ITEM 1. BUSINESS

History

Medicine Man Technologies, Inc. (“we,” “us,” “our” or the “Company”) was incorporated on March 20, 2014, in the State of Nevada. On May 1, 2014, we entered into a non-exclusive Technology License Agreement with Futurevision, Inc., fka Medicine Man Production Corp., dba Medicine Man Denver (hereinafter, “Medicine Man Denver”) whereby Medicine Man Denver granted us a license to use all of their proprietary processes they have developed, implemented and practiced at its cannabis facilities relating to the commercial growth, cultivation, marketing and distribution of medical marijuana and recreational marijuana pursuant to relevant state laws and the right to use and to license such information, including trade secrets, skills and experience (present and future) (the “License Agreement”) in consideration for the issuance of 5,331,000 shares of our Common Stock. We accounted for this license in accordance with ASC 350-30-30 “Intangibles - Goodwill and Other” by recognizing the fair value of the amount paid by us for the asset at the time of purchase. Since we had a limited operating history, management elected to use the par value of our Common Stock as the value recognized for the transaction. Since the term of the License Agreement is ten (10) years, the cost of the asset will be recognized on a straight line basis over the life of the License Agreement. In addition, we will evaluate the intangible asset for impairment every quarter. Medicine Man Denver is owned by some of our affiliates. See “Financial Statements” and “Certain Relationships and Related Transactions.”

Between November 2014 and March 2015 we undertook a private offering of our Common Stock wherein we sold 270,000 shares of our Common Stock for gross proceeds of $270,000 ($1.00 per share) to 4 non accredited and 23 “accredited” investors, as that term is defined under the Securities Act of 1933, as amended.

In April 2015 we filed a registration statement with the Securities and Exchange Commission whereby we registered an aggregate of 1,619,000 shares of our Common Stock, including the 270,000 shares sold in our aforesaid private offering. This registration statement became effective on September 30, 2015. Thereafter, an application to trade our Common Stock was filed on our behalf with FINRA (Financial Industry Regulatory Association) and our Common Stock was approved for trading on the OTCQB on December 23, 2015. See Part II, Item 5, “Market for the Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities.”

License Agreement with Medicine Man Denver

Our license with Medicine Man Denver authorizes us to utilize certain technology relating to various proprietary processes they developed relating to the commercial growth, cultivation, marketing and dispensing of medical and recreational marijuana. These processes were assigned to us for the purpose of establishing a business to monetize services and intellectual property related to the cannabis industry. These processes include what we consider to be a unique cultivation facility of a Variable Capacity, Constant Harvest aseptic design, which refers to our ability to throttle production as needed to meet demand so we can best manage our costs of operations in consideration of the ever changing market conditions. For example, should the market begin to show signs of slowing we can slow down our production to meet demand while still continuing to constantly (daily) harvest plants. We believe that the benefits derived by our clients from this process should include them:  

Andrew Williams, our President and CEO, is also a founder and principal of Medicine Man Denver. This business has grown over the past six years to include a state of the art medical and recreational marijuana cultivation and dispensary operation holding multiple licenses issued by the Colorado Marijuana Enforcement Division, with locations in both Denver and Aurora, Colorado, and which generated approximately $15M in revenues during 2015. Through a partnership forged in late 2012, two of our principals, including Mr. Williams on behalf of Medicine Man Denver and Brett Roper on behalf of ChineseInvestors.com (OTC “CIIX”), have worked to aggregate all the direct cannabis experience of Medicine Man Denver into our business model described herein through which to monetize that experience into our current business.

Our Current Business

We focus on providing assistance to our clients in a number of businesses related to the cannabis industry, including (i) cultivation, (ii) the dispensar y business model, including combinations and other variables related to the retail model configuration of both a medical as well as adult use (recreational) operation, and (iii) other areas including but not limited to business plan generation, financial pro forma generation, application generation support, recommendations for other service providers, employee training and facility design services. We provide our experience, technology and guidance to our clients in these areas as well as those in ancillary direct businesses (such as extractions, edibles, suppliers) so that they may have better control over their overall business destiny. We offer a separate cultivation or dispensary license and other related consultative services as needed.

We generate revenues through the offering of both pre-license consulting as well as licensure services that generally tie to the size of the proposed new business venture. We also generate revenues through the provision of seminars and other education events held at our offices and locations elsewhere in the US.

Our licensing fees are typically based upon specific cultivation capacity(s) or in the case of a dispensary operation, a set fee and have various progress payments set as we generally deliver services. Should a client not be selected to receive such a license from the state, their licensure agreement is terminated prior to our providing full disclosure of our proprietary knowledge, manuals, and training. These fees do not include expenses that are reimbursed as a part of the License Agreement.

Our primary value proposition delivery model has five distinct initial premises, including:

1. Our Licensees may adopt and then utilize our technology and training offered thereby providing the various state and local jurisdictions with the reliable underpinnings of a well-known, experienced and respected cultivation and dispensary operation. These services include access to:

2. Our Licensees should be able to avoid the multitude of costly mistakes generally made by start-up business ventures in this industry as well as base their business operations on a truly industrial cultivation process that has no singular dependence on a “guru” or “master grower,” instead relying on standard operating procedures, coupled with the experience of a team based culture that has a substantial depth of successful operating experience. This aspect of our service provides access to:

3. Our Licensees will become a part of a larger licensee network that will be encouraged to “share” the sum of their experience, thereby aggregating the experience of a much larger group having the same motivation. From this we intend to create a ‘culture’ generation approach that will exclusively serve our whole licensed network. Among other things this provides our licensees with access to:

4. Clients or pre-licensees will be able to have access to a knowledgeable second opinion source as they consider how best to enter the cannabis industry that can assist them in the general development of their various business assumptions relative to real estate, cannabis retail and grow operations, forecasting, business plan development, acquisitions and regulatory compliance. We provide access to:

We believe that by entering into agreements with us our clients/licensees will have access to a substantial experience and knowledge base as they consider their ongoing options in either the private or public market space, as we are capable of offering a unique second opinion and due diligence support structure to such strategies as they evolve. In this regard we strongly believe in the concept of ‘ teaching our licensees to fish ’ rather than giving them food. We attempt to limit our fee structure to a flat fee rather than what we consider excessive ongoing fees and expenses in the form of top line revenue sharing as well as other ancillary income generation streams that many of our competitors utilize. By doing so, we believe that over time the value of the continued aggregate learning of our licensure group will establish us as a pre-eminent leader in this nascent industry noting our fees and related expense of deployment are significantly lower than general industry practices. Through our relationship and licensing commitment from Medicine Man Denver we will continue to invest in our technology and intellectual property through active participation with our growing licensure group with the goal to develop the best practices in the cannabis industry to remain a low cost producer while maintaining the highest levels of safety, quality, and consistency.

We also acknowledge that as the cannabis industry evolves here in the US and globally, we may change how we generate revenues, including adoption of equity and participation models as well as the acquisition of other businesses that fit within our overall structure and culture as a business entity. This initiative will become a series of other valuable bolt ups to our overall business structure that will also allow us to take advantage of aggregation of the groups back of the house support elements so that accounting, operating, insurance, HR, and other functions may be performed more efficiently as we grow over time.

5. We have also developed a strong ‘stable’ of other key partners that we introduce to our licensee clients for fulfillment of that aspect of the business. Our management has business experience in that industry segment but neither we nor Medicine Man Denver operate a medically infused products business. Rather, we attempt to refer experienced, quality medically infused product businesses to our licensees to accomplish this objective.

Once a licensee is operational our ongoing support services are related to quality and control practices applicable to cultivation operations similar to those offered by other support service providers. These services include testing, service provider contractors and seed-to-sale software providers. We do not have any current arrangements wherein we are compensated related to the sale of cannabis by either the cultivation/production or dispensary licensees. 

We have also been able to secure the participation of a Denver based design build general contractor with experience in this new industry, Vintage Contracting Corporation (“VCC”), who has been instrumental in the construction as well as development of Medicine Man Denver’s physical plant and space. We believe its substantial experience in Colorado provides a strong value to this new business, as they have demonstrated the skills our clients need to utilize in the construction and construction management arena. Our management also has a substantial background within the industrial and commercial property industry that is also utilized for facility design and infrastructure forecasting. We entered into an agreement with VCC to provide these services. This agreement provided for our issuance of 700,000 shares of our Common Stock in exchange for their experience and support of our initial startup of operations.

Description of Services/Pricing

Our current business consists generally of three areas, including (i) assisting our clients in submitting and obtaining issuance of a state license for the sale and/or cultivation of medical and/or recreational cannabis; (ii) assisting in the development of our client’s cultivation activities by interacting with the client’s grow specialists; and (iii) other assistance including layout, location and other criteria generally applicable to a retail business, business plan and proforma development, and assistance with other state applications as required using the practical experience we have developed. We provide services to our clients in one of the following general delivery forms:

We utilize the experience our personnel has obtained from developing a successful ongoing cannabis businesses in Colorado and offer these experiences to other jurisdictions that are now just entering this new industry. We view this relationship as a “win-win”, as it generates revenues for us while offering our clients the opportunity to avoid the mistakes many new cannabis businesses would normally make, or at the very least provide these new businesses with a proven, successful model to consider.

In the initial stages of our relationship with clients we attempt to identify and address the needs of each of our clients by identifying the following issues:

To date we have provide different services and activities for our clients depending upon the nature of the request from each. For example, some clients have sought assistance with dispensary activities and development, while others have desired cultivation assistance. Other clients have required both. Generally, our services have included the following services:

We also offer other custom services upon request, including providing a senior Medicine Man Denver grower for the client’s initial crop, providing clones to harvest when legally allowed to so, and access to our senior management, contractors and others to address specific issues that may arise from time to time and which may be unique to the client’s proposed operations. These custom services are provided at an additional cost which is negotiated with the client at the inception of the relationship.

Initially, we conduct meetings at the client’s location that will include their team, as well as facilities related service providers to generate a final sketch plan design for their facility as a whole, including access, parking, and other practical applications, and formulation of the business plan underpinnings and assumptions. We generally estimate two to three meetings over a period of several months prior to the application of respective specific language and other requirements being adopted by the respective State of the client, depending upon a number of variables including but not limited to the size and scope of the proposed operation, as well as real estate investment strategies.

We do not provide legal specific rule interpretation, lobbying, or other local related services including onsite construction management. These are the responsibilities of our client. We will, however (once the rules and application process are defined) become familiar with these elements and assist our client in their respective state application as part of our assistance in development of the client’s business plan.. We do not provide assistance in securing funding for our clients.

We generally undertake several visits to our client’s site during the pre-construction and construction phases. In the pre-construction phase we generally meet several times over a period of weeks or months with the client’s architect, engineers, and general contractor to insure that the designs are consistent with our cultivation parameters. We generally leave all specific state required design (mechanical, electrical, plumbing, civil, etc.) elements to the local state based team and focus on the deployment in accordance with our operating standards. During this stage we are provide our most current standards and guidelines for deployment of a facility that best emulates our state of the art deployment in Denver. We also provide feedback regarding building type as well as budgets for construction based upon our general knowledge of the industry.

In the construction phase we stay in constant contact with the client’s general construction team, responding to questions or needs for clarification of any related design element we have provided. We are also meeting by phone and onsite as needed, noting a good bit of our communications are handled through email and an exchange of information that often involves pictures or other drawing based inquiries.

The cost of our services is negotiated on an arms-length basis with a prospective client. Our fee structure has changed since inception of our business, primarily as a result of the recent development and growth of the cannabis industry, as well as our recognition of what our competitors charge for similar services. As the cannabis industry has matured, our fees have increased since we signed our initial client in April 2014 and remains grounded in the overall objective of our clients planning elements. Our fees vary depending upon the scope of the services requested by the client. Factors include but are not limited to cultivation capacities (if applicable), a competitive application process as determined on a state by state basis, and other variables associated with the clients project. For example only, as of the date of this report we charge $200,000 for cultivation licensing (1,600 pounds nominal in terms of the generation of dried cured flower) noting this fee comes to us as we earn it, achieving certain milestones as are clearly stated in our license agreement.

Additionally, our agreements with our clients provide for termination of the agreement if our client’s application is not approved by the relevant state. We are not required to refund any portion of the fees paid to us upon such termination as they have been earned noting we do require that all materials and information provided to the client licensee be returned to us and not utilized in any future venture without our express written consent.

Our fees have and will continue to follow a schedule that includes payments of a total fee for services that is partially based upon the size and nature of the business which the client wishes to establish. At the inception of our relationship the client provides us with the specifics of its business, including but not limited to capacity in terms of pounds of dried, cured flower that the client wishes to develop on an annual basis, as well as certain other criteria, including geographic location, including both proximity to our principal place of business in Colorado and the proposed location and size of the client’s operations. While we expect that our fees will continue to increase in the future, there are no assurances that this will occur.

Once a client’s license application has been approved by a state, other payments will be forthcoming throughout the construction phase to a point that the business becomes operational under state guidelines. During this time we provide additional services that would typically include:

Once the facility becomes operational (begins the initial growing process), we earn the balance of our fees and will have completed all support as required for the successful completion and operational status of our client’s facility.

Once the facility is operational, we currently collect an annual licensing fee for a period of five (5) years of continued support and innovation equal to 10% of the original licensure fee, paid quarterly in arrears, plus travel costs per year that generally includes additional training and operational support as may be needed to operate the facility. The value offered for this five (5) year fee is an offset of initial costs for the new company as we are conscious of the difficulty of budgets early in the business start-up period. We offer relief in the form of delayed payment for services that otherwise would have been collected early in the inception of business. We are vested in our clients’ success. It also provides continuation of services in the form of the our aggregation of knowledge and experience which is continually shared across our ever expanding network of licensees.

Generally, our services include review of the property and infrastructure to insure they are sufficient to accommodate the final scope of the project, a review of production strategy to confirm it is consistent with the cultivation method, as well as capital/operating budget objectives relating to anticipated initial output, generate pro forma capital/operating budgets, advisory services related to dispensary and production elements, investor support and communication, and review of building designs in the creation of architectural as well as MEP (mechanical, electrical, and plumbing) construction plans. We also provide access to Medicine Man Denver’s Colorado facilities and design build contractor on an as needed basis.

Our cultivation protocols management system consists of an extensive manual that is updated as necessary. Additionally, we provide training videos that cover the entire cultivation cycle, clone to inventory, and an extensive set of drawings and pictures related to the various practices, as well as equipment deployed for the cultivation process. Our cultivation protocols management system manuals are proprietary and are submitted as a part of any application with a FOIA exemption request or confirmation, depending upon the state where we are working.

We are constantly seeking to improve all of our management systems and operating protocols in conjunction with the ongoing licensure agreement with Futurevision, as well as our existing licensees. We believe over time aggregation of this experience and knowledge will provide us with an inherent advantage in the marketplace as these advances and improvements are only shared within our existing licensee and client network. Over time we believe this will provide us with a competitive advantage no other existing competitor provides as of the date of this report, according to our competitive intelligence gathering updates in late 2015.

While at this time we do not provide direct services for the generation of ‘ingestibles’ or as often referred to as edibles, we do maintain professional relationships with various service providers in the field we can refer clients to noting that at this time we have no mutually or singularly based fiduciary benefit in making these introductions and can only advise and assist the client in determining what process they will follow for securing this service provider aspect of their business plan, should they elect to pursue the same.

Description of our Past and Existing Client Base

Since commencement of our business operations in early 2014, five (5) of our clients’ state applications were not approved (four applicants in Illinois in 2014 where we served in a cultivation advisory role only and did not have any participation in the overall application as that was handled by a separate senior consultant and one vertically integrated applicant in New York in 2015). We have successfully supported applications for licensees in Nevada (two cultivation/production), Illinois (one cultivation/production and four dispensary), and currently have outstanding applications in process in Maryland (four cultivation, four dispensary), California (one cultivation/production), Hawaii (five vertically integrated applicants in three counties including Oahu, Hawaii, and Kauai), and Arizona (one cultivation). We currently have fee generating pre-licensure clients in Florida (2), Pennsylvania (3), Ohio (1), Oregon (1), Washington (1), California (1), Texas (1), Oklahoma (1), and Arkansas (1). We also have active inquiries and proposals out in these states as well as Alaska and Maine.

As of the date of this report we have or have had 39 fee generating clients in 14 different states.

Seminars and Industry Education

We offer monthly seminars at our principal place of business to prospective clients and those interested in educating themselves in the cannabis industry. We also intend to offer these seminars before or after major industry events to expand our client base. These seminars are a full day, and cover a wide range of topics, including cultivation, manufacturing, dispensary development of business plans and pro forma elements, regulatory compliance and other related subjects in the cannabis industry.

Class size is limited to 20 participants. We charge $295 per person to attend. During 2015, we conducted 11 seminars each of which was sold out.

We also offer individualized consulting and educational elements for which we charge hourly or daily fees. As of the date of this report we offer a general consulting session and facility tour for $500, as well as hourly rate services (as may be found on our website).

In 2015, we generated 11 new clients as a direct result of their participation in these seminars. Participants in these seminars are primarily out of state attendees. As of the date of this report we have only marketed these seminars on our website and by word of mouth. We intend to enhance these marketing efforts moving forward by external advertising including industry publications and other internet applications. There can be no assurances that our efforts will result in increased participation and revenues.

Marketing

We conduct our marketing efforts by providing a presence at specifically targeted industry based events, as well as through Medicine Man Denver’s established industry presence as a successful cannabis company. We have been able to garner a substantial presence via this relationship. Because the cannabis industry is relatively new there are very few groups and companies who can identify themselves as having real experience in this industry. We believe we are the exception as a result of our management’s experience with all aspects of the industry. See “Part II Item 10, Directors, Executive Officers and Corporate Governance.”

We are members of various industry groups and attend industry based conferences which we believe will be helpful to advancing our brand and skill sets. We created a marketing collateral materials bank and attended our first true marketing event in November 2014 at the Third National CannaBusiness Conference and Expo in Las Vegas. Since then we attended twelve organized show events in 2015 (SWCC, CWCBE, MJBusiness, NCIA, MJIC) and have invested over $50,000 in collateral booth and display elements. We will continue to seek out venues where we can enhance our presence in the industry while at the same time garner prospective client licensees. We will continue to market our licensing and related services to the cannabis industry through participation in various trade show events, continual use of free public content through interviews with our principals such as currently provided on CNN and MSNBC, direct referrals from satisfied licensees or past clients, various web presence advertising options utilizing specific industry related web sites and google ad words, as well as other measures we may choose to deploy from time to time.

We also continue to coalesce interest and a presence within the industry through participation in various events as well as through direct promotion as available to Medicine Man Denver and the Williams family, recently receiving mention in MSNBC’s ‘Pot Barons’ series as well as detailed inclusion in other venues such as MSNBC, Inc. Magazine, Katie Couric Live, The Today Show, the BBC, CBS, NBC, LeMonde, ABC, HBO many other national and internationally based media outlets. We work to continually develop earned media sources noting elements of our and our Licensor, Futurevision have been mentioned or featured in various national media sources hundreds of times since our inception in March 2014.

Over time we plan to continue expansion of our service offerings that we believe will be better identified as we grow and the cannabis industry matures. To this end we are already working in harmony with other consultants within the industry lacking certain experience or skill sets through licensure of specific cultivation technologies, with specific protections and non-disclosure agreement in place, noting we do not provide our operations manual of training to potential licensees until they have a state granted license in place.

In 2015 we substantially enhanced our web presence e (www.medicinemantechnologies.com), including providing a new home page, as well as links to our SEC reports (through OTC Markets) and our industry partners. While no assurances can be provided, we believe these upgrades will make our internet presence more effective in the delivery of information related to our developing business.

We also intend to begin to evaluate new business opportunities as they come to our attention through these various marketing activities as we continue to expand our national presence in the cannabis industry. See “Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

Members of our team also are featured regularly as ‘experts’ and ‘knowledgeable sources’, appear as guest speakers, industry panel discussion members, quoted as well as featured in articles both in the US and abroad, more recently be quoted in US News and World Report, Inc. Magazine, CBE Press, MJ Business Daily, and other industry and national publications.

Growth by Acquisitions

Ultimately, our intent is to become a national or internationally branded cannabis company.

As of the date of this Report we are continuing to monitor other public cannabis companies and their operations. It now appears that there are several public companies who generate revenue from the sale of cannabis products. Previously, we believed that it would be necessary that marijuana would need to be legalized on the federal level before this could occur. This no longer appears to be the case.

Ideally, the initial transaction we would consider is the acquisition of Medicine Man Denver from our management that will complement our current business. However, in order to do so it would be necessary that a change in the regulatory standards being imposed by the State of Colorado limiting ownership in all cannabis related businesses solely to residents of the State of Colorado, including a minimum residence requirement of two years, be eliminated. Until this occurs we will need to engage in an acquisition of an existing cannabis business in a state that does not impose any residency requirements for ownership. While no assurances can be provided, we believe there are many synergistic cannabis operations both already in business and which will enter the industry as more states continue to adopt legalization proposals who will be interested in being acquired by us as a result of our becoming a trading, reporting company. We believe this makes economic sense because we can eliminate duplication of general and administrative expense, provide a more centralized information marketing and eliminate overlapping of services offered. As of the date of this Report we are beginning to identify potential acquisition opportunities but have not conducted any discussions with potential acquisition companies. There are no definitive agreements in place relating to our acquiring any such business and there can be no assurances that such agreements will be executed on favorable terms or at all in the future.

If we are successful, the acquisition of related, complimentary businesses is expected to increase revenues and profits by providing a broader range of services in vertical markets which are consolidated under one parent, thus reducing overhead costs by streamlining operations and eliminating duplicitous efforts and costs. There are no assurances that we will increase profitability if we are successful in acquiring other synergistic companies.

Management has begun to seek out and evaluate related, complimentary businesses for acquisition. The integrity and reputation of any potential acquisition candidate will first be thoroughly reviewed to ensure it meets with management’s standards. Once targeted as a potential acquisition candidate, we will enter into negotiations with the potential candidate and commence due diligence evaluation of each business, including its financial statements, cash flow, debt, location and other material aspects of the candidate’s business. One of the principal reasons for our filing of our registration statement of which this Prospectus is a part and the filing of an application to list our securities for trading is our intention to utilize the issuance of our securities as part of the consideration that we will pay for these proposed acquisitions. If we are successful in our attempts to acquire synergistic companies utilizing our securities as part or all of the consideration to be paid, our current shareholders will incur dilution. 

In implementing a structure for a particular acquisition, we may become a party to a merger, consolidation, reorganization, joint venture, or licensing agreement with another corporation or entity. We may also acquire stock or assets of an existing business. On the consummation of a transaction, we do not expect that our present management and shareholders will no longer be in control of our Company.

As part of our investigation, our officers and directors will meet personally with management and key personnel, may visit and inspect material facilities, obtain independent analysis of verification of certain information provided, check references of management and key personnel, and take other reasonable investigative measures, to the extent of our limited financial resources and management expertise. The manner in which we participate in an acquisition will depend on the nature of the opportunity, the respective needs and desires of us and other parties, the management of the acquisition candidate and our relative negotiation strength.

We will participate in an acquisition only after the negotiation and execution of appropriate written agreements. Although the terms of such agreements cannot be predicted, generally such agreements will require some specific representations and warranties by all of the parties thereto, will specify certain events of default, will detail the terms of closing and the conditions which must be satisfied by each of the parties prior to and after such closing, will outline the manner of bearing costs, including costs associated with our attorneys and accountants, will set forth remedies on default and will include miscellaneous other terms.

Depending upon the nature of the acquisition, including the financial condition of the acquisition company, as a reporting company under the Securities Exchange Act of 1934 (the “34 Act”), it may be necessary for such acquisition candidate to provide independent audited financial statements. If so required, we will not acquire any entity which cannot provide independent audited financial statements within a reasonable period of time after closing of the proposed transaction. If such audited financial statements are not available at closing, or within time parameters necessary to insure our compliance with the requirements of the 34 Act, or if the audited financial statements provided do not conform to the representations made by the candidate to be acquired in the closing documents, the closing documents will provide that the proposed transaction will be voidable, at the discretion of our present management. If such transaction is voided, the agreement will also contain a provision providing for the acquisition entity to reimburse us for all costs associated with the proposed transaction.

Additional Business Opportunities

The cannabis industry is developing rapidly. As it continues to develop we believe additional business opportunities will arise. One aspect that we have identified is the opportunity to provide job placement services to our clients. We believe we are in a unique position as a result of our developing extensive contacts within the cannabis industry at all levels of operations, to utilize these contacts and industry knowledge to expand our business. As our clients move from planning to execution they have the need to fill key positions in cultivation and dispensary operations, and operations leadership. As of the date of this report we are currently taking initial steps to investigate the possibility of our providing a professional staffing function within Medicine Man Technologies to fulfill that need. However, we are not currently engaged in this aspect of the business and there are no assurances that we will expand our operations in this manner.

Government Regulations

While we do not currently generate revenues from the direct sale of cannabis products, we are engaged in assisting companies who are so engaged in various start up aspects of the cannabis industry. Marijuana is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal laws. We also should like to note that recently one public company (symbol TRTC) has recently acquired new business lines that do generate revenues from the direct sales of cannabis products and that should this (as well as others to be defined) practice be allowed under SEC reporting guidelines the Company also has begun to look at opportunities in this space.

A Schedule I controlled substance is defined as a substance that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse. The Department of Justice defines Schedule 1 controlled substances as “the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence.” If the Federal Government decides to enforce the Controlled Substances Act in Colorado with respect to marijuana, persons that are charged with distributing, possessing with intent to distribute, or growing marijuana could be subject to fines and terms of imprisonment, the maximum being life imprisonment and a $50 million fine. Any such change in the Federal Government’s enforcement of current federal laws could cause significant financial damage to us. While we do not intend to harvest, distribute or sell cannabis, we may be irreparably harmed by a change in enforcement by the federal or state governments.

As of the date of this report, 24 states and the District of Columbia allow its citizens to use Medical Marijuana, with Texas being the most recent state to add a medical initiative. Additionally, voters in the states of Colorado, Washington, Alaska and Oregon have all approved legalization of recreational cannabis for adult use. The state laws are in conflict with the Federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The Obama Administration has effectively stated that it is not an efficient use of resources to direct law federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana. However, there is no guarantee that the Administration will not change its stated policy regarding the low-priority enforcement of federal laws. Additionally, any new administration that follows could change this policy and decide to enforce the federal laws strongly. Any such change in the Federal Government’s enforcement of current federal laws could cause significant financial damage to us. While we do not intend to harvest, distribute or sell cannabis, we may be irreparably harmed by a change in enforcement by the federal or state governments.

Although cultivation and distribution of marijuana for medical use is permitted in many states, provided compliance with applicable state and local laws, rules, and regulations, marijuana is illegal under federal law. Strict enforcement of federal law regarding marijuana would likely result in the inability to proceed with our business plan and could expose us and our management to potential criminal liability and subject their properties to civil forfeiture. Though the cultivation and distribution of marijuana remains illegal under federal law, H.R. 83, enacted by Congress on December 16, 2014, provides that none of the funds made available to the DOJ pursuant to the 2015 Consolidated and Further Continuing Appropriations Act may be used to prevent states from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana. However, state laws do not supersede the prohibitions set forth in the federal drug laws.

For a comprehensive and up to date perspective on this process as well as current states and territories please refer to the following link: http://www.mpp.org/states/key-marijuana-policy-reform.html

In order to participate in either the medical or recreational sides of the marijuana industry in Colorado and elsewhere, all businesses and employees must obtain licenses from the state and, for businesses, local jurisdictions. Colorado issues four types of business licenses including cultivation, manufacturing, dispensing, and testing. In addition, all owners and employees must obtain an occupational license to be permitted to own or work in a facility. All applicants for licenses undergo a background investigation, including a criminal records check for all owners and employees.

Colorado has also enacted stringent regulations governing the facilities and operations of marijuana businesses. All facilities are required to be licensed by the state and local authorities and are subject to comprehensive security and surveillance requirements. In addition, each facility is subject to extensive regulations that govern its businesses practices, which includes mandatory seed-to-sale tracking and reporting, health and sanitary standards, packaging and labeling requirements, and product testing for potency and contaminants.

Despite the Obama Administration’s statements, the Department of Justice has stated that it will continue to enforce the Controlled Substance Act with respect to marijuana to prevent:

Laws and regulations affecting the medical marijuana industry are constantly changing, which could detrimentally affect our proposed operations. Local, state and federal medical marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter its business plan. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on its operations. It is also possible that regulations may be enacted in the future that will be directly applicable to our business. These ever changing regulations could even affect federal tax policies that may make it difficult to claim tax deductions on our returns. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on its business.

Since the use of marijuana is illegal under federal law, there is a compelling argument that banks cannot accept for deposit funds from businesses involved with marijuana. Consequently, businesses involved in the marijuana industry often have trouble finding a bank willing to accept their business. The inability to open bank accounts may make it difficult for our clients to operate.

Employees

As of the date of this Report we have four (4) employees, our management.  We anticipate that as we grow and expand our service offerings as well as acquisitions, we will hire additional employees in the areas of accounting, regulatory affairs, marketing, and application support.

Competition

We face extreme competition from both larger, better-financed national brands as well as an ever increasing number of boutique service providers in the cannabis industry. We currently track sixty-nine (69) such providers in this space and are continually monitoring their progress and presence in the industry while working to continue to demonstrate our unique licensing offering. We also track 137 public companies that are either directly in or loosely involved in the cannabis industry.

Trademarks-Tradenames

We rely upon our various trademark, trade name, and intellectual property of our license partner Medicine Man Denver and will, in the future as appropriate develop such elements as we may determine valuable to business.

We also acknowledges that certain protections normally available to us related to design or other utility patents in the cannabis industry would not currently be enforceable under federal law.

We attempt to protect our intellectual property via the deployment of non-disclosure agreements with both prospects as well as licensees. There are no assurances that these non-disclosure agreements will prevent a third party from infringing upon our rights.

Industry Analysis

According to the Colorado Department of Revenue, Colorado’s marijuana industry reported $45 million in legal recreational and medical marijuana in sales in January 2015 and achieved $985M in total sales during the year end December 31, 2015. The legal national regulated marijuana market was estimated to be between $2 -$3 billion in 2015 but, according to New Frontier Data studies achieve $5.4B in sales nationally in 2015 and is expected to increase to $20 plus billion by 2020.

In Colorado, the market was expanded in January 2014 to include adult use, including visitors from other states. Voters in Washington, Oregon and Alaska recently approved a ballot measure to legalize cannabis for adult use. While no assurances can be provided, many experts predict that other states will follow these states in enacting legislation or approving ballot measures that expand the permitted use of cannabis. Massachusetts, Maine, Arizona, California and Nevada all have similar initiatives on the ballot this election year.

Nationally, the industry has continued to gain ground through the addition of many states and their passing of medical and or recreational provisions for the use of cannabis. While there certainly appears to be a trend towards acceptance of cannabis, there are no assurances offered that this business will be able to sustain itself over time if the Federal Government changes its current position related to state legalized operations.

While no assurances can be provided, we believe that over the next three to five years there will be as many as thirty-five to forty states adopting various types of cannabis legislation (medical and/or recreational) and if this happens, we believe that there will occur a certain tipping point by which the Federal Government will have to take some sort of stand on the legal status of cannabis.. We also believe that due to the strong growth in the industry as a whole at the state level, the Federal Government will eventually de-schedule cannabis, similar to the alcoholic beverage prohibition repeal in the mid 1930’s, and as motivated by its citizenry decriminalize cannabis as well as regulate it under the auspices of some existing or newly formed agency.