, an original Shark on Shark Tank. We’re producing a professional advertisement for Kirkman with the goal of reaching the mass market beyond the current consumer base. We’re in the process of updating our labels to include product attributes with features and benefits for each respective product, and we continue to receive great consumer reviews on Amazon. Kirkman will also be launching a new cost-to-serve model that management believes will yield incremental gross and net margin to the company. Visit www.kirkmangroup.com and review company brief for exciting details.

Key Developments

As previously mentioned, one of the more exciting marketing developments this quarter is a co-branded hemp smokeable product with the Trailer Park Boys (“TPB”) that we are co-launching next month at the USA CBD Expo in Fort Lauderdale on March 10-12, 2022.

We have secured a large format booth where we will have the TPB trailer home as our booth. We have created a co-branded pack in a black and gold style reminiscent of Great Gatsby and the roaring twenties. TPB have a large following on Netflix and YouTube made up of our target demographic 18–34-year-old males. Trailer Park Boys will receive a royalty on any products sold under the new joint venture.

Numbers

The Company has finally completed unaudited consolidated annual financial statements for the years ended December 31, 2020 and 2021 in accordance with IFRS achieving revenue milestones of in excess of USD$12M in 2020 and USD$11M in 2021. We have engaged Ben Borgers, CPA to review and audit the consolidated annual financial statements which, due to overwhelming workload, they will not be able to start until April 2022. The Company is also working with US legal counsel to consolidate two of the Company’s US operating subsidiaries to reduce audit complexities and tax liabilities.

Debt Restructuring

The Company is currently negotiating terms to restructure its outstanding convertible debt securities. It intends to effect such changes through amendments of the outstanding securities which require 66 2/3% of the principal amount of the debentures in each series.  We are seeking to, among other things:

  • extend the maturity date of the debentures; and
  • amend the conversion rights so that the Company has the right to force conversion of all debentures, together with accrued interest, into common shares of the Company at the Liquidity Event Price (meaning the price of the common shares to be issued in a public offering or reverse-take-over of the Company, as applicable), provided that, in connection with the Liquidity Event, the Company effects a consolidation of its common shares on a two for one (2:1) basis.

Although many of the convertible debenture holders are disappointed with the time their capital has been tied up, we would like to note that Hemptown will have paid approx. of 37% interest over approx. 3 years, 18% in cash and 19% in new shares including a 10% bonus.The proposed amendments will enable the Company to convert the debentures to equity at the lowest valuation of any previously issued equity other than the founders seed shares.

Fundraising

HTN continues to raise money at $1.40 USD/share via a very successful Reg CF campaign now, with over $2.0m USD raised to date. The point man on the raise is our VP and HTN Director Rick Kurtz Jr. and his head of Corporate Development Michael Kline, both graduates of Pepperdine University in Malibu, California, where they are looking to eventually open a Hemptown USA branded store.

While still in preliminary planning stages, the current retail model being considered is a franchise model, rolling up mom and pop smoke shops under the Hemptown USA brand umbrella in exchange for a professional operating manual and management training program, a consistent corporate image, store design and ongoing marketing campaigns. The stores will pay a small up-front fee and a percent of sales via a royalty as well as exclusively carrying all of our products.

Public Listing – US v Canada

The Company is realizing that the valuation and the investor pool for the Company is much better in the USA where HTN now counts over 1,000 shareholders and has raised over USD$2m over the past year. HTN has been adding nearly 5 new shareholders per day via the Reg CF offering which we have now extended up to USD$5mAssuming that HTN raises the entire USD$5m, Hemptown will retain approximately 90% ownership of HTN. Considering this, we have been in merger discussions with two different US listed entities operating in similar industries that include processing where we have not had a lot of success with various suppliers. Both companies would provide synergies as well as economies of scale where we can have consolidated production, one CEO, one CFO and one listing which we believe would save Hemptown upwards of $1m per annum, which would potentially drop straight to the bottom line.

We have legacy relationships with each entity through both common shareholders and various joint ventures entered into previously. We believe a larger revenue and asset company listed on a US exchange will be able to access cheaper capital at a higher valuation with increased liquidity vs a Canadian listing. The Company is considering terminating the proposed transaction with Spectre Capital Corp. (“Spectre”) which management believes will further save on unnecessary dilution. Although no final decision has been made, we have been in discussions with Spectre management regarding settling the $200,000 advance they have provided the Company.

The Future

As management believes US federal Cannabis legalization is now only a matter of time, it also believes that supporting sales and distribution through branding and marketing are key to capturing a meaningful slice of the combined revenue opportunity that federally legal recreational cannabis legalization will bring to the industry. Having our hemp smokes and blunts in as many stores as possible ahead of legalization is seen as a trojan horse strategy, and by gaining shelf space and consumer brand loyalty, we feel we will be perfectly positioned to capitalize on the considerable opportunity.

Thank You

We appreciate all the continued support that our shareholders and investors have given us over the past years as we work towards an exit strategy. If you have any questions, please do not hesitate to reach out directly to the Company at the contact info provided. The Company will be hosting a webinar for investors and stakeholders on February 23, 2022 at 11am PST with CEO Eric Gripentrog and VP Finance Tariq Rahim. Please click below to register.

REGISTER HERE

Yours most sincerely,

Eric Gripentrog
Chief Executive Officer
Hemptown Organics Corp.

About Hemptown Organics Corp.

Hemptown is a diversified cannabinoid company delivering product offerings across the value chain, in multiple sales channels, to meet the growing global demand for cannabinoid-based products. The team with Fortune 500 experience, are the pillars for Hemptown’s growth model as the Company pushes into the consumer-packaged goods sectors with top quality white label and branded product lines for the consumer market. For more information, visit www.hemptownusa.com

Hemptown Investor Relations

investor@hemptownusa.com

Hemptown Sales and General Inquires

Dennis@hemptownusa.com
1-888-CBG-NOW1 (1-888-224-6691)
Dennis cell 503-970-3618

Disclaimer for Forward-Looking Statements

This letter contains forward-looking statements that involve various risks and uncertainties regarding future events. Such forward-looking statements are based on current expectations of management, involve a number of risks and uncertainties, and are not guarantees of future performance. These statements generally can be identified by the use of forward-looking words such as “may”, “should”, “will”, “could”, “intend”, “estimate”, “plan”, “anticipate”, “expect”, “believe” or “continue”, or the negative thereof or similar variations. Forward-looking statements in this letter include statements regarding the planned processing of CBG crude into CBGa to capitalize on market opportunities; the intention to launch a cost-to-serve model to yield incremental gross and net margin; the proposed launch of a new product with the TPB; anticipated timing of the Company’s audit; intention to consolidate several operating subsidiaries; the restructuring of outstanding debentures on proposed terms and the approval of same; the anticipated percentage that former debenture holders will hold in the Company following the proposed conversion of all such debentures; the anticipation that Hemptown USA will pursue a franchise model as a roll-up strategy; anticipated synergies resulting from a proposed US merger and listing, including anticipated cost savings resulting therefrom; the belief that a larger revenue and asset company will be able to access cheaper capital at a higher valuation; statements regarding a proposed debt settlement with Spectre; the belief that US federal cannabis legalization will occur in the near future; statements regarding a potential exit strategy; and the Company’s strategic and marketing plans for the future. Forward-looking statements are necessarily based on a number of estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties and other factors that may cause actual results and future events to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results or events to differ materially from current expectations include general market conditions, significant business, competitive, political and social risks and other factors beyond the control of the Company. The Company expressly disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.
None of the securities issued in the proposed RTO and related financings will be registered under the United States Securities Act of 1933, as amended (the “1933 Act”), and none may be offered or sold in the United States absent registration or an applicable exemption from the 1933 Act.  This letter shall not constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sale of the securities, in any state where such offer, solicitation or sale would be unlawful.
Unless otherwise explicitly stated, all figures herein are in USD. 
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