cannabis growing business plan
TRANSCRIPT
Business Plan
1
Executive Summary
Project Scope
CannaFarm is a new company which is intending to penetrate
into the cannabis cultivation market, starting with one
greenhouse in California.
CULTIVATION
Own and operate a recreational marijuana cultivation (Rec OPC license) facility in the state of California. Sell high- grade cannabis wholesale to dispensary and edible manufacturers.
Goals
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.
Our mission is to establish an innovative marijuana growing
brand with affordable prices to the residence of Los Angeles
and other Cities in California.
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(2,000)
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10,000
Year 1 Year 2 Year 3 Year 4 Year 5
$0
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Benchmarks
Gross Profit Net Income Operating Expense
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4,000
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8,000
10,000
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18,000
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Year 1 Year 2 Year 3 Year 4 Year 5
$0
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Cash Flow
Operational Cash Flow Ending Period Cash Flow
2
Market
California is one of four U.S. states with legalized recreational
marijuana, and 20 other states have legalized it for medical use only.
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.
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.
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.
Customers
Main customers are dispensaries and manufacturers of edible products and
also whole buyers in the state of California.
Number of Licensed
Retail Marijuana Businesses
as of August 1, 2016
Stores 1,440
Product Manufacturers 798
Testing Facilities 315
Competitors
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
0
5
10
15
20
25
2014 2015 2016(projected)
2020(projected)
IN B
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F D
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National Legal Sales of Cannabis
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 70,000 0 0 0
Security Equipment 30,000 0 0 0
Office Equipment 10,000 0 0 0
CO2 extraction equipment 0 0 0 0
Green Houses 100,000 0 0 0
Building for MIP Equipment 0 0 0 0
Office building 0 0 0 0
Hoop house 0 0 0 0 TOTAL 210,000 0 0 0
OPEX
Direct Costs 0 294,708 2,289,554 3,584,880
Legal Fees & Licensing 30,000 0 0 0
Building maintenance 0 3,000 3,000 3,000
Equipment maintenance 0 0 0 0
Administrative expenses 3,000 3,000 3,000 3,000
Administrative Salaries 30,000 30,000 30,000 30,000
Marketing Campaign 3,000 3,000 3,000 3,000
Brokers and Sellers Fees 0 13,440 120,960 211,200
Community Service, Improvements 0 0 6,000 9,000
Misc. 0 15,000 15,000 15,000 TOTAL 66,000 362,148 2,470,514 3,859,080
Table of Contents Executive Summary .......................................................................................... 1
Project Scope .................................................................................................. 1
Goals ................................................................................................................... 1
Vision/Mission Statement ......................................................................... 1
Market ............................................................................................................... 2
Customers ........................................................................................................ 2
Competitors ..................................................................................................... 2
Start-up Summary ........................................................................................ 3
MARKET OVERVIEW ....................................................................................... 5
Market Overview........................................................................................... 6
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
Assumptions........................................................................................... 15
OPERATIONAL PLAN .................................................................................... 16
Cultivation ..................................................................................................... 17
Greenhouse and Cultivation Design ................................................... 19
Project Plan ................................................................................................... 21
ORGANISATIONAL STRUCTURE & MANAGEMENT ......................... 22
FINANCIAL PROJECTIONS .......................................................................... 24
Profit & Loss Forecast .............................................................................. 25
Cash Flow Statement ................................................................................ 26
Balance Sheet ............................................................................................... 28
Main Ratios ................................................................................................... 30
APPENDICES ..................................................................................................... 32
Financial Statements, monthly ............................................................. 33
BUSINESS PLAN
CannaFarm
MARKET OVERVIEW
6
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
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.
Although the federal government still considers
the use of cannabis a criminal offence, nearly
half the states of America have legalized it in
some form. Most states sell it only for medical
purposes, often broadly defined. But four states
– 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 expensive2.
1 http://www.arcviewmarketresearch.com/ 2 http://www.economist.com/blogs/graphicdetail/2016/02/daily-chart-10
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.
GROWTH FACTORS
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.
TRENDS
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2014 2015 2016(projected)
2020(projected)
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National Legal Sales of Cannabis
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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 use3.
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.
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 years4.
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/
Figure 1. legal status, February 2016
8
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 the 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.
9
Pricing Benchmarks
The simple average (non-
volume 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.
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.
Cannabis Sector Projections
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.
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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
11
BUSINESS PLAN
CannaFarm
STRATEGY & IMPLEMENTATION
12
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 cannabis. 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.
13
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
o stickyguide.com
o www.cannasaver.com
o cannabiscouponcodes.com
o weedealio.com
Advertising and articles in the thematic Magazines, including:
o Dope o Cannabis Now
o 420 Magazine
o Marijuana Venture
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
o Adding fresh content
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
14
Cannabis Directories
WEEDMAP
https://weedmaps.com/earth/us/ca/anaheim/92806
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
https://www.leafly.com/
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.
15
Sales Forecast
Assumptions
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.
First month is October 2016.
Company intends to mix outdoor cultivation from April
to October period and all around year greenhouse
cultivation.
Growth rate for revenue is about 550% for the second
year and about 10% for the third year.
Table 2. Sales Forecast for first three years, $ 000
1 M 2 M 3 M 4 M 5 M 6 M 7 M 8 M 9 M 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
224,000
1,344,000 1,344,000 1,344,000 1,344,000
-
112,000 224,000 280,000 280,000
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
Year 1 Year 2 Year 3 Year 4 Year 5
Outdoor
Greenhouse
16
BUSINESS PLAN
CannaFarm
OPERATIONAL PLAN
17
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 year-
round 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, well-
equipped 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 as 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 status-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
18
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.
November 2016 February 2017 June 2017 October 2017 February 2018 June 2018
Greenhouses 2 2 2 2 2 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.
19
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 the 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 facility 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.
20
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
21
Project Plan
PLAN PLAN
ACTIVITY START DURATION PERIODS (months)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
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 11 2
Flowering Plants, greenhouse growing 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
22
BUSINESS PLAN
CannaFarm
ORGANISATIONAL STRUCTURE &
MANAGEMENT
23
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.
These are the positions that will be available at CannaFarm:
Managing Director
Greenhouse Growers
Outdoor Growers
Trimmers
Packaging Assistants
Sales Representatives
Q1 Y1 Q2 Y1 Q3 Y1 Q4 Y1 Year 1 Year 2 Year 3
Cultivation People 0 4 8 8 4-8 6-10 10
Salaries 0 40,000 110,000 120,000 270,000 490,000 600,000 CO2 Ectraction
People 0 4 4-6 6 Salaries 0 20,000 70,000 90,000 180,000 360,000 360,000
270,000
490,000
600,000
600,000
600,000
180,000
360,000
360,000
360,000
360,000
- 200,000 400,000 600,000 800,000 1,000,000 1,200,000
YEAR 1
YEAR 2
YEAR 3
YEAR 4
YEAR 5
Cultivation Extraction
24
BUSINESS PLAN
CannaFarm
FINANCIAL PROJECTIONS
25
Profit & Loss Forecast
Business’s revenue is projected to grow significantly during first two years’ timeframe. The yearly projections are in the table below:
Table 3. Income Statement, $
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7
Revenue 224,000 1,456,000 1,568,000 1,624,000 1,624,000 1,624,000 1,624,000
Direct Costs 304,193 954,853 951,307 979,307 979,307 979,307 979,307
Gross Profit -80,193 501,147 616,693 644,693 644,693 644,693 644,693 -36% 34% 39% 40% 40% 40% 40%
Operating Expense
Legal Fees & Licensing 10,000 3,333 3,333 3,333 3,333 3,333 3,333
Building maintenance 0 0 0 0 0 0 0
Equipment maintenance 0 0 0 0 0 0 0
Administrative expenses 3,600 3,600 3,600 3,600 3,600 3,600 3,600
Administrative Salaries 0 0 0 0 0 0 0
Community Service, Improvements
1,000 2,400 2,400 2,400 2,400 2,400 2,400
Sales & Marketing 12,400 74,000 79,600 82,400 82,400 82,400 82,400
Misc. 4,500 6,000 6,000 6,000 6,000 6,000 6,000
Total Operating Expense 31,500 89,333 94,933 97,733 97,733 97,733 97,733
Operating Income (EBITDA) -111,693 411,813 521,760 546,960 546,960 546,960 546,960
% of revenue -49.9% 28.3% 33.3% 33.7% 33.7% 33.7% 33.7%
Depreciation and Amortization 24,798 26,143 26,143 26,143 26,143 26,143 26,143
Earnings Before Interest & Taxes (EBIT)
-136,491 385,670 495,617 520,817 520,817 520,817 520,817
Interest Expense 0 0 0 0 0 0 0
Earnings Before Taxes (EBT) -136,491 385,670 495,617 520,817 520,817 520,817 520,817
Income Tax 0 99,672 198,247 208,327 208,327 208,327 208,327
Net Income -136,491 285,999 297,370 312,490 312,490 312,490 312,490
26
Cash Flow Statement
The cash flow projections show that business will have sufficient cash to support the activity. The following table presents a view of projected cash
flow of the business.
Table 4. Cash Flow Statement, $
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7
Net Income -136,491 285,999 297,370 312,490 312,490 312,490 312,490
Cash Flow from Operations
Depreciation 24,798 26,143 26,143 26,143 26,143 26,143 26,143
Change in Receivables
- - - - - - -
Change in Inventory - - - - - - -
Change in Accounts Payable
- - - - - - -
Change in Accrued Expenses
- - - - - - -
Total Cash Flow from Operations
-111,693 312,142 323,513 338,633 338,633 338,633 338,633
Cash Flow from Investing
Capital Expenditures (CAPX)
-183,000 - - - - - -
Other - - - - - - -
Total Cash Flow from Investing
-183,000 - - - - - -
Cash Flow from Financing
Revolver Issuance / (Repayment)
- - - - - - -
Long-Term Debt Issuance / (Repayment)
- - - - - - -
27
New Equity Investments
348,000 - - - - - -
Dividends - - - - - - -
Total Cash Flow from Financing
348,000 - - - - - -
Total Change in Cash 53,307 312,142 323,513 338,633 338,633 338,633 338,633
Beginning Period Cash - 53,307 365,448 688,961 1,027,594 1,366,228 1,704,861
Ending Period Cash 53,307 365,448 688,961 1,027,594 1,366,228 1,704,861 2,043,494
28
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
Cash
53,307
365,448
688,961
1,027,594
1,366,228
1,704,861
2,043,494
Receivables
-
-
-
-
-
-
-
Inventory
-
-
-
-
-
-
-
Total Current Assets
53,307
365,448
688,961
1,027,594
1,366,228
1,704,861
2,043,494
Long Term Assets Property Plant & Equipment
(PPE), gross
183,000
183,000
183,000
183,000
183,000
183,000
183,000 Accumulated Depreciation of
PPE -24,798 -50,940 -77,083 -103,226 -129,369 -155,512 -181,655
PP&E, net 158,202 132,060 105,917 79,774 53,631 27,488 1,345
Total Assets
211,509
497,508
794,878
1,107,368
1,419,859
1,732,349
2,044,839
Liabilities
Current Liabilities
Accounts Payable
-
-
-
-
-
-
-
Accrued Expenses
-
-
-
-
-
-
-
Total Current Liabilities
-
-
-
-
-
-
-
29
Long Term Liabilities
-
-
-
-
-
-
-
Total Liabilities
-
-
-
-
-
-
-
Equity
Founder Common Stock
-
-
-
-
-
-
-
Preferred Stock
-
-
-
-
-
-
-
Current Period Net Income
211,509
497,508
794,878
1,107,368
1,419,859
1,732,349
2,044,839 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
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
30
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 5.1% 16.5% 17.8% 18.5% 14.5%
Asset turnover 4.11 4.08 2.91 2.00 3.27
Profitability
SG&A as % of Sales 40.3% 27.5% 23.1% 22.2% 28.3%
Operating Margin 5.1% 17.9% 22.3% 23.2% 17.1%
31
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 0.0%
Equity to Total Capitalization 100%
Debt to Equity Ratio 0.0%
Cost of Equity
Risk-free rate (2) 2.9%
Market risk Premium (3) 3.5%
Levered Beta (1) 1.21
Size Premium (3) 0.9%
Cost of Equity 8.0%
Cost of Debt
Cost of Debt 0.0%
Taxes 25.0%
After Tax Cost of Debt 0.0%
WACC 8.0%
(1) Obtained from Capital Structure
(2) Interpolated Yield on 10-year Treasury bond
(3) Obtained from PWC market risk study 2014
On the second step we estimated the Present value of cash flow using WACC.
Forecast period
2021 2022 2023 2024 2025
Sales 285,356 318,693 362,327 408,279 460,059
% growth 11.7% 13.7% 12.7% 12.7%
Total costs 103,200 103,200 99,600 99,600 99,600
% sales 36.2% 32.4% 27.5% 24.4% 21.6%
EBITDA 182,156 215,493 262,727 308,679 360,459
% margin 63.8% 67.6% 72.5% 75.6% 78.4%
Depreciation & Amortization:
146,483 146483 146483 146483 146483
% sales 51.3% 46.0% 40.4% 35.9% 31.8%
EBIT 35,673 69,010 116,243 162,196 213,976
Taxes 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
Discount Period 0.5 1.5 2.5 3.5 4.5
Discount Factor 0.96 0.89 0.82 0.76 0.71
Present value of free cash flow
163,171 179,293 207,406 201,627 213,696
32
BUSINESS PLAN
CannaFarm
APPENDICES
33
Financial Statements, monthly