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<br /> 8 <br />with 15% quarterly growth. The assumed 15% quarterly growth in patient volume is also conservative as the <br />total Cannabis market is expected to grow considerably if California voters approve “adult-use” in <br />November 2016. Market size is expected to grow even if adult-use is not approved in November as general <br />acceptance of Cannabis increases nationwide and people begin substituting Cannabis for other inebriants <br />such as alcohol. <br /> <br />Product Offerings (Lines 4-10) <br /> <br />Product Category % Of Sales Product Category % Of Sales <br />Flowers 45% Preparations 20% <br />Edibles 15% Extracts 10% <br />Clones 6% Medical Devices 3% <br />Books 1% <br />* See Exhibit 5 and Section 2.A.ii for a detailed description of product offerings <br /> <br />Sales Discounts (Line 12) - Sales discounts are assumed to total 2% of gross revenue. DSWC will offer <br />weekly and seasonal deals to ensure all patients have access to affordably priced Cannabis products. In <br />addition, as part of DSWC’s Green Action Plan and overall goal of reducing carbon emissions discounts will <br />be given to patients who utilize bikes or public transportation to travel to the dispensary. Discounts for <br />seniors and veterans will also be offered. <br /> <br />Cost of Goods Sold (COGS) (Lines 14-24) – As demonstrated in Exhibit 5 the majority of Bay Area <br />dispensaries impose a retail markup between 100-200%. For purposes of creating conservative financial <br />estimates and ensuring financial viability, our financial projections assume a gross product markup of 80%. <br />Packaging and labeling costs associated with bulk flower breakdown are assumed to be 1% of product costs. <br /> <br />San Leandro Business License & Fees (Lines 25-27) – San Leandro City Staff established an annual medical <br />Cannabis dispensary permit fee of $60,000. It is assumed that the City will collect the fee upon successful <br />authorization of a dispensary permit in Q3 2016. A recurring $60,000 renewal fee is budgeted for subsequent <br />years. In addition a 9% gross revenue fee is budgeted to be paid quarterly to the city of San Leandro (For <br />comparison: Oakland 5% gross revenue fee, Berkeley 2.5% gross revenue fee, Sacramento 4% gross revenue <br />fee). <br /> <br />Employee Expense (Lines 28-35) – Staff payroll is based on 17 full-time equivalents at an average hourly <br />rate of $20. Staff wages are estimated to range from $18-$24 per hour in year one with an annual increase of <br />10%. Staff benefits are estimated at 7.5%. Employer liability for payroll taxes is estimated at 9%. Workers <br />compensation insurance is estimated at 2.3%. An initial staff-training budget of $10,000 with quarterly <br />additions of 2% of payroll is included. The Board of Directors will forgo salaries until operating income <br />stabilizes. Employee expenses and staffing levels are detailed in Exhibits 6-8. Staffing levels are <br />incrementally increased based on average daily patient volume. <br /> <br />Employee Benefits Package (Lines 32-35) – All full-time employees will receive benefits packages paid for <br />by DSWC. The benefits package will include healthcare, dental, vision, life equivalent to one year employee <br />salary, EAP (employee assistance program) financial planning, childcare, elder care, legal assistance, 403B <br />plan with DSWC match of 3% of the annual salary at each year anniversary. Training and education will be <br />included in benefits provided to employees. All together the benefits packages offered to each employee are <br />considered to be 20.8% of pre-tax labor expense. DSWC’s benefits package is further detailed in Section <br />1.C. <br /> <br />Insurance Expense (Lines 36-37) - DSWC will maintain a comprehensive insurance policy to cover general <br />liability and business property. <br />472