SpeakEasy Provides a Company Update

/THIS NEWS RELEASE IS NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES FOR DISSEMINATION IN THE UNITED STATES/

VANCOUVER, Oct. 15, 2018 /CNW/ - SpeakEasy Cannabis Club Ltd. (CSE: EASY) (Frankfurt: 39H) (the "Company" or "SpeakEasy") a late stage applicant under the Access to Cannabis for Medical Purposes Regulations ("ACMPR"), is pleased to provide a Company update to shareholders.

ABOUT SPEAKEASY

Over the last few months there have been substantive changes in both who we are as a company and the entire cannabis industry. Our goal in writing this business update is to provide investors with insight into our operations and plans.

As a preliminary matter, we want to take this opportunity to respond to the three most commonly asked questions:

Are you a Licensed Producer?

No. We are not currently a licensed producer (an "LP" or "Licensed Producer").  We are an applicant under the AMPCR.  Until we receive the appropriate licenses from Health Canada, we do not have the ability to produce or sell cannabis.

Are you currently growing in preparation for your license?

No. We would never jeopardize our application status with Health Canada. We will not be growing cannabis until we are legally permitted to do so, and then only in compliance with our license.

When do you expect your license?

It is virtually impossible for us to provide any assurances on if or when we will receive our license from Health Canada. The best we can do is tell you where we are in the process. Please see the section of this news release entitled "Licence Process" for more information.

LICENSE PROCESS

Below is a link to the Health Canada website which provides information on the licensing process.

https://www.canada.ca/en/health-canada/services/drugs-medication/cannabis/licensed-producers/application-process-becoming-licensed-producer.html

We applied for our ACMPR license on March 27, 2017

The market for cannabis (including medical marijuana) in Canada is regulated by the Controlled Drugs and Substances Act (Canada) (the "CDSA"), the ACMPR, the Narcotic Control Regulations (Canada) issued pursuant to the CDSA and other applicable laws. Health Canada is the primary regulatory of the industry as a whole. The ACMPR aims to treat cannabis like any other narcotic drug used for medical purposes by creating conditions for a new commercial industry that is responsible for its production and distribution. In order for a person to legally cultivate and sell marijuana for medical purposes in Canada, a person must apply to become a Licensed Producer under the ACMPR.

On May 26, 2017, Health Canada announced significant developments to the licensing process under the ACMPR. As the medical cannabis industry continues to evolve, the Government of Canada has updated its licensing regime in order to streamline the licensing process and enable increased production.

Licenses issued or renewed by Health Canada may now be issued for a three-year period and security clearances may be valid for a five-year term. For pre-licensed applicants, such as SpeakEasy, Health Canada revised its licensing process such that Health Canada will no longer conduct a pre-license inspection in advance of issuing a license to cultivate. Once Health Canada has completed its detailed review of an application and conducted the security clearance process, a license to cultivate will generally be issued. Health Canada also increased its staffing resources and begins its review stage process concurrently with the security screening process to ensure applications are processed faster. Following the changes implemented on May 25, 2017, the application process for becoming a Licensed Producer of cannabis for medical purposes is as follows:

Step 1 - Application Intake and Initial Screening.

When Health Canada receives an application, preliminary screening is conducted to ensure that the application is complete. Any incomplete applications will be returned to the applicant, and complete applications are assigned an application number. The assignment of an application number indicates that the application has completed the assessment. The Initial Screening includes an assessment of: (a) the proposed business plan of the applicant; (b) completion of a security clearance application form; and (c) record-keeping methods pertaining to security, Good Production Practices, inventory, and destruction methods.

Completed

Step 2 - Initiation of Security Clearance Process.

All information submitted to Health Canada, and any other relevant information, is reviewed to: (a) complete the assessment of the application to ensure that it meets the requirements of the ACMPR; (b) establish that the issuance of the licence is not likely to create risks to public health, safety or security, including the risk of cannabis being diverted to an illicit market or use; and (c) establish that there are no other grounds for refusing the application.

We are at the final review stage of this Step 2; however, Health Canada's misplacement of our original background check delayed the process. Health Canada has acknowledged this and placed our background check in "high priority sequence". They have stated our final review will be completed when the background checks have been returned to them, but are unable to provide an estimated date when they will receive them.

In Progress

Step 3 -  Evidence Package Review.

The evidence package review is a process to provide all necessary information to the Health Canada staff that will allow them to make a full analysis of the facility and its readiness for cultivation. License applicants are required to exhibit enough detail of all aspects of physical security and building construction as to allow a full inspection without Health Canada staff visiting the site. Video surveillance showing all areas are submitted to prove there are no locations within the facility or yard that are not continuously monitored. In addition to video surveillance and recording, all physical security systems, their location and proof of operational status by a 3rd party are required. The applicant must also exhibit that all areas within the facility meet ACMPR standards for food safety, showing all surfaces are non-porous and are constructed of food safe materials. Once the evidence package is compiled and sent in, Health Canada staff review all aspects and send questions or requests for clarification. Our evidence package was received by Health Canada March 5^th, 2018, we had three rounds of requests for clarifications. The first request for clarification response was sent March 20^th, 2018, the second April 5^th, 2018 and the third was received by Health Canada staff May 1^st, 2018. We have not received any further requests for clarifications.

Completed

Step  4 - Final Review.

The final review stage combines the application review results, the evidence package review, the background security check results and is submitted as a complete file for analysis. Typically, this is a round table discussion with all relevant Health Canada staff that were involved with the file along with the applicant reviewing everything and answering any additional questions. In August 2018, Speakeasy received correspondence from Health Canada confirming we are in the final review stage, all information has been gathered and when we receive our security background check we will schedule a time to conduct the final review.

SpeakEasy is currently at this stage of the ACMPR licensing process.

Issuance of Licence to Produce

Once Health Canada confirms that the requirements of the ACMPR have been met, and the application successfully completes the Final Review and Security Clearance stage, a licence to produce will be issued.

Step 5 - Introductory Inspection (as cultivation begins).

As part of the terms and conditions of their cultivation license, a Licensed Producer is required to notify Health Canada as cultivation begins. Once notified, Health Canada will schedule an initial inspection to verify that the LP is meeting the requirements of the ACMPR including, but not limited to, the physical security requirements for the site, record-keeping practices and Good Production Practices and to confirm that the activities being conducted by the licensed producer correspond to those indicated on their licence.

Step6 - Pre-Sales Inspection.

If a Licensed Producer wishes to add the activity of sale to their existing licence, an amendment application must be submitted to the Office of Medical Cannabis. Health Canada will then schedule an inspection to verify that the Licensed Producer is meeting the requirements of the ACMPR including, but not limited to, Good Production Practices, packaging, labelling, shipping, and record keeping prior to allowing the sale or provision of product.

Step 7 - Issuance of Licence to Sell.

To complete the assessment of the requirements of the ACMPR and establish that adding the activity of the sale of cannabis products is not likely to create a risk to public health, safety or security, and to confirm that there are no other grounds for refusing the amendment application, Health Canada reviews the results of the pre-sale inspection, the information submitted in the application to add the activity of sale to the License and any other relevant information. When the review is generally completed, an amended licence, including the activity of sale, is issued to the LP which may then begin supplying cannabis products to registered clients, other Licensed Producers and/or other parties named in subsection 22(2) of the ACMPR, depending on the activities licensed. Separate licences may be issued for dried marijuana, plants and/or cannabis oil.

An applicant may be sent back to Step 1 if new information affecting the application is received by Health Canada at Step 2. Further, an application can be refused at any stage in the process before a licence is issued. Licences are only issued once it has been determined that all information submitted demonstrates compliance with the ACMPR and the facility has been built.

ACMPR Licences

The Cultivation Licence.  If received, this will allow SpeakEasy to possess, produce, ship, deliver, process and destroy cannabis, other than marijuana for the purpose of conducting in vitro testing that is necessary to determine the cannabinoid content of marijuana.

The Sales Licence. If received, this will allow SpeakEasy to sell dried marijuana to a registered client of SpeakEasy or an individual who is responsible for the client; another Licensed Producer, the Minister; other parties named in subsection 22(2) of the ACMPR, depending on the activities licensed.

The ACMPR also provide for licenses and import permits relating to fresh marijuana. Speakeasy's licences, if received, will not include this permission. The importation of fresh marijuana requires a separate application and approval by Health Canada.

How many licensed producers are there in Canada?

According to the Health Canada website, link provided below, there are currently 120 producers licenced by Health Canada under the ACMPR.

https://www.canada.ca/en/health-canada/services/drugs-medication/cannabis/licensed-producers/authorized-licensed-producers-medical-purposes.html#a2

In addition, according to the information available on the Heath Canada website, as of May 25, 2017:

• 1665 applications received
• 265 have been refused
• 428 applications are in progress
• 69 have been withdrawn
• 858 were incomplete and have been returned

CONSTRUCTION UPDATE

SpeakEasy has a 10,000 square foot indoor facility located at Rock Creek, British Columbia that it anticipates using for the growth, production and cultivation of small batch cannabis assuming it is successful in obtaining a license to do so from Health Canada.

The Company is also in the process of building its Phase 2, 80,000 square foot expansion facility at Rock Creek, British Columbia.  The following is a point form summary of the current status of construction of the Phase 2 expansion and key milestones achieved to date:

• Foundations cribbed ready for concrete buildings 1 & 2
• Building 1 delivered
• Power upgrades underway
• Transformers delivered
• Waterline upgraded
• All site geotechnical work completed
• Septic system designed, permits pulled, quoted and installer engaged
• WCB / work safe program designed and implemented
• Company construction SOP's completed and implemented
• Contractor and crew camp completed
• Office building completed
• Finalizing Interior design

OUTDOOR PRODUCTION

SpeakEasy anticipates building a Phase 3 outdoor growing facility at Rock Creek, British Columbia.

Speakeasy is planning a 60 acre outdoor plantation on our 290 acre property. A processing facility will be constructed allowing process and storage for the expected 90,000 pound harvest year one and an estimated 180,000 pound harvest in year two when an additional 60 acre field is planted.  We are in the early stage of construction and preparations while we work with Health Canada clarifying rules and regulations for the newly released outdoor production section of the Cannabis Act.    

The following is a point form summary of the current status of construction of the Phase 3 expansion and key milestones achieved to date:

• Dismantled and removed cherry orchard irrigation system
• Perimeter deer fence removed
• Irrigation system upgrades in progress
• Debris removal
• Power upgrades in progress, underground preparation work completed
• Transformers delivered
• Process building foundation excavated
• Building alterations and addition designs in progress
• Research and development of process equipment
• Processing equipment field testing
• Outdoor production license application preparation
• Security design for outdoor plantation and production facility underway

Subject to the Company raising sufficient capital to fund the project and also receiving all required licensing from Health Canada. 

The forward-looking estimates of production for Phase 3 are based on the following material factors and assumptions: (i) 120 acres of land will be utilized when fully built out over the next two years, 60 acres of which is targeted for planting in 2019 plus a 45,000 square foot facility will be constructed to allow processing, drying, extraction and storage of harvest material; (ii) the ratio of dried cannabis cultivated per acre of Phase 3 will be 680 kgs; (iii) costs to construct Phase 3 will be approximately $20,000,000, most of which has yet to be incurred; and Phase 3 is expected to be fully built-out and ready for inspection by Health Canada by Spring of 2019.

OPERATIONAL CHANGES

We recently announced that Anthony Jackson has resigned from the Company's board of the directors (the "Board") and as Chief Financial Officer of the Company.  To fill the vacancy left by Mr. Jackson's resignation, the Board appointed Mervyn Geen, a director of the Company, to the role of Acting Chief Financial Officer. Mr. Geen was the Chairman and Director of Sun-Rype Products Ltd, for nearly two decades until its sale to the Pattison Group in 2013. Brian Peery, the President of SpeakEasy, was added to the Board to fill the vacancy left by Mr. Jackson.

We've also recently appointed Dr. Matthew Brolich to our Board of Advisors. We are thrilled that he has agreed to assist us. We think having someone with Dr. Brolich's expertise and experience in plant genetics will be a key asset going forward. We see genetics in the cannabis as a vital part of future business, be it protecting it, licensing it, or perfecting it, it all centers around genetics.

WHERE WE ARE GOING

A substantial part of the statements that follow are forward-looking in nature and readers are encouraged to review the qualifications and limitations to such disclosure contained under the heading "Statement Regarding Forward-Looking Information" in this news release.  In addition, the Company's ability to execute on the activities described below is dependent on, among other things, SpeakEasy receiving the applicable licenses from Health Canada.  There can be no assurance that SpeakEasy will receive such licenses or the timeframe within which it will receive them, if at all.

Our Growers:

Presently, SpeakEasy is working with five licensed growers located in British Columbia to develop strains of cannabis that we believe will sought out by our customers.  Our growers have demonstrated a successful track record of growing desirable strains of cannabis as evidenced by their sales over the last number of years under the Marijuana for Medical Purposes Regulations, the predecessor regulations to the ACMPR.

Our Property:

Located in British Columbia's 'Golden Mile', our 290-acre property in the South Okanagan Valley is celebrated for its ideal climate conditions. The Geen family, the founders of SpeakEasy, and their ancestors have been farming in the region for more than 120 years.  In addition to the existing land owned by the Company, the Geen family has granted SpeakEasy an option to acquire up to an additional 2,000 acres of land in the region.

Outdoor Opportunities:

Outdoor cannabis production tends to have a lower quality than cannabis grown indoors, where all aspects of the growing cycle can be regulated.  While outdoor growth does not currently align with our principal objective of developing premium cannabis lines, we do believe it can play an integral part of the tinctures, oils and edibles market.  If SpeakEasy ultimately determines to pursue outdoor growing opportunities, the earliest date that we would be in a position to produce a crop would be in the fall of 2019.  

International Possibilities:

While we anticipate that our primary focus will be on the cultivation of cannabis at our Rock Creek, British Columbia location, we would be remiss to believe that the Canadian market is (or will be) the only viable market. Our first and primary concern when looking at international opportunities is to make sure that we are not sacrificing quality for quantity. We have no current plan to be the lowest cost producer, but rather our intention is to strive to deliver a premium, high-quality product that will be enjoyed by discerning consumers.

In the future, SpeakEasy may apply for an export license for its products.  Export permits are issued by the Office of Controlled Substances under the Health Canada umbrella and, in order to qualify for a permit to export cannabis for medical or scientific purposes only, there are a number of steps that SpeakEasy will need to take.  There can be no assurance that SpeakEasy will obtain an export permit and, even if an export permit is obtained, there can be no assurance that we'll be able to sell our products to international consumers.

CONCLUSION

I hope this was informative as to where we've come from, where we are, and would eventually like to be. Our goal every day is to be a company that you can be proud of as well. We are committed to our shareholders first and foremost, and our goal is to build long term value in the company. The only way to do that is to build the business and we hope to keep you as informed as possible as we work at doing just that.

Statement Regarding Forward-Looking Information

This news release contains statements that constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause SpeakEasy's actual results, performance or achievements, or developments in the industry to differ materially from the anticipated results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are statements that are not historical facts and are generally, but not always, identified by the words "expects," "plans," "anticipates," "believes," "intends," "estimates," "projects," "potential" and similar expressions, or that events or conditions "will," "would," "may," "could" or "should" occur.

Forward-looking statements in this document include statements concerning SpeakEasy's intent to obtain licenses under the ACMPR, its intent to produce and sell high quality craft cannabis once it receives a license from Health Canada, its intention to complete construction of its Phase 2 and Phase 3 facilities and the timeframe within which the construction of such facilities will be completed, expectations regarding the growth of cannabis distribution through medical channels, our expectations with respect to the strains of cannabis our growing partners will develop and the demand for same from consumers, our expectations regarding outdoor growth of cannabis and the dates upon which we may be in a position to produce a cannabis crop grown outdoors,  expectations concerning production estimates, our decision to investigate and potentially pursue international opportunities, our intention to focus our business on delivering premium, high-quality cannabis products, the possibility that we may apply for an export permit and seek to export our products outside of Canada,  and all other statements that are not statements of historical fact.

Although SpeakEasy believes the forward-looking information contained in this news release is reasonable based on information available on the date hereof, by their nature forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or other future events, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  By their nature, these statements involve a variety of assumptions, known and unknown risks and uncertainties and other factors, which may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements.

Examples of such assumptions, risks and uncertainties include, without limitation, assumptions, risks and uncertainties associated with general economic conditions; adverse industry events; future legislative and regulatory developments involving cannabis; the Company's ability to access sufficient capital from internal and external sources, and/or inability to access sufficient capital on favorable terms; the cannabis industry in Canada and generally; the ability of SpeakEasy to implement its business strategies; competition; the ability of SpeakEasy to obtain all applicable licenses from Health Canada and other assumptions, risks and uncertainties.

THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS NEWS RELEASE REPRESENTS THE EXPECTATIONS OF THE COMPANY AS OF THE DATE OF THIS NEWS RELEASE AND, ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH DATE. READERS SHOULD NOT PLACE UNDUE IMPORTANCE ON FORWARD-LOOKING INFORMATION AND SHOULD NOT RELY UPON THIS INFORMATION AS OF ANY OTHER DATE. WHILE THE COMPANY MAY ELECT TO, IT DOES NOT UNDERTAKE TO UPDATE THIS INFORMATION AT ANY PARTICULAR TIME EXCEPT AS REQUIRED IN ACCORDANCE WITH APPLICABLE LAWS.

The Canadian Securities Exchange has not approved nor disapproved the contents of this news release.

SOURCE SpeakEasy Cannabis Club Ltd.