PROSPECTUS
5,917,442 Shares
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Pursuant to Rule 424(b)(3)
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of Common Stock
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Registration Number 333-213592
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American Cannabis Company, Inc.
This prospectus relates to the resale of 5,917,442
shares of our common stock, par value $0.00001 per share, including (i) 5,829,842 shares of common stock (the “Common Shares”),
shares issuable to Tangiers Global, LLC (defined below) and, (ii) 87,600 shares previously issued to an individual shareholder.
This prospectus relates to the resale of up
to 5,829,842 shares of the Common Shares, issuable to Tangiers Global, LLC (“Tangiers”), a selling stockholder pursuant
to a “put right” under an amended and restated investment agreement (the “Investment Agreement”), dated
August 4, 2016, that we entered into with Tangiers. The Investment Agreement permits us to “put” up to five million
dollars ($5,000,000) in shares of our common stock to Tangiers over a period of up to thirty-six (36) months or until $5,000,000
of such shares have been “put.”
The selling stockholders may sell all or a
portion of the shares being offered pursuant to this prospectus at fixed prices, at prevailing market prices at the time of sale,
at varying prices or at negotiated prices.
The total amount of shares of common stock
which may be sold pursuant to this prospectus would constitute approximately 32.77% of the Company’s issued and outstanding
common stock held by non-affiliates as of September 2, 2016, assuming that the selling security holders will sell all of the shares
offered for sale.
Tangiers Global, LLC is an underwriter within
the meaning of the Securities Act of 1933 and any broker-dealers or agents that are involved in selling the shares may be deemed
to be “underwriters” within the meaning of the Securities Act of 1933 in connection with such sales. In such event,
any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act of 1933.
Our common stock is quoted by the OTC Markets
Group under the symbol “AMMJ”. On September 2, 2016, the closing price of our common stock was $0.10 per share.
We will not receive any proceeds from the
sale of shares of our common stock by the selling stockholder. However, we will receive proceeds from the sale of shares of our
common stock pursuant to our exercise of the put right offered by Tangiers Global, LLC. We will pay for expenses of this offering,
except that the selling stockholder will pay any broker discounts or commissions or equivalent expenses and expenses of its legal
counsel applicable to the sale of its shares.
Investing in our common stock involves
risks. See “Risk Factors” beginning on page 5.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.
No dealer, salesperson or any other person
is authorized to give any information or make any representations in connection with this offering other than those contained
in this Prospectus and, if given or made, the information or representations must not be relied upon as having been authorized
by us. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any security other than the securities
offered by this Prospectus, or an offer to sell or a solicitation of an offer to buy any securities by anyone in any jurisdiction
in which the offer or solicitation is not authorized or is unlawful.
The date of this Prospectus is November
17, 2016.
TABLE
OF CONTENTS
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Page
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Prospectus
Summary
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1
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The
Offering
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1
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Risk
Factors
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3
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Use
of Proceeds
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12
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Selling
Security Holders
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12
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Plan
of Distribution; Terms of the Offering
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13
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Dilution
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15
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Description
of Property
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16
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Description
of Securities
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16
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Description
of Our Business
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17
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Management’s
Discussion and Analysis
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21
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Directors,
Executive Officers, Promoters and Control Persons
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29
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Executive
Compensation
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33
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Security
Ownership of Certain Beneficial Owners and Management
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34
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Certain
Relationships and Related Transactions
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35
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Legal
Matters
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36
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Experts
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36
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Where
you can find more Information
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36
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Index
to Financial Statements
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F-1
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You should rely only on the information
contained or incorporated by reference to this prospectus in deciding whether to purchase our common stock. We have
not authorized anyone to provide you with information different from that contained or incorporated by reference to this prospectus.
Under no circumstances should the delivery to you of this prospectus or any sale made pursuant to this prospectus create any implication
that the information contained in this prospectus is correct as of any time after the date of this prospectus. To the extent that
any facts or events arising after the date of this prospectus, individually or in the aggregate, represent a fundamental change
in the information presented in this prospectus, this prospectus will be updated to the extent required by law.
PROSPECTUS SUMMARY
The Offering
This prospectus relates to the resale of 5,917,442
shares of our common stock, par value $0.00001 per share, including (i) 5,829,842 shares of common stock (the “Common Shares”),
shares issuable to Tangiers Global, LLC (defined below) and, (ii) 87,600 shares previously issued to an individual shareholder.
This prospectus relates to the resale of up
to 5,829,842 shares of the Common Shares, issuable to Tangiers Global, LLC (“Tangiers”), a selling stockholder pursuant
to a “put right” under an amended and restated investment agreement (the “Investment Agreement”), dated
August 4, 2016, that we entered into with Tangiers. The Investment Agreement permits us to “put” up to five million
dollars ($5,000,000) in shares of our common stock to Tangiers over a period of up to thirty-six (36) months or until $5,000,000
of such shares have been “put.”
Our Business
American Cannabis Company, Inc. and subsidiary
company, Hollister & Blacksmith, Inc., doing business as American Cannabis Consulting (“American Cannabis Consulting”),
(collectively “the “Company”, “we”, “us”, or “our”) are based in Denver,
Colorado and operate a fully-integrated business model that features end-to-end solutions for businesses operating in the regulated
cannabis industry in states and countries where cannabis is regulated and/or has been de-criminalized for medical use and/or legalized
for recreational use. We provide advisory and consulting services specific to this industry, design industry-specific products
and facilities, and manage a strategic group partnership that offers both exclusive and non-exclusive customer products commonly
used in the industry.
We are a publicly listed company quoted on
the OTCQB under the symbol “AMMJ”.
We were incorporated in the State of Delaware
on September 24, 2001 under the name Naturewell, Inc. to develop and market clinical diagnostic products using immunology and
molecular biologic technologies.
On March 13, 2013, Naturewell, Inc. completed
a merger transaction whereby it acquired 100% of the issued and outstanding share capital of Brazil Interactive Media, Inc. (“BIMI”),
which operated as a Brazilian interactive television company and television production company through its wholly owned Brazilian
subsidiary company, EsoTV Brasil Promoção Publicidade Licenciamento e Comércio Ltda. (“EsoTV”).
Naturewell’s Certificate of Incorporation were amended to reflect a new name: Brazil Interactive Media, Inc.
On May 15, 2014, BIMI entered into a merger
agreement (“the Merger Agreement”) to acquire 100% of the issued and outstanding American Cannabis Consulting while
simultaneously disposing of 100% of the issued share capital EsoTV (“the Separation Agreement”). Both the merger with
American Cannabis Consulting and disposal of EsoTV were completed on September 29, 2014. BIMI subsequently amended its Certificate
of Incorporation to change its name to American Cannabis Company, Inc. On October 10, 2014, American Cannabis Company, Inc. changed
its stock symbol from BIMI to AMMJ.
Immediately following the completion of the
Merger Agreement, former shareholders of American Cannabis Consulting owned 31,710,628 shares of American Cannabis Company, Inc.’s
common stock, representing 78.4% of American Cannabis Company, Inc.’s issued and outstanding share capital. Accordingly,
American Cannabis Consulting was deemed to have been the accounting acquirer in a Reverse Merger which resulted in a recapitalization
of the Company. Consequently, the Company’s consolidated financial statements reflect the results of American Cannabis
Consulting since Inception (March 5, 2013) and of American Cannabis Company, Inc. (formerly BIMI) since September 29, 2014.
Government Regulation of Cannabis
The United States federal government regulates
drugs through the Controlled Substances Act (21 U.S.C. § 811), which places controlled substances, including cannabis, in
a schedule. Cannabis is classified as a Schedule I drug, which is viewed as highly addictive and having no medical value. The
United States Federal Drug Administration has not approved the sale of marijuana for any medical application. Doctors may not
prescribe cannabis for medical use under federal law, however, they can recommend its use under the First Amendment. In 2010,
the United States Veterans Affairs Department clarified that veterans using medicinal cannabis will not be denied services or
other medications that are denied to those using illegal drugs.
As of June 27, 2016, 25 states, the District
of Columbia and Guam allow their citizens to use medical cannabis through de-criminalization. Voters in the States of Oregon,
Colorado, Washington, and Alaska have legalized cannabis for adult recreational use; Oregon’s law took effect on July 1,
2015; Alaska’s law was effective February 24, 2015; both the Colorado and Washington programs were enacted as of December
31, 2014. In 2016, Nevada, California, Vermont, Arizona, Connecticut and Michigan have legislative bills in various stages of
progress concerning cannabis legalization.
Additionally, there are active efforts by
many advocacy groups seeking to expand the legalization of cannabis, including, but not limited to the Marijuana Policy Project,
a leading advocate for major state-level marijuana policy reforms that have resulted in successful efforts to pass 10 of the 15
most recent state medical marijuana laws (in Arizona, Delaware, Illinois, Maryland, Michigan, Minnesota, Montana, New Hampshire,
Rhode Island, and Vermont) and five of the seven most recent decriminalization laws (in Delaware, Maryland, Massachusetts, Rhode
Island, and Vermont).
These advocacy groups and others are devoting
significant resources to ending prohibition in 12 more states by 2019, including in the States of Arizona, California, Massachusetts,
and Nevada, as well as lobbying and building coalitions to regulate marijuana in several states that do not have the option of voter initiatives, including Delaware, Illinois, Maryland, New
Hampshire, Rhode Island, Texas, and Vermont, and they are also advocating for medical marijuana-related bills in
several other states, including Georgia, Texas, and West Virginia.
These noted state laws, both proposed and
enacted, are in conflict with the federal Controlled Substances Act, which makes cannabis use and possession illegal on a national
level. However, on August 29, 2013, the U.S. Department of Justice issued a memorandum providing that where states and local governments
enact laws authorizing cannabis-related use, and implement strong and effective regulatory and enforcement systems, the federal
government will rely upon states and local enforcement agencies to address cannabis activity through the enforcement of their
own state and local narcotics laws. The memorandum further stated that the U.S Justice Department’s limited investigative
and prosecutorial resources will be focused on eight priorities to prevent unintended consequences of the state laws, including
distribution of cannabis to minors, preventing the distribution of cannabis from states where it is legal to states where it is
not, and preventing money laundering, violence and drugged driving.
On December 11, 2014, the U.S. Department
of Justice issued another memorandum with regard to its position and enforcement protocol with regard to Indian Country, stating
that the eight priorities in the previous federal memo would guide the United States Attorneys' cannabis enforcement efforts in
Indian Country. On December 16, 2014, as a component of the federal spending bill, the Obama administration enacted regulations
that prohibits the Department of Justice from using funds to prosecute state-based legal medical cannabis programs.
As of September 2, 2016, in addition to the
25 states, the District of Columbia and Guam which had already passed legislation allowing citizens to use cannabis in some form,
an additional 13 states had pending legislation or ballot measures to legalize medical cannabis.
RISK FACTORS
An investment in our common stock involves
a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information
in this prospectus in evaluating our company and our business before purchasing our securities. Our business, operating results
and financial condition could be seriously harmed as a result of the occurrence of any of the following risks. You could lose
all or part of your investment due to any of these risks. You should invest in our common stock only if you can afford to lose
your entire investment.
Risks Related to Our Business
Marijuana remains illegal under federal
law
Marijuana
is a Schedule I controlled substance and is illegal under federal law. Even in states that have legalized the use of marijuana,
its sale and use remain violations of federal law. The illegality of marijuana under federal law preempts state laws that legalize
its use. Therefore, strict enforcement of federal law regarding marijuana would likely result in our inability to proceed with
our business plan.
Our business is dependent on laws pertaining
to the marijuana industry
The United States federal government regulates
drugs through the Controlled Substances Act (21 U.S.C. § 811), which places controlled substances, including cannabis, in
a schedule. Cannabis is classified as a Schedule I drug, which is viewed as highly addictive and having no medical value. The
United States Federal Drug Administration has not approved the sale of marijuana for any medical application. Doctors may not
prescribe cannabis for medical use under federal law, however they can recommend its use under the First Amendment. In 2010, the
United States Veterans Affairs Department clarified that veterans using medicinal cannabis will not be denied services or other
medications that are denied to those using illegal drugs.
As of September 2, 2016, 25 states, the District
of Columbia and Guam allow their citizens to use medical cannabis through de-criminalization. Voters in the States of Oregon,
Colorado, Washington, and Alaska have legalized cannabis for adult recreational use; Oregon’s law took effect on July 1,
2015; Alaska’s law was effective February 24, 2015; both the Colorado and Washington programs were enacted as of December
31, 2014. In 2016, Nevada, California, Vermont, Arizona, Connecticut and Michigan have legislative bills in various stages of
progress concerning cannabis legalization.
These noted state laws, both proposed and
enacted, are in conflict with the federal Controlled Substances Act, which makes cannabis use and possession illegal on a national
level. However, on August 29, 2013, the U.S. Department of Justice issued a memorandum providing that where states and local governments
enact laws authorizing cannabis-related use, and implement strong and effective regulatory and enforcement systems, the federal
government will rely upon states and local enforcement agencies to address cannabis activity through the enforcement of their
own state and local narcotics laws. The memorandum further stated that the U.S Justice Department’s limited investigative
and prosecutorial resources will be focused on eight priorities to prevent unintended consequences of the state laws, including
distribution of cannabis to minors, preventing the distribution of cannabis from states where it is legal to states where it is
not, and preventing money laundering, violence and drugged driving.
On December 11, 2014, the U.S. Department
of Justice issued another memorandum with regard to its position and enforcement protocol with regard to Indian Country, stating
that the eight priorities in the previous federal memo would guide the United States Attorneys' cannabis enforcement efforts in
Indian Country. On December 16, 2014, as a component of the federal spending bill, the Obama administration enacted regulations
that prohibit the Department of Justice from using funds to prosecute state-based legal medical cannabis programs.
Laws
and regulations affecting our industry are constantly changing
The
constant evolution of laws and regulations affecting the marijuana industry could detrimentally affect our operations. Local,
state and federal medical marijuana laws and regulations are broad in scope and subject to changing interpretations. These changes
may require us to incur substantial costs associated with legal and compliance fees and ultimately require us to alter our business
plan. Furthermore, violations of these laws, or alleged violations, could disrupt our business and result in a material adverse
effect on our operations. In addition, we cannot predict the nature of any future laws, regulations, interpretations or applications,
and it is possible that regulations may be enacted in the future that will be directly applicable to our business.
Risk of government action
While we will use our best efforts to comply
with all laws, including federal, state and local laws and regulations, there is a possibility that governmental action to enforce
any alleged violations may result in legal fees and damage awards that would adversely affect us.
Because our business is dependent upon
continued market acceptance by consumers, any negative trends will adversely affect our business operations
We are substantially dependent on continued
market acceptance and proliferation of consumers of medical marijuana and recreational marijuana. We believe that as marijuana
becomes more accepted the stigma associated with marijuana use will diminish and as a result consumer demand will continue to
grow. While we believe that the market and opportunity in the marijuana space continues to grow, we cannot predict the future
growth rate and size of the market. Any negative outlook on the marijuana industry may adversely affect our business operations.
In addition, it is believed by many that large
well-funded businesses may have a strong economic opposition to the cannabis industry. We believe that the pharmaceutical industry
clearly does not want to cede control of any product that could generate significant revenue. For example, medical marijuana will
likely adversely impact the existing market for the current "marijuana pill" Marinol, sold by the mainstream pharmaceutical
industry, should marijuana displace other drugs or encroach upon the pharmaceutical industry's products. The pharmaceutical industry
is well funded with a strong and experienced lobby that eclipses the funding of the medical marijuana movement. Any inroads the
pharmaceutical could make in halting the impending cannabis industry could have a detrimental impact on our business.
FDA Regulation
of marijuana and the possible registration of facilities where medical marijuana is grown could negatively affect the cannabis
industry which would directly affect our financial condition
Should the federal government legalize marijuana
for medical use, it is possible that the U.S. Food and Drug Administration ("FDA") would seek to regulate it under the
Food, Drug and Cosmetics Act of 1938. Additionally, the FDA may issue rules and regulations including cGMPs (certified good manufacturing
practices) related to the growth, cultivation, harvesting and processing of medical marijuana. Clinical trials may be needed to
verify efficacy and safety. It is also possible that the FDA would require that facilities where medical marijuana is grown be
registered with the FDA and comply with certain federally prescribed regulations. In the event that some or all of these regulations
are imposed, we do not know what the impact would be on the medical marijuana industry and what costs, requirements and possible
prohibitions may be enforced. If we are unable to comply with the regulations and/or registration as prescribed by the FDA, we
may be unable to continue to operate our business.
Our clients may have difficulty accessing
the service of banks
On February 14, 2014, the U.S. government
issued rules allowing banks to legally provide financial services to state-licensed marijuana businesses. A memorandum issued
by the Justice Department to federal prosecutors re-iterated guidance previously given, this time to the financial industry that
banks can do business with legal marijuana businesses and "may not" be prosecuted. The Treasury Department's Financial
Crimes Enforcement Network (FinCEN) issued guidelines to banks that "it is possible to provide financial services""
to state-licensed marijuana businesses and still be in compliance with federal anti-money laundering laws. The guidance falls
short of the explicit legal authorization that banking industry officials had pushed the government to provide and to date, it
is not clear if any banks have relied on the guidance and taken on legal marijuana companies as clients. The aforementioned policy
may be administration dependent and a change in presidential administrations may cause a policy reversal and retraction of current
policies, wherein legal marijuana businesses may not have access to the banking industry. Also, the inability of potential clients
in our target market to open accounts and otherwise use the service of banks may make it difficult for them to contract with us.
Due to our involvement in the cannabis
industry, we may have a difficult time obtaining the various insurances that are desired to operate our business, which may expose
us to additional risk and financial liability
Insurance that is otherwise readily available,
such as general liability, and directors and officer’s insurance, is more difficult for us to find, and more expensive,
because we are service providers to companies in the cannabis industry. There are no guarantees that we will be able to find such
insurances in the future, or that the cost will be affordable to us. If we are forced to go without such insurances, it may prevent
us from entering into certain business sectors, may inhibit our growth, and may expose us to additional risk and financial liabilities.
Risks Related to the Company
Uncertainty of profitability
Our business strategy may result in increased
volatility of revenues and earnings. As we will only develop a limited number of products and services at a time, our overall
success will depend on a limited number of products and services, which may cause variability and unsteady profits and losses
depending on the products and services offered.
Our revenues and our profitability may be
adversely affected by economic conditions and changes in the market for medical and recreational marijuana. Our business is also
subject to general economic risks that could adversely impact the results of operations and financial condition.
Because of the anticipated nature of the products
and services that we will attempt to develop, it is difficult to accurately forecast revenues and operating results and these
items could fluctuate in the future due to a number of factors. These factors may include, among other things, the following:
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Our ability
to raise sufficient capital to take advantage of opportunities and generate sufficient revenues to cover expenses.
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Our ability
to source strong opportunities with sufficient risk adjusted returns.
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Our ability
to manage our capital and liquidity requirements based on changing market conditions generally and changes in the developing
legal medical marijuana and recreational marijuana industries.
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The acceptance
of the terms and conditions of our licenses and/or the acceptance of our royalties and fees.
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The amount
and timing of operating and other costs and expenses.
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The nature
and extent of competition from other companies that may reduce market share and create pressure on pricing and investment
return expectations.
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Adverse
changes in the national and regional economies in which we will participate, including, but not limited to, changes in our
performance, capital availability, and market demand.
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Adverse
changes in the projects in which we plan to invest which result from factors beyond our control, including, but not limited
to, a change in circumstances, capacity and economic impacts.
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Adverse
developments in the efforts to legalize marijuana or increased federal enforcement.
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Changes
in laws, regulations, accounting, taxation, and other requirements affecting our operations and business.
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Our operating
results may fluctuate from year to year due to the factors listed above and others not listed. At times, these fluctuations
may be significant.
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Management of growth will be
necessary for us to be competitive
Successful expansion of our business
will depend on our ability to effectively attract and manage staff, strategic business relationships, and shareholders. Specifically,
we will need to hire skilled management and technical personnel as well as manage partnerships to navigate shifts in the general
economic environment. Expansion has the potential to place significant strains on financial, management, and operational resources,
yet failure to expand will inhibit our profitability goals.
We are entering a potentially
highly competitive market
The markets for ancillary businesses
in the medical marijuana and recreational marijuana industries are competitive and evolving. In particular, we face strong competition
from larger companies that may be in the process of offering similar products and services to ours. Many of our current and potential
competitors have longer operating histories, significantly greater financial, marketing and other resources and larger client
bases than we have (or may be expected to have).
Given the rapid changes affecting the
global, national, and regional economies generally and the medical marijuana and recreational marijuana industries, in particular,
we may not be able to create and maintain a competitive advantage in the marketplace. Our success will depend on our ability to
keep pace with any changes in its markets, especially with legal and regulatory changes. Our success will depend on our ability
to respond to, among other things, changes in the economy, market conditions, and competitive pressures. Any failure by us to
anticipate or respond adequately to such changes could have a material adverse effect on our financial condition, operating results,
liquidity, cash flow and our operational performance.
There could be unidentified risks involved
with an investment in our securities
The foregoing risk factors are not a complete
list or explanation of the risks involved with an investment in our securities. Additional risks will likely be experienced that
are not presently foreseen by the Company. Prospective investors must not construe this the information provided herein as constituting
investment, legal, tax or other professional advice. Before making any decision to invest in our securities, you should read this
entire prospectus and consult with your own investment, legal, tax and other professional advisors. An investment in our securities
is suitable only for investors who can assume the financial risks of an investment in the Company for an indefinite period of
time and who can afford to lose their entire investment. The Company makes no representations or warranties of any kind with respect
to the likelihood of the success or the business of the Company, the value of our securities, any financial returns that may be
generated or any tax benefits or consequences that may result from an investment in the Company.
The Company’s failure to continue
to attract, train, or retain highly qualified personnel could harm the Company’s business.
The Company’s success also depends on
the Company’s ability to attract, train, and retain qualified personnel, specifically those with management and product
development skills. In particular, the Company must hire additional skilled personnel to further the Company’s research
and development efforts. Competition for such personnel is intense. If the Company does not succeed in attracting new personnel
or retaining and motivating the Company’s current personnel, the Company’s business could be harmed.
The Company may be unable to respond to
the rapid technological change in its industry and such change may increase costs and competition that may adversely affect its
business
Rapidly changing technologies, frequent new
product and service introductions and evolving industry standards characterize the Company’s market. The continued growth
of the Internet and intense competition in the Company’s industry exacerbate these market characteristics. The Company’s
future success will depend on its ability to adapt to rapidly changing technologies by continually improving the performance features
and reliability of its products and services. The Company may experience difficulties that could delay or prevent the successful
development, introduction or marketing of its products and services. In addition, any new enhancements must meet the requirements
of its current and prospective users and must achieve significant market acceptance. The Company could also incur substantial
costs if it needs to modify its products and services or infrastructures to adapt to these changes.
The Company also expects that new competitors
may introduce products, systems or services that are directly or indirectly competitive with the Company. These competitors may
succeed in developing products, systems and services that have greater functionality or are less costly than the Company’s
products, systems and services, and may be more successful in marketing such products, systems and services. Technological changes
have lowered the cost of operating communications and computer systems and purchasing software. These changes reduce the Company’s
cost of providing services but also facilitate increased competition by reducing competitors’ costs in providing similar
services. This competition could increase price competition and reduce anticipated profit margins.
The Company’s services are
new and its industry is evolving.
You should consider the Company’s
prospects in light of the risks, uncertainties and difficulties frequently encountered by companies in their early stage of development,
particularly companies in the rapidly evolving legal cannabis industry. To be successful in this industry, the Company must, among
other things:
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develop
and introduce functional and attractive service offerings;
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attract
and maintain a large base of consumers;
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increase
awareness of the Company brand and develop consumer loyalty;
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establish
and maintain strategic relationships with distribution partners and service providers;
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respond
to competitive and technological developments;
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build
an operations structure to support the Company business; and
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attract,
retain and motivate qualified personnel.
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The Company cannot guarantee that it
will succeed in achieving these goals, and its failure to do so would have a material adverse effect on its business, prospects,
financial condition and operating results.
Some of the Company’s products
and services are new and are only in early stages of commercialization. The Company is not certain that these products and services
will function as anticipated or be desirable to its intended market. Also, some of the Company’s products and services may
have limited functionalities, which may limit their appeal to consumers and put the Company at a competitive disadvantage. If
the Company’s current or future products and services fail to function properly or if the Company does not achieve or sustain
market acceptance, it could lose customers or could be subject to claims which could have a material adverse effect on the Company
business, financial condition and operating results.
As is typical in a new and rapidly
evolving industry, demand and market acceptance for recently introduced products and services are subject to a high level of uncertainty
and risk. Because the market for the Company is new and evolving, it is difficult to predict with any certainty the size of this
market and its growth rate, if any. The Company cannot guarantee that a market for the Company will develop or that demand for
Company services will emerge or be sustainable. If the market fails to develop, develops more slowly than expected or becomes
saturated with competitors, the Company’s business, financial condition and operating results would be materially adversely
affected.
If we fail to establish and maintain
an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any
ability to report and file our financial results accurately and timely could harm our reputation and adversely impact the future
trading price of our common stock.
Effective internal control is necessary for
us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud,
we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business
and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely
affect our financial condition, results of operation and access to capital.
We currently have insufficient written policies
and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure
requirements. Additionally, there is a lack of formal process and timeline for closing the books and records at the end of each
reporting period and such weaknesses restrict the Company’s ability to timely gather, analyze and report information relative
to the financial statements.
Because of the Company’s limited resources,
there are limited controls over information processing. There is inadequate segregation of duties consistent with control objectives.
Our Company’s management is composed of a small number of individuals resulting in a situation where limitations on segregation
of duties exist. In order to remedy this situation, we would need to hire additional staff. Currently, the Company is unable to
hire additional staff to facilitate greater segregation of duties but will reassess its capabilities after completion of the Offering.
If we fail to protect our intellectual
property, our business could be adversely affected
Our
viability will depend, in part, on our ability to develop and maintain the proprietary aspects of our technology and brands to
distinguish our products and services from our competitors' products and services. We rely on patents, copyrights, trademarks,
trade secrets, and confidentiality provisions to establish and protect our intellectual property.
Any
infringement or misappropriation of our intellectual property could damage its value and limit our ability to compete. We may
have to engage in litigation to protect the rights to our intellectual property, which could result in significant litigation
costs and require a significant amount of our time. In addition, our ability to enforce and protect our intellectual property
rights may be limited in certain countries outside the U.S., which could make it easier for competitors to capture market position
in such countries by utilizing technologies that are similar to those developed or licensed by us.
Competitors
may also harm our sales by designing products that mirror the capabilities of our products or technology without infringing on
our intellectual property rights. If we do not obtain sufficient protection for our intellectual property, or if we are unable
to effectively enforce our intellectual property rights, our competitiveness could be impaired, which would limit our growth and
future revenue.
We may
also find it necessary to bring infringement or other actions against third parties to seek to protect our intellectual property
rights. Litigation of this nature, even if successful, is often expensive and time-consuming to prosecute and there can be no
assurance that we will have the financial or other resources to enforce our rights or be able to enforce our rights or prevent
other parties from developing similar technology or designing around our intellectual property.
Our
trade secrets may be difficult to protect
Our
success depends upon the skills, knowledge and experience of our scientific and technical personnel, our consultants and advisors,
as well as our licensors and contractors. Because we operate in a highly competitive industry, we rely in part on trade secrets
to protect our proprietary technology and processes. However, trade secrets are difficult to protect. We enter into confidentiality
or non-disclosure agreements with our corporate partners, employees, consultants, outside scientific collaborators, developers
and other advisors. These agreements generally require that the receiving party keep confidential and not disclose to third party’s
confidential information developed by the receiving party or made known to the receiving party by us during the course
of the receiving party's relationship with us. These agreements also generally provide that inventions conceived by the receiving
party in the course of rendering services to us will be our exclusive property, and we enter into assignment agreements to perfect
our rights.
These
confidentiality, inventions and assignment agreements may be breached and may not effectively assign intellectual property rights
to us. Our trade secrets also could be independently discovered by competitors, in which case we would not be able to prevent
the use of such trade secrets by our competitors. The enforcement of a claim alleging that a party illegally obtained and was
using our trade secrets could be difficult, expensive and time consuming and the outcome would be unpredictable. In addition,
courts outside the U.S. may be less willing to protect trade secrets. The failure to obtain or maintain meaningful trade secret
protection could adversely affect our competitive position.
Our lack of patent and/or copyright
protection and any unauthorized use of our proprietary information and technology may affect our business
We currently rely on a combination of protections
by contracts, including confidentiality and nondisclosure agreements, and common law rights, such as trade secrets, to protect
our intellectual property. However, we cannot assure you that we will be able to adequately protect our technology or other intellectual
property from misappropriation in the U.S. and abroad. This risk may be increased due to the lack of any patent and/or copyright
protection. Any patent issued to us could be challenged, invalidated or circumvented or rights granted thereunder may not provide
a competitive advantage to us. Furthermore, patent applications that we file may not result in issuance of a patent, or, if a
patent is issued, the patent may not be issued in a form that is advantageous to us. Despite our efforts to protect our intellectual
property rights, others may independently develop similar products, duplicate our products or design around our patents and other
rights. In addition, it is difficult to monitor compliance with, and enforce, our intellectual property rights on a worldwide
basis in a cost-effective manner. In jurisdictions where foreign laws provide less intellectual property protection than afforded
in the U.S., our technology or other intellectual property may be compromised, and our business could be materially adversely
affected. If any of our proprietary rights are misappropriated or we are forced to defend our intellectual property rights, we
will have to incur substantial costs. Such litigation could result in substantial costs and diversion of our resources, including
diverting the time and effort of our senior management, and could disrupt our business, as well as have a material adverse effect
on our business, prospects, financial condition and results of operations. We can provide no assurance that we will have the financial
resources to oppose any actual or threatened infringement by any third party. Furthermore, any patent or copyrights that we may
be granted may be held by a court to infringe on the intellectual property rights of others and subject us to the payment of damage
awards.
Risks Related to Our Common Stock
Because we will likely issue additional
shares of our common stock, investment in our company could be subject to substantial dilution.
Investors’ interests in our Company
will be diluted and investors may suffer dilution in their net book value per share when we issue additional shares. We are authorized
to issue 100,000,000 shares of common stock, $0.00001 par value per share. As of September 2, 2016, there were 46,751,074 shares of
our common stock issued and outstanding. We anticipate that all or at least some of our future funding, if any, will be in the
form of equity financing from the sale of our common stock. If we do sell more common stock, investors’ investment in our
company will likely be diluted. Dilution is the difference between what you pay for your stock and the net tangible book value
per share immediately after the additional shares are sold by us. If dilution occurs, any investment in our company’s common
stock could seriously decline in value.
The sale of our stock under the convertible
notes and the common share purchase warrants could encourage short sales by third parties, which could contribute to the future
decline of our stock price.
In many circumstances, the provision of financing
based on the distribution of equity for companies that are traded on the OTCQB has the potential to cause a significant downward
pressure on the price of common stock. This is especially the case if the shares being placed into the market exceed the market’s
ability to take up the increased stock or if we have not performed in such a manner to show that the equity funds raised will
be used to grow our business. Such an event could place further downward pressure on the price of our common stock. Regardless
of our activities, the opportunity exists for short sellers and others to contribute to the future decline of our stock price.
If there are significant short sales of our common stock, the price decline that would result from this activity will cause the
share price to decline more, which may cause other stockholders of the stock to sell their shares, thereby contributing to sales
of common stock in the market. If there are many more shares of our common stock on the market for sale than the market will absorb,
the price of our common shares will likely decline.
Trading in our common stock on the OTCQB
has been subject to wide fluctuations.
Our common stock is currently quoted for public
trading on the OTCQB. The trading price of our common stock has been subject to wide fluctuations. Trading prices of our common
stock may fluctuate in response to a number of factors, many of which will be beyond our control. The stock market has generally
experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance
of companies with no current business operation. There can be no assurance that trading prices and price earnings ratios previously
experienced by our common stock will be matched or maintained. These broad market and industry factors may adversely affect the
market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the
market price of a company’s securities, securities class-action litigation has often been instituted. Such litigation, if
instituted, could result in substantial costs for us and a diversion of management’s attention and resources.
Our Certificate of Incorporation and
by-laws provides for indemnification of officers and directors at our expense and limit their liability which may result in a
major cost to us and hurt the interests of our shareholders because corporate resources may be expended for the benefit of officers
and/or directors.
Our Certificate of Incorporation and By-Laws
include provisions that eliminate the personal liability of our directors for monetary damages to the fullest extent possible
under the laws of the State of Delaware or other applicable law. These provisions eliminate the liability of our directors and
our shareholders for monetary damages arising out of any violation of a director of his fiduciary duty of due care. Under Delaware
law, however, such provisions do not eliminate the personal liability of a director for (i) breach of the director's duty of loyalty,
(ii) acts or omissions not in good faith or involving intentional misconduct or knowing violation of law, (iii) payment of dividends
or repurchases of stock other than from lawfully available funds, or (iv) any transaction from which the director derived an improper
benefit. These provisions do not affect a director's liabilities under the federal securities laws or the recovery of damages
by third parties.
We do not intend to pay dividends on
any investment in the shares of stock of our Company and any gain on an investment in our Company will need to come through an
increase in our stock’s price, which may never happen.
We have never paid any cash dividends and
currently do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding currently
not provided for in our financing plan, our funding sources may prohibit the payment of a dividend. Because we do not intend to
declare dividends, any gain on an investment in our company will need to come through an increase in the stock’s price.
This may never happen and investors may lose all of their investment in our company.
Because our securities are subject to
penny stock rules, you may have difficulty reselling your shares.
Our shares as penny stocks, are covered by
Section 15(g) of the Securities Exchange Act of 1934 which imposes additional sales practice requirements on broker/dealers who
sell our company’s securities including the delivery of a standardized disclosure document; disclosure and confirmation
of quotation prices; disclosure of compensation the broker/dealer receives; and, furnishing monthly account statements. These
rules apply to companies whose shares are not traded on a national stock exchange, trade at less than $5.00 per share, or who
do not meet certain other financial requirements specified by the Securities and Exchange Commission. These rules require brokers
who sell “penny stocks” to persons other than established customers and “accredited investors” to complete
certain documentation, make suitability inquiries of investors, and provide investors with certain information concerning the
risks of trading in such penny stocks. These rules may discourage or restrict the ability of brokers to sell our shares of common
stock and may affect the secondary market for our shares of common stock. These rules could also hamper our ability to raise funds
in the primary market for our shares of common stock.
FINRA sales practice requirements may
also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock”
rules described above, the Financial Industry Regulatory Authority (known as “FINRA”) has adopted rules that require
that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment
is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers
must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives
and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative
low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers
to recommend that their customers buy our common shares, which may limit your ability to buy and sell our stock and have an adverse
effect on the market for our shares.
Tangiers Global, LLC will pay less than
the then-prevailing market price for our common stock.
Our common stock to be issued to Tangiers
Global, LLC pursuant to the Investment Agreement dated August 4, 2016 will be purchased at 80% of the average of the two lowest
closing bid prices of our common stock during the pricing period applicable to the put notice, provided, however, an additional
10% will be added to the discount of each put if (i) we are not DWAC eligible and (ii) an additional 15% will be added to the
discount of each put if we are under DTC “chill” status on the applicable date of the put notice. Tangiers Global,
LLC has a financial incentive to sell our common stock immediately upon receiving the shares to realize the profit equal to the
difference between the discounted price and the market price. If Tangiers Global, LLC sells the shares, the price of our common
stock could decrease. If our stock price decreases, Tangiers Global, LLC may have a further incentive to sell the shares of our
common stock that it holds. These sales may have a further impact on our stock price.
Your ownership interest may be diluted
and the value of our common stock may decline by exercising the put right pursuant to the investment agreement with Tangiers Global,
LLC.
Pursuant to the investment agreement with
Tangiers Global, LLC, when we deem it necessary, we may raise capital through the private sale of our common stock to Tangiers
Global, LLC at a discounted price. Because the put price is lower than the prevailing market price of our common stock, to the
extent that the put right is exercised, your ownership interest may be diluted.
We may not have access to the full amount
available under the investment agreement with Tangiers Global, LLC.
Our ability to draw down funds and sell shares
under the investment agreement with Tangiers Global, LLC requires that the registration statement of which this prospectus forms
a part to be declared effective and continue to be effective. The registration statement of which this prospectus forms a part
registers the resale of 5,829,842 shares issuable under the investment agreement with Tangiers Global, LLC, and our ability to
sell any remaining shares issuable under the investment with Tangiers Global, LLC is subject to our ability to prepare and file
one or more additional registration statements registering the resale of these shares. These registration statements may be subject
to review and comment by the staff of the Securities and Exchange Commission, and will require the consent of our independent
registered public accounting firm. Therefore, the timing of effectiveness of these registration statements cannot be assured.
The effectiveness of these registration statements is a condition precedent to our ability to sell all of the shares of our common
stock to Tangiers Global, LLC under the investment agreement. Even if we are successful in causing one or more registration statements
registering the resale of some or all of the shares issuable under the investment agreement with Tangiers Global, LLC to be declared
effective by the Securities and Exchange Commission in a timely manner, we may not be able to sell the shares unless certain other
conditions are met. For example, we might have to increase the number of our authorized shares in order to issue the shares to
Tangiers Global, LLC. Increasing the number of our authorized shares will require board and stockholder approval. Accordingly,
because our ability to draw down any amounts under the investment agreement with Tangiers Global, LLC is subject to a number of
conditions, there is no guarantee that we will be able to draw down any portion or all of the proceeds of $5,000,000 under the
investment with Tangiers Global, LLC.
Certain restrictions on the extent of
puts and the delivery of advance notices may have little, if any, effect on the adverse impact of our issuance of shares in connection
with the investment agreement with Tangiers Global, LLC, and as such, Tangiers Global, LLC may sell a large number of shares,
resulting in substantial dilution to the value of shares held by existing stockholders.
Tangiers Global, LLC has agreed, subject to
certain exceptions listed in the investment agreement with Tangiers Global, LLC, to refrain from holding an amount of shares which
would result in Tangiers Global, LLC or its affiliates owning more than 9.99% of the then-outstanding shares of our common stock
at any one time. These restrictions, however, do not prevent Tangiers Global, LLC from selling shares of our common stock received
in connection with a put, and then receiving additional shares of our common stock in connection with a subsequent put. In this
way, Tangiers Global, LLC could sell more than 9.99% of the outstanding common stock in a relatively short time frame while never
holding more than 9.99% at one time.
Use of Proceeds
We will not receive any proceeds from the
sale of shares of our common stock by the selling stockholders. However, we will receive proceeds from the sale of shares of our
common stock pursuant to our exercise of the put right offered by Tangiers Global, LLC. We will use these proceeds for general
corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that our board
of directors, in its good faith, deems to be in the best interest of the Company.
We will pay for expenses of this offering,
except that the selling stockholder will pay any broker discounts or commissions or equivalent expenses and expenses of its legal
counsel applicable to the sale of its shares.
Selling Stockholders
This prospectus relates to the resale
of 5,917,442 shares of our common stock, par value $0.00001 per share, including (i) 5,829,842 shares of common stock (the “Common
Shares”), shares issuable to Tangiers Global, LLC (defined below) and, (ii) 87,600 shares previously issued to an individual
shareholder.
This prospectus relates to the resale
of up to 5,829,842 shares of the Common Shares, issuable to Tangiers Global, LLC (“Tangiers”), a selling stockholder
pursuant to a “put right” under an amended and restated investment agreement (the “Investment Agreement”),
dated August 4, 2016, that we entered into with Tangiers. The Investment Agreement permits us to “put” up to
five million dollars ($5,000,000) in shares of our common stock to Tangiers over a period of up to thirty-six (36) months or until
$5,000,000 of such shares have been “put.”
The selling stockholder may offer and
sell, from time to time, any or all of shares of our common stock to be sold to Tangiers Global, LLC under the Investment Agreement
dated August 4, 2016.
The following table sets forth certain
information regarding the beneficial ownership of shares of common stock by the selling stockholder as of September 2, 2016 and
the number of shares of our common stock being offered pursuant to this prospectus. We believe that the selling stockholder has
sole voting and investment powers over its shares.
Because the selling stockholder may
offer and sell all or only some portion of the 5,917,442 shares of our common stock being offered pursuant to this prospectus,
the numbers in the table below representing the amount and percentage of these shares of our common stock that will be held by
the selling stockholder upon termination of the offering are only estimates based on the assumption that the selling stockholder
will sell all of its shares of our common stock being offered in the offering.
The selling stockholder has not had
any position or office, or other material relationship with us or any of our affiliates over the past three years.
To our knowledge, the selling stockholder
is not a broker-dealer or an affiliate of a broker-dealer. We may require the selling stockholder to suspend the sales of the
shares of our common stock being offered pursuant to this prospectus upon the occurrence of any event that makes any statement
in this prospectus or the related registration statement untrue in any material respect or that requires the changing of statements
in those documents in order to make statements in those documents not misleading.
Name
of Selling
Stockholder
|
|
Shares Owned by the
Selling
Stockholder
before the Offering
(1)
|
|
|
Total
Shares
Offered in the
Offering
|
|
|
Number
of Shares to Be Owned by Selling Stockholder After the Offering and Percent of Total Issued and Outstanding Shares
(1)
|
|
|
|
|
|
|
|
|
#
of
Shares
(2)
|
|
%
of
Class
(2),(3)
|
Tangiers
Global, LLC
(4)
|
|
|
0
|
|
|
|
5,829,842
|
|
|
0
|
|
*
|
Brian E. Johnson
|
|
|
87,600
|
|
|
|
87,600
|
|
|
0
|
|
*
|
Notes
|
|
*
|
Less
than 1%.
|
|
|
(1)
|
Beneficial
ownership is determined in accordance with Securities and Exchange Commission rules and generally includes voting or investment
power with respect to shares of common stock. Shares of common stock subject to options and warrants currently exercisable,
or exercisable within 60 days, are counted as outstanding for computing the percentage of the person holding such options
or warrants but are not counted as outstanding for computing the percentage of any other person.
|
(2)
|
We have
assumed that the selling stockholder will sell all of the shares being offered in this offering.
|
|
|
|
|
(3)
|
Based
on 5,917,442 shares of our common stock issued and outstanding as of September 2, 2016. Shares of our common stock being
offered pursuant to this prospectus by a selling stockholder are counted as outstanding for computing the percentage of the
selling stockholder.
|
|
|
(4)
|
Justin
Ederle has the voting and dispositive power over the shares owned by Tangiers Global, LLC
.
|
Plan of Distribution
This prospectus relates to the resale
of 5,917,442 shares of our common stock, par value $0.00001 per share, including (i) 5,829,842 shares of common stock (the “Common
Shares”), shares issuable to Tangiers Global, LLC (defined below) and, (ii) 87,600 shares previously issued to an individual
shareholder.
This prospectus relates to the resale
of up to 5,829,842 shares of the Common Shares, issuable to Tangiers Global, LLC (“Tangiers”), a selling stockholder
pursuant to a “put right” under an amended and restated investment agreement (the “Investment Agreement”),
dated August 4, 2016, that we entered into with Tangiers. The Investment Agreement permits us to “put” up to
five million dollars ($5,000,000) in shares of our common stock to Tangiers over a period of up to thirty-six (36) months or until
$5,000,000 of such shares have been “put.”
The Amended and Restated Investment
Agreement with Tangiers is not transferable.
At an assumed purchase price under
the Investment Agreement of $0.08 (equal to 80% of the closing price of our common stock of $0.10 on September 2, 2016), we will
be able to receive up to $466,387 in gross proceeds, assuming the sale of the entire 5,829,842 Put Shares being registered hereunder
pursuant to the Investment Agreement. At an assumed purchase price of $0.08 under the Investment Agreement, we would be required
to register 566,701,625 additional shares to obtain the balance of $4,533,613 under the Investment Agreement. Due to the floating
offering price, we are not able to determine the exact number of shares that we will issue under the Investment Agreement.
The selling stockholder may, from time
to time, sell any or all of shares of our common stock covered hereby on the OTCQB, or any other stock exchange, market or trading
facility on which the shares are traded or in private transactions. A selling stockholder may sell all or a portion of the shares
being offered pursuant to this prospectus at fixed prices, at prevailing market prices at the time of sale, at varying prices
or at negotiated prices. A selling stockholder may use any one or more of the following methods when selling securities:
|
●
|
ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
|
|
|
|
●
|
block
trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
|
|
|
|
|
●
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
|
|
|
|
|
●
|
an exchange
distribution in accordance with the rules of the applicable exchange;
|
|
|
|
|
●
|
privately
negotiated transactions;
|
|
|
|
|
●
|
in transactions
through broker-dealers that agree with the selling stockholder to sell a specified number of such securities at a stipulated
price per security;
|
|
|
|
|
●
|
through
the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
|
|
●
|
a
combination of any such methods of sale; or
|
|
●
|
any
other method permitted pursuant to applicable law.
|
The selling stockholder may also sell
securities under Rule 144 under the Securities Act of 1933, if available, rather than under this prospectus.
Broker-dealers engaged by the selling
stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts
from the selling stockholder (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts
to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess
of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or
markdown in compliance with FINRA IM-2440.
In connection with the sale of the
securities or interests therein, the selling stockholder may enter into hedging transactions with broker-dealers or other financial
institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The
selling stockholder may also sell securities short and deliver these securities to close out its short positions, or loan or pledge
the securities to broker-dealers that in turn may sell these securities. The selling stockholder may also enter into option or
other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require
the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such
broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).
Tangiers Global, LLC is an underwriter
within the meaning of the Securities Act of 1933 and any broker-dealers or agents that are involved in selling the shares may
be deemed to be “underwriters” within the meaning of the Securities Act of 1933 in connection with such sales. In
such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by
them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933. We are required to pay certain
fees and expenses incurred by us incident to the registration of the securities.
The selling stockholder will be subject
to the prospectus delivery requirements of the Securities Act of 1933 including Rule 172 thereunder.
The resale securities will be sold
only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain
states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations
under the Securities Exchange Act of 1934, any person engaged in the distribution of the resale securities may not simultaneously
engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation
M, prior to the commencement of the distribution. In addition, the selling stockholder will be subject to applicable provisions
of the Securities Exchange Act of 1934 and the rules and regulations thereunder, including Regulation M, which may limit the timing
of purchases and sales of securities of the common stock by the selling stockholder or any other person. We will make copies of
this prospectus available to the selling stockholder and will inform it of the need to deliver a copy of this prospectus to each
purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act of 1933).
Dilution
The sale of our common stock to Tangiers Global,
LLC in accordance with the Investment Agreement dated August 4, 2016 will have a dilutive impact on our stockholders. As a result,
our net loss per share could increase in future periods and the market price of our common stock could decline. In addition, the
lower our stock price is at the time we exercise our put option, the more shares of our common stock we will have to issue to
Tangiers Global, LLC in order to drawdown pursuant to the investment agreement. If our stock price decreases during the pricing
period, then our existing stockholders would experience greater dilution.
Investment Agreement with Tangiers
Global, LLC
On August 4, 2016, we entered into
an amended and restated investment agreement with Tangiers Global, LLC, a Wyoming limited liability company (“Tangiers”).
Pursuant to the terms of the investment agreement, Tangiers committed to purchase up to $5,000,000 of our common stock over a
period of up to 36 months. From time to time during the 36 month period commencing from the effectiveness of the registration
statement, we may deliver a put notice to Tangiers which states the dollar amount that we intend to sell to Tangiers on a date
specified in the put notice. The maximum investment amount per notice must be no more than 200% of the average daily trading dollar
volume of our common stock for the eight (8) consecutive trading days immediately prior to date of the applicable put notice and
such amount must not exceed an accumulative amount of $250,000. The minimum put amount is $5,000. The purchase price per share
to be paid by Tangiers will be the 80% of the of the average of the two lowest closing bid prices of the Common Stock during the
pricing period applicable to the put notice, provided, however, an additional 10% will be added to the discount of each put if
(i) we are not DWAC eligible and (ii) an additional 15% will be added to the discount of each put if we are under DTC “chill”
status on the applicable date of the put notice.
In connection with the investment agreement
with Tangiers, we also entered into a registration rights agreement with Tangiers, pursuant to which we agreed to use our best
efforts to, within 30 days of August 4, 2016, file with the Securities and Exchange Commission a registration statement, covering
the resale of 5,829,842 shares of our common stock underlying the investment agreement with Tangiers.
The Company also issued a fixed convertible
promissory note to Tangiers for the principal sum of $50,000 as a commitment fee. The promissory note maturity date is February
14, 2017.
If this registration statement is
declared effective within 90 days of the execution date of the Investment Agreement, the Company and Holder agree the principal
balance of the Note will immediately be reduced by $25,000. If this registration statement is declared effective within 135
days, but no more than 90 days of the execution date of the Investment Agreement, the Company and Holder agree the principal balance
of the Note will immediately be reduced by $15,000.
The 5,829,842
shares being offered pursuant to the investment agreement with Tangiers represents12.49% of the shares issued and outstanding,
assuming that the selling stockholders will sell all of the shares offered for sale. The 5,829,842 shares being offered pursuant
to this prospectus represent 27.38% of the shares issued and outstanding held by non-affiliates of our company. The investment
agreement with Tangiers is not transferable and any benefits attached thereto may not be assigned.
At an assumed purchase price under
the Investment Agreement of $0.08 (equal to 80% of the closing price of our common stock of $0.10 on September 2, 2016), we will
be able to receive up to $466,387 in gross proceeds, assuming the sale of the entire 5,829,842 Put Shares being registered hereunder
pursuant to the Investment Agreement. At an assumed purchase price of $0.08 under the Investment Agreement, we would be required
to register 566,701,625 additional shares to obtain the balance of $4,533,613 under the Investment Agreement. Due to the floating
offering price, we are not able to determine the exact number of shares that we will issue under the Investment Agreement.
There are substantial risks to investors
as a result of the issuance of shares of our common stock under the investment agreement with Tangiers. These risks include dilution
of stockholders’ percentage ownership, significant decline in our stock price and our inability to draw sufficient funds
when needed.
We intend to sell Tangiers periodically
our common stock under the investment agreement and Tangiers will, in turn, sell such shares to investors in the market at the
market price. This may cause our stock price to decline, which will require us to issue increasing numbers of common shares to
Tangiers to raise the same amount of funds, as our stock price declines.
The proceeds received from any “puts”
tendered to Tangiers under the investment agreement will be used for general corporate and working capital purposes and acquisitions
or assets, businesses or operations or for other purposes that our board of directors, in its good faith deem to be in the best
interest of the Company.
We may have to increase the number of our authorized shares
in order to issue the shares to Tangiers if we reach our current amount of authorized shares of common stock. Increasing the number
of our authorized shares will require board and stockholder approval. Accordingly, because our ability to draw down any amounts
under the investment agreement with Tangiers is subject to a number of conditions, there is no guarantee that we will be able
to draw down any portion or all of the proceeds of $5,000,000 under the investment agreement with Tangiers.
Description of Property
Our Offices
Our
headquarters are located at
5690 Logan Street, Unit A, Denver CO. 80216,
where we
lease office space under a contract effective July 28, 2015, expiring on July 31, 2020.
Under the terms of the lease, payments
are $4,500 per month for the first 36 months of the lease, and escalate thereafter.
We believe that our existing office
facilities are adequate for our needs. Should we require additional space at that time, or prior thereto, we believe that such
space can be secured on commercially reasonable terms.
Description of Securities
Capital Stock
We are authorized to issue 5,000,000
shares of preferred stock, $0.01 par value, and 100,000,000 shares of Common stock, $0.00001 par value.
Preferred Stock
As of September 2, 2016, we had 0 shares
of preferred stock issued and outstanding.
Common Stock
As of September 2, 2016, 46,751,074
shares of common stock are issued and outstanding.
The holders of our common stock have
equal ratable rights to dividends from funds legally available if and when declared by our board of directors and are entitled
to share ratably in all of our assets available for distribution to holders of common stock upon liquidation, dissolution or winding
up of our affairs. Our common stock does not provide the right to a preemptive, subscription or conversion rights and there are
no redemption or sinking fund provisions or rights. Our common stock holders are entitled to one non-cumulative vote per share
on all matters on which stockholders may vote.
All shares of common stock now outstanding
are fully paid for and non-assessable. We refer you to our certificate of incorporation, bylaws and the applicable statutes of
the state of Delaware for a more complete description of the rights and liabilities of holders of our securities. All material
terms of our common stock have been addressed in this section.
Holders of shares of our common stock
do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the
election of directors, can elect all of the directors to be elected, if they so choose, and, in that event, the holders of the
remaining shares will not be able to elect any of our directors.
Dividends
We have not paid any cash dividends
to our shareholders. The declaration of any future cash dividends is at the discretion of our Board and depends upon our earnings,
if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is
our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our
business operations. Dividend rights of both our common and preferred shareholders will entitle them to the same dividend that
other shareholders of the same class receive.
Warrants
As of June 30, 2016 and December 31,
2015, the Company issued fully-vested warrants to the Company’s independent board member to purchase up to two hundred and
fifty thousand (250,000) shares of common stock at an exercise price of sixty-three cents ($0.63) per share were outstanding,
exercisable within five (5) years of the date of issuance on November 19, 2014. The grant date fair value of the warrants, as
calculated based on the Black-Scholes valuation model, was $0.59 per share. There were no outstanding unvested warrants or new
issuances of warrants during the three months ended June 30, 2016; consequently, no stock-based compensation expense associated
with warrant was recorded during the six months ended June 30, 2016.
As of June 30, 2016 and December 31,
2015, as the exercise price per share exceeded the price per share of our common shares, there was no aggregate intrinsic value
of outstanding warrants. As of June 30, 2016 and December 31, 2015, the warrants had 3.6 and 3.3 years remaining until expiration,
respectively. No warrants were issued or outstanding during or preceding the six months ended June 30, 2016.
Options
There are no outstanding options to
purchase our securities.
Business
Overview
We
primarily operate within two divisions within the regulated cannabis industry: (i) consulting and professional services; and,
(ii) the sale of products and equipment commonly utilized in the cultivation, processing, transportation or retail sale of cannabis.
We do not hold any ownership interests, direct or indirect, in businesses which hold a license to produce and/or sell cannabis.
We do not sell, cultivate, manufacture, or transact cannabis.
Consulting
Services
We offer consulting services for companies associated
with the cannabis industry in all stages of development. Our service
offerings
include the following:
•
|
|
Cannabis
Business Planning.
Our commercial cannabis business planning services are structured to help those pursuing state based
operational licensing to create and implement effective, long-range business plans. We work with our clients to generate a
comprehensive strategy based on market need and growth opportunities, and be a partner through site selection, site design,
the development of best operating practices, the facility build-out process, and the deployment of products. We understand
the challenges and complexities of the regulated commercial cannabis market and we have the expertise to help client businesses
thrive.
|
•
|
|
Cannabis
Business License Applications.
Our team has the experience necessary to help clients obtain approval for their state license
and ensure their company remains compliant as it grows. We have crafted successful, merit-based medical marijuana business
license applications in multiple states and we understand the community outreach and coordination of services necessary to
win approval. As part of the process for crafting applications, we collaborate with clients to develop business protocols,
safety standards, a security plan, and a staff training program. Depending on the nature of our clients’ businesses
and needs, we can work with our clients to draft detailed cultivation plans, create educational materials for patients, or
design and develop products that comply with legal state guidelines
|
•
|
|
Cultivation
Build-out Oversight Services.
We offer cultivation build-out consulting as part of our Cannabis Business Planning service
offerings. We help clients ensure their project timeline is being met, facilities are being designed with compliance and the
regulated cannabis industry in mind, and that facilities are built to the highest of quality standards for cannabis production
and/or distribution. This enables a seamless transition from construction to cultivation, ensuring that client success is
optimized and unencumbered by mismanaged construction projects.
|
•
|
|
Cannabis
Regulatory Compliance.
Based on our thorough understanding of regulated commercial cannabis laws nationwide, we can help
client cultivation operations, retail dispensaries and/or infused-product kitchen businesses to meet and maintain regulatory
compliance for both medical and recreational markets. We partner with our clients to establish standard operating procedures
in accordance with their state’s regulation and help them implement effective staff hiring and training practices to
ensure that employees adhere to relevant guidelines.
|
•
|
|
Compliance
Audit Services.
Our regulatory compliance service offerings include compliance auditing. The regulated cannabis industry
is developing rapidly with evolving laws and regulations, and navigating through current and new regulations and systems can
be tedious and daunting. To assist our clients in addressing these challenges, we offer compliance audits performed by
our experienced and knowledgeable staff; our team members maintain comprehensive oversight of the cannabis industry while
staying up-to-date on current and new laws and regulations. Our compliance audits assess various regulatory topics, including:
(1) licensing requirements; (2) visitor intake procedures; (3) seed-to-sale inventory tracking; (4) proper waste disposal
procedures; (5) recordkeeping and documentation requirements; (6) cannabis transportation procedures; (7) packaging and labeling
requirements; (8) security requirements; (9) product storage; (10) mandatory signage; and (11) preparedness for state and
local inspections.
|
•
|
|
Cannabis
Business Growth Strategies.
Our team shares its collective knowledge and resources with our clients to create competitive,
forward-looking cannabis business growth strategies formulated to minimize risk and maximize potential. We customize individual
plans for the unique nature of our client businesses, their market and big-picture goals, supported with a detailed analysis
and a thorough command of workflow best practices, product strategies, sustainability opportunities governed by a core understanding
or regulatory barriers and/or opportunities.
|
•
|
|
Cannabis
Business Monitoring
. The regulated commercial cannabis industry is constantly growing and shifting, and the ongoing monitoring
of a cannabis business allows it to remain responsive to evolving consumer demands and state regulations as well as potential
operations problems. We offer fully-integrated business analysis solutions. Our monitoring services include sales tracking,
market assessment, loss prevention strategies, review of operational efficiency and workflow recommendations. Additionally,
our services include Strength, Weakness, Opportunity and Threat (“SWOT”) analysis, where we analyze client operations
to pinpoint strengths, weaknesses, opportunities and threats. Our SWOT analyses allow clients to focus their efforts and resources
on the most critical areas along these dimensions.
|
|
Equipment
and Supplies
In
addition to professional consulting services, we operate an equipment and supplies division for customers in the cannabis industry,
including through American Cultivator Co., our Group Purchasing Organization that enables customers to procure commonly used cultivation
supplies at low prices associated with high volume purchases. Our major product offerings include the following:
•
|
|
The
Satchel
™. The Satchel was invented in response to regulatory changes in Colorado and elsewhere that require child-proof
exit containers. The Satchel is a pouch-like case designed as a high-quality, child-proof exit package solution for the regulated
cannabis industry. The Satchel meets child-safety requirements of the Consumer Products Safety Commission (“CPSC”),
making it compliant in all states, and the Satchel’s drawstring and toggle lock fulfills the requirements of the Poison
Prevention Packaging Act of 1970 (16 CFR part 1700). There are few products meeting regulatory standards, and even fewer that
offer distinctive quality. The Satchel will meet all current exit packaging regulations, featuring a child-proof closure that
completely conceals the contents inside. On March 29, 2016, the U.S. Patent and Trademark Office issued us Patent No.
9,296,524 B2 for the Satchel.
|
•
|
|
SoHum
Living Soil
™. The right grow methodology is critical to the success of any cannabis cultivation operation, and SoHum
Living Soil™ is our solution to ensure that our customers can implement an optimal methodology that will maximize quality
and yields while simplifying the cultivation process and reducing risk of operator error and test failure. The SoHum medium
is a fully amended Just-add-water soil that contains none of the synthetic components found in other potting mixes and requires
no chemical additives to spur growth. Compared with comparable methodologies, SoHum Living Soil™ offers a number of
key advantages, including: (1) consistent Pyto-pharmaceutical-grade product quality; (2) improved plant resistance to disease;
and (3) reduced operator error.
|
•
|
|
High
Density Cultivation System (
HDCS™)
.
A key metric in the success of a cultivation operation is the maximization
of available space to grow. Our High Density Cultivation System is a solution designed to ensure that space is used in the
most efficient manner possible. The system takes advantage of the existence of vertical space, with racks installed vertically
and placed on horizontal tracking to eliminate multiple isles and create multiple levels of space with which to grow plants.
The High Density Cultivation System allows customers to increase production capacity without the need to add additional square
footage to the operation.
|
•
|
|
The
Cultivation Cube
™. The Cultivation Cube™ is a self-contained, scalable cultivation system that is compliant
with regulatory guidelines. The Cultivation Cube™ allows commercial cannabis cultivation operations to maximize space,
yield and profit through an innovative design that provides a fully integrated growing solution. The Cultivation Cube utilizes
more lights per square foot than traditional grow systems, which translates to profit increases per square foot. The Cultivation
Cube™ is also stackable, which allows customers to achieve vertical gains and effectively doubles productive square-footage.
It is an ideal solution for commercial-scale cultivation within limited space, with numerous advantages over other traditional
grow systems, including: (1) flexibility to fit customer build-out sites; (2) efficient speed-to-market with fast delivery
and set-up; (3) increased security with limited access units; (4) risk mitigation through precision environmental controls;
and, (5) is compatible with lean manufacturing principles and operations.
|
•
|
|
Other
Products
. We offer our clients a diverse array of commonly utilized product offerings from across all areas of the regulated
cannabis industry, including cultivation operations, medicinal and recreational cannabis dispensary operations, and infused-products.
Examples of products available through American Cultivator Co. include HID Ballasts, reflectors, MH and HPS bulbs, T5 fixtures,
mediums, nutrients and fertilizers, growing containers, flood tables, reservoirs, and various other supplies, including cleaning
products and office supplies. We also offer a Group Purchasing Organization (“GPO”) focused on disposables
to creates purchasing power by leveraging groups of businesses to obtain discounts from vendors based on the collective
buying power of the GPO.
|
Sales
and Marketing
We
sell our services and products throughout the United States in states that have implemented regulated cannabis programs as well
as Canada. We intend to expand our offerings as more new countries, states and jurisdictions as they adopt state-regulated or
federal programs.
Research
and Development
As
a component of our equipment and supplies offerings, from time-to-time we design and develop our own proprietary products to meet
demand in markets where current offerings are insufficient. These products include, but are not limited to: the Satchel™,
Cultivation Cube™, So-Hum Living Soils™ and the HDCS™. Costs associated with the development of new products
are expensed as occurred as research and development operating expenses. During the year ended December 31, 2015, our research
and development costs were $51,115 as compared to $12,863 for the fiscal year ended December 31, 2014.
Significant
Customers
For the year ended December 31, 2015
and December 31, 2014, in the aggregate, three customers and two customers, respectively, accounted for 74% and 52% of the Company’s
total revenues for each respective period.
On a geographical basis, for the year
ended December 31, 2015, approximately 91% and 9% of our total revenues were generated from the United States and Canada, respectively.
For the year ended December 31, 2014, approximately 70% and 30% of our total revenues for the period were generated from the United
States and Canada, respectively.
Intellectual
Property
On March 29, 2016, the U.S. Patent
and Trademark Office issued us Patent No. 9,296,524 B2 for the Satchel.
We
may file for additional patent protection as we deem appropriate to protect new products. We also had trademark applications pending
to protect our branding and logos. These pending applications included trademarks for American Cannabis Company (stylized and/or
with design logo), American Cannabis Consulting (stylized and/or with design logo), the design and colors used in our leaf logo,
the Cultivation Cube (stylized and/or with design logo), our slogan (“Growing the Next Frontier”), and two word marks
and the logo associated with SoHum Living Soil.
Competition
Our
competitors include professional services firms dedicated to the regulated cannabis industry as well as suppliers of equipment
and supplies commonly utilized in the cultivation, processing, or retail sale of cannabis. We compete in markets where cannabis
has been legalized and regulated, which includes various states within the United States, it’s territories and Indian Country
therein and Canada. We expect that the quantity and composition of our competitive environment will continue to evolve as the
industry matures. Additionally, increased competition is possible to the extent that new states and geographies enter the marketplace
as a result of continued enactment of regulatory and legislative changes that de-criminalize and regulate cannabis products. We
believe that by being well established in the industry, our experience and success to date, and continued expansion of service
and product offerings in new and existing locations are factors that mitigate the risk associated with operating in a developing
competitive environment. Additionally, the contemporaneous growth of the industry as a whole will result in new customers entering
the marketplace, thereby further mitigating the impact of competition on our operations and results.
Employees
As of September 2, 2016, we have nine
(9) full-time employees, all of whom are U.S based, primarily in Colorado at our Denver headquarters.
None
of our U.S employees are represented by a labor union.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements contained in this report
that are not statements of historical fact, including without limitation, statements containing the words “believes,”
“expects,” “anticipates” and similar words, constitute forward-looking statements that are subject to
a number of risks and uncertainties. From time to time we may make other forward-looking statements. Investors are cautioned that
such forward-looking statements are subject to an inherent risk that actual results may materially differ as a result of many
factors, including the risks discussed from time to time in this report, including the risks described under “Risk Factors”
in any filings we have made with the SEC.
Our discussion and analysis of our
financial condition and results of operations are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going
basis, we evaluate these estimates, including those related to useful lives of real estate assets, cost reimbursement income,
bad debts, impairment, net lease intangibles, contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can
be no assurance that actual results will not differ from those estimates.
Background
American Cannabis Company, Inc. and
subsidiary is a publicly listed company quoted on the OTCQB under the symbol “AMMJ”. We are based in Denver, Colorado
and operate a fully-integrated business model that features end-to-end solutions for businesses operating in the regulated cannabis
industry in states and countries where cannabis is regulated and/or has been de-criminalized for medical use and/or legalized
for recreational use. We provide advisory and consulting services specific to this industry, design industry-specific products
and facilities, and sell both exclusive and non-exclusive customer products commonly used in the industry.
The Company was incorporated in the
State of Delaware on September 24, 2001 under the name “Naturewell, Inc.” On March 13, 2013, the Company completed
a merger transaction whereby it acquired Brazil Interactive Media, Inc. (“BIMI”), a Brazilian interactive television
company and television production company. The Company’s Certificate of Incorporation were amended to reflect a new name:
Brazil Interactive Media, Inc. On May 15, 2014 the Company entered into an Agreement and Plan of Merger with Cannamerica Corp.
(the “Merger Sub”), a wholly-owned subsidiary of BIMI, and Hollister & Blacksmith, Inc. doing business as American
Cannabis Consulting (“American Cannabis Consulting”). The merger was completed on September 29, 2014, resulting in
American Cannabis Consulting being merged with and into the Merger Sub (the “Reverse Merger”). The Company subsequently
amended its Certificate of Incorporation to change its name to “American Cannabis Company, Inc.” Upon the closing
of the Reverse Merger, all of the Company’s officers and directors appointed designee officers and directors from American
Cannabis Consulting and resigned. Consistent with the Merger Agreement, the Company consummated a complete divestiture of BIMI,
Inc., a Delaware corporation and wholly-owned subsidiary of the Company, pursuant to a Separation and Exchange Agreement dated
May 16, 2014 (the “Separation Agreement”) between the Company, BIMI, Inc., and Brazil Investment Holding, LLC (“Holdings”),
a Delaware limited liability company.
On October 10, 2014, the Company changed
its stock symbol from BIMI to AMMJ.
Results of Operations
Year ended December 31, 2015 compared
to year ended December 31, 2014
The following table presents our operating
results for the year ended December 31, 2015 compared to December 31, 2014:
|
|
|
Year
Ended December 31, 2015
|
|
|
|
%
of Revenues
|
|
|
|
Year
Ended December 31, 2014
|
|
|
|
%
of Revenues
|
|
|
|
$
Change
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
Services
|
|
$
|
693,225
|
|
|
|
24.8
|
|
|
$
|
677,633
|
|
|
|
53.8
|
|
|
$
|
15,592
|
|
Product
and equipment
|
|
|
2,106,662
|
|
|
|
75.2
|
|
|
|
581,379
|
|
|
|
46.2
|
|
|
|
1,525,283
|
|
Total Revenues
|
|
|
2,799,887
|
|
|
|
100.0
|
|
|
|
1,259,012
|
|
|
|
100.0
|
|
|
|
1,540,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of consulting services
|
|
|
182,161
|
|
|
|
6.5
|
|
|
|
322,134
|
|
|
|
25.6
|
|
|
|
(139,973
|
)
|
Cost
of products and equipment
|
|
|
1,817,952
|
|
|
|
64.9
|
|
|
|
449,342
|
|
|
|
35.7
|
|
|
|
1,368,610
|
|
Total Cost of Revenues
|
|
|
2,000,113
|
|
|
|
71.4
|
|
|
|
771,476
|
|
|
|
61.3
|
|
|
|
1,228,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
799,774
|
|
|
|
28.6
|
|
|
|
487,536
|
|
|
|
38.7
|
|
|
|
312,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
687,082
|
|
|
|
24.5
|
|
|
|
3,652,181
|
|
|
|
290.1
|
|
|
|
(2,965,099
|
)
|
Investor
Relations
|
|
|
307,069
|
|
|
|
11.0
|
|
|
|
23,132
|
|
|
|
1.8
|
|
|
|
283,937
|
|
Selling
and marketing
|
|
|
307,474
|
|
|
|
11.0
|
|
|
|
190,164
|
|
|
|
15.1
|
|
|
|
117,310
|
|
Research
and development
|
|
|
51,115
|
|
|
|
1.8
|
|
|
|
12,863
|
|
|
|
1.0
|
|
|
|
38,252
|
|
Total Operating
expenses
|
|
|
1,352,740
|
|
|
|
48.3
|
|
|
|
3,878,340
|
|
|
|
308.0
|
|
|
|
(2,525,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(552,966
|
)
|
|
|
(19.7
|
)
|
|
|
(3,390,804
|
)
|
|
|
(269.3
|
)
|
|
|
2,837,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on extinguishment of debt
|
|
|
72,771
|
|
|
|
2.6
|
|
|
|
35,000
|
|
|
|
2.8
|
|
|
|
37,771
|
|
Interest
Income (expense)
|
|
|
(35,458
|
)
|
|
|
(1.3
|
)
|
|
|
(263,388
|
)
|
|
|
(20.9
|
)
|
|
|
227,930
|
|
Total Other Income
(expense)
|
|
|
37,313
|
|
|
|
1.3
|
|
|
|
(228,388
|
)
|
|
|
(18.1
|
)
|
|
|
265,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss before
taxes
|
|
|
(515,653
|
)
|
|
|
(18.4
|
)
|
|
|
(3,619,192
|
)
|
|
|
(287.5
|
)
|
|
|
3,103,539
|
|
Income Tax expense
(benefit)
|
|
|
—
|
|
|
|
0.0
|
|
|
|
—
|
|
|
|
0.0
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
($
|
515,653
|
)
|
|
|
(18.4
|
)
|
|
($
|
3,619,192
|
)
|
|
|
(287.5
|
)
|
|
$
|
3,103,539
|
|
Revenues
Total revenues for the year ended December
31, 2015 and December 31, 2014, were $2,799,887 and $1,259,012, respectively, an increase of $1,540,875. This increase was primarily
due to growth in our client base and volume of operations as our business has matured following commencement of business operations
in April 2013, specifically the establishment of our in-house product offerings and 3
rd
party equipment sales were
major contributing factors. For the year ended December 31, 2015 and December 31, 2014, consulting services revenue was $693,225
and $677,633, respectively. For the year ended December 31, 2015 and December 31, 2014, products and equipment revenue were $2,106,662
and $581,379, respectively. During the years ended December 31, 2015 and December 31, 2014, the company generated revenue from
the sale of products in the amount of $25,214 and $0, respectively, to a Director.
Costs of Revenues
Costs of revenues primarily consist
of labor, travel, and other costs directly attributable to providing services or products. For the year ended December 31, 2015
and December 31, 2014, our total costs of revenues were $2,000,113 and $771,476, respectively. The increase in costs of revenues
was primarily due to the increase in operating expenses related to overhead and salaries as well as sales volume discussed above.
As a percentage of total revenues, the increase was due to changes in product mix, as sales of products and equipment, which have
a lower gross margin compared to consulting and advisory services, made up a higher percentage of revenues and costs of revenues
during the year ended December 31, 2015 as compared to December 31, 2014. For the year ended December 31, 2015, consulting related
costs were $182,161 or 6.5% of total revenues and costs related with costs associated with products and equipment were $1,817,952
or 64.9% of total revenues. For the year ended December 31, 2014, consulting related costs were $322,134, or 25.6% of total revenue,
and costs associated with products and equipment were $449,342, or 35.7% of total revenue.
Gross Profit
For the year ended December 31, 2015
and December 31, 2014, gross profit was $799,774 and $487,536, respectively. This increase was primarily due to growth in our
client base and volume of operations including product sales as our business has matured following commencement of business operations
since 2013. As a percentage of total revenues, gross profit was 28.6% and 38.7% for the years ended December 31, 2015 and December
31, 2014, respectively. This decrease was primarily due to the year ended December 31, 2015 having a higher proportion of total
revenues from product and equipment sales as compared to consulting services, as product and equipment sales have a lower profit
margin compared to revenues generated by consulting and advisory services.
Operating Expenses
Total operating expenses for the years
ended December 31, 2015 and December 31, 2014 was $1,352,740 and 3,878,340, respectively. This decrease of $2,525,600 was attributed
to stock-based compensation expense of $319,187 in 2015 versus $3,370,128 in 2014. The decrease in stock-based compensation expense
reflected grants for which the awards were vested. A higher amount was reflected in 2014 due to the Reverse Merger activities
during 2014. In addition, we experienced an increase in investor relations which was $307,069 during 2015 versus $23,132 incurred
in 2014 as the company began working with investor funding opportunities.
Other Income (Expense)
Other income (expense) for the years
ended December 31, 2015 and December 31, 2014 was income of $37,313 and expense of $228,388, respectively. This increases in other
income was due to less interest incurred during 2015, $35,458 versus $263,388 of interest expense attributed to initial amortization
of the discount on our convertible notes payable. In addition, for December 31, 2015 and December 31, 2014 we had a gain on debt
extinguishment of $72,771 and $35,000, respectively, which was attributed to negotiations with legal counsel in the forgiveness
of debt, which was deemed fully satisfied as an aspect of the issuance of convertible notes payable.
Net Income (Loss)
As a result of the factors discussed
above, net loss for the year ended December 31, 2015 and December 31, 2014 was net loss of $515,653 and $3,619,192, respectively.
For December 31, 2015 and December 31, 2014, these net losses represented a 18.4% and 287.5% of total revenues for the respective
periods.
The statements contained in this report
that are not statements of historical fact, including without limitation, statements containing the words “believes,”
“expects,” “anticipates” and similar words, constitute forward-looking statements that are subject to
a number of risks and uncertainties. From time to time we may make other forward-looking statements. Investors are cautioned that
such forward-looking statements are subject to an inherent risk that actual results may materially differ as a result of many
factors, including the risks discussed from time to time in this report, including the risks described under “Risk Factors”
in any filings we have made with the SEC.
Our discussion and analysis of our
financial condition and results of operations are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going
basis, we evaluate these estimates, including those related to useful lives of real estate assets, cost reimbursement income,
bad debts, impairment, net lease intangibles, contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can
be no assurance that actual results will not differ from those estimates.
Results of Operations
For the Three Month Period Ended
June 30, 2016 compared to June 30, 2015
|
|
For
the three months ended June 30, 2016
|
|
%
of Revenues
|
|
For
the three months ended June 30, 2015
|
|
%
of Revenues
|
|
$
Change
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
Services
|
|
$
|
211,863
|
|
|
|
47.8
|
|
|
$
|
268,488
|
|
|
|
57.3
|
|
|
($
|
56,625
|
)
|
Product
and equipment
|
|
|
231,785
|
|
|
|
52.2
|
|
|
|
200,257
|
|
|
|
42.7
|
|
|
|
31,528
|
|
Total Revenues
|
|
|
443,648
|
|
|
|
100.0
|
|
|
|
468,745
|
|
|
|
100.0
|
|
|
|
(25,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of consulting services
|
|
|
51,278
|
|
|
|
11.6
|
|
|
|
88,632
|
|
|
|
18.9
|
|
|
|
(37,354
|
)
|
Cost
of products and equipment
|
|
|
145,848
|
|
|
|
32.9
|
|
|
|
176,347
|
|
|
|
37.6
|
|
|
|
(30,499
|
)
|
Total Cost of Revenues
|
|
|
197,126
|
|
|
|
44.4
|
|
|
|
264,979
|
|
|
|
56.5
|
|
|
|
(67,853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
246,522
|
|
|
|
55.6
|
|
|
|
203,766
|
|
|
|
43.5
|
|
|
|
42,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
307,953
|
|
|
|
69.4
|
|
|
|
130,454
|
|
|
|
27.8
|
|
|
|
177,499
|
|
Investor
Relations
|
|
|
893
|
|
|
|
0.2
|
|
|
|
56,286
|
|
|
|
12.0
|
|
|
|
(55,393
|
)
|
Selling
and marketing
|
|
|
19,662
|
|
|
|
4.4
|
|
|
|
113,224
|
|
|
|
24.2
|
|
|
|
(93,562
|
)
|
Research
and development
|
|
|
1,413
|
|
|
|
0.3
|
|
|
|
11,350
|
|
|
|
2.4
|
|
|
|
(9,937
|
)
|
Total Operating
expenses
|
|
|
329,921
|
|
|
|
74.4
|
|
|
|
311,314
|
|
|
|
66.4
|
|
|
|
18,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(83,399
|
)
|
|
|
(18.8
|
)
|
|
|
(107,548
|
)
|
|
|
(22.9
|
)
|
|
|
24,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on debt extinguishment
|
|
|
—
|
|
|
|
0.0
|
|
|
|
72,771
|
|
|
|
15.5
|
|
|
|
(72,771
|
)
|
Interest
Income (expense)
|
|
|
(1,376
|
)
|
|
|
(0.3
|
)
|
|
|
(8,837
|
)
|
|
|
(1.9
|
)
|
|
|
7,461
|
|
Total Other Income
(expense)
|
|
|
(1,376
|
)
|
|
|
(0.3
|
)
|
|
|
63,934
|
|
|
|
13.6
|
|
|
|
(65,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss before
taxes
|
|
|
(84,775
|
)
|
|
|
(19.1
|
)
|
|
|
(43,614
|
)
|
|
|
(9.3
|
)
|
|
|
(41,161
|
)
|
Income Tax expense
(benefit)
|
|
|
—
|
|
|
|
0.0
|
|
|
|
—
|
|
|
|
0.0
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
($
|
84,775
|
)
|
|
|
(19.1
|
)
|
|
($
|
43,614
|
)
|
|
|
(9.3
|
)
|
|
($
|
41,161
|
)
|
Revenues
Total revenues were $443,648 for the
three months ended June 30, 2016, compared to $468,745 for the three months ended June 30, 2015, a decrease of $25,097. The decrease
in consulting revenues is due to our consulting clients being in various early stages of their projects, which results in periodic
fluctuations of cyclical consulting revenues as of June 30, 2016 and June 30, 2015. However, we did continue to grow in the product
and equipment sales as our ongoing clients required products for their strategic growth and development. We expect to see growth
in the future as more states allow for the medical and recreational use and sale of cannabis. We continue to establish our
products and equipment offerings and growth in our client base and volume of operations as our business has matures following
commencement of business operations in April 2013. For the three months ended June 30, 2016, consulting services revenue were
$211,863, or 47.8% of total revenue, compared to $268,488, or 57.3% of total revenues for the three months ended June 30, 2015.
This is mainly attributed to fewer new clients on board for the three months ended June 30, 2016 compared to the three months
ended June 30, 2015. For the three months ended June 30, 2016, products and equipment revenue were $231,785, or 52.2% of total
revenues, compared to $200,257, or 42.7% of total revenues for the three months ended June 30, 2015.
Costs of Revenues
Costs of revenues primarily consist
of labor, travel, and other costs directly attributable to providing services or products. During the three months ended June
30, 2016, our total costs of revenues were $197,126, or 44.4% of total revenues. This compares to total costs of revenues for
the three months ended June 30, 2015 of $264,979 or 56.5% of total revenues. The decrease in costs of revenues of $67,853 was
primarily due to a decrease in consulting sales volume discussed above and a reduction in our internal infrastructure
development. For the three months ended June 30, 2016, consulting-related costs were $51,278, or 11.6% of total revenue, as compared
to costs of $88,632, or 18.9% of revenue for the three months ended June 30, 2015. Costs associated with products and equipment
were $145,848, or 32.9% of total revenue for the three months ended June 30, 2016 as compared to $176,347, or 37.6% of total revenue
for the three months ended June 30, 2015. As a percentage of revenues, the decreases were primarily due to lower sales volume
during the three months ended June 30, 2016, as certain primarily-fixed costs such as labor made up a comparably smaller percentage
of revenues as compared to the three months ended June 30, 2015.
Gross Profit
Total gross profit was $246,522 for
the three months ended June 30, 2016, comprised of consulting services gross profit of $160,585 and products and equipment gross
profit of $85,937. This compares to total gross profit of $203,766 for the three months ended June 30, 2015, comprised of consulting
services gross profit of $179,856 and products and equipment gross profit of $23,910. These decrease of $19,271 for consulting
services gross profit and an increase of $62,027 for products and equipment gross profit were primarily due to less new clients
in our client base and further establishment of our products and equipment offerings. As a percentage of total revenues, gross
profit was 56.6% for the three months ended June 30, 2016 and 43.5% for the three months ended June 30, 2015. This increase was
primarily driven by the higher sales volume in products and equipment sales volume during the three months ended June 30, 2016.
Operating Expenses
Total operating expenses were $329,921,
or 74.4% of total revenues for the three months ended June 30, 2016, compared to $311,314, or 66.4% of total revenues for the
three months ended June 30, 2015. This increase was primarily due to an increase in general and administrative expenses attributable
to higher bad debt expense and by higher accounting, auditing and legal fees associated with the costs of running a public company.
The increase was further driven by higher payroll costs as lower labor amounts were allocated to projects for the three months
ended June 30, 2016 as compared to June 30, 2015. Also, the Company has reduced selling and marketing efforts due to achieving
a stronger brand recognition in the market place during the three months ended June 30, 2016 as compared with the three months
ended June 30, 2015, which has resulted in lower expenditures for trade shows and conferences.
Other Income (Expense)
Other income (expense) for the three
months ended June 30, 2016 was expense of $1,376 as compared with $63,934 income for the three months ended June 30, 2015. For
the three months ended June 30, 2016 the Company incurred a non-cash interest expense reflecting $2,076 related to convertible
notes payable discount amortization for the period, which was partially offset by other income as compared to $8,837 expense for
the three months ended June 30, 2015. The Company incurred a gain on extinguishment of debt of $72,771 for the three months ended
June 30, 2015.
Income Tax Expense (Benefit)
Although our tax status changed from
a non-taxable pass-through entity (S-Corporation) to a taxable entity (C-Corporation) during the year ended December 31, 2014,
due to cumulative losses since we became a C-Corporation, we recorded a valuation allowance against our related deferred tax asset
which netted our deferred tax asset and benefit for income taxes to zero for the three months ended June 30, 2016.
Net Income (Loss)
As a result of the factors discussed
above, net income (expense) for the three months ended June 30, 2016 was net loss of $84,775, or 19.1% of total revenues for the
period, as compared to a net loss of $43,614, or 9.3% of total revenues for the three months ended June 30, 2015.
For the Six Month Period Ended June
30, 2016 compared to June 30, 2015
For
the six months ended June 30, 2016
|
|
For
the three months ended June 30, 2016
|
|
%
of Revenues
|
|
For
the three months ended June 30, 2015
|
|
%
of Revenues
|
|
$
Change
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
Services
|
|
$
|
459,473
|
|
|
|
46.7
|
|
|
$
|
464,058
|
|
|
|
50.9
|
|
|
($
|
4,585
|
)
|
Product
and equipment
|
|
|
524,579
|
|
|
|
53.3
|
|
|
|
448,354
|
|
|
|
49.1
|
|
|
|
76,225
|
|
Total
Revenues
|
|
|
984,052
|
|
|
|
100.0
|
|
|
|
912,412
|
|
|
|
100.0
|
|
|
|
71,640
|
|
Cost of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of consulting services
|
|
|
99,800
|
|
|
|
10.1
|
|
|
|
146,483
|
|
|
|
16.1
|
|
|
|
(46,683
|
)
|
Cost
of products and equipment
|
|
|
380,857
|
|
|
|
38.7
|
|
|
|
401,998
|
|
|
|
44.1
|
|
|
|
(21,141
|
)
|
Total
Cost of Revenues
|
|
|
480,657
|
|
|
|
48.8
|
|
|
|
548,481
|
|
|
|
60.1
|
|
|
|
(67,824
|
)
|
Gross
Profit
|
|
|
503,395
|
|
|
|
51.2
|
|
|
|
363,931
|
|
|
|
39.9
|
|
|
|
139,464
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
531,440
|
|
|
|
54.0
|
|
|
|
252,578
|
|
|
|
27.7
|
|
|
|
278,862
|
|
Investor
Relations
|
|
|
18,068
|
|
|
|
1.8
|
|
|
|
187,702
|
|
|
|
20.6
|
|
|
|
(169,634
|
)
|
Selling
and marketing
|
|
|
40,477
|
|
|
|
4.1
|
|
|
|
207,529
|
|
|
|
22.7
|
|
|
|
(167,05
2
|
)
|
Research and development
|
|
|
1,413
|
|
|
|
0.1
|
|
|
|
41,722
|
|
|
|
4.6
|
|
|
|
(40,309
|
)
|
Total Operating expenses
|
|
|
591,398
|
|
|
|
60.1
|
|
|
|
689,531
|
|
|
|
75.6
|
|
|
|
(98,133
|
)
|
Loss from Operations
|
|
|
(88,003
|
)
|
|
|
(8.9
|
)
|
|
|
(325,600
|
)
|
|
|
(35.7
|
)
|
|
|
237,597
|
|
Other Income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on debt extinguishment
|
|
|
—
|
|
|
|
0.0
|
|
|
|
72,771
|
|
|
|
8.0
|
|
|
|
(72,771
|
)
|
Interest Income (expense)
|
|
|
(10,329
|
)
|
|
|
(1.0
|
)
|
|
|
(17,623
|
)
|
|
|
(1.9
|
)
|
|
|
7,294
|
|
Total Other Income (expense)
|
|
|
(10,329
|
)
|
|
|
(1.0
|
)
|
|
|
55,148
|
|
|
|
6.0
|
|
|
|
(65,477
|
)
|
Net Loss before taxes
|
|
|
(98,332
|
)
|
|
|
(10.0
|
)
|
|
|
(270,452
|
)
|
|
|
(29.6
|
)
|
|
|
172,120
|
|
Income Tax expense (benefit)
|
|
|
—
|
|
|
|
0.0
|
|
|
|
—
|
|
|
|
0.0
|
|
|
|
—
|
|
NET LOSS
|
|
|
98,332
|
)
|
|
|
(10.0
|
)
|
|
|
270,452
|
)
|
|
|
(29.6
|
)
|
|
$
|
172,120
|
|
Revenues
Total revenues were $984,052 for the
six months ended June 30, 2016, compared to $912,412 for the six months ended June 30, 2015, an increase of $71,640. This increase
was driven by growth in our sales of products and equipment as our business matured following commencement of business operations
in April 2013. For the six months ended June 30, 2016, consulting services revenue was $459,473, or 46.7% of total revenue, compared
to $464,058, or 50.9% of total revenues for the six months ended June 30, 2015. This reduction is mainly due to fewer new clients
for the six months ended June 30, 2016 as compared with the six months ended June 30, 2015. For the six months ended June 30,
2016, products and equipment revenue were $524,579, or 53.3% of total revenues, compared to $448,354, or 49.1% of total revenues
for the six months ended June 30, 2015.
Costs of Revenues
Costs of revenues primarily consist
of labor, travel, and other costs directly attributable to providing services or products. During the six months ended June 30,
2016, our total costs of revenues were $480,657, or 48.8% of total revenues. This compares to total costs of revenues for the
six months ended June 30, 2015 of $548,481 or 60.1% of total revenues. The decrease in costs of revenues of $67,824 was primarily
due to the overall increase in sales volume discussed above and a reduction in our internal infrastructure development. For the
six months ended June 30, 2016, consulting-related costs were $99,800, or 10.1% of total revenue, as compared to costs of $146,483
or 16.1% of revenue for the six months ended June 30, 2015. Costs associated with products and equipment were $380,857, or 38.1%
of total revenue for the six months ended June 30, 2016 as compared to $401,998, or 44.1% of total revenue for the six months
ended June 30, 2015. As a percentage of revenues, the decreases were primarily due to level of sales volume, as discussed above,
during the six months ended June 30, 2016, as certain labor intensive services made up a comparably smaller percentage of revenues
as compared to the six months ended June 30, 2015.
Gross Profit
Total gross profit was $503,395 for
the six months ended June 30, 2016, comprised of consulting services gross profit of $359,673 and products and equipment gross
profit of $143,723. This compares to total gross profit of $363,931 for the six months ended June 30, 2015, comprised of consulting
services gross profit of $317,575 and products and equipment gross profit of $46,356. These increases of $42,098 in consulting
services gross profit and $97,367 in products and equipment gross profit were primarily due to lower labor intensive services
on the consulting revenues, and growth in sales of our products and equipment offerings. As a percentage of total revenues, gross
profit was 51.2% for the six months ended June 30, 2016 and 39.9% for the six months ended June 30, 2016. This increase was primarily
due to higher sales volume during the six months ended June 30, 2016.
Operating Expenses
Total operating expenses were $591,398,
or 60.1% of total revenues for the six months ended June 30, 2016, compared to $689,531, or 75.6% of total revenues for the six
months ended June 30, 2015. This decrease was primarily due to a decrease in investor relations expenses as the Company is currently
utilizing internal resources for this function instead of outside sources; also the Company has not invested in research
and development projects during the six months ended June 30, 2016. In addition, the Company has reduced selling and marketing
efforts due to achieving a stronger brand recognition in the market place during the six months ended 2016, which has resulted
in lower expenditures for trade shows and conferences as compared to the six months ended June 30, 2015. However, there was an
increase in general and administrative expenses which was attributed to bad debts expense in 2016 for which there was $0 in 2015,
along with increase in professional fees such as accounting, auditing and legal services, which are all needed to run a public
company, as well as an increase in payroll costs as the Company allocated less labor to projects for the six months ended June
30, 2016 as compared to June 30, 2015.
Other Income (Expense)
Other income (expense) for the six
months ended June 30, 2016 was expense of $10,329 as compared with income of $55,148 for the six months ended June 30, 2015. For
the six months ended June 30, 2016 the Company incurred non-cash interest expense reflecting $10,329 related to convertible notes
payable discount amortization for the period, which was partially offset by interest income as compared to $17,623 expense for
the six months ended June 30, 2015. The Company recognized a gain on extinguishment of debt of $72,771 for the six months ended
June 30, 2015.
Income Tax Expense (Benefit)
Although our tax status changed from
a non-taxable pass-through entity (S-Corporation) to a taxable entity (C-Corporation) during the year ended December 31, 2014,
due to cumulative losses since we became a C-Corporation, we recorded a valuation allowance against our related deferred tax asset
which netted our deferred tax asset and benefit for income taxes to zero for the six months ended June 30, 2016.
Net Income (Loss)
As a result of the factors discussed
above, net loss for the six months ended June 30, 2016 was $98,332 or 10.0% of total revenues and net loss for the six months
ended June 30, 2015 was $270,452 or 29.6% of total revenues.
Liquidity and Capital Resources
As of June 30, 2016, our primary internal
sources of liquidity were our working capital, which included cash and cash equivalents of $228,654 and accounts receivable of
$151,736. We also have the ability to raise additional capital as needed through external equity financing transactions. For the
six months ended June 30, 2016, primarily as a result of non-cash expenses, the Company’s operating cash flows were a use
of $464,529 due to an increase in accounts receivable of $116,795, a decrease in advances from clients of $105,416 and a decrease
in accounts payable of $146,491. Additionally, considering that our fixed overhead costs are low, we have the ability to issue
stock to compensate employees and management, and the level of future revenue we expect to generate from executed client contracts,
we believe our liquidity and capital resources to be adequate to fund our operational and general and administrative expenses
for at least the next 12 months without needing to raise additional debt or equity funding. There is no guarantee we will have
the ability to raise additional capital as needed through external equity financing transactions if required.
Operating Activities
Net cash used in operating activities
for the six months June 30, 2016 and 2015 was $464,529 and $175,368, respectively. The $464,529 use of cash was due to an increase
in accounts receivable of $116,795, a decrease in advances from clients of $105,416 and a decrease in accounts payable of $146.491.
Net cash used in operating activities for the six months ended June 30, 2015 was $175,368, consisting of net loss of $270,452,
non-cash adjustments reconciling net income to net cash used in operating activities of $134,186 and a net use of cash of $39,102
from changes in operating assets and liabilities. The net non-cash adjustments of $134,186 were due to amortization of the discount
on convertible notes payable of $17,704, employee stock-based compensation of $80,394, professional services compensated in shares
of common stock of $107,385 and depreciation of $1,474, partially offset by a gain on debt extinguishment related to a negotiated
settlement of legal fees of $72,771. Changes in operating assets and liabilities, a net use of cash of $39,102, were the result
of a decrease in deferred revenue of $144,115, an increase in accounts receivable of $44,842 on higher sales volume, an increase
in inventory of $25,600 primarily related to Satchels, an increase in prepaid expenses and other current assets of $5,606 and
a decrease in accrued and other current liabilities of $1,511, mostly offset by a decrease in deposits of $102,202 primarily due
to the receipt of Satchels during the period and an increase in accounts payable of $80,370.
Investing Activities
For the six months ended June 30, 2016
and 2015, investing activities were a use of cash of $1,662 and $12,332, respectively. This was due to purchases of office furniture
and computer equipment during the six months ended June 30, 2016 and 2015, respectively.
Financing Activities
For the six months ended June 30, 2016
and 2015, the net cash from financing activities was $139,065 and $250,000, respectively. During the six months ended June 30,
2016 the Company received proceeds of $139,065 from one convertible promissory note. Net cash provided by financing activities
of $250,000 for the six months ended June 30, 2015 reflected the sale of 833,333 shares of common stock to an investor during
the period.
Off Balance Sheet Arrangements
As of June 30, 2016 and December 31,
2015, we did not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect
on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources.
Non-GAAP Financial Measures
We use Adjusted EBITA, a non-GAAP metric,
to monitor our overall business performance. We define Adjusted EBITA as net income (loss) before interest expense, net, provision
for (benefit from) income taxes, stock-based compensation and certain non-recurring expenses, which to date have been limited
to costs associated with the Reverse Merger. We believe that such adjustments to arrive at Adjusted EBITA provides us with a more
comparable measure for managing our business. We also believe that it is a useful measure for securities analysts, investors,
and other interested parties in the evaluation of our Company.
A reconciliation of net income (loss)
to Adjusted EBITA is provided below.
|
|
|
For
three months ended June 30, 2016
|
|
|
|
For
three months ended June 30, 2015
|
|
|
|
For
six months ended June 30, 2016
|
|
|
|
For
six months ended June 30, 2015
|
|
Adjusted EBITA
reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
($
|
84,775
|
)
|
|
($
|
43,614
|
)
|
|
($
|
98,332
|
)
|
|
($
|
270,425
|
)
|
Interest expense (loss)
|
|
|
1,376
|
|
|
|
8,837
|
|
|
|
10,329
|
|
|
|
17,623
|
|
Tax expense (benefit)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock-based compensation
expense
|
|
|
12,991
|
|
|
|
80,667
|
|
|
|
23,620
|
|
|
|
187,779
|
|
Adjusted EBITA
|
|
$
|
(68,408
|
)
|
|
|
45,890
|
|
|
($
|
64,383
|
)
|
|
$
|
65,050
|
|
Directors and Executive Officers
Our Board of Directors
The following table sets forth information
regarding our current directors and each director nominee, as of June 30, 2016.
Name
|
|
Principal
Occupation
|
|
Age
|
|
Director
Since
|
Corey
Hollister
|
|
Chief
Executive Officer & Chairman of the Board, American Cannabis Company, Inc.
|
|
|
40
|
|
|
|
2014
|
|
Ellis Smith
|
|
Chief Development
Officer, American Cannabis Company, Inc.
|
|
|
39
|
|
|
|
2014
|
|
Vincent “Tripp”
Keber
|
|
Chief Executive Officer,
Dixie Brands, Inc.
|
|
|
47
|
|
|
|
2014
|
|
Corey
Hollister
has served as our Chief Executive Officer (CEO) and as a director since May 2014. In March 2013, Mr. Hollister
co-founded American Cannabis Company, Inc. (“ACC”), and from March 2013 to May 2014, Mr. Hollister served as a Managing
Director of ACC. From September 2010 to July 2013, Mr. Hollister co-owned and was director of Colorado Kind Care LLC d/b/a The
Village Green Society, a Colorado-based Medical Marijuana Center. From October 2007 to September 2009, Mr. Hollister owned and
operated Built-to-Last Fitness, a private health and wellness company focused on exercise and nutritional guidance for individuals,
companies and schools. Prior to this, Mr. Hollister was based in Boston, MA and worked in Marketing and Advertising. Our Board
believes Mr. Hollister’s qualifications to serve as an executive of the Company and as a member of our Board include his
past success in founding and operating businesses, his leadership and corporate management experience, and his unique experience
in Colorado and across the country advising clients in emerging medical cannabis markets.
Ellis
Smith
from June 2014 to the present, Ellis Smith has served as our Chief Development Officer and as a director since September
2014. In March 2013, Mr. Smith co-founded ACC, and from March 2013 to May 2014, Mr. Smith served as a Managing Director of ACC.
From September 2010 to July 2013, Mr. Smith co-owned Colorado Kind Care LLC d/b/a The Village Green Society, a Colorado-based
Medical Marijuana Center, where he was responsible for managing the operations and protocols supporting the growth and production
of medical marijuana. From 2008 to 2010, Mr. Smith founded and operated The Happy Camper Organics Inc., a medical marijuana company
focused on the growth of wholesale cannabis for sale to medical marijuana businesses. From 2005 to 2010, Mr. Smith founded and
operated Bluebird Productions, a video production company. Mr. Smith has been published and recognized for his horticultural experience
and organic gardening in the cannabis industry, and he is known for assisting in identifying the Hemp Russet Mite and working
with SKUNK magazine to educate the industry. Our Board believes Mr. Smith’s qualifications to serve as an executive of the
Company and as a member of our Board include his past success in founding and operating businesses, his unique experience in horticultural
and organic gardening, and his recognized qualifications in the emerging medical cannabis markets.
Vincent
“Tripp” Keber
has served as a member of our board of directors since November 2014. Mr. Keber is a
co-founder and Chief Executive Officer of Dixie Elixirs & Edibles (“Dixie”), a Colorado licensed medical marijuana
infused products manufacturer. He is a founding director of the National Cannabis Industry Association, and, since 2013, has served
as a director of the Marijuana Policy Project. He is also an advisory board member of the Medical Marijuana Industry Group in
Colorado. In his current role as CEO of Dixie, Mr. Keber is responsible for the overall strategy, licensing, marketing, branding
and expansion efforts related to the Dixie brand, both domestically and internationally. Mr. Keber has been featured on CBS’s
60 Minutes and CNBC. Since June 2014, Mr. Keber has also served as a Director of MassRoots, Inc. Prior to joining Dixie, Mr. Keber
served as Chief Operating Officer for Bella Terra Resort Development Company, and EVP of Business Development for Sagebrush Realty
Development. Mr. Keber has a Bachelor of Science in Political Science from Villanova University. Mr. Keber is involved in several
charitable organizations located within the Aspen and Denver communities, and assists in the research and development of cannabis
support for veterans suffering from post-traumatic stress disorder. Mr. Keber was selected to serve as a director because of his
extensive experience, knowledge and leadership in the legal cannabis industry, as well as his success as a business leader and
entrepreneur.
Our Executive Officers
We
designate persons serving in the following positions as our named executive officers: our chief executive officer, chief financial
officer, chief development officer, chief operating officer and chief technology officer. The following table sets forth information
regarding our executive officers as of June 30, 2016.
Name
|
|
Principal
Occupation
|
|
Age
|
|
Officer
Since
|
Corey
Hollister
|
|
CEO &
Chairman of the Board, American Cannabis Company, Inc.
|
|
|
40
|
|
|
|
2014
|
|
Ellis Smith
|
|
Chief Development
Officer, American Cannabis Company, Inc.
|
|
|
39
|
|
|
|
2014
|
|
Jesus M Quintero
|
|
Chief Financial Officer,
American Cannabis Company, Inc.
|
|
|
55
|
|
|
|
2016
|
|
Corey
Hollister’s
biographical summary is included under “Our Board of Directors.”
Ellis
Smith’s
biographical summary is included under “Our Board of Directors.”
Jesus
M Quintero
, Chief Financial Officer from February 2016 to present Mr. Quintero also serves as Chief Financial officer
of Massroots Inc., and has served as Brazil Interactive Media’s Chief Financial Officer. He has previously served as a financial
consultant to several multimillion dollar businesses in Florida. Mr. Quintero has extensive experience in public company reporting
and SEC/SOX compliance, and held senior finance positions with Avnet, Inc., Latin Node, Inc., Globetel Communications Corp. and
Telefonica of Spain. His prior experience also includes tenure with PricewaterhouseCoopers and Deloitte & Touche. Mr. Quintero
earned a B.S. in Accounting from St. John’s University and is a certified public accountant. He is fluent in English and
Spanish, and conversant in Brazilian Portuguese.
Employment Agreements
We have entered into an Executive Employment
Agreement with Corey Hollister, our President and Chief Executive Officer, with an effective date of April 24, 2014. Under the
terms of this agreement, he is serving as an executive of our company. We agreed to pay him a base salary of $75,000 annually,
and he is entitled to receive an annual bonus of 5% of our net annual income if our annual net income exceeds $1,000,000. He is
also entitled to participate in all benefit programs made available to our executive and/or salaried employees, paid vacation
and reimbursement for business related expenses. The initial term of the agreement is five years, and it may be extended for successive
one-year periods. The agreement may be terminated by either party giving written notice of such party’s intention to terminate
the agreement and the employment of the Executive at least ninety (90) days prior to the end of the initial or an extended term.
We have the option to terminate the agreement by giving Mr. Hollister Six (6) months notice if he incurs a condition that prevents
him from carrying out his essential job functions for a period of Nine (9) months or longer. We may also terminate Mr. Hollister’s
employment without notice and without any further compensation obligations, (except his accrued benefits and any benefit continuation
or conversion rights he may have under the terms of the benefit plan or applicable law) if the termination is based on a material
violation of this Agreement, fraud, embezzlement, securities law violation, other gross misconduct which causes material economic
damage to the Company or material damage to the business reputation of the Company.
We have also entered into an Executive
Employment Agreement with Ellis Smith, our Chief Development Officer, with an effective date of April 29, 2014. Under the terms
of this agreement, he is serving as our Chief Development Officer. We agreed to pay him a base salary of $75,000 annually, and
he is entitled to receive an annual bonus of 5% of our net annual income if our annual net income exceeds $1,000,000. He is also
entitled to participate in all benefit programs made available to our executive and/or salaried employees, paid vacation and reimbursement
for business related expenses. The initial term of the agreement is five years, and it may be extended for successive one-year
periods. The agreement may be terminated by either party giving written notice of such party’s intention to terminate the
agreement and the employment of the Executive at least ninety (90) days prior to the end of the initial or an extended term. We
have the option to terminate the agreement by giving Mr. Smith Six (6) months notice if he incurs a condition that prevents him
from carrying out his essential job functions for a period of Nine (9) months or longer. We may also terminate Mr. Smith’s
employment without notice and without any further compensation obligations, (except his accrued benefits and any benefit continuation
or conversion rights he may have under the terms of the benefit plan or applicable law) if the termination is based on a material
violation of this Agreement, fraud, embezzlement, securities law violation, other gross misconduct which causes material economic
damage to the Company or material damage to the business reputation of the Company.
Family Relationships
There are no family relationships between
any director or executive officer.
Involvement in Certain Legal Proceedings
None of our directors and executive
officers has been involved in any of the following events during the past ten years:
(a)
|
|
any petition
under the federal bankruptcy laws or any state insolvency laws filed by or against, or an appointment of a receiver, fiscal
agent or similar officer by a court for the business or property of such person, or any partnership in which such person was
a general partner at or within two years before the time of such filing, or any corporation or business association of which
such person was an executive officer at or within two years before the time of such filing;
|
|
|
|
(b)
|
|
any conviction
in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
|
|
|
|
|
(c)
|
being
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining such person from, or otherwise limiting, the following activities: (i) acting as a futures
commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction
merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing,
or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee
of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct
or practice in connection with such activity; engaging in any type of business practice; or (iii) engaging in any activity
in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state
securities laws or federal commodities laws;
|
|
|
|
|
(d)
|
being
the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority
barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described
in paragraph (c)(i) above, or to be associated with persons engaged in any such activity;
|
|
|
|
|
(e)
|
being
found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission to have violated a
federal or state securities or commodities law, and the judgment in such civil action or finding by the Securities and Exchange
Commission has not been reversed, suspended, or vacated;
|
|
|
|
|
(f)
|
Being
found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated
any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission
has not been subsequently reversed, suspended or vacated;
|
(g)
|
|
being
the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently
reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law
or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited
to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent
cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or
fraud in connection with any business entity; or
|
|
|
|
(h)
|
|
being
the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in
Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has
disciplinary authority over its members or persons associated with a member.
|
Executive Compensation
Summary Compensation Table
The particulars of compensation paid
to the following persons:
|
(a)
|
all individuals
serving as our principal executive officer during the year ended December 31, 2015;
|
|
|
|
|
(b)
|
each
of our two most highly compensated executive officers who were serving as executive officers at the end of the year ended
December 31, 2015; and
|
|
|
|
|
(c)
|
up to
two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was
not serving as our executive officer at December 31, 2015,
|
Name and Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards ($)
|
|
Non-Equity
Incentive Plan Compensation ($)
|
|
All
Other Compensation ($)
|
|
Total
($)
|
Corey
Hollister,
|
|
|
2015
|
|
|
|
84,346
|
|
|
|
1,500
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
85,846
|
Chief Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antonio Migliarese,
|
|
|
2015
|
|
|
|
9,615
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
9,615
|
Chief Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jesus Quintero,
|
|
|
2015
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
―
|
Chief Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ellis Smith,
|
|
|
2015
|
|
|
|
79,808
|
|
|
|
1,500
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
81,308
|
Chief Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony Baroud,
|
|
|
2015
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
―
|
Chief Technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trent Woloveck,
|
|
|
2015
|
|
|
|
35,015
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
|
―
|
|
|
35,015
|
Chief Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Terry Buffalo,
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2015
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―
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―
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$
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1,590
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―
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―
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1,590
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Chief Operations
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Officer
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(1)
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Amounts
reported as bonus reflect discretionary profit sharing compensation which was based on a percentage of net income for the
third quarter of 2014.
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Retirement Benefits
We do not currently provide our named
executive officers with supplemental or other retirement benefits.
Outstanding Equity Awards at December
31, 2015
As of December 31, 2015, we had not
granted any stock-based compensation awards to any of our named executive officers.
Compensation of Directors
The following table sets forth information
concerning the compensation earned during 2015 by each individual who served as a non-employee director at any time during the
fiscal year:
Stock
Awards
(1)
($)
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Vincent
“Tripp” Keber
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20,000
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0
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20,000
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(1)
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In connection
with Mr. Keber’s appointment to the board of directors, on November 19, 2014, he was awarded warrants to purchase up
to two hundred and fifty thousand (250,000) shares of our common stock at an exercise price of sixty-three cents ($0.63) per
share exercisable within five (5) years of the date of issuance.
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Security Ownership of Certain Beneficial
Owners and Management
The following table sets forth information
known to us regarding the beneficial ownership of our common stock as of August 26, 2016 by (1) each stockholder who is known
by us to beneficially own more than 5% of our common stock, (2) each of our directors, (3) each of our executive officers,
and (4) all of our directors and executive officers as a group.
Beneficial
Owner and address(1)
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Number
of Shares Beneficially Owned
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Percent
Owned (2)
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5% Stockholders:
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Dutchess
Opportunity Fund II, L.P.
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3,477,371
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7.37
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%
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Anthony Baroud
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4,756,594
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10.17%
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Named Executive Officers
and Directors:
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Corey Hollister, Chief
Executive Officer
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12,684,251
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27.04%
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Ellis Smith, Chief
Development Officer
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12,684,251
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27.04%
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Jesus Quintero, Chief
Financial Officer
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50,000
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*
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All executive officers
and directors as a group (3 persons)
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25,418,502
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54.08%
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*
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Represents
beneficial ownership of less than 1% of our outstanding common stock. Except as otherwise indicated, the persons named in
this table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by
them, subject to community property laws where applicable and to the information contained in the footnotes to this table.
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(1)
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Unless
otherwise indicated, the address of each beneficial owner listed above is c/o Corey Hollister, American Cannabis Company,
Inc. 5690 Logan Street, Unit A, Denver CO. 80216.
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(2)
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Calculated
on the basis of 46,751,074 shares of common stock outstanding as of September 2, 2016, plus any additional shares of common
stock that a stockholder has the right to acquire within 60 days after August 26, 2016.
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Changes
in Control
We
are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change in
control of our company.
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Transactions with Related Persons,
Promoters and Certain Control Persons and Corporate Governance
There has not been, and there is not
currently proposed, any transaction or series of similar transactions to which we were or will be a party in which the amount
involved exceeded or will exceed $120,000 and in which any of our directors, executive officers, holders of more than 5% of any
class of our voting securities or any member of the immediate family of the foregoing persons had or will have a direct or indirect
material interest.
(a)
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Any director
or executive officer of our company;
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(b)
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Any person
who beneficially owns, directly or indirectly, more than 5% of any class of our voting securities; and
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(c)
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Any member
of the immediate family (including spouse, parents, children, siblings and in- laws) of any of the foregoing persons.
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We entered into the following transactions
with related parties during the six months ended June 30, 2016:
During the six months ended June 30,
2016, the Company incurred $14,500 of expense for accounting services payable to JDE Development LLC, a company in which Jesus
M Quintero, the Company’s Chief Financial Officer, is an owner.
During the three months ended March
31, 2016, the Company incurred $6,000 of expense payable to JDE Development LLC, a company in which Jesus M Quintero, the Company’s
Chief Financial Officer, is an owner. During the three months ended March 31, 2015, the Company incurred $13,887 of expense payable
to New Era CPAs, an accounting firm in which Antonio Migliarese, the Company’s former Chief Financial Officer, is a partner.
This expense is payable in 35,607 shares of the Company’s common stock. As of March 31, 2016, the Company owed Mr. Migliarese
65,607 shares of common stock valued at $32,187. During the three months ended March 31, 2016 and 2015, the Company generated
revenue from the sale of products in the amount of $500 and $0, respectively, to a company controlled by a Director, of which
the balance of the related accounts receivable as of March 31, 2016 and March 31, 2015 was $4,035 and $0, respectively.
We entered into the following transactions
with related parties during the year ended December 31, 2015:
Previously, the Company purchased inventory
and equipment from Baroud Development Group, in which Anthony Baroud, the Company’s former Chief Technology Officer and
a former Director of the Company, is an owner. During the year ended December 31, 2014, such purchases totaled $40,715. No such
transactions occurred during 2015. For the year ended December 31, 2015, the Company generated revenue from the sale of products
to an entity controlled by a Director.
During the year ended December 31,
2014, prior to the Reverse Merger, the Company distributed a total of $4,000 to its co-founders and owners, Corey Hollister and
Ellis Smith.
During the year ended December 31,
2015 and December 31, 2014, the Company incurred $38,360 and $30,227, respectively, of expense payable to New Era CPAs, an accounting
firm in which Antonio Migliarese, the Company’s former Chief Financial Officer, was a partner.
During the year ended December 31,
2015 and December 2014, the Company sold $25,214 and $0, respectively, of equipment and supplies to a customer managed by a Director
of the Company. As of December 31, 2015 and December 2014, the Company was owed $17,512 and $0, respectively, from this customer.
Director Independence
We currently act with three directors
consisting of Corey Hollister, Ellis Smith and Vincent “Tripp” Kerber. Our common stock is quoted on the OTCQB, which
does not impose any director independence requirements. Under NASDAQ Rule 5605(a)(2), a director is not independent if he or she
is also an executive officer or employee of the corporation or was, at any time during the past three years, employed by the corporation.
Using this definition of independent director, we have one independent director, Vincent “Tripp” Kerber”.
Legal Matters
The financial statements of our company
included in this prospectus for the fiscal year ended December 31, 2015 has been audited by Pritchett, Siler & Hardy, PC,
and the fiscal year ended December 31, 2014 has been audited by Cutler & Co. LLC, to the extent and for the period set forth
in their report appearing elsewhere in the prospectus, and are included in reliance upon such report given upon the authority
of said firm as experts in auditing and accounting.
Lucosky Brookman LLP will render a
legal opinion as to the validity of the shares of the common stock to be registered hereby.
Where You Can Find More Information
We are not required to deliver an annual
report to our stockholders unless our directors are elected at a meeting of our stockholders or by written consents of our stockholders.
If our directors are not elected in such manner, we are not required to deliver an annual report to our stockholders and will
not voluntarily send an annual report.
We file annual, quarterly and current
reports, proxy statements and other information with the Securities and Exchange Commission. Such filings are available to the
public over the Internet at the Securities and Exchange Commission’s website at
http://www.sec.gov
.
We have filed with the Securities and
Exchange Commission a registration statement on Form S-1 under the Securities Act of 1933 with respect to the securities offered
under this prospectus. This prospectus, which forms a part of that registration statement, does not contain all information included
in the registration statement. Certain information is omitted and you should refer to the registration statement and its exhibits.
You may review a copy of the registration
statement at the Securities and Exchange Commission’s public reference room at 100 F Street, N.E. Washington, D.C. 20549
on official business days during the hours of 10 a.m. to 3 p.m. You may obtain information on the operation of the public reference
room by calling the Securities and Exchange Commission at 1-800-SEC-0330. You may also read and copy any materials we file with
the Securities and Exchange Commission at the Securities and Exchange Commission’s public reference room. Our filings and
the registration statement can also be reviewed by accessing the Securities and Exchange Commission’s website at http://www.sec.gov.
American Cannabis Company,
Inc.
5,917,442
Shares of
Common Stock
PROSPECTUS
November 17, 2016
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