source: Roy Schultz Northwest Calgary, Calgary, Canada

Updated: Game Changing Growth

GrowLife is growing again but, as always, we want it faster. We must continuously remind ourselves that we are building an industry and not just a company. I have been waiting to complete our first half of the year to blog as a follow-up on the Feb 24th blog posting of 2017 GrowLife Roadmap. However, I cannot continue to watch the market, and especially our sector, decline without speaking up. The bottom line is that our industry is being reshaped by a political tug of war between the Federal Administration and 30 States that have legalized Cannabis. These are growing pains.

In this posting I will address some key questions that have been floating around several bulletin boards about the Company: 
- Where is GrowLife headed? 
- What is the Company’s vision? Why? 
- Why did GrowLife form an advisory board?
 
- When will we have a shareholder meeting? 
- How can shareholders stay best informed?

Where is GrowLife heading?
GrowLife is back to revenue growth and survived the decline of 2015-2016. In the fourth quarter of 2016, we began the recovery with a 50% revenue increase over the previous third quarter of 2016. But, one quarter growth is not enough. The true test is consistent quarter over quarter growth. In the following quarter, Q1 2017, GrowLife grew 57% over Q4 2016. Back to back quarterly growth suggests that we are doing something right. We are.

We are investing in our customers and our team. Reliable and competitive pricing helps our customers manage down their operating costs, which are more important than ever; Great employee benefits allow us to attract and hire the best people in sales; And, management continuity and focus allow us to move faster and smarter than we ever have.

For example, we learned painful yet valuable lessons two years ago when we closed five unprofitable hydroponic brick-and-mortar stores. Today we invest in enhancing our online e-logistics website that enables customers to get their orders faster, better understanding of how to leverage the GrowLife brand with a store-within-a-store business model, lead generation programs that touch thousands of cultivator prospects across the country every week, and a direct sales team that wins over 80% of quotes we put out. These investments are making a difference in our business performance.

Still, two data points do not make a trend. Everyone at GrowLife is working hard every day to deliver constant growth. We are almost through Q2 2017 and aimed at continuing our growth. We are now expanding into Canada and other high growth markets with local dedicated sales people. And, we are also increasing our gross profit. But to paraphrase what I have said in the past: Growth for growth’s sake is not a strategy.

What is the Company’s vision? Why?
Perhaps the most asked question I receive is about GrowLife’s vision and strategic plans. To best understand our vision let’s start with our mission: GrowLife is here to help its customers be successful. We seek to support this mission by focusing on minimizing the operating costs of indoor cultivators of fruits, vegetables and Cannabis so they can better serve their markets.

But, to what end? I can tell you that it’s not about selling cheaper picks and shovels. The reason behind this mission is to support a vision that indoor cultivation is an inevitable necessity and not another gardening alternative. Farming outdoors is cheap because it is a wasteful, destructive and inefficient use of precious resources. Current water, land and harvest cycles are limited and if left unchecked will fail to support the world’s population growth. However, indoor cultivation allows our customers to replicate nature in a controllable manner that uses a fraction of water and land while providing 2–5 times the harvest cycles of outdoor. The challenge is in getting the economics right. Subsidies are not the answer. Even many large-scale indoor grow operations with large capital investments have had a difficult time staying in business because the poor economic models fail to deliver a profit. Fruits and vegetables have limited revenue benefit due to saturated supply from international and domestic growers.

Cannabis on the other hand currently has an attractive revenue model and valuation multiple but modest demand of about 5% of the population due to shadows cast by interstate commerce restrictions, banking issues and threatening federal laws. However, Cannabis laws are not the only expected changes. We must prepare for significantly lower prices if Cannabis is to become a mainstream alternative to beer, wine and other alcohol in the future. Expecting a $12 joint to drop to $1 over the next couple of years is not unreasonable.

Therefore, as an indoor cultivation industry, we must lower production costs to provide local, safer, healthier and affordable food and Cannabis crops. I see this as the game changer: Over time we must support a production cost at 10% of the current price point. This means increasing efficiencies, scaling up production volumes and driving down indoor operating costs. Given this vision of the future, lowering our customer’s production costs serve as our compass to mergers, acquisitions and partnerships.

To profitably achieve such a goal, I see GrowLife building out five strategic pillars. These pillars represent unfulfilled needs, which if capitalized upon, can provide PHOT investors with a lasting diversified portfolio of products and services.

Channel Management (GrowLife Hydroponics): Identify and build distribution channels through our relationships and leverage best practice methodologies to properly target their user segments. Both supply chain management and local retail partnerships will enable greater customer reach across the country and support services that deliver the necessary supplies on a just-in-time basis.

Technology (GrowLife Innovations): Develop the technology partnerships to help with specific solutions. Whether it is lighting, AI monitoring bots, tracking ID, supply chain management or application software, each offering must lower costs. GrowLife can then leverage its experience to minimize much of the risk associated with adopting the most efficient solution.

Data Analysis/Market Segmentation (GrowLifeEco): GrowLife will extend its reach ranging from large commercial cultivators to aspirational novice and caretaker cultivators by leveraging aggregated data from across disparate systems to help companies understand their market demographic and predictive analytics resulting in greater effectiveness of customer acquisition.

Operations Services (GrowLife Retail Licensing): Through GrowLife partners we will continue to help customers be more successful. We support them in doing what they do best while we can help them handle the cost saving nuances of running a business.

Education (GrowLife Cube): GrowLife seeks to provide all levels of education around B2B, B2C and P2P so that we have a self-supporting ecosystem. We are committed to not just providing the fish, but teaching all participants in our community how to fish.

These pillars enable GrowLife to acquire and develop additional offerings that will increase customer efficiencies while lowering our costs. As the market continues to increase and prices drop, we intend to do more than keep pace. GrowLife intends to lead through aggregation of customers and greater cost management for indoor cultivation of Cannabis and food industries.

Why did GrowLife form an advisory board?
GrowLife’s advisory board brings a highly qualified external perspective and priceless expertise to help us gain the unique benefits and advantages needed to support our vision. The advisory board’s independence avoids internal daily pressures and invites unparalleled leadership to game changing initiatives. Our initial four advisory board members include Mr. William Andreozzi, former CTO of Weedmaps; Mr. William Blackburn, CEO of EZ Clone Enterprises Inc.; Mr. Corey Buffkin, founder and Director of Cultivation of Greenman Cannabis; and, Mr. Chris Herghelegiu, investor in several industry-related growing operations.

As I mentioned in their earlier press release, I have known and admired these members and can tell you unequivocally that they have no problem pushing back on me when they disagree. While the Board of Directors have governance and compliance responsibilities, the Advisory Board brings their deep indoor cultivation industry experience in marketing, operations, equipment and technologies to GrowLife. Like many of our customers most of the Board deal with the constantly changing regulatory challenges in the Cannabis industry.

We look at many M&A deals but find few that make sense for GrowLife. To increase our deal flow we need trusted advisors to help review our plans. These advisors must understand the deal domain as well as GrowLife inside out by more than a financial and governance perspective. While we are at the early stage, they have already provided great support.

Mr. William Andreozzi: Bill is a hands-on experienced technology executive that is passionate about leveraging innovative technologies to solve complex problems. He’s the type of person that will help with an idea, scope out the solution, and fearlessly help tackle the challenge.

Mr. William Blackburn: Billy is the creator of the EZ-CLONE Plant Cloning System and Founder/President of EZ-CLONE Enterprises Inc. He has been in the hydroponic industry since 1999, specializing in aeroponic propagation with extensive experience in manufacturing, distribution and retail sales. His latest cloning system (pictured below) can grow over 500 plants in parallel.

Mr. Corey Buffkin: Corey owns and operates licensed marijuana businesses in Colorado, Nevada, and Oregon. One of his indoor operations (pictured below) in Colorado covers almost 120,000 square feet. His industry awards also recognize his production quality; make him well versed in large-scale cultivation and knowledgeable in the retail aspects of the cannabis business.

Greenman Cannabis, Aurora, CO

Mr. Chris Herghelegiu (Herk): Chris brings non-stop energy and experience from a multitude of companies in the cannabis space that he has led and contributed to cultivation, extraction, product development, technology and patient acquisition. He has held different roles in each operation from investor to CEO.

When will we have a shareholder meeting?
We have been postponing holding a shareholder meeting for some time because we have had a hard time justifying the $200,000+ to hold it. The reason the cost is so high is that the broker has identified that PHOT now has about 95,000 shareholders. This being said, we plan to secure the funds and expect to have the shareholder meeting this year. — Meeting is October 23, 2017 at 3:00 PM Pacific @ PHOT HQ: 5400 Carillon Point, Kirkland, WA 98033

How can shareholders stay best informed?
Every quarter we file our quarterly filings six weeks after the close of the quarter. At the end of the year, December 31, we file our annual report within 90 days after our financials are fully audited. What most investors may not be aware of is that I write the Item 2: Management Discussion and Analysis (MDA) section in these filings. I look closely at the developing market we serve, issues and how GrowLife fits in the market. The latest can be found at SEC website under Item 2. Separately, I blog about my perspective on key business issues about every three to six months.

GrowLife is bound by many communication restrictions including putting out too many press releases. In the past I have had to explain the materiality of every single press release since 2012 to address concerns that information was consistently being shared shareholders. As a result GrowLife only puts out information in a broad manner to reach our shareholders and only put out material press releases that are usually tied to SEC 8-K filings and we are conservatively compliant.

For more information about GrowLife, please visit: www.growlifeinc.com. Additional commentary on the Company as well as the industry is also provided on Mr. Hegyi’s blog and notifications are available via Twitter @marcohegyi. Specific financials and corporate actions on GrowLife (PHOT) can be found in the filings at the SEC website.

GrowLife, Inc., press releases and other public statements contain forward-looking statements that are made pursuant to the safe harbor provisions of the Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. By their nature, forward-looking statements and forecasts involve risks and uncertainties related to events dependent on circumstances that will occur in the near future. These statements involve known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from results expressed or implied by forward-looking statements. These risks and uncertainties include, but are not limited to, our ability to obtain rights to distribute and market our products, product availability, demand and market competition, and access to capital markets. For a more complete discussion of the risks to which our is business is subject please see our filings with the SEC. You should independently investigate and fully understand all risks before making any investment decisions in us.

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