Introduction

The Name & Branding Angle

• 2019 is the year I began working on Bud Habits Cultivation Co. "Bud Habits" is play on words stemming from the phrase "bad habits." It stands for the idea that just because something is a habit, doesn't mean it has to be a bad habit. This is great in two ways - It promotes healthy consumption in moderation (the cannabis board will love that), and it touches on the idea of de-stigmatizing the use of Cannabis (this is a common ideology of most habitual cannabis users - a.k.a. our future repeat customers).                                                        
• Some of our Core Values include things like Quality, Culture, and Community. Looking at other competitor brands, this is what seems to separate good Cannabis companies and great cannabis companies - something people can get behind.                                                                                                                                                                                                                                                                        
  • Quality is guaranteed in each batch by adopting a science-based approach to cultivation. My education background is heavily rooted in biology and research, so I spend all day looking at different studies, essentially quantifying the science of cultivation. Efficiency is also guaranteed with my proprietary cultivation technique. Also, unlike larger companies, Bud Habits sets the standard for quality by assigning each crop technician to a batch of 8 plants. This is made possible by harvesting larger, more potent plants - instead of the usual run-of-the-mill "in n' out" process used by many of the larger companies.                                                                                                                                                                                    
  • Culture is something that I feel is one of the most important aspects of the company. Bud Habits recognizes the stereotypes associated with Cannabis use, which is why we are here to fight it with our community. We also understand a great way to ensure a community culture-shift is to ensure Transparency - which is why we will be offering 24/7 facility monitoring, completely accessible to the public via the Bud Habits website. Nobody in the state does this. I think something as little as this will not only prove our quality standards, but also prove to the city that we have nothing to hide - unlike some of the larger companies in the area that have been caught up in shady scandals.        
  • Community is another important aspect in the business. Before legalization, there were Caregivers in Michigan. These guys were the pioneers of Cannabis cultivation, and are largely the reason for the success of many Michigan Cannabis companies today. Currently, the waters in Michigan are turbulent regarding Caregiver legislation (Namely, Bill 1500). The state makes no money from "Medical" Cannabis grown by Caregivers, as medicine is not allowed to be taxed. This is why they are pushing "Recreational" Cannabis, where Michigan imposes a whopping 10% excise tax on top of the 6% sales tax. For this reason, Bud Habits wants to exclusively hire Caregivers to work on our cultivation team. This is a win-win and i'll tell you why: We get employees that are already familiar with growing cannabis (currently 30,000 caregivers in Michigan), and we are able to show our support to the community, making Bud Habits a brand that stands for the people.
    
    

Costs Breakdown

• Startup Costs include Grow Related Items, Construction Related, and Miscellaneous/Hidden Expenses -- *Keep in mind all costs are estimated, then adjusted by adding 15% more as a "just in case" fee, in case anything comes up unexpectedly.                                                                                                                                                                                                                                                                       
  • Grow Related Costs ( Lighting, Climate, Controllers, Ventilation, Irrigation, Drainage, Solutions, Post Harvest Equipment, Misc. Garden Equipment)
    •  $148,135
  • Construction Related Costs (Raw Material quotes -- not taking into account bulk pricing, Labor quotes for building out)
    • $96,000
  • Miscellaneous Costs (Licensure Application, Lawyer Retainer, Property Fees for 1 year, Business Expenses -- packaging, testing, transportation, banking, branding budget)
    • $96,215

• Annual Operating Costs include Grow Related Expenses, and Business Related Expenses                                                                                                                                                                                                            
  • Grow Related Expenses (Equipment replacement, Nutrients & Solutions)
    • $73,780
  • Business Related Expenses (Banking, Insurance, Annual Licensing Fee, Testing, Payroll, Property Utilities, Property Rent including taxes & fees)
    • $241,200

Revenue Breakdown

• (24 plants/harvest)  X  (.75lb - 1.5lb/plant)  X  (9 Harvests/year -- *normally 13, but it will take a few weeks in the beginning for the perpetual cycle to get started*)
  • Annual Projected Yield (in lbs.) = 162 - 324 lbs/year 
• (162 - 324 lbs/year)  X  (128 Eighth oz. units/lb)
  • Annual Projected Yield (converted to Eighth oz. units) = 20,736 - 41,472 units of 1/8th oz packages
• Average wholesale price in the area = $30 -- similar brands are sold at retail for $50
  • (20,736 - 41,472 units)  X  ($20/unit) = $414,720 - $829,440
  • (20,736 - 41,472 units)  X  ($25/unit) = $518,400 - $1,036,800
  • (20,736 - 41,472 units)  X  ($30/unit) = $622,080 - $1,244,160
  • (20,736 - 41,472 units)  X  ($35/unit) = $725,760 - $1,451,520

• (24 plants/harvest)  X  (.75lb - 1.5lb/plant)  X  (13 Harvests/year)
  • Annual Projected Yield (in lbs.) = 234 - 468 lbs/year 
• (2334 - 468 lbs/year)  X  (128 Eighth oz. units/lb)
  • Annual Projected Yield (converted to Eighth oz. units) = 29,952 - 59,904 units of 1/8th oz packages
• Average wholesale price in the area = $30 -- similar brands are sold at retail for $50
  • (20,736 - 41,472 units)  X  ($20/unit) = $599,040 - $1,198,080
  • (20,736 - 41,472 units)  X  ($25/unit) = $748,800 - $1,497,600
  • (20,736 - 41,472 units)  X  ($30/unit) = $898,560 - $1,797,120
  • (20,736 - 41,472 units)  X  ($35/unit) = $1,048,320 - $2,096,640

Estimating Profit

Expansion Strategy

• The 1st and most logical step would be to integrate Bud Habits as its own standalone Retail Storefront, called "Habits." (Similar to what the competitor brand "Heavyweight Heads" did by calling their storefronts "Heads")
  • By moving into the retail space, we will be able to hold onto 25 - 50% more of our own revenue. 
  • This will also allow us to sell other companies' products, creating more SKU's to make a profit from. Having the opportunity to host competitors' products on our shelves allows us to connect with and work on collaborations with these companies, increasing our reach to their customers in hopes of expanding our scope of influence. Here's an example of this:
    • "Heavyweight Heads" collaborated with California brand "Cookies," and now they have a joint store located in California as of last year.

• The second step would be to integrate Bud Habits into a "Weed Bar" by utilizing the Designated Consumption Facility License. This license has not yet been put in effect in Michigan, while there is some word of "Gage" opening one up this Summer 2022. I consider a Designated Consumption Establishment as a latter step of vertical integration due to the implied nuance around launching a project like this. Since there has not been one yet, there's not much data on it.
  •  Using the Californian market as reference, it seems to be quite costly and liability-heavy. I consider a vertical venture like this as something to add for supplementary cash flow when the opportunity cost is not as high.

• My business plan is only taking into account the use of a CLASS A License. My main goal with creating a business around cannabis cultivation was to make sure that it was scalable. That's why my design is proportionally scalable and very easy to repeat. This type of design made sense to me, because it's quite easy to teach someone else to do it. Because of the idea's repeatability and scalable design, we can now open the doors to passive income opportunities for anyone that holds equity in Bud Habits.

• My strategy for horizontal integration involves the possibility to own equity in the company as a Cultivation Facility Technician. Once Bud Habits Location 1 is ready to expand to Bud Habits Location 2, the heads of the company will decide who out of the cultivation team is skilled and experienced enough to run Bud Habits Location 1 all by themselves. This person will be offered a portion of the equity that comes through that facility. ---------- Let me explain why this matters:
  • In my days as a Facility Manager, I was being paid a salary. This was good for me, but bad for the company I was working for. Because my income was not dependent on how good the company did, sometimes I did not feel the need to do more than what was asked of me. In any business, you cannot expect employees to do more than what they signed up for, and it's virtually impossible to determine if they are doing their best work. By having the possibility of someday managing your own facility, you no longer have a ceiling for how much you can make, as well as a career path possibility that will keep our staff retention rate high.
    • This is important, because I am looking to attract the brightest and most skilled individuals to work in my facilities. Who knows, someone might come along and show me a design that is much more efficient than the one I came up with. If this is the case, they should be rewarded accordingly.

Survival Strategies & Failsafes

• Space Reduction -- I have created a replica "vertical-style" design that allows us to grow smaller plants at a slightly lower annual yield rate, while using a lot less of the space (this only works with warehouses that have a clearing height of at least 14' - which is highly attainable). What this allows us to do is rent out the unused area in our facility to someone that is looking for a spot to grow Cannabis, or any other type of business for that matter. These spots are very coveted in Michigan, because you need permission from the property owner to conduct a marijuana-related business under a lease.
  • Important to mention Sale-Leaseback Agreements as an option as well.

• Property Resale Value -- If we buy the building (highly recommended), we will be able to sell it to someone for a large premium. The reason the property is now worth so much stems from the licensure application process. In order to get a license, your building must be approved by the municipality (which includes a $5,000 fee maximum). The profit margins on selling a licensed building are so high that it has become a venture in and of itself. If you look at some of the Green-zoned areas for sale, most buildings are being sold for 1.5 - 2x the purchase price. (Figure from market data and personally speaking with multiple property salesmen).

• Altering Harvest Schedules -- Since Michigan is quite new to the recreational Cannabis scene, there's only a couple years of data to go off of when it comes to sales projections. However, we are able to use data from other states with a more complete data collection, such as Colorado. After charting the data, you are able to see patterns in terms of Cannabis sales. Q1 - Q2 (End of Winter/Springtime) is where we see a steady level of sales recover from the previous winter's drop. Here, sales begin to ramp up slowly in preparation of the Summertime surge. Q2 - Q3 (Summertime) is when the largest increase in sales happens that brings sales higher than the previous year. After, Q3 - Q4 (Autumn/Beginning of Winter) is where we see the number of sales drop a bit and look to stabilize --- The reason for this drop is due to the time of harvest for outdoor growers. Outdoor growers cultivate only 1 large batch all year, and it's known to be of lower quality/potency than an indoor batch. However, outdoor cultivators do not spend much overhead on things such as electricity for lights or specific nutrients, which is why they are able to offer a large supply of product at a much lower cost. This is what drives price way down.
  • We are able to take advantage of this information and alter our harvest schedules for the most optimal time to harvest. This lowers our operating costs largely, and we can take this pause as an opportunity to focus on other areas of the business such as R&D, Address efficiency concerns, Other projects/events/collaborations.

• Roll Back Staffing -- When looking at the harvest schedule I have laid out, there are times in the harvest where not much needs to be done, while other days there is a lot to be done. Since payroll is a large chunk of our operational expenses, it might be a good idea to roll back the labor a bit more on the "slow days."
  • Continuing with the low-hanging-fruit approach, we can also strategically outsource certain business functions that are deemed to be inefficient. Things like Marketing, Accounting, Sanitation Crews, Storage, etc... can all be outsourced until the company regains some financial traction.

• Proactive Tax Planning -- This isn't too much of a strategy as it is a good business practice. By planning for tax compliance year-round and not just when tax season looms, we will have already allocated costs to limit the impact of Tax Code 280E (involves COGS)
  • Get Tax estimates and pay them ahead of time -- making sure to allocate COGS to lower overall bill at the end of the year.
  • Consider hiring Cannabis Tax Expert -- (I have personally consulted with one here in Michigan).

• Utilities -- The main utility cost for growing indoors is Electricity. We are able to limit and optimize our light usage by switching from HID Fixtures to LED Fixtures - reducing our electrical bill by 30-40%. We can also employ a water collection system that utilized and filters rainwater, instead of using the city's supply. While this may not be a large cost, it also gives Bud Habits another angle to market from - making our products more "natural." Another way to reduce our electrical bill is to not use electricity at all! What I mean is to purchase a Generator for all heavy-use electrical applications (Lights, AC, Dehumidifier, ...). Generators run on Natural Gas, which makes it a lot cheaper than strictly using the city's power supply. By using a generator, we can make sure for certain that we won't be affected by any of the city's power outages.

Banking

• Pre-Licensure Account -- This is the account that would be used to purchase most of the Startup Costs. As we await licensure, we need to have our facility inspected and built, which accounts for a large chunk of the initial investment.
  • This account requires a min. deposit of $10,000 and the fee is $49/mo -- NO FEES ON DEPOSITS.

• Plant-Touching Account -- Once licensed, we will upgrade to this account. It includes a Vendor Pay Portal, where we are able to receive money from retailers and send money to suppliers. It also includes a personal Courier Service that takes any cash that we have from retailers and takes it to a local banking institution ($50-$150/pickup). With this account, Abaca also provides Banking ($499/mo) as well as an ACH Portal that takes 0.5% from each deposit ($5 for every $1000 deposited).

Conclusion