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Cannabis growing business plan

  1. 1. Business Plan
  2. 2.1 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. - 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 (2,000) - 2,000 4,000 6,000 8,000 10,000 Year 1 Year 2 Year 3 Year 4 Year 5 $000 Benchmarks Gross Profit Net Income Operating Expense - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 - 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 Year 1 Year 2 Year 3 Year 4 Year 5 $000 Cash Flow Operational Cash Flow Ending Period Cash Flow
  3. 3.2 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) INBILLIONSOFDOLLARS National Legal Sales of Cannabis
  4. 4.3 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
  5. 5.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
  6. 6.BUSINESS PLAN CannaFarm MARKET OVERVIEW
  7. 7.6 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 0 5 10 15 20 25 2014 2015 2016 (projected) 2020 (projected) INBILLIONSOFDOLLARS National Legal Sales of Cannabis
  8. 8.7 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
  9. 9.8 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.
  10. 10.9 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. 1000 1200 1400 1600 1800 2000 2200 $/pound 1000 1100 1200 1300 1400 1500 1600 1700 1800 $/pound
  11. 11.10 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
  12. 12.11 BUSINESS PLAN CannaFarm STRATEGY & IMPLEMENTATION
  13. 13.12 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.
  14. 14.13 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
  15. 15.14 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.
  16. 16.15 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
  17. 17.16 BUSINESS PLAN CannaFarm OPERATIONAL PLAN
  18. 18.17 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

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    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

  19. 19.18 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.
  20. 20.19 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.
  21. 21.20 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
  22. 22.21 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
  23. 23.22 BUSINESS PLAN CannaFarm ORGANISATIONAL STRUCTURE & MANAGEMENT
  24. 24.23 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
  25. 25.24 BUSINESS PLAN CannaFarm FINANCIAL PROJECTIONS
  26. 26.25 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
  27. 27.26 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) - - - - - - -
  28. 28.27 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
  29. 29.28 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 - - - - - - -
  30. 30.29 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
  31. 31.30 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%
  32. 32.31 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
  33. 33.32 BUSINESS PLAN CannaFarm APPENDICES
  34. 34.33 Financial Statements, monthly


Category: Business plan

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