mCig, Inc. (OTCQB:MCIG) Q3 2017 Earnings Conference Call March 7, 2017 4:30 PM ET

Executives

Michael Hawkins – Chief Financial Officer

Paul Rosenberg – Chief Executive Officer

Michael James – Division Manager, mCig Inhalation Technology Division

J. J. Southard – Director Hemp CBD Division

Charlie Fox – Chief Executive Officer, Cannabis Supply Division

Robert Kressa – Director of mCig Construction and Consulting Division

Analysts

Michael Hawkins

Welcome to mCig Shareholder Conference Call. This is Mike Hawkins, the Chief Financial Officer and moderator for today’s call.

Before we begin, let me take the time to thank everyone for joining us, and thank you for your interest in our company. As management, we have grown accustomed to these quarterly updates, and so honored to be able to share with you our visions, our dreams and our accomplishments.

Please note that all the phones are currently on mute, will remain on mute throughout the call. The call is limited to a number of minutes available and we have a lot we want to share you guys. We’ve asked our shareholders to share their questions with us. And a lot of you have written in. We will address those questions throughout the updates on this call. And if we haven’t completely addressed your question, rest assured, we will get to that and ensure we respond to your question.

Before we get started though, there is a couple of things I need to – couple of announcements I need to make. First, any statements we make that do not describe historical facts may constitute forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Any forward-looking statements are made based on current expectations, but are subject to a number of risks and uncertainties.

The factors that could cause actual future results to differ materially from current expectations are incorporated in the company’s Form 10-K and should be reviewed in its entirety.

Throughout the discussion today, we will be mentioning certain non-GAAP disclosures, such as EBITDA and adjusted net income. These terms as the company defines them may not be comparable to the similarly titled measure used by other companies and is not a measure of performance presented in accordance with GAAP. The company uses these terms as a measure of operating performance. These terms should not be considered as a substitute for net income.

I will go ahead and turn the conference call over to mCig’s Chief Executive Officer, Mr. Paul Rosenberg.

Paul Rosenberg

Welcome to the mCig shareholders conference call. This is Paul Rosenberg, mCig’s Chief Executive Officer. Let me start by taking this time to thank all our 30,000-plus investors that has supported us. We are fulfilling our promise to you and all, and will continue to do so.

Joining us today on this conference call is Mike Hawkins, our Chief Financial Officer; Rob Kressa, Director of mCig Construction and Consulting Division; Mike James, Director of the mCig Inhalation Technology Division; J.J. Southard our Hemp, CBD Division Director; and our newest member, Charlie Fox, Manager of the Cannabis Supply Division.

This fiscal year has been the best and most active fiscal year of mCig since its inception and is just the beginning. Our current management team brings with them years of knowledge and experience in their various fields of expertise as pioneers to the cannabis industry. This team has accomplished more in this year than all the previous years combined, and they have laid in foundation and created a clear path of growth and prosperity for mCig’s shareholders and investors well into the future.

We continue to add more personnel on a quarterly basis and expand our services exponentially. The recent addition of the cannabis supply division this current quarter is a continuing promise to keep innovating and supplying the cannabis industry with all the tools they need. We have been very successful year-over-year by developing a strategy of growth by acquisition and firming up revenue lines. We have been aggressive to keep innovating revenues line and maximizing our investments. This last year saw Omni Health investment and partnership, which is strengthening our balance sheet.

We took control last quarter of management of Vapolution, adding inventory and capital stock-ware [ph]. We sold this current quarter the VITACBD brand and website and formed a joint venture with Stony Hill Corp, with both Grow Contractors and Agri-Contractors, which join the Scalable Construction Division into the number one construction and consulting company in cannabis.

And we are constantly were leading our lines to enhance our balance sheet, revenue lines and shareholders volume. The strength of our balance sheet gives us tremendous leverage for future expansion and acquisitions. Some management initiatives as coming up. We constantly will be improving shareholders’ ability and outreach. We have and will commit resources to protect our assets through worldwide trademarks. We will ensure we protect our intellectual property and defend our brands across the globe. And we are expanding our social media outreach. Our future looks better than this than this last record quarter.

At this time, I will go ahead, and let Mr. Hawkins take over and discuss with you our recent financials report.

Michael Hawkins

Thank you, Paul. Last quarter was monumental for mCig, as we blew through the revenue ceiling and bolstered our balance sheet. Everyone should have had chance to read this quarter’s financial report. The $2.1 million combination of $1.3 million in record operating revenues plus a non-recurring accounting revenue gain, which I will discuss in just a few minutes, has generated once again another record-breaking quarter.

The $1.3 million operating income proves to our shareholders and management, we are doing great business and are on the right track. Our current quarter, the final quarter of this fiscal year is on track to be even better and put our full fiscal year revenue at around three times last year’s $1.6 million. We will end our fiscal year with a substantial net earnings.

The company’s net income was approximately $850,000, substantially greater than last year – than last quarter.

Michael James

Yes. Hello, and thank you, Paul and Mike, and all those attending the call today. My name is Mike James, Division Manager for mCig Inhalation Technology Division. This division was previously referred to as and record as mCig’s eCig segment in the recently released financials.

We’ve decided to rename this segment of business to bring it more in line to what we’re trying to achieve. With the recent in-house move with the Vapolution products, we’re expanding our operations within this segment to address the many opportunities that exist within the inhalation product and technology industry, not just the eCig elements.

Now as many of you know, the VitaCig brand was re-launched earlier last year. I’ve had the privilege and opportunity to spearhead that re-launch and I’m happy to update our shareholders on some of the progress and milestones we’ve accomplished since that time.

I’m proud to say, despite some competitors in the market, VitaCig is still the leading and largest brand of its kind in the world. We have partners and distributors throughout Asia, Europe, Canada, South America and in the rest of the world. So we’re excited about that. Largely in part due to the amazing R&D department who has created for us some of the most unique concepts and flavors in the vaping in eCig industry.

We continue to be aggressive with new flavor and product development to not only stay competitive, but to eventually dominate the non-nicotine eCig and eCig technology space. In the next few weeks, we’ll be launching our 12th VitaCig flavor concept called Rejuvenate. Our special spring Rejuvenate edition using natural rose, geranium, jasmine essential oils will be geared towards skin health and renewal.

We have several other unique and proprietary flavors and formulas expected for release this year, but to keep first to market advantage we’ll likely announce those just prior to their release. I encourage everyone to check at the new aesthetics for our VitaCig. Just to differentiate ourselves from the copycats and competitors, we have upgraded from a sticker finish with ash tip to a higher-end rubber-matte paint finish with LED crystal tip. I got to say that it look and feel amazing, so that’s a definite upgrade for us.

mCig’s Inhalation Technology Division continues to see revenue growth and brand expansion here and abroad. So we’ll be officially announcing a new subdivision of VitaCig called VitaCig Español. This newly formed subdivision of VitaCig’s strategic effort will be solely to market and promote VitaCig to nearly 60 million Hispanic Americans in the U.S.

VitaCig Español has already had a soft launch in Florida we started, and we’re seeing tremendous results, very excited about this venture. So, while we continue to grow internationally, as you can see, we’re still dedicated to growing in the USA, we’ve been in contact with the FDA and continue to follow their guidance.

Now, though the FDA hadn’t specifically made any rulings regards to our products, it’s our current position that our non-nicotine, non-tobacco flavored closed system disposable eCigs, they fall outside of the federal eCig regulations. So, which case it’s our determination that we’re free to resell our non-nicotine VitaCigs in the U.S. without fear of FDA regulation or restriction. So that’s huge for us.

We continue to watch what Congress does in Washington. The Cole-Bishop Amendment was adopted by House Appropriations Committee with bipartisan support and was passed by the House of Representatives in 2017 Agricultural Appropriations Bill. Should this bill be adopted then most of mCig’s nicotine products will be grandfathered.

So more can be said regarding mCig’s Inhalation Technology Division, but due to time constraints, I’ll turn it over to you and the moderator. Thank you.

Michael Hawkins

Next, we’re going to hear from our Hemp CBD Director, J. J. Southard.

J. J. Southard

Hello, mCig shareholders. I’m J.J. Southard, and I manage the mCig Hemp CBD Division. I have been very busy in the past quarter within our CBD Division. The most recent announcement of our partnership with Stony Hill is just a beginning of things to come. Since my arrival at mCig, we have spent considerable time developing a quality and competitive brand in VITACBD to stay in line with our mCig portfolio of products.

With strong potential in place for an extremely successful product line, we became aware that a strategic venture bringing together some industry experts in promoting and marketing was essential for a proper deployment of the VITACBD brand. We believe we have found those partners in Stony Hill Corp. Without going into the specifics of the transaction, as our CFO has already done, I want to focus in on the synergies that this joint venture brings to the table and the value it creates for the mCig shareholders.

The VITACBD brand will have some unique support and promotion coming to the market in the very near future with Damian Marley as a controlling partner with the Stony Hill Corp. By working with Stony Hill using the promotional power of the Damian Marley name, we can develop new products more rapidly and have access to new capital to build the brand without diluting our shareholders.

We feel very strong and bullish that the VITACBD brand will see exponential growth in the market during 2017. mCig Hemp CBD Division will continue to explore and develop the vapable hemp market products. mCig will continue to explore profitable ventures in the industrial hemp business realm and will continue its current operating chillcbdoil.com for just Chill products, and the research and development of CBD anti-aging cream and similar products with its partner in Omni Health.

Furthermore, we continue to maintain our brand at Cherry Hemp Oil. We are developing a new vaping product under this brand. Rest assured, while mCig may have entered into a joint venture with Stony Hill over VITACBD, this has not slowed or detered mCig from extending operations within the CBD industry. mCig remains confident that the CBD products in the market today will continue to offer healthy solutions and opportunities. We intend to be a participant in this industry.

Thank you and have a good day.

Michael Hawkins

The next step will be Charlie Fox, our new Cannabis Supply Segment CEO.

Charlie Fox

Thanks, Mike. Hi, everybody. I’m Charles Fox and I’m the new CEO of cannabis supply, a new mCig division. I started out in the cannabis industry as part of one of the first cultivators in Nevada, developing the [body and mind line for Ben Cannabis] [ph] for.

While at Ben, I recognized the importance of branding and how it contributed to our really great success. I also realized how few areas there are for cultivators and production companies, when it comes to unique and efficient packaging. But even more important, that states have stringent requirements, which really demand a service like we provide.

To help customers to develop packaging that’s truly unique to them requires bulk discounts from combining many clients, with personal edge in knowing your client to get custom branding efficiency. This is why we founded Cannabis Supply to provide state compliant packaging at a custom fair price.

mCig executives took over six months evaluating our business line and used comparables of other public companies like Kush Packaging plus recognized our larger-than-standard profit margins. I look to mCig for their vision to expand our services of doing business into neighboring states in the future. That future could have been years. However, now with our association with mCig we see the possibilities.

We are proud to announce that as of February 2017, we are part of the mCig family. With their help and guidance, using their supply chains and databases we feel that we will grow rapidly into surrounding western states and the rest of the country.

We also have a highly successful vape line called Hippy Trips. You can check this at HippyTrips.com. Also the Rollies two-year old brand will be enrolled into my purview to improve its expansion.

Since we are a new division, I expect to have more to say next quarter. But for now, supplying the industry with state required packaging, specialized vape equipment viles for consumption and Rollies is our current review lines. Thanks, everybody, and back to you.

Michael Hawkins

Thanks, Charlie. And now our last speaker will be Rob Kressa, our Construction and Consulting Division.

Robert Kressa

Hello, I’m Rob Kressa, CEO of Grow Contractors. All I can say is that Grow Contractors is crushing it. As Mr. Hawkins pointed out in the financial update, the mCig Construction and Consulting Division has catapulted into the number one segment of mCig operations.

We’ve already exceeded last quarter midway and are well on our way to shattering those numbers. We are also now not just the number one consulting website, but due to our merger most likely the number one contracting group in the cannabis space in the West Coast, but the dominant position in Nevada.

In addition to the imminent closing of several more multiple phase projects, our consulting services are providing multiple ancillary lines of revenues, which lead to larger deals. By working in Nevada, since its beginning in the medical cannabis industry, we followed all the trends of this state from the start. We now know almost 80% of the market players personally, and have turned down smaller jobs to concentrate on the largest most well-funded growers and production facilities.

We receive weekly opportunities to own partner and operate our own facility and operations. And that time is coming soon with changing federal signals.

As a pure play in infrastructure building and consulting, we are considering the top candidate for make a profitable grow in the space, as we’ve done for others. As for our projects, Sin City is on the final interior build out and our contracted work for phase one is finishing this month.

Green Leaf has opted for an early certificate of occupancy, after we fully prepped an entire 30,000 square foot to be ready to install equipment. This will be four phases now, with the first phase of obtaining basic CO as the new first face. We have also brought them Grow staff and employees to our consulting with them.

Solaris is moving forward with no delay, as excavation has started and delivery of the first Sangreen greenhouses is expected next month. We have several smaller deals that are progressing in Oregon for 6,500 square feet and some in Washington, and we will be updating those via Twitter.

Following our spirit of concentrating on and closing the biggest deals, we finished the design contract for a 115 square foot project in Forest Grove, Oregon. We’ve now won the build contract because of our impressive design and pricing. We also won a Nevada project with Acres Farms to start retrofitting 40,000 square feet of greenhouse, and won another Sangreen order from the same group for 80,000 square feet of new greenhouses based on the Solaris design.

We will also be announcing two California indoor growers and the middle operation design-contract we signed. In short, we have a tremendous amount of current and future business to drive revenues and profits even higher than previously announced. Expect another merger of talent, as we take on more projects and have interviewed 10 qualified groups to find the right cultural fit of profitability and performance based achievement. We’re fortunate to have our CEO and CFO come to Nevada, and conduct a review on our current project in January and meet our newest clients.

With more than 60 business professionals attending our social, with the CEO and CFO during their visit demonstrating our deep contacts and commitment to this market. We also spent a week in February doing due diligence on the Sangreen greenhouse. The Solaris is finishing and even managed to sell acres on the Solaris design. We saw over 100 acres of the highest quality greenhouses Sangreen built over the last several years.

With a strong partnership, we reduced the current pricing of greenhouses by a minimum 50% versus the American brand using the same material with large markup gauging the MMJ community. We fully expect to dominate greenhouse sales in the future.

During our recent tours, we also meet with one large multinational bank, which is developing a lending program to further enhance our dominance in the market. All these developments and a few pocket orders we are keeping under wraps will be announced soon.

Add to this, the model for the industry for the most advanced greenhouse in our community, located in Las Vegas and ready to show by July. We deserved and earned our number one position in the space of cannabis construction and consulting. In all, we have the pieces that other groups dream of. Existing construction deal flow for the next three years or more is assured as the large clients we are currently working with have long-term expansion plans. We are go-to consulting firm with knowledge and running a Grow properly and profitably.

Our exclusive greenhouse deal with the best quality and lowest price is working as projected. Finally, with the consolidation of contracting, new deals, institutional backing, mergers, and buy-outs, we have solidified our position and will work hard to exceed all expectations. Nobody is doing it better than us in supplying picks and shovels to the cannabis community and nobody has a better reputation.

Michael Hawkins

It’s for these reasons that the company’s net income was approximately $850,000, substantially greater than the last quarter. We should see better numbers even this quarter. I can remember when I first started almost a year ago, when the number one question I was asked was, when will the ever show a profit. In less than a year, we have all but erased that language from our vocabulary here at mCig. It’s not a matter if or even when, it’s a matter of how much. Our profit margins continue to improve.

One of the major changes in our financial reporting this quarter as compared to last quarter is our segment reporting. As our company’s growth not just internally, but also by adding more investments and divisions in future, in preparation we have revamped them to now provide better insight and quality reporting of operations, Construction and Consulting, Hemp CBD, which includes our proprietary CBD and Chill web sales and our vaporizing technology.

For clarity, we also provided an update to the previous quarters, with the divisional breakouts we are using in this last quarter. As Rob has said, Grow Contractors is by far the leader in revenue and will continue to be so, going on into the future. As managers, we have been debating when to make announcements on these deals since building has many faces like design and planning, permitting and the bigger revenues during actual construction.

Recently we shared a few of those projects that are now entering the build phase on Twitter. The significance of these projects and their respective revenue will appear in our future earnings statements, and will continue to have a deep impact on our performance.

We’ve asked management to define the values, the timeline and the details on each of these new deals over the course of this week and following, so that we can share with our shareholders and keep them in tune with our accomplishments. To be clear, many more announcements are coming on the Construction and Consulting segment.

As Rob said, Paul and I did a trip to Vegas during this past quarter, and we come to find our group is far exceeding our expectations today and far exceeding our predictions for this calendar year. And we now understand that the best growers in Nevada respect our numbers and respect our people out there.

Now our Chill sales have always been consistent on a year-after-year and we are always working towards strengthening our relationship in contract terms with Chill. Although not reflected in this quarter, we are very proud to announce that we added a new partner, who bought 80% of the VITACBD brand to propel its sales positive. We’ve attracted well-known JV partner in Stony Hill Corp., for the purposes of running and promoting our VITACBD website and brand, which we believe is a testament to our company and team.

We value the 200,000 trailing 12 months revenue line with www.vitacbd.com at over 1 million. Giving us an $850,000 sale for 80% of the brand, which provides the Hemp CBD Division working capital to expand, ensure our long-term plays are vibrant in growing CBD markets. We still maintain our proprietary Chill CBD, our Chill website and other CBD partnerships.

With just the first month of the new quarter, VitaCig sales have already doubled our whole third quarter. We are very excited about some upcoming news that we’ll soon be releasing also in the VitaCig arena.

The company had to adjust this quarter’s net profit upward to account for a management takeover of Vapolution, where it’s previously accounted for as a cost basis investment on our financials, which is now accounted for as a fully owned subsidiary ran by our mCig team. As part of this settlement, the company received over $700,000 in stock, cash and inventory as part of the takeover, which was attributed to the Vaporizing Technology Division. A complete explanation of the transactions is detailed throughout the financial report.

We are excited that Omni Health is hiring a public relations firm to get the word out about their product and company. The company’s position in OMHE was approximately $3.5 million at end of the last quarter.

OMHE is turning its filings, and is projected to show approximately $6 million in annual revenue this year. But the pharmacy and their online anti-aging cream lines are a base revenue source to fuel the foundation for their launch of the CBD anti-aging cream.

We are creating and working together on to further propel revenues into the future. Not only will our 76 million shares be a significant asset and future source of revenue, but we look forward to our future partnership as they enter heavily into the Cannabis sector with a revenue source to leverage off of.

During the past quarter, I’ve been tasked by our CEO to evaluate our capitalization structure and reduce our flow. I’m sure some of you have seen the press releases, where we have done just that. This trend will continue and has required much negotiating effort to improve shareholder value.

We also are correcting financial website information to better reflect our company today, and have taken a hard stance against fake news to protect shareholder value. We’ve also gotten more aggressive at protecting our contract from nonperformance, as our industry standing and balance sheet has gotten us more strong and capable of defending ourselves.

So let me finish this mCig shareholder conference call with a final statement that the company is strong. We currently maintain 16 times our current liabilities in cash, current assets and other short-term liquidity items. Our cash position continues to grow. Our sales are higher than ever, and we are profitable. The future of the mCig business is secure. The majority of our $10 million in backlog revenue is performing ahead of schedule, and we continue to expand into new markets and states.

We like to thank everyone for participating in the mCig shareholder and investor conference call. We look forward to speaking with you again and please stay tuned in both our Twitter account and with the PR. We should be releasing some news consistently throughout the next few weeks, updating you on a lot of the projects and the status of the task we’ve taken on as our managers have briefed you here in the shareholder conference call.

Thank you. And we look forward to speaking with you again. This concludes our mCig shareholder conference call.