Business Plan
Executive Summary
Benchmarks 10,000
2,000 1,800
Project Scope
8,000
1,600 1,400
6,000
1,200 0 0 0 $
4,000
1,000 Year 1
Year 2
Year 3
Year 4
Year 5
2,000
Spot on Growers is a well Trained, (30 yrs in the business) Cannabis Growing, Marketing, Cultivating, Genetic decoding team that is looking for an investment Group to Capitallize on the Nationwide Growing Cannabis Cannabis Market.
800 600 400
-
200 (2,000)
Goals Gross Profit
Operating Expense
To build a successful commercial cultivation facility and create a recognizable brand in a rapidly growing industry. To be fully compliant with all state and local municipalities and be primed and ready for national expansion as federal laws adjust and evolve to the benefit of the cannabis industry.
Vision/Mission Statement Our vision is to become the stable and profitable marijuana cultivation company and also expand our facilities to 5 greenhouses.
5,000 4,500 4,000 3,500 0 0 0 $
3,000 2,500 2,000 1,500 1,000 500 -
Our mission is to establish an innovative marijuana growing brand with affordable prices to the residence of Los Angeles and other Cities in California. 1
Executive Summary
Benchmarks 10,000
2,000 1,800
Project Scope
8,000
1,600 1,400
6,000
1,200 0 0 0 $
4,000
1,000 Year 1
Year 2
Year 3
Year 4
Year 5
2,000
Spot on Growers is a well Trained, (30 yrs in the business) Cannabis Growing, Marketing, Cultivating, Genetic decoding team that is looking for an investment Group to Capitallize on the Nationwide Growing Cannabis Cannabis Market.
800 600 400
-
200 (2,000)
Goals Gross Profit
Operating Expense
To build a successful commercial cultivation facility and create a recognizable brand in a rapidly growing industry. To be fully compliant with all state and local municipalities and be primed and ready for national expansion as federal laws adjust and evolve to the benefit of the cannabis industry.
Vision/Mission Statement Our vision is to become the stable and profitable marijuana cultivation company and also expand our facilities to 5 greenhouses.
5,000 4,500 4,000 3,500 0 0 0 $
3,000 2,500 2,000 1,500 1,000 500 -
Our mission is to establish an innovative marijuana growing brand with affordable prices to the residence of Los Angeles and other Cities in California. 1
18,00 0 Year 1
Year 2
Operational Cash Flow
Year 3
Year 4
Year 5
Ending Period Cash Flow
16,00 0 14,00 0 12,00 0 10,00 0 8,000 6,000 4,000 2,000 -
2
Market
Customers
California is one of four U.S. states with legalized recreational marijuana, and 20 other states have legalized it for medical use only.
Main customers are dispensaries and manufacturers of edible products and also whole buyers in the state of California.
In 2015, legal cannabis sales in the U.S. jumped 17% to $5.4 billion, and it is predicted that sales will further grow by a whopping 25% in 2016, reaching an estimated $6.7 billion in total U.S. sales.
Number of Licensed Retail Marijuana Businesses as of August 1, 2016 Stores
National Legal Sales of Cannabis 25
1,440
Product Manufacturers
798
Testing Facilities
315
S R A
20 L L O D
15 F O S N
10 O I
Competitors
L LI
5 B N I
0 2014
2015
2016 (projected)
2020 (projected)
In its fourth edition of The State of Legal Marijuana Markets report, ArcView Market Research predicted that the legal cannabis market would see a whopping $21.8 billion in total annual sales by 2020.
Direct competitors for CannaFarm includes marijuana growers and whole sellers in California and also oil and concentrates manufactures. Number of Licensed Medical Marijuana Businesses as of August 1, 2016 Cultivations
1,801
California saw $996.2 million in legal sales of medical and recreational pot in 2015, according to the Denver Post‘ calculations of tax data reported this week (and throughout 2015) by the state’s Department of Revenue. In 2014, the state’s legal pot vendors sold roughly $699 million of the drug.
3
Start-up Summary The total investment required for the first year that the business starts operating is approximately $250,000: Owners - $115,000 and Loans - $135,000. Initial investments would cover start-up costs and fixed expenses until profit stability is achieved during first year. Table 1. Start-up expenses, $
Expenses
Quarter 1
Quarter 2
Quarter 3
Quarter 4
CAPEX Land & Development Security Equipment Office Equipment CO2 extraction equipment Green Houses Building for MIP Equipment Office building Hoop house TOTAL
70,000 30,000 10,000 0 100,000 0 0 0 210,000
0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0
Direct Costs
0 30,000 0 0 3,000 30,000 3,000 0 0 0 66,000
294,708 0 3,000 0 3,000 30,000 3,000 13,440 0 15,000 362,148
2,289,554 0 3,000 0 3,000 30,000 3,000 120,960 6,000 15,000 2,470,514
3,584,880 0 3,000 0 3,000 30,000 3,000 211,200 9,000 15,000 3,859,080
OPEX Legal Fees & Licensing Building maintenance Equipment maintenance Administrative expenses Administrative Salaries Marketing Campaign Brokers and Sellers Fees Community Service, Improvements Misc. TOTAL
4
Table of Contents
Assumptions........................................................................................... 15 OPERATIONAL PLAN .................................................................................... 16
Executive Summary .......................................................................................... 1
Cultivation ..................................................................................................... 17
Project Scope .................................................................................................. 1
Greenhouse and Cultivation Design ................................................... 19
Goals ................................................................................................................... 1
Project Plan ................................................................................................... 21
Vision/Mission Statement ......................................................................... 1
ORGANISATIONAL STRUCTURE & MANAGEMENT ......................... 22
Market ............................................................................................................... 2
FINANCIAL PROJECTIONS .......................................................................... 24
Customers ........................................................................................................ 2
Profit & Loss Forecast .............................................................................. 25
Competitors.....................................................................................................2
Cash Flow S tatement ................................................................................ 26
Start-up Summary ........................................................................................ 3
Balance Sheet ............................................................................................... 28
MARKET OVERVIEW ....................................................................................... 5
Main Ratios ................................................................................................... 30
Market Overview........................................................................................... 6
APPENDICES ..................................................................................................... 32
Target Market ................................................................................................. 8 Pricing Benchmarks ..................................................................................... 9 Cannabis Sector Projections..................................................................... 9 SWOT Analyses ........................................................................................... 10 STRATEGY & IMPLEMENTATION ........................................................... 11 Online Advertising Obstacles ................................................................ 12 Alternative Online Advertising Options ...................................... 12 Marketing Plan ............................................................................................ 13 Cannabis Directories ........................................................................... 14 Sales Forecast .............................................................................................. 15
Financial Statements, monthly ............................................................. 33
BUSINESS PLAN CannaFarm
MARKET OVERVIEW
GROWTH FACTORS
Market Overview The size of the market for legal marijuana in the United States is projected to grow to $7.1 billion in 2016, that represents 26% growth over the previous year, driven largely by adult recreational sales of marijuana, the researchers found. Legal adult recreational marijuana sales topped $998 million in 2015 compared to $351 million in 2014 – growing 184% year-over-year. Continued revenue growth will attract more
National Legal Sales of Cannabis 25 S R
20 A L L O D
15 F O S N
investors (and convince them to dig deeper for investments). The industry has already begun to see signs of this, such as last year’s news that cannabis-focused Privateer Holdings had secured a $75 million investment from Founders Fund, the firm founded by billionaire Peter Thiel1.
10
O I
Although the federal government still considers B the use of cannabis a criminal offence, nearly 5 N I half the states of America have legalized it in 0 some form. Most states sell it only for medical 2014 2015 2016 2020 purposes, often broadly defined. But four states (projected) (projected) – Alaska, California, Oregon and Washington – and the country's capital have gone further, legalizing the drug’s recreational use. Legal weed is more high-priced than the black market variety, but it is better value: three times more potent, on average, and only about 50% more expensive 2. L
A total of 24 states have already legalized marijuana in some forms. The biggest driver of growth in coming years is the legalization of marijuana in some forms by more states.
TRENDS
L I
1 2
In 2015, legal cannabis sales in the U.S. reached $5.7 billion, a 23% jump from the year before. It is predicted that sales will further grow by a whopping 26% in 2016, reaching an estimated $7.1 billion in total U.S. sales.
http://www.arcviewmarketresearch.com/ http://www.economist.com/blogs/graphicdetail/2016/02/daily-chart-10 6
The industry’s continued expansion was matched by equally strong growth in popular support for cannabis legalization nationally. According to Gallup, 58% of Americans now support legalization of cannabis for adult use, up from 36% in 2005; a separate poll by Harris found 81% of Americans support legalization for medical use 3. Well-established medical cannabis markets in states like California still account for much of the country’s legal marijuana sales, but recreational marijuana sales are expected to help fuel the cannabis market’s soaring growth over the next few years, says ArcView.
Figure 1. legal status, February 2016
It projects that recreational cannabis sales will account for more than half (53%) of the overall market by 2020.
That would represent growth of more than 1,150% for recreational sales over the next four years 4.
3
https://globenewswire.com/news-release/2016/02/01/806392/10159652/en/NEW-REPORT-U-S-Adult-Use-Marijuana-Sales-Up-184.html
4 http://arcviewmarketresearch.com/ 7
Target Market In 1996, California became the first state to allow for medical marijuana use. State voters approved Proposition 215, the law that made it legal for doctors to recommend cannabis to patients. California has 482 cities and 58 counties, all with the power to govern their own medical marijuana industries. The methods they choose vary throughout the state. Some local governments have rules limiting the number of dispensaries and where they can open. Others passed ordinances banning all marijuana cultivation. In California the weather conditions are ideal for cultivating cannabis outside, while a lot of marijuana is also grown indoors in massive warehouses. The state's marketplace is also known for its decades-long experience developing cannabis strains. Third-generation growers and breeders have some unparalleled knowledge of the plant and of the related regulatory environment compared to other states. In the years since medical legalization, consumers have become more educated and sophisticated about products, and t he state's medical market is relatively saturated. Consumers have high expectations for quality, according to ArcView research. In 2015 Gov. Jerry Brown signed three bills that toughened regulations for medical cannabis businesses and sought standards for documentation and testing. The bills are known as the Medical Marijuana Regulation and Safety Act, or MMRSA for short. Collectively, the legislation also paved the way for medical cannabis businesses to turn a profit. The legislation is impacting marijuana business models in other ways.
8
Pricing Benchmarks 2200 2000 1800 d n u
1600 o p / $
1400 1200 1000
Cannabis Sector Projections The simple average (nonvolume weighted) price decreased $96 to $1,884 per pound, with 68% of transactions (one standard deviation) in the $1,351 to $2,417 per pound range. The average deal size increased 27% to 13.7 pounds. In grams, the Spot price was $3.55, and the simple average price was $4.15.
Last week indoor flower spanned from $1,000 to $3,500 per pound; the median price was $2,000. Greenhouse flower spanned from $1,200 to $3,000 per pound; the median price was $1,500. Outdoor flower spanned from $1,000 to $2,000 per pound; the median price was $1,300.
Deal sizes for indoor flower ranged from 0.5 to 100 pounds. Deal sizes for greenhouse flower ranged from 1 to 320 pounds. Deal sizes for outdoor flower ranged from 1 to 200 pounds.
1800 1700 1600 1500 d n u
1400 o p / $
1300 1200 1100 1000
February 2017 Forward assessed at $1,750 per pound. In its fourth edition of The State of Legal Marijuana Markets report, ArcView Market Research predicted that the legal cannabis market would see a whopping $21.8 billion in total annual sales by 2020. ArcView expects the legal marijuana market to show a compound annual growth rate of nearly 30% over the next few years.
All volume weighted prices hit year-to-date lows this week, excluding greenhouse grown flower, which recovered $45 from last, and reached a low of $1,425 per pound the week ending July 15th.
9
SWOT Analyses
S • In California the weather conditions are ideal for cultivating cannabis outside • Diversification of greenhouse cultivation and outdoor cultivation • Greenhouses will alow significantely decrease electricity bills and increase profit while competitive prices
W • Product liability / legal issues • Enhanced risk of banking / financial / IRS scrutiny • Crop loss possibility due to pests, heat, human error, etc. • Difficulties with finding employees. Location is a bit remote and not much depth in local workforce • High energy consumption
O • High growth industry • Trend toward greater cannabis legalization, including the use of cannabis for recreational purposes • Global Market
T • Established direct competitors in the market • A significant drop in wholesale pricing • Enforcement of federal law, uncertainty with president election • Possible California law changing • Indicators of a slowed global economy • Construction / license delays
10
BUSINESS PLAN CannaFarm
STRATEGY & IMPLEMENTATION
11
Online Advertising Obstacles Because cannabis is illegal under federal law, state governments and online advertising platforms are placing strict rules on how companies can market their products. Google, Facebook and Twitter all have advertising policies that restrict the promotion of the sale of cannabi s. Google’s policy prohibits ads that promote “substances that alter mental state for the purpose of recreation.” Facebook restricts any “illegal, prescription, or recreational drugs.” And Twitter bans “illegal drugs” as well as substances that cause “legal highs.” Instagram and Facebook have decided to go a step further by removing pages of cannabis related businesses. Alternative Online Advertising Options Three most effective strategies for legal marijuana companies are direct marketing at industry conferences and other events, building communities around marijuana-related concerns such as health and wellness and aggregating online cannabis publishers, which don’t raise any legal concerns : Mantis. Mantis provides alternative options for advertisers. The model is slightly different – the cost per click prices are set vs. a bid market. But they offer a solid and growing network of sites including The Cannabist, Leafly, The Daily Chronic, and more. Mantis reaches 6 million unique visitors each month. A nice complement to display ads is pay per click content marketing to promote a brand. 420 Network. Marketing themselves as “the advertising network for alternative lifestyle brands”, 420 Network offers both CPC and fixed price advertising options. 420 Click. Offering targeted Pay Per Click ads that display across their network of cannabis related websites, 420 Click can be a great option for getting service in front of an interested audience, and only be charged when someone clicks an ad. The site touts itself as “The Marijuana Advertising Network” and an account can be launched for as little as $10 which makes the risk negligible. Women Grow. Founded in 2014, Women Grow is now the largest national network of cannabis professionals with Monthly Events for women & men in 45 cities across the US & Canada. Cannabrand is a full-service cannabis branding agency, dedicated to the marketing of cannabis products and services.
12
Marketing Plan Marketing and advertising campaign includes: Meeting with whole buyers and dispensaries management E-mail Marketing Promotional directly through special platforms, including: o weedmaps.com o leafly.com stickyguide.com o o www.cannasaver.com cannabiscouponcodes.com o weedealio.com o Advertising and articles in the thematic Magazines, including: o Dope Cannabis Now o o 420 Magazine Marijuana Venture o o MG Magazine Business events and conferences Business and industry associations Website development, Branding appearance development, including mission statement, logo, colors, brochures etc. SEO optimization, focusing on: o Keywords Adding fresh content o o Improving link popularity. AdWords. Testing various keywords to select familiar to topic and at the same time acceptable by Google’s algorithm: green, medicine, 502, infused, relaxing, stimulating, enhanced, alternative therapies, alternative medicine, natural, and others. Mantis, 420 Network, 420 Click
13
Cannabis Directories
WEEDMAP
Marijuana dispensary finder on the planet. With over 7,750 listings throughout the U.S., Canada, and Europe.
WeedMaps has 2.8 million unique visitors each month.
Leafy is a cannabis information resource for finding the right strains and products. Services include: cannabis finder, online store, branding, doctors’ portal.
49,950 unique visitors per day.
https://www.stickyguide.com/bay-area
Medical marijuana dispensary, doctor and medicine directory with reviews.
360,000 unique visitors each month.
https://www.cannasaver.com/
Canna-Saver is website for cannabis and related coupons, devoted to medical marijuana deals and savings. Offers a constant flow of deals and savings from the top cannabis and medical marijuana retailers.
12,000 unique visitors each month.
http://cannabiscouponcodes.com/
Website with cannabis coupon codes.
21,000 unique visitors each month.
https://www.weedealio.com/
Weedealio is one of the known companies in providing the best of the deals related to Marijuana, weed deals and other cannabis products.
53,000 unique visitors each month.
https://weedmaps.com/earth/us/ca/anaheim/92806 LEAFY https://www.leafly.com/
14
Sales Forecast 1,800,000
Assumptions
Outdoor
1,600,000
As growing stage will start from January 2017, sales are projected to be started from the 2017 summer and they will significantly increase from the second year.
Greenhouse
1,400,000
112,000
224,000
280,000
280,000
1,344,000
1,344,000
1,344,000
1,344,000
Year 2
Year 3
Year 4
Year 5
1,200,000 1,000,000
First month is October 2016.
800,000
Company intends to mix outdoor cultivation from April to October period and all around year greenhouse cultivation.
600,000 400,000
-
200,000
Growth rate for revenue is about 550% for the second year and about 10% for the third year.
224,000
Year 1
Table 2. Sales Forecast for first three years, $ 000
1M
2M
3M
4M
5M
6M
7M
8M
9M
10 M
11 M
12 M
Year 1
0
0
0
0
0
0
0
0
0
0
112
112
Year 2
224
112
112
112
112
112
112
112
112
112
112
112
Year 3
336
112
112
112
112
112
112
112
112
112
112
112
15
BUSINESS PLAN CannaFarm
OPERATIONAL PLAN
16
While most businesses in any industry try to keep startup costs as low as possible, that isn’t necessarily the best way to proceed when opening a grow. Creating a cost-efficient cultivation site often involves investing in technology and processes that may result in a big near-term hit. Optimally, our goal is to be able to produce quality cannabis for $1 a gram.
Cultivation The three primary methods of cultivation - outdoor, greenhouse and indoor - have different production profiles. Outdoor cultivators produce one harvest per year in the fall, whereas indoor cultivators produce yearround and can generate between 4 and 6 harvests per year. Greenhouse cultivators combine elements of both - exploiting natural light, while leveraging infrastructure and technology - to produce between 1 and 4 harvests per year, though sophisticated, wellequipped greenhouses can run year-round on schedules analogous to indoor production. The result of this mix of cultivation methods is that growers approach the market differently at different times of the year. Since outdoor cultivators produce one large harvest in the fall, which drives prices down, they tend to release product into the market in a controlled manner - selling enough in the fall to generate cash flow to cover expenses, but holding back inventory to release later in the year a s prices rise. Thus, outdoor cultivators - in general - are price setters in the fall and price takers in late spring and early summer. As noted in the chart, sellers of outdoor grown flower sold lots averaging 33 pounds in January as they were recouping expenses, and then reduced lot sizes to optimize revenue ahead of the next outdoor harvest. What happened next was not characteristic of prior years, and changed the st atus-quo. Outdoor growers encumbered with more inventory than in years past - began to sell larger quantities in June and July, as it became apparent that large quantities of greenhouse grown flower from the first light deprived harvests would be coming to market, potentially creating an oversupply situation. While it remains to be seen if last year’s fall harvest has been fully liquidated, the race by outdoor cultivators to preserve value drove prices down as the first light-deprivation harvests of the year hit the market; the average greenhouse deal size nearly doubled from June to July. The average deal size for 17
indoor growers appears to reflect the conventional experience of reduced yields in the late spring and summer, as cooling and humidity control costs increase and growers shutter portions of their operations until conditions for 100% capacity utilization return, generally in September. The Cons of outdoor growing include: Growing location is government regulated Dry season requires more effort in watering Deer like to eat and destroy if not tended Main indoor cons include: Maintaining proper ventilation is difficult Higher household energy costs Pumped with fertilizers Due to the high energy costs and difficulties with water supplying Company intend to develop marijuana growing business in greenhouses. Those structures are showing an average cost savings of 33% - electric costs for growing marijuana for that way can drop to about $350 a pound. We plan to build 12 greenhouses 3600 sq. ft. each during first 2 years. Greenhouses
November 2016 2
February 2017 2
June 2017 2
October 2017 2
February 2018 2
June 2018 2
Company intends to start with small indoor space, equipped with white-blue vegging light bulbs, for vegetative growth from January 2017 to get first outdoor summer harvest.
18
Greenhouse and Cultivation Design Greenhouses combine the latest technology in HVAC, light deprivation, environmental controls, irrigation, insect exclusion, benching systems, hybrid techniques, and much more to create a systematic and efficient growing approach: 1. The biggest advantage Greenhouse Marijuana Growers have is the abundance of natural light coming into t he greenhouse. Having said that high intensity grow lights are still needed for supplemental lighting if you want to maximize production. 2. While cannabis likes long daylight during the vegetative stage, a good blackout system is required for the best flowering production. 3. Heating and Cooling Systems are an important component of the marijuana greenhouse. Because other components of your greenhouse design affect your heating and cooling requirements it is essential that this is part of your integrated growing solution. 4. CO2 is essential for maximizing the quality and production of Marijuana. Depending on your fuel source, we can set up your boiler to produce CO2 for your greenhouse. When this is not possible, we can design for liquid CO2 injection. 5. Not all grow lights are equal. GGS tests lights for maximizing marijuana yield, depending on your lighting needs GGS can recommend the best LED lights, or when Metal Halide or High-Pressure Sodium lights are better suited. 6. Ventilation is essential as with all greenhouse crops, however marijuana legislation, and local municipality requirements may also impose strict requirements for eliminating exhaust odors. Our integrated growing solutions include air filtration systems where required. 7. Marijuana can be grown hydroponically and there are several different systems for bench growing including flood benches, and trough benches. Marijuana can also be grown in soil with drip irrigation systems. 8. A nutrient management system is essential for maximizing the production yield of the cannabis plants and ensuring consistent and reliable quality. 9. The brains of the complete marijuana growing system whether a greenhouse production f acility or a warehouse grow op is our environmental computer. The computer control systems for a marijuana greenhouse controls and monitor all the nutrients, lights, blackout, air circulation, CO2 and irrigation needs of the plants, it is designed to maintain the exact environment needed for as many different growing zones as you want and can handle different environments for propagation, cloning, flowering and for as many different varieties as you want to control. With our system, all of this can be conveniently run from your smartphone. 10. Our integrated growing solutions are scalable so a small greenhouse growing facility can be expanded to as large an operation as you can imagine.
19
Company will use rolling benches / growing tables which are highly recommended for any commercial cannabis grow operation. They provide up to 50% more plant space by eliminating the need for a dedicated aisle. With a crop as valuable as marijuana, this directly equates to much higher profits and maximum space efficiency. Main features: Aluminum extruded sides and ends Mitre cut corners Hot dipped galvanized steel stands Aluminum cross members Snap together fittings Threaded rods for adjustment up to 12" Top quality plastic or aluminum flood trays 13 gauge expanded metal bench tops 2" diameter rolling tubes
20
Project Plan ACTIVITY
PLAN
PLAN
START
DURATION
PERIODS (months) 1
Company Setting Up
1
1
Security & Office Equipment
2
1
Greenhouses 1-2
2
2
Office Building
3
1
Vegetative Plants, indoor growing
4
7
Building for MIP Equipment
4
2
CO2 extraction equipment
5
1
Greenhouses, 3-4
5
2
Hoop house
6
2
Flowering Plants, indoor growing
6
2
Yield
9
1
Greenhouses 5-6
9
2
Outdoor growing Flowering Plants, greenhouse growing
11
2
11
60
Greenhouses 7-8
13
2
Yield, outdoor summer harvest
14
1
Yield, greenhouses harvest
14
60
Greenhouses, 9-10
17
2
Greenhouses, 11-12
21
2
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
21
BUSINESS PLAN CannaFarm
ORGANISATIONAL STRUCTURE & MANAGEMENT 22
CannaFarm is a business that will be built on a solid foundation. From the outset, we have decided to recruit only qualified people to man various job positions in our company. We are quite aware of the rules and regulations governing the cannabis industry of which medical marijuana growing falls under which is why we decided to recruit experienced and qualify employees as foundational staff of the organization. We hope to leverage on their expertise to build our business brand to be well accepted in the United States.
Managing Director Greenhouse Growers Outdoor Growers Trimmers Packaging Assistants Sales Representatives
360,000
YEAR 4
600,000
360,000
YEAR 3
600,000
360,000
490,000
270, 00
YEAR 1 -
200,000
360,0 0
180,0 0 400,000
600,000
Cultivation
Q1 Y1 Cultivation People Salaries CO2 Ectraction People Salaries
600,000
YEAR 2
These are the positions that will be available at CannaFarm:
YEAR 5
Q2 Y1
Q3 Y1
Q4 Y1
800,000
1,000,000
1,200,000
Extraction
Year 1
Year 2
Year 3
0 0
4 40,000
8 110,000
8 120,000
4-8 270,000
6-10 490,000
10 600,000
0 0
4 20,000
4-6 70,000
6 90,000
180,000
360,000
360,000
23
BUSINESS PLAN CannaFarm
FINANCIAL PROJECTIONS
24
Profit & Loss Forecast Business’s revenue is projected to grow significantly during first two years’ timeframe. The yearly projections are in the ta ble below: Table 3. Income Statement, $
YEAR 1 224,000 304,193 -80,193 -36%
YEAR 2 1,456,000 954,853 501,147 34%
YEAR 3 1,568,000 951,307 616,693 39%
YEAR 4 1,624,000 979,307 644,693 40%
YEAR 5 1,624,000 979,307 644,693 40%
YEAR 6 1,624,000 979,307 644,693 40%
YEAR 7 1,624,000 979,307 644,693 40%
10,000 0 0 3,600 0 1,000
3,333 0 0 3,600 0 2,400
3,333 0 0 3,600 0 2,400
3,333 0 0 3,600 0 2,400
3,333 0 0 3,600 0 2,400
3,333 0 0 3,600 0 2,400
3,333 0 0 3,600 0 2,400
12,400 4,500
74,000 6,000
79,600 6,000
82,400 6,000
82,400 6,000
82,400 6,000
82,400 6,000
31,500
89,333
94,933
97,733
97,733
97,733
97,733
Operating Income (EBITDA) % of revenue
-111,693 -49.9%
411,813 28.3%
521,760 33.3%
546,960 33.7%
546,960 33.7%
546,960 33.7%
546,960 33.7%
Depreciation and Amortization Earnings Before Interest & Taxes (EBIT) Interest Expense Earnings Before Taxes (EBT) Income Tax Net Income
24,798 -136,491
26,143 385,670
26,143 495,617
26,143 520,817
26,143 520,817
26,143 520,817
26,143 520,817
0 -136,491 0 -136,491
0 385,670 99,672 285,999
0 495,617 198,247 297,370
0 520,817 208,327 312,490
0 520,817 208,327 312,490
0 520,817 208,327 312,490
0 520,817 208,327 312,490
Revenue Direct Costs Gross Profit Operating Expense Legal Fees & Licensing Building maintenance Equipment maintenance Administrative expenses Administrative Salaries Community Service, Improvements Sales & Marketing Misc. Total Operating Expense
25
Cash Flow Statement The cash flow projections show that business will have sufficient cash to support the activity. The following table presents a vi ew of projected cash flow of the business. Table 4. Cash Flow Statement, $
Net Income Cash Flow from Operations Depreciation Change in Receivables Change in Inventory Change in Accounts Payable Change in Accrued Expenses Total Cash Flow from Operations Cash Flow from Investing Capital Expenditures (CAPX) Other Total Cash Flow from Investing Cash Flow from Financing Revolver Issuance / (Repayment) Long-Term Debt Issuance / (Repayment)
YEAR 1 -136,491
YEAR 2 285,999
YEAR 3 297,370
YEAR 4 312,490
YEAR 5 312,490
YEAR 6 312,490
YEAR 7 312,490
24,798 -
26,143 -
26,143 -
26,143 -
26,143 -
26,143 -
26,143 -
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-111,693
312,142
323,513
338,633
338,633
338,633
338,633
-183,000
-
-
-
-
-
-
-183,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
26
New Equity Investments Dividends Total Cash Flow from Financing Total Change in Cash Beginning Period Cash Ending Period Cash
348,000
-
-
-
-
-
-
348,000
-
-
-
-
-
-
53,307 53,307
312,142 53,307 365,448
323,513 365,448 688,961
338,633 688,961 1,027,594
338,633 1,027,594 1,366,228
338,633 1,366,228 1,704,861
338,633 1,704,861 2,043,494
27
Balance Sheet The balance sheet shows healthy growth of net worth and strong financial position. Table 5. Balance Sheet, $
YEAR 1
YEAR 2
YEAR 3
YEAR 4
YEAR 5
YEAR 6
YEAR 7
Assets Current Assets 53,307
365,448
688,961
1,027,594
1,366,228
1,704,861
2,043,494
Receivables
-
-
-
-
-
-
-
Inventory
-
-
-
-
-
-
-
53,307
365,448
688,961
1,027,594
1,366,228
1,704,861
2,043,494
183,000
183,000
183,000
183,000
183,000
183,000
183,000
-24,798 158,202
-50,940 132,060
-77,083 105,917
-103,226 79,774
-129,369 53,631
-155,512 27,488
-181,655 1,345
211,509
497,508
794,878
1,107,368
1,419,859
1,732,349
2,044,839
Accounts Payable
-
-
-
-
-
-
-
Accrued Expenses
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Cash
Total Current Assets Long Term Assets Property Plant & Equipment (PPE), gross Accumulated Depreciation of PPE PP&E, net Total Assets Liabilities Current Liabilities
Total Current Liabilities
28
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Founder Common Stock
-
-
-
-
-
-
-
Preferred Stock
-
-
-
-
-
-
-
Current Period Net Income Plus: Prior Period Retained Earnings Current Period Retained Earnings
211,509
497,508
794,878
1,107,368
1,419,859
1,732,349
2,044,839
-
-
-
-
-
-
-
211,509
497,508
794,878
1,107,368
1,419,859
1,732,349
2,044,839
Total Equity
211,509
497,508
794,878
1,107,368
1,419,859
1,732,349
2,044,839
Total Liabilities and Equity
211,509
497,508
794,878
1,107,368
1,419,859
1,732,349
2,044,839
Long Term Liabilities Total Liabilities Equity
29
Main Ratios The return on equity ratio (ROE) measures how much the owner and investors earn for their investment in the company. The higher the ratio percentage, the better return is. In general, financial analysts consider return on equity ratios in the 15-20% range as representing attractive levels of investment quality. As we can see ROE for our project is higher and in average draw up 44%. Return on assets (ROA) gives an idea as to how efficient management is at using its assets to generate earnings. Profitability ratios are a class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. Table 6. Main Ratios for five years
Ratio Analysis
Year 2
Year 3
Year 4
Year 5
Avg.
Return on Equity
21.0%
67.5%
51.8%
37.1%
44.4%
Return on Assets Return on Sales Asset turnover
5.1%
16.5%
17.8%
18.5%
4.11
4.08
2.91
2.00
14.5% 3.27
40.3%
27.5%
23.1%
22.2%
5.1%
17.9%
22.3%
23.2%
Profitability SG&A as % of Sales Operating Margin
28.3% 17.1%
30
On the second step we estimated the Present value of cash flow using WACC.
Business Value The cash flow approach converts future amounts (cash flows) to a single current (discounted) amount. We have used a discounted cash flow (DCF) method, which is applied to equity cash flows. On the first step we calculated the WACC (WEIGHTED AVERAGE COST OF CAPITAL). WACC of a firm increases as the beta and rate of return on equity increases, as an increase in WACC notes a decrease in valuation and a higher risk. WACC Calculation Target Capital Structure (1) Debt to Total Capitalization Equity to Total Capitalization Debt to Equity Ratio
100% 0.0%
Cost of Equity Risk-free rate (2) Market risk Premium (3) Levered Beta (1) Size Premium (3) Cost of Equity
2.9% 3.5% 1.21 0.9% 8.0%
Cost of Debt Cost of Debt Taxes After Tax Cost of Debt WACC
0.0%
2021 285,356
Forecast period 2022 2023 2024 318,69 3 362,327 40 8,279 11.7% 13.7 % 12.7%
Total costs % sales
103,200 36.2%
103,200 32.4%
99,600 27.5%
99,600 24.4%
99,600 21.6%
EBITDA % margin
182,156 63.8%
215,493 67.6%
262,727 72.5%
308,679 75.6%
360,459 78.4%
Depreciation & Amortization: % sales EBIT
146,483
1464 83
146483
146483
146483
51.3% 35,673
46.0% 69,010
40.4% 116,243
35.9% 162,196
31.8% 213,976
0
0
7,687
40,549
53,494
Increase/Decrease in NWC
-12,551
-14,143
-3,386
-3,815
-4,299
Unlevered Free Cash Flow
169,605
201,350
251,654
264,315
302,666
0.5 0.96
1.5 0.89
2.5 0.82
3.5 0.7 6
4.5 0.71
163,171
179,2 93
207,406
2 01,627
213,696
Sales % growth
Taxes
Discount Period Discount Factor Present value of free cash flow
2025 460,059 12.7%
0.0% 25.0% 0.0% 8.0%
(1) Obtained from Capital Structure (2) Interpolated Yield on 10-year Treasury bond (3) Obtained from PWC market risk study 2014
31
BUSINESS PLAN CannaFarm
APPENDICES
32