Lil' Pharma LLC , referred to herein as the Company, is an established Limited Liability Company, with its main office located at 620 HC 67 Hoopa, CA (to be relocated to 91 Wade Road Garberville, CA 95542) , engaged in the business of Specialty Agriculture, with primary emphasis on the cultivation of high quality tier two mixed light, legal California commercial cannabis . The Company solicits financial backing in order to complete the purchase of suitable land to develop its Humboldt County RRR Permitted Business. The Company will be applying for and additional one acre of tier two mixed light cultivation while the initial 20,000 sqft. is being constructed.
The Company was formed as Limited Liability Company under California state laws and is headed by Lucien J. Smith who is a lifetime Humboldt County resident and U. S. Navy veteran with five years outdoor cultivation experience and ten years management experience. Hank Carl, a lifetime Humboldt County resident and businessman with 14 years cultivation experience, predominately mixed light. And Damon Stewart, business partner with Hank Carl, with over four years cultivation experience, predominately mixed light. Hank and Damon currently own three operating, legal, and state compliant farms. Lucien owns the Retirement, Remediation, and Relocation permit for 20,000 sqft. of tier two mixed light cultivation that has been pre-approved, and fast-tracked by Humboldt County Planning and Building to be located at 91 Wade Road Garberville, CA 95542.
To vertically integrate a network of cannabis businesses to throughout the state of California, predominately in Humboldt County and Los Angeles; leading to a widely recognized brand under the Humboldt Appellation in the State and eventually nationwide.
The Company's primary product will be California State Licensed Cannabis; Lil' Pharma will bring organically cultivated cannabis from Humboldt County to market throughout the entire state of California focusing on flower, extracts, and pre-rolls. Products will be packaged for retail before being sold wholesale.
The Company has begun the first round of funding by making Company membership credits available:
| Number of Units Offered (1)| Price Per Unit | Gross Proceeds to the Company | Offering Expenses (2) | Net Proceeds to Company
10 $25,000.00 $250,000.00 $1,250 $248,750.00
Each membership credit equates to .5% equity in the company, with a minimum investment of $25,000.
1 The Company reserves the right to accept or reject subscriptions for the Membership Units offered herein in the Manager’s sole discretion. The Sponsor and/or Manager also may purchase additional Membership Units at the same price and on the same terms and conditions as other Investors as set forth in this Offering Circular or in any future offerings of Membership Units.
2 Offering expenses are estimated to be approximately 0.05% of gross proceeds. Offering expenses will be comprised of legal, accounting, printing and similar administrative expenses expected to be incurred in connection with this First Round Offering.
The Company has acquired a two year loan, a one year extension available, for $1,000,000.00 at 15% interest (see attachment 2). $550,000.00 shall be used toward the purchase of land, and $450,000.00 for initial buildout, has been acquired through Cornerstone Income Fund. The line of credit will be increased as improvements to the property are made and licenses are acquired (depending on new project valuation). The funding proceeds will be used for the following purposes:
Down Payment $65,000.00
Property Purchase $550,000.00
Construction and Equipment $400,000.00
Working Capital $84,200.00
Funding will be used to complete the acquisition of an agriculturally zoned parcel located at 91 Wade Road, Garberville, CA 95542, currently in escrow (will act as a base of operations), to build out a complete infrastructure including automated greenhouses, a facility for drying and processing, and enough auxiliary power to run 20,000 square feet of mixed light cultivation. In 2021 the Company will be constructing an additional acre of automated greenhouses, increasing the cultivation footprint to 63,560 square feet of tier two mixed light.
The Parcel located at 91 Wade Road, Garberville, CA is suitable to accommodate the canopy size mentioned above. Please see attached email correspondence from Humboldt County Senior Planner Ashton (Attachment 1). We learned that the existing water well was drilled without permits, so Dave Fisch, the owner of Fisch Drilling will be retained to drill a permitted water well on the parcel, one that complies with all state and county guidelines. We intend to drill the well as soon as escrow closes.
We expect to break-even within a five to eight year period following the introduction of our product. However, setting a specific break-even time in the cannabis industry is difficult as regulations are constantly evolving. The break-even point may be within the first two to five years depending on product quality and market trends.
I. BUSINESS SUMMARY
A. National Market
2019 was a watershed year for the legal cannabis market. A total of nine (9) new states approved medical only use of cannabis while an additional three (3) states approved adult use regulations.
Additional states have announced efforts to legalize cannabis. All told, if the states shown on the map below pass legalization laws as reflected below, there could be an estimated $41.6 billion in annual revenue from the sale of legalized cannabis. Regardless of whether laws are passed by the state legislature or by voters, the new tax revenue available to states is often the stimulus that leads to legalization.
Global cannabis sales rose 48% to $15.9 billion in 2019, driven by growth in sales in Canada and seven U.S. states that saw sales more than double over 2018 results.1 Continued consumer adoption in maturing markets such as Colorado and new adult-use markets including Massachusetts contributed to record adult-use sales totaling $8.9 billion. Medical-only markets grew faster – up 54% growth to $6.2 billion. Legal medical cannabis spending beyond the U.S. more than doubled in 2019, from $367 million to $840 million, driven by Germany and Mexico’s markets.
U.S. legal sales totaled $13.6 billion despite regulatory challenges which hampered business activity in California and numerous other markets. Regardless of licensing delays, $5 billion additional dollars were spent on legal cannabis in 2019. That’s larger than the entire U.S. legal cannabis market was in 2015.2
A key forecast in the chart below is that U.S. sales (both legal and illicit) are estimated to total $64 billion. During 2019, only 21% of the total U.S. market was being served by the legal sector, indicating the potential for strong future growth.3
This means that economic losses are being felt on many different levels since there is no tax revenue being generated on illicit sales. However, enforcement of the U.S. border has impacted the illicit cannabis market and legal sales are currently forecast to reach $29.7 billion during 2025.
Illicit operators pose a significant competition to legal operators who must comply with changing state regulations and pay taxes on their annual sales. The majority of states that have legalized medical or adult use of cannabis have allocated an ever-increasing portion of their tax revenue from cannabis sales to the elimination of the illicit the market. Legal operators often work in tandem with state cannabis enforcement agencies to end illicit sales.
As stated earlier, new found tax revenue for states is often the primary motivation to legalize cannabis sales.
As of the date of this Offering Circular 11 states and the District of Columbia have legalized adult use and 33 states and the District of Columbia allow some form of medical cannabis use. An increasing number of states that currently limit cannabis sales to medical patients only, are expected by several experts in the field to enact laws permitting adult use sales during the next five (5) years, resulting in total sales that are estimated to reach $29.7 billion during 2025.
Beginning in 2018, with global alcohol sales in decline, alcohol companies (including Constellation Brands) have begun acquiring ownership in Canadian cannabis companies after Canada legalized medical and adult use. As of the date of this Offering Circular, alcohol companies have not invested in U.S. cannabis companies because of the current prohibition by the federal government.4
Recent consumer surveys show that an increasing number prefer cannabis over alcohol and 73% would consume cannabis if it were legalized.5
B. Global Market
While countries around the world are reversing restrictions on the use of medical and adult use marijuana, the United States is projected to be the world’s largest market through the end of the decade. Global spending on legal cannabis is forecast to total $32 billion by 2022.6
C. Medical Research Approval
Although full clinical research approval will likely only come through reclassification of cannabis through the Controlled Substances Act (CSA), incremental changes to allowing cannabis research have already begun.
In August 2019, the DEA announced that it will expand the number of cultivation facilities allowed to grow cannabis for scientific and medical research. In February 2020, the state of Pennsylvania awarded contracts to eight (8) companies within the state to produce cannabis for research by the state’s universities. Several universities in the U.S. and Canada now offer chemistry degrees to students interested in the cannabis industry.7
On April 7, 2020, Epidiolex, the only plant-derived cannabis drug approved by the U.S. Food and Drug Administration (FDA), was removed from the controlled substance list by the U.S. Drug Enforcement Administration. The DEA’s announcement lowers physician barriers to prescribing Epidiolex since they are no longer required to notify the FDA when prescribing it.8
Of possible congressional actions, reclassification of cannabis from being a Schedule 1 controlled substance would likely have the greatest impact on the cannabis industry as a whole. However, even with mounting scientific evidence and completed research studies, the DEA under the Trump administration does not appear to be interested in reclassifying cannabis in the near future.
The legalized cannabis market is still in the early stages of growth. It is predicted that with more states passing adult use legislation, the market will only continue to expand. Existing state sales data in places where cannabis is already legal is only a preview of the growth and point to the industry’s full potential. Because of the large amount of tax revenue it provides, states appreciate the new source of revenue that legalized cannabis use provides.
As of November 3, 2020 Arizona, Montana, New Jersey and South Dakota have legalized Cannabis for personal adult use, and Mississippi and South Dakota also approved medical use. According Yahoo Finance these five states have grown the industry potentially by Nine Billion Dollars9. The three states that have not legalized Cannabis use are Idaho, Nebraska and Kansas.
II. Business Goals and Objectives
Complete the acquisition of the Garberville property (Escrow scheduled to close February 1, 2021) that can accommodate 20,000 sq ft footprint of tier two mixed light. Build necessary infrastructure and be fully operational for the 2021 season.
Expansion of canopy to 63,560 square feet of tier two mixed light for 2022 season, acquire interests in multiple farms, manufacturers, and distributors.
· Acquire approval for canopy expansion under Humboldt County Zoning ordinance 2.0; (has been acquired, see attachment 1).
· Acquire the 50-acre parcel at 91 Wade Road, Garberville, Ca 95542; (currently in escrow, set to close February 1, 2021).
· Acquire funding to begin buildout of infrastructure; (loan/line of credit has been secured through Cornerstone Income Fund see attachment 2).
· Purchase initial 20,000 sq ft of automated light deprivation greenhouse structures
· Finish Construction within two months once parcel and funding are acquired.
III. MARKETING SUMMARY
The Company's major target markets are as follows:
The San Francisco Bay Area, as well as Los Angeles and surrounding areas. In 2018, according to Consumer Research Around Cannabis, the Los Angeles area has approximately 5.3 million cannabis consumers with an average age of 46.
The California Bureau of Cannabis Control has reported that there are 136 active cannabis retail locations in the Los Angeles area, and 32 in the San Francisco area.
The estimated number of potential clients within the Company's geographic scope is 8 million consumers.
The Company has completed a thorough analysis of market pricing. We keep in mind our competition pricing and the costs of customer acquisition, deciding on the following pricing strategy:
Pricing will be assigned to products depending on the weight of the product, quality of the product, type of product, as well as the test results of each product produced. Pricing will be broken down to dollar per gram.
Lil' Pharma's products will be distributed through licensed distribution companies to licensed dispensaries located in Humboldt County, San Francisco, Los Angeles, and in other viable markets in California.
First-rate service will be the focus of the Company and a bedrock of our success. All clients will receive conscientious, one-on-one, timely service in all capacities, transactions, conflicts, or complaints. This is expected to create a loyal brand following and return business.
IV. FINANCIAL PLAN
12-Month Profit and Loss Projection
Salaries and overhead (projected): $192,000.00
Interest Accrued (actual): $150,000.00
Construction and equipment (projected): $400,000.00
Balloon Payment (projected): $500,000.00
Revenue and sales for first year of business (projected): $2,700,000.00
Gross profit for the first year (projected): $1,458,000.00