Good Morning All. I have some research to share w
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Posted On: 08/16/2018 11:47:03 AM
Good Morning All. I have some research to share with you this morning, and I think everyone will find it both interesting and informative.
First, the financial and business game plan for AGRiMED:
In 2016 the serial entrepreneur, once an executive with Chicago-based Green Thumb Industries, recruited partners and founded AGRiMED Industries. The company’s purpose is not only to cultivate and process medical-grade cannabis but to dispense it as well, adding a professionalism for which the industry has not been consistently known.
At more than a dozen employees and planning to hire and acquire in several states, AGRiMED and its CEO had big ambitions: a pending grow/process application in their home state of Pennsylvania, competing for licenses in several other states, partnerships with hospitals and dispensaries, and sales commencing by spring 2018. (In June 2017, AGRiMED became the first African-American-owned company to win a Pennsylvania cannabis license in a competitive bid.)
But with business activity throughout the United States, financial projections were just as scattered. Crockett needed a financial model that could forecast expenses, revenue, and everything in between for more than 15 states or territories—and five years out—in a largely unstructured market. The model needed to stand up to intense scrutiny by potential investors. And that wasn’t all.
Major question : “How do we manage our 280E situation?”
The ”280E situation” refers to a section of the Internal Revenue Code that prevents businesses from deducting ordinary expenses related to income connected to controlled substances. Crockett found this worrisome; others in the industry had thought their businesses were profitable before getting a substantial tax bill. In fact, many of AGRiMED’s competitors were losing money even with strong revenue and before-tax profits that would be considered a home run in other industries.
AGRiMED needed a strategy to avoid this fate, and they found one with the help of Navigare Advisory Partners.
The tax situation is complicated, because each state has its own requirements, and because normal rules do not apply at the national level, a company could end up paying a 70 to 80 percent rate rather than the more standard 30 to 35 percent. On top of that, AGRiMED was set up as a limited liability corporation—meaning the company itself didn’t pay taxes; all taxes were the responsibility of ownership.
After studying the tax situation in each state and territory on AGRiMED’s radar, Navigare proposed a legal entity structure to take advantage of deductibility at each stage of the business—cultivation to retail—and in every region.
Navigare drew up a complex proposal, which AGRiMED’s investor group affirmed, to establish a holding company, AGRiMED Investors, and a multipart structure along these lines:
• Retailers can be charged to license the brand name. Profits from this use transfer to the holding company, which is then taxed at normal corporate rates.
• Education is done through a 501(c)(3), the Agricares Foundation. “That’s how you get the customers,” says Crockett. “When people get factual information about cannabis, they start thinking about treatment.”
• The business side has unlimited separate pieces: AGRiMED Industries of Pennsylvania, of South Carolina, of West Virginia, and so on. “A lot can go wrong in this business. If there’s an issue in South Carolina, would you want one thing to bring all the other states down? It’s risk management.”
• A medical arm, AGRiMED Healthcare Management , was formed to pursue clinical registrant licenses; it will also handle research and clinical trials.
https://nebula.wsimg.com/05a13deb3ec1b22ea4f7...oworigin=1
First, the financial and business game plan for AGRiMED:
In 2016 the serial entrepreneur, once an executive with Chicago-based Green Thumb Industries, recruited partners and founded AGRiMED Industries. The company’s purpose is not only to cultivate and process medical-grade cannabis but to dispense it as well, adding a professionalism for which the industry has not been consistently known.
At more than a dozen employees and planning to hire and acquire in several states, AGRiMED and its CEO had big ambitions: a pending grow/process application in their home state of Pennsylvania, competing for licenses in several other states, partnerships with hospitals and dispensaries, and sales commencing by spring 2018. (In June 2017, AGRiMED became the first African-American-owned company to win a Pennsylvania cannabis license in a competitive bid.)
But with business activity throughout the United States, financial projections were just as scattered. Crockett needed a financial model that could forecast expenses, revenue, and everything in between for more than 15 states or territories—and five years out—in a largely unstructured market. The model needed to stand up to intense scrutiny by potential investors. And that wasn’t all.
Major question : “How do we manage our 280E situation?”
The ”280E situation” refers to a section of the Internal Revenue Code that prevents businesses from deducting ordinary expenses related to income connected to controlled substances. Crockett found this worrisome; others in the industry had thought their businesses were profitable before getting a substantial tax bill. In fact, many of AGRiMED’s competitors were losing money even with strong revenue and before-tax profits that would be considered a home run in other industries.
AGRiMED needed a strategy to avoid this fate, and they found one with the help of Navigare Advisory Partners.
The tax situation is complicated, because each state has its own requirements, and because normal rules do not apply at the national level, a company could end up paying a 70 to 80 percent rate rather than the more standard 30 to 35 percent. On top of that, AGRiMED was set up as a limited liability corporation—meaning the company itself didn’t pay taxes; all taxes were the responsibility of ownership.
After studying the tax situation in each state and territory on AGRiMED’s radar, Navigare proposed a legal entity structure to take advantage of deductibility at each stage of the business—cultivation to retail—and in every region.
Navigare drew up a complex proposal, which AGRiMED’s investor group affirmed, to establish a holding company, AGRiMED Investors, and a multipart structure along these lines:
• Retailers can be charged to license the brand name. Profits from this use transfer to the holding company, which is then taxed at normal corporate rates.
• Education is done through a 501(c)(3), the Agricares Foundation. “That’s how you get the customers,” says Crockett. “When people get factual information about cannabis, they start thinking about treatment.”
• The business side has unlimited separate pieces: AGRiMED Industries of Pennsylvania, of South Carolina, of West Virginia, and so on. “A lot can go wrong in this business. If there’s an issue in South Carolina, would you want one thing to bring all the other states down? It’s risk management.”
• A medical arm, AGRiMED Healthcare Management , was formed to pursue clinical registrant licenses; it will also handle research and clinical trials.
https://nebula.wsimg.com/05a13deb3ec1b22ea4f7...oworigin=1
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