Property, Plant & Equipment

11 Months Ended

Dec. 31, 2014

Property, Plant & Equipment [Abstract]

11.

Property, Plant & Equipment

Brampton Property Acquisition Closing

On July 4, 2014, 2264793 Ontario Inc., a consolidated VIE of the Company, closed on the purchase (the “Closing”) of real property located at 98-102 Rutherford Road South, Brampton, Ontario (the “Brampton Property”) pursuant to that certain Agreement of Purchase and Sale (the “Purchase Agreement”) entered into by and between the 2264793 Ontario Inc. and I.L. Rosen Limited, Time Holdings Limited and Tanak Group Ltd. (collectively, the “Seller”) on April 1, 2014. 2264793 Ontario Inc. acquired the “Brampton Property” for a total consideration of CAD $14,270,730 (USD $13,390,226), which includes the final adjusted purchase price of CAD $13,421,000 (USD $12,592,924) and land transfer taxes and related surcharges totaling CAD $464,000 (USD $435,371). The Brampton Property includes an approximately 312,000 square foot industrial building and is located approximately 23 kilometers (12 miles) from Pearson International Airport, within the Greater Toronto Area.

The Company began renovations to the property during the third quarter. As of December 31, 2014, construction costs incurred are CAD $1,321,003 (USD $1,135,930). These costs were capitalized as Construction in Progress on the Company’s balance sheet for the period ended December 31, 2014.

The medical marijuana regulatory environment in Canada is experiencing significant uncertainty. Health Canada’s change removing the ready to build approval makes it very difficult and risky for potential medical marijuana licensees to pass the final licensure stage. The Company continues to consider every avenue of its business plan. Due to this continued regulatory uncertainty, particularly the changes and delays in medical marijuana licensing process, the Company’s contingency plans may include entertaining the sale of the Brampton Property. If such transaction were to occur, the Company would consider using proceeds from any such sale to continue pursuing other avenues to achieve our business plan, including potential acquisitions of other medical marijuana licensees and pursuing alternative medical marijuana products and technology, both in Canada and internationally, or another suitable property to replace the Brampton Property.

In connection with the Closing, on July 4, 2014, 2264793 Ontario Inc., a consolidated VIE of the Company, entered into a Mortgage (the “Mortgage”) with Rescom Capital, C&K Mortgage Services Inc. and The Bank of Nova Scotia Trust Company to borrow a total of CAD $9.4 million (the “Loan”) (USD $8,083,060). The Loan is secured by a mortgage on the Brampton Property, a corporate guaranty by the Company’s subsidiary Canada Cannabis Corp., as well as personal guaranties by Benjamin Ward, John Esteireiro, Silvio Serrano and Douglass S. Keevil.

The Loan accrues interest at ten percent (10%) per annum and was due in full on July 15, 2015. The Mortgage has not been extended; the Company continues to pay the loan on the same terms on a monthly basis. The Company is required to make monthly interest only payments in the approximate amount of CAD $78,333 (approximately USD $71,000). Approximately CAD $381,212 (approximately USD $345,302) of interest was expensed during the twelve months ended December 31, 2014.

With respect to the individual guarantors:

●	Mr. Ward owns approximately 6.4% of the Company’s common stock and is a Director, the CEO and President of the Company.

●	Mr. Esteireiro owns approximately 6.4% of the Company’s common stock and was formerly a Director and the COO of the Company.

●	Mr. Serrano owns approximately 6.4% of the Company’s common stock and is a Director and a Vice President of the Company.

●	Mr. Keevil owns approximately 4.1% of the Company’s common stock.

Additionally, in connection with the acquisition of the Brampton Property, the Company loaned to 2264793 Ontario Inc. the amount of CAD $4,953,160 (approximately USD $4,259,222) to fund a portion of the down payment on the Brampton Property (the “Down Payment Loan”). This Down Payment Loan is evidence by a promissory note prepared and dated December 31, 2015 made by 2264793 Ontario Inc. in favor of the Company in the amount of CAD $4,953,160 (approximately USD $4,259,222), bearing interest at a rate of 0%.The loan between 2264793 Ontario Inc. and the Company is eliminated on Consolidation and as such, no imputed interest was calculated.

The acquisition of the Brampton Property was also funded in part by personal loans made to the Company by certain related parties. In connection with these loans, the Company issued the following short term promissory notes on July 4, 2014 (collectively, the “Notes”):

●	The Company issued a promissory note to Benjamin Ward in consideration of additional funds advanced in the amount of CAD $318,000 (USD $273,448), with no interest, payable upon sufficient capitalization of the company and due in full sixty (60) days from the date thereof.

●	The Company issued a promissory note to Silvio Serrano in consideration of funds advanced in the amount of CAD $185,000 (USD $160,000), with no interest, payable upon sufficient capitalization of the company and due in full sixty (60) days from the date thereof.

In accordance with FIN 46(R), the Company believes that it meets the definition of the primary beneficiary for 2264793 Ontario Inc. and consolidates the entity in its Consolidated Financial Statements. See Note 2 “Variable Interest Entities” and “Principles of Consolidation.

On December 31, 2014, the Company recorded a $250,000 CAD, ($214,975 USD) accrual for remediation and site cleanup of the Brampton Property. This work will include excavation and disposal of impacted dirt, brick, garbage, waste, tires and chemicals.

CANADIAN CANNABIS CORP. 10-K