COMMONWEALTH ALTERNATIVE CARE APPLICATION 2 OF …...Commonwealth Alternative Care, Inc. • 11 Beacon Street • Suite 720 • Boston, MA 02108 OocuSIQn Envelope ID:...

Commonwealth Alternative Care

BY HAND DELIVERY

July 7, 2016

Eric Sheehan, Esq .. Interim Bureau Director Medical Use of Marijuana Program Massachusetts Department of Public Health 99 Chauncy Street, nth Floor Boston, MA 02111

RE: Commonwealth Alternative Care Inc. Response to RFI dated June 29, 2016

Dear Mr. Sheehan:

COMMONWEALTH ALTERNATIVE CARE

APPLICATION 2 OF 3

RECEIVED JUL 0 7 20\6

MA Dept. of Public Health 99 Chauncy Street Boston, MA 02111

Please find the attached exhibits and responses to the Department's Request For Information dated

June 29, 2016.

You will find enclosed: • Lease assignment document between Alternative Care Resource Group and Commonwealth

Alternative Care demonstrating evidence of property interest on behalf of the applicant, Commonwealth Alternative Care

• Revised Section E of the Siting Profile with the VARIANCE fields completed • Section E Rationale behind the following items: Projected Expenses; Total marijuana for medical

use sold for the year (in LBS); and Total marijuana for medical use left for roll over (in LBS), specifically the negative inventory in t~e 3rd fiscal year.

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Commonwealth Alternative Care

Commonwealth Alternative Care, Inc. • 11 Beacon Street • Suite 720 • Boston, MA 02108

OocuSIQn Envelope ID: B7CEC7SF-CF01-4B74·9ED3-AA2EDE65040C Commonwealth Alternative Care, Application 2 of 3

Alternative Care Resource Group LLC 194 Halsted Drive

July 1, 2016

RE: 30 Mozzone Boulevard Taunton MA 02780-3751

Hingham MA 02043

Licensed Marijuana Dispensary Location 40,000 sq ft.

ASSIGNMENT and SUBLEASE

Dear Ms. Whalen:

Please accept this letter as a statement of assignment and sublease ("Assignment") by Alternative Care Resource Group LLC ("ACRG" or "Assignor") in favor of Commonwealth Alternative Care Inc. ("CAC" or "Assignee") relative to the real property located at the abovercfercnced address. Please sign this letter in the space indicated below to indicate your acceptance of the terms and conditions stated herein.

1. Recitals.

Whereas, on or about August 31, 2015, ACRG and 30 Mozzone Boulevard 2013 Realty Trust ("Mozzone Boulevard Trust'') entered into a Lease ("Lease") relative to premises located at 30 Mozzone Boulevard, Taunton MA 02780-3751 ("Premises");

Whereas, a copy of the Lease is attached hereto as Exhibit A;

Whereas, Section 6.2 of the Lease permits ACRG to assign and sublease the premises upon the written consent of the Landlord;

Whereas, ACRG seeks to assign and sublease, and CAC seeks to accept such assignment and sublease, as set forth in this Assignment;

Whereas, CAC and ACRG have executed a certain Management Agreement through which CAC has retained ACRG to provide certain services, including application support, real estate, site design, construction management and other services including, but not limited to, providing physical locations suitable for RMD dispensary use;

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DocuSlgn Envelope ID: B7CEC75F-CF01-4B74-9ED3-M2EDE65D40C Commonwealth Alternative Care, Application 2 of 3

Whereas, the parties understand and acknowledge that ACRG has incurred, and will continue to incur, substantial costs and risks associated with CAC's establishment and operation of one or more RMD dispensaries;

Whereas, CAC intends to operate a RMD dispensary at the premises using state-of-the-art equipment, fixtures and other characteristics, all of which will be designed, constructed and managed at the premises by ACRG and in compliance with 105 CMR 725.000 ct seq.;

Whereas, through the Lease, ACRG has secured the premises, and has assured that the premises are suitable for establishing and operating the RMD contemplated by CAC;

Therefore, the parties hereby execute this Assignment in order to express the terms and conditions upon which CAC will sublease the premises from ACRG.

Upon full execution by the parties, this Lease shall constitute evidence of Assignee's interest in the premises. Furthermore, upon full execution by the parties, this Lease shall constitute a legally enforceable agreement between the ACRG and CAC to negotiate in good faith, and thereafter execute, a standard form sublease agreement reflecting terms and conditions not inconsistent with the regulations and guidances issued from time to time by the Massachusetts Department of Public Health ("DPH").

The parties intend that this Lease be submitted to the Massachusetts Department of Public Health in connection with the application of CAC to establish and operate an RMD dispensary pursuant to 105 CMR 725.000 ct seq. The parties intend and anticipate that the Premises will be devoted to said use and purpose.

2. Operative Dates.

Commencement Date:

Assignment Date:

Upon receipt by CAC of a Final Certificate from the Massachusetts Department of Public Health to operate an RMD dispensary at the premises.

August 31, 2015

Rent Commencement Date: Twenty-one (21) days from the approval of a license to operate a Medical Marijuana Dispensary from the Department of Public Health of the Commonwealth of Massachusetts (the "Commencement Date")

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DocuSign Envelope ID: B7CEC75F-CF01-4B74-9ED3-M2EDE65040C Commonwealth Alternative Care, Application 2 of 3

3. Parties.

Assignor:

Assignee:

Alternative Care Resource Group LLC 194 Halsted Drive Hingham MA 02043

Commonwealth Alternative Care Inc. 11 Beacon Street, Suite 720 Boston MA 02108

4. Terms and Conditions.

Description:

Initial Term:

Permitted Use:

Rent:

A portion of a freestanding building consisting of 40,000 square feet+/- 30 Mozzone Boulevard, Taunton MA 02780-3 751

Five (5) years

RMD Dispensary

Year 1 - $ 10.00 per sq foot Year 2- $ 11.00 per sq foot Year 3 - $ 12.00 per sq foot Year 4 - $ 13.00 per sq foot Year 5 - $ 14.00 per sq foot

Assignee's Operating Costs:Assignce shall pay all utility expenses, which shall include heat, electric, hot water, telephone, internet and like charges.

Security:

Assignor's Obligation:

Required Insurance:

As required by 105 CMR 725.110, Assignee shall be responsible for security at the premises.

Assignor shall support Assignee in connection with applications for municipal and state permitting and licensing.

$1,000,000.00 general liability per occurrence, annually $2,000,000.00 general liability in the aggregate, annually

As required by 105 CMR 725.105(Q)

Nature of the Commitment: This Assignment is binding between the parties, who agree to execute a standard form commercial sublease with terms and conditions not inconsistent with this Assignment.

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DocuSlgn Envelope ID: 87CEC75F·CF01·4874·9ED3·AA2EDE65D40C Commonwealth Alternative Care, Application 2 of 3

Please indicate your agreement by signing below. I look forward to working with you as we draft and execute the sublease.

30 MOZZONE BOULEVARD 2013 REAL TY TRUST

Consented: By: Date:

Daniel DaRosa, Trustee 7/S/20J-6 I

--

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Commonwealth Alternative Care, Application 2 of 3

Altcnrntivc Care Resource Group LLC 194 I lnlstcd Drive

July I, 2016

RE: 103 Liberty Street Brockton MA 0230 I -5518

Hingham MA 02043

ASSIGNMENT nnd SUBLEASE

Dear Ms. Wlmlen:

Please accept this letter as a statement of assignment and sublease ("Assignment") by Altemative Care Resource Group LLC ("ACRG" or "Assignor") in favor of Commonwcaflh Altenmtive Care Inc. ("CAC" or "Assignee") relative to the real property located at the abovereferencecl address. Please sign this letter in the spcice indicated below to indicate your ncceptance of the tenns and conditions stated herein.

I . Recitals.

Whereas, on or about September 18, 2015, ACRG and Berlarelli Bros. lnc ("Berlurclli Bros") entered into n Commercial Lease ("Lease") relative to premises localed al 103 Liberty Street, Brockton MA 02301-5518 ("Premises");

Whereas, a copy of the Lease is attached hereto as Exhibit A;

Whereas, Section 7. I 0 of the Lease permits ACRG to assign and sublease the premises upon written consent of the Landlord;

Whereas, ACRG seeks to assign and sublease, and CAC seeks to accept such assignment and sublease, as sel forth in 'this Assignment;

Whereas, CAC and ACRG have executed a certain Management Agreement through which CAC hns retained ACRG to provide ccrtt1in services, including application support, real estate, site design, constmction management and other services including, but not limited to, providing physict1l loc:1tions suitable for Registered Medical Marijuana Dispcnsmy (RMD) use;

1


Wherci1s, the parties understand and acknowledge thal ACRG lrns incurred, and will continue to incur, substantial costs and risks associated with CAC's establishment and operation ol' one or more RM Os;

Whereas, CAC inlcnds to operate an ll!vlD at the premises using state-of-the-art equipment, fixtures and other clmrnctcristics, all of which will he designed, const111ctcd and 1111mnged at the premises by ACRG and in compliance with I 05 CM R 725.000 ct seq.;

Whereas, through the Lease, ACRG has secured the premises, mul has assured that the premises arc suitable for establishing and operating the RMD contemplated by CAC;

Therefore, the pm1ies hereby execute this Assignment in order lo express the terms and conditions upon which CAC will sublease the premises from ACRG.

Upon full execution by the parties, this Lease shall constihlle evidence of Assignee's interest in the premises. Furthermore, upon lhll execution by the parties, this Lease shall con!!titutc a legally enforceable agreement between the ACRG and CAC to negotiate in good faith, and thercaficr execute, a standard form sublease agreement reflecting terms and conditions not inconsistent with the regulations and guidances issued from time to time by the Massachusetts Department of Public l-lealth ("DPH").

The parties intend that this Lease be submitted to the Massachusetts Department of Public Health in connection with the application of CAC to establish and opcrntc an RMD pursuant lo I 05 CMR 725.000 et seq. The parties intend nnd anticipate that the Premises will be devoted to said use mtd purpose.

2. Oncrativc Dates.

Commencement Date:

Assignnumt Dntc:

Upon receipt by CAC of a Final Certificate from the Massaclmsells Department of Public Health to operate mt RtvlD at the premises.

September 18, 2015

Rent Commencement Date: Thirty (30) clays following the issuance of the Massachusetts License to CAC to dispense Medical Marijuana

3. Parties.

Assignol': Altcnrnli"c Cnl'c Rcsoul'ce Grou1> LLC 194 Halsted Drive Hingham MA 02043

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Assignee:


Commonwcnlth Altel'lrnth•e Ciu·c Inc. I I Beacon Street, Suite 720 Boston MA 02108

4. Terms and Conditions.

Dcscrip«ion:

lnitinl Term:

Permitted Use:

Rent:

The building known as and numbered I 03 Liberty Street, Brockton, MA containing approximately 8,050 square feet.

Ten (ID) yenrs ( 120 months)

Registered Marijuana Dispensary

Y car I · $ 16.00 per sq foot Rent shall increase by 2.5% each year starting with Year 2, rm<l such anmml increase shall continue for the remainder of the term and any renewal(s).

Assignee's 01>c1·11ting Costs:Assignce shall pay all utility expenses, which shall include heat, electric, hot waler, telephone, internet and like charges.

Security:

Assignor's Ohllgntion:

Required lnsurnnce:

As required by I 05 CMR 725.110, Assignee shall be responsible for security nt the premises.

Assignor shall support Assignee in connection with applications for municipal and stale permitting and licensing.

$1,000,000.00 general liability per occurrence, annually $2,000,000.00 general liability in the aggregate, annually

As required by I 05 CMR 725.105(Q)

Nature of the Co111111itmcnt:This Assignment is binding between the parties, who agree lo execute a standard form sublease with terms and conditions not inconsistent with this Assignment.

3


Plcnsc indicate yom agreement hy signing below. I look forward to working wilh you as we drafi and cx1:culc the suhlcm;c,

mm.TAllELLI mtos INC

Consented: By: Date:

, .. ~' _i1 _ S_1_lt

~~~ _:l_ I J_ I (.£_


SECTION D: LOCAL COMPLIANCE

Describe how the Corporation hus ensured, nnd will continue to ensure, thnt the proposed RMD is in complinnce will locnl codes, ordinnnccs, and bylaws for the physicnl address( es) of the RMD.

CAC proposes a dispensary facility 111 IOl Libcny Sl., Brockton nnd a cultivation/processing focilily 111 30 Mozzone Blvd, Taunton. The proposed uses an: consistent wilh local wning bylaws. Sec Brocklon Code Sec. 27·23.3; Taunlon Code Sec.•. 5.2 (Table or Ui;c Regulmions) nnd I0.4 {SP2 use) (allowing medical mariju1111a ui;c by special pcnnil). The prop05Cd u.o;cs an: beyond 1111y rcsidcnlial, M:hool, park or olhcr sci backs required by local bylaw or 105 CMR 725 .I I O{A){ 14). In Brockllln, CAC will diligently pursue a special pcnnil in aa:ordnncc: wilh Sec. 27-2J.3(c), 1111d will complc\c site pl1111 review in aa:onlancc with Sec. 27·23.3(c)(3). CAC a.o;surcs lh.:il the propcny lies wilhin an overlay dislricl, which consislli or 1-5 squan: milcs +f· or commc:rcinl/induslrial property on lhe cily's wcsl side. In Taunlon, CAC will diligcnlly pursue 1111 SP2 special pcnnil in accordance: wilh Sec. I0.4. In each city, CAC will comply continuously wilh IOS CMR 725.000 cl seq, working wilh cily pl1111ncr.1, police chiefs, fire chiefs and public works dcpanmcnlS lo comply wi1h all applicable codes, ordinances and bylaws. Ms. Whalen will a.uure thal C AC mainlain.• such compliance 1111d will rclllin legal counsel 1111d an engineering finn lo funhcr a.•surc compliance.

Information on this pase has been reviewed by the applicant, and where provided by the applicant, Is accurate and complete, as Indicated by the Initials of the authorized signatory here: __ _

Siting Profile - Page: 7


SECTION E: THREE· YEAR BUSINESS PLAN BUDGET PROJECTIONS

Provide the three-year busine.rs plan for the RMD. including revenues and expense.~.

Projected Start Date for the First Full Fiscal Year: 01/01/2017

FIRST FULL FISCAL SECOND FULL FISCAL VEAR PROJECTIONS YEAR PROJECTIONS

20 17 20 18

Proiccted Revenue $ 4,824,000.00 $ 4,924,800.00

Proiccted ExPCnscs $1,678,342.00 $ 1,678.342.00

VARIANCE: $ 3,145,6511.00 $ 3.246,458.00

Number or uniauc patients for the year 1.286 1,459

Number of patient visits for the vcar 12 12

Proicctcd % of oatient f!mWth rate annuallv - 88%

Estimated purchased ounces per visit I oz I oz

Estimated cost ocr ounce s 312 s 281

Total fTEs in stuffinl! lO 16

Total marijuana for medical use inventory l ,440lb:I l ,440 Im for the vcar <in lbs.)

Totnl marijuana for mcdic:il use sold for the 96511Y.< l ,ll94 lbs vcar fin lbs)

Total marijuana for medical use left for roll 475 lbs 346 lbs over (in lbs.)

Projected date the RMD plans to open: _0_1I0_112_20_17 __________ _

Information on this page has been reviewed by the applicant, and where provlded by the applicant, Is accurate and complete, as lnd'cated by the lnlUals of the authorized signatory here~_

THIRD FULL FISCAL YEAR PROJECTIONS

20 20

$ 6.264 ,000.00

s 1,678,342.00

$ 4,S85,6S8.00

2,784

12

52%

l oz

s 187

23

1,440 lb:<

2,088 lbs

-648 lbs

Siting Profile - Pogc 8


APPLICATION 2 OF 3

Question #3 from DPH RFI dated 6/29/16:

3. In Section E, please explain the rationale behind the following line Items: Projected Expenses; Total marijuana for medical use sold for the year (In LBS); and Total marijuana for medical use left for roll over (In LBS), specifically the negative Inventory in the 3rd fiscal year.

Projected Expenses:

Projected expenses are taken from extensive experience running and operating medical marijuana facilities in Colorado, in addition to other market data. LivFree Holdings executives provide some of the most extensive experience in the industry today, running highly successful vertically integrated companies in the marketplace. LivFree executives have been heads of facilities that produced 10% of Colorado's medical marijuana market and they collectively ran over a dozen dispensaries. A production facility, once open, generally will produce at capacity. The costs to do so are the traditional costs we have experienced operating these facilities in the past.

Total marijuana for medical use sold for the year (In LBS):

The production output will be a function of the size of the facility. The sale of that material will be a function of several factors.

1. The patient count in the marketplace. 2. The price and quality of the product. 3. Patient accessibility to doctors and dispensaries.

The issue of inventory will be addressed below.

Total marijuana for medical use left for roll over (In LBS) specifically the negative Inventory In the 3rd fiscal year:

The model holds constant the production of cannabis with variables of patient count and cost of cannabis in the marketplace. The reason production is constant is because once a facility is built it almost always will function at its capacity, and the business will focus on patient acquisition and hold overage in inventory. Inventory will be held in extracted materials for ease of storage and use at a later time. Bulky flower products will likely not be stored.

In year 1 inventory is 1.440 lbs and a patient count of 1.286.

By year 3 production has not varied however the Inventory is being reduced by -648 lbs as patient count has risen as a function of the reduction in price and ease of access. Overage or accrued inventory will be managed on a "first in first out" basis.

When the operations start to experience negative inventory, i.e. the reduction of inventory because demand is outstripping production, then this would traditionally be a time when the operator would consider expansion to service the market. If as a market this does not take place, prices would rise in a traditional economic model.

Please see next page


APPLICATION 2 OF 3

Response continued from previous page:

The model is based upon historical data from other cannabis marketplaces. Caveats of those markets are as follows:

Newer licenses awarded will be of a larger scale, more sophisticated and production will be increasing overall. Quantity and quality of cannabis will increase and therefore prices will begin to slide.

Once the price of cannabis falls to a certain point, and access to doctors and dispensaries is increased, the black market will be far less competitive and ultimately nearly eliminated. Therefore the patient count will increase dramatically as cannabis users participate in the superior and legal market. However, the patient count increase model is still conservative to what has been seen in other markets. Also the price decrease in the value of a pound of cannabis is also conservative.

Prices historically start around 5500 a pound and with enough production can fall as low as 1200 a pound. In this marketplace it is unlikely that prices will fall as quickly as for example, Colorado, as Colorado has over 700 producers and this market will not. However we anticipate prices will fall to $187 per ounce in year 3.

• Production should be robust to insure higher quality and lower prices. This is ultimately good for the consumer who will be uninsured on the medicine as well as to discourage patients from participating in the black market.

COMMONWEALTH ALTERNATIVE CARE APPLICATION 2 OF …...Commonwealth Alternative Care, Inc. • 11 Beacon Street • Suite 720 • Boston, MA 02108 OocuSIQn Envelope ID:...

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