Confidential Private Placement MemorandumMountain.PPM+-FIN… · confidential private placement...

Confidential Private Placement Memorandum

Verde Mountain Fund, LLC 200 Units at $12,500 per Unit

$2,500,000 Aggregate Offering Amount Minimum Investment - 2 Units or $25,000

This Offering will expire July 31, 2016 (unless extended by the Manager)

Funding Round No. 1

Verde Mountain Fund, LLC (the “Fund”), a Wyoming limited liability company, is hereby offering (this “Offering”) to

potential investors (“Investors”) two hundred (200) membership units (the “Units”) in the Fund at $12,500 per Unit for a

maximum aggregate offering price of $2,500,000. This Offering is a private placement intended to be exempt from registration

pursuant to Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended (the “Act”), and other

applicable exemptions from registration under the Act and applicable State laws. The Units are not listed on any national stock

exchange or other securities exchange. This Offering is being made only to (i) “accredited investors” as defined in Rule 501 of

Regulation D under the Act; and (ii) a limited number (not to exceed 35) of other potential Investors who meet the knowledge

and business requirements set forth in Rule 506 of Regulation D. This Offering is subject to the terms and conditions contained

in this Confidential Private Placement Memorandum (this “Memorandum”), the Operating Agreement of the Fund (the

“Operating Agreement”), a copy of which is attached to this Memorandum as Exhibit “A”, and the subscription documents

attached to this Memorandum as Exhibit “B”. The minimum investment in the Fund by any one Investor is $25,000 (2 units),

although the Manager of the Fund may lower this amount in its sole discretion. If a subscription for 10 Units ($125,000) has

not been received by the Fund by April 30, 2016 the Manager of the Fund, in its sole discretion, may terminate this Offering

and return all subscription funds received to the respective potential Investors.

This is the first round of Company membership units being offered by the Company to potential investors (this “Offering” or

the “First Round”). Although there can be no assurances, the Fund currently anticipates that at some time after the completion

of this Offering, it may offer additional Units to potential investors in one or more subsequent funding rounds at prices that are

higher than the purchase price of $12,500 per Unit offered in this Offering, reflecting what is anticipated to be an increase in the

value of the Fund.

THE UNITS OFFERED HEREBY ARE SPECULATIVE, INVOLVE A HIGH DEGREE OF RISK AND SHOULD NOT BE

PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE SECTION II

BELOW, “RISK FACTORS”.

THE UNITS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR

ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD ONLY PURSUANT TO AN EXEMPTION FROM

REGISTRATION REQUIREMENTS OF THE ACT AND EXEMPTIONS UNDER APPLICABLE STATE LAWS TO

INDIVIDUALS AND ENTITIES THAT QUALIFY AS “ACCREDITED INVESTORS” (AS DEFINED UNDER RULE 501 OF

REGULATION D UNDER THE ACT) OR OTHERWISE MEET THE QUALIFICATION REQUIREMENTS OF RULE 506 OF

REGULATION D, AND THAT EXECUTE AND DELIVER TO THE FUND CERTAIN SUBSCRIPTION DOCUMENTS

CONTAINING, AMONG OTHER THINGS, CERTAIN REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. SEE

SECTION X.B BELOW, “INVESTOR SUITABILITY STANDARDS”.

Number of Units Offered (1)

Price to

Investors/Unit

Gross Proceeds

Selling Expenses &

Overhead(2) Net Proceeds to the Fund

200

$12,500 $2,500,000 $170,000 $2,330,000

(1) The Fund reserves the right to accept or reject subscriptions for Units in its sole discretion.

(2) Estimated to be 6.8% of gross proceeds.

Dated March 9, 2016

Verde Mountain Fund, LLC

c/o Avalon Management Group, Inc., Manager

970 W. Broadway, #446

P.O. Box 30,000

Jackson Hole, WY, 83002

800-914-2689

Email: [email protected]

(iii)

TABLE OF CONTENTS

NOTICES TO POTENTIAL INVESTORS ...................................................................................... 1

I. SUMMARY OF THE OFFERING ............................................................................................... 5

II. RISK FACTORS .......................................................................................................................... 10

A. General Risks Associated with an Investment in Units .................................................. 10

B. Risk Associated with Doing Business in the Legalized Cannabis Industry .................... 15

C. Tax Risks ......................................................................................................................... 18

III. THE FUND .................................................................................................................................. 20

A. Overview ......................................................................................................................... 20

B. Capitalization .................................................................................................................. 20

C. Potential Conflicts of Interest .......................................................................................... 20

D. Dilution ........................................................................................................................... 21

IV. PROPOSED BUSINESS PLAN ................................................................................................. 22

A. Introduction ..................................................................................................................... 22

B. Market Overview............................................................................................................. 26

C. Business Overview .......................................................................................................... 37

V. MARKET, POTENTIAL CUSTOMERS AND COMPETITORS .............................................. 49

A. Market ............................................................................................................................. 49

B. Competition ..................................................................................................................... 49

VI. TERMS OF OFFERING; DESCRIPTION OF UNITS.............................................................. 51

A. General ............................................................................................................................ 51

B. Offering Period ................................................................................................................ 51

C. Offering Terms and Conditions Determined by the Manager ......................................... 51

D. Terms of Units ................................................................................................................ 52

VII. MANAGEMENT ...................................................................................................................... 55

A. Role of the Manager ........................................................................................................ 55

B. Avalon Management Group, Inc. .................................................................................... 55

C. Thomas W. Garlock ........................................................................................................ 55

D. Compensation of Manager .............................................................................................. 56

E. Actions against the Fund and Affiliates .......................................................................... 58

F. Additional Personnel ....................................................................................................... 58

G. Other Activities of the Manager ...................................................................................... 58

H. Indemnification of Manager ............................................................................................ 58

VIII. SOURCES OF USE OF PROCEEDS ....................................................................................... 59

IX. CERTAIN TAX CONSIDERATIONS ...................................................................................... 60

X. PLAN OF DISTRIBUTION; INVESTOR SUITABILITY STANDARDS ................................ 63

A. Plan of Distribution..…...……………………………………….………………………63

B. Investor Suitability Standards ......................................................................................... 63

XI. HOW TO SUBSCRIBE; ADDITIONAL INFORMATION ...................................................... 64

A. How to Subscribe ............................................................................................................ 64

B. Additional Information .................................................................................................... 65

EXHIBIT A – OPERATING AGREEMENT ...................................................................................

EXHIBIT B – SUBSCRIPTION DOCUMENTS ..............................................................................

1

NOTICES TO POTENTIAL INVESTORS

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE

SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) OR ANY STATE

SECURITIES COMMISSION, NOR HAS THE SEC OR ANY STATE SECURITIES

COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS

CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM. ANY

REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. IN MAKING

AN INVESTMENT DECISION, POTENTIAL INVESTORS MUST RELY ON THEIR

OWN EXAMINATION OF THE TERMS OF THE OFFERING, INCLUDING THE

MERITS AND RISKS INVOLVED.

THIS MEMORANDUM SHOULD BE TREATED AS CONFIDENTIAL. ANY

REPRODUCTION OR DISTRIBUTION OF THIS MEMORANDUM, IN WHOLE OR IN

PART, OR THE DISSEMINATION OF ANY OF ITS CONTENTS WITHOUT PRIOR

WRITTEN CONSENT OF THE FUND, EXCEPT TO A POTENTIAL INVESTOR’S

LEGAL COUNSEL OR FINANCIAL OR TAX ADVISOR, IS PROHIBITED. EACH

POTENTIAL INVESTOR, BY ACCEPTING DELIVERY OF THIS MEMORANDUM,

AGREES THAT IN THE EVENT A POTENTIAL INVESTOR ELECTS NOT TO

SUBSCRIBE FOR THE UNITS DESCRIBED HEREIN OR THE OFFERING IS

TERMINATED, FOR ANY REASON WHATSOEVER, SUCH POTENTIAL INVESTOR

WILL PROMPTLY RETURN THIS MEMORANDUM AND ALL RELATED

DOCUMENTS TO THE FUND.

THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK INCLUDING

BUSINESS, TAX, LEGAL AND ECONOMIC RISKS, RISKS OF ILLIQUIDITY, AND

LIMITS ON TRANSFERABILITY OF THE UNITS OFFERED HEREBY. THIS

INVESTMENT IS SUITABLE ONLY FOR SOPHISTICATED AND EXPERIENCED

PERSONS WHO HAVE SUBSTANTIAL FINANCIAL RESOURCES, WHO ARE ABLE

TO BEAR THE ECONOMIC RISKS OF THE INVESTMENT, WHO DO NOT

ANTICIPATE THAT THEY WILL NEED TO LIQUIDATE ANY INVESTMENT

ACQUIRED HEREUNDER IN THE FORESEEABLE FUTURE AND UNDERSTAND

OR HAVE BEEN ADVISED WITH RESPECT TO THE TAX OR OTHER

CONSEQUENCES OF, AND RISK FACTORS ASSOCIATED WITH, THIS

INVESTMENT.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OTHER

THAN THAT CONTAINED IN THIS MEMORANDUM, OR TO MAKE ANY

REPRESENTATIONS, OTHER THAN AS EXPRESSLY CONTAINED HEREIN, IN

CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,

SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED

UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS MANAGER. NO

OFFERING LITERATURE, OTHER THAN THIS MEMORANDUM AND THE

EXHIBITS TO THIS MEMORANDUM, HAS BEEN AUTHORIZED BY THE FUND.

THIS MEMORANDUM SUPERSEDES AND REPLACES ALL OTHER PRIOR

WRITTEN COMMUNICATION BY THE FUND, WITH RESPECT TO ANY

OFFERING OF UNITS. THE FUND DISCLAIMS ANY AND ALL LIABILITIES FOR

2

REPRESENTATIONS OR WARRANTIES, EXPRESSED OR IMPLIED, OR ANY

OTHER WRITTEN OR ORAL COMMUNICATION TRANSMITTED OR MADE

AVAILABLE TO THE RECIPIENT. EACH INVESTOR WILL BE ENTITLED TO

RELY SOLELY ON THOSE REPRESENTATIONS AND WARRANTIES THAT MAY

BE MADE TO IT IN ANY SUBSCRIPTION AGREEMENT RELATING TO THE UNITS

HEREIN OFFERED.

EXCEPT AS OTHERWISE INDICATED, THIS MEMORANDUM SPEAKS AS OF THE

DATE APPEARING ON THE COVER PAGE HEREOF. NEITHER THE DELIVERY

OF THIS MEMORANDUM NOR THE PURCHASE OF ANY OF THE UNITS

OFFERED HEREBY SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY

IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE

FUND SINCE THE RESPECTIVE DATES AT WHICH THE INFORMATION IS

GIVEN HEREIN OR THE DATE HEREOF.

THERE IS NO PUBLIC MARKET FOR THE UNITS OFFERED HEREIN, AND IT IS

NOT ANTICIPATED THAT A PUBLIC MARKET WILL DEVELOP. THE UNITS

WILL NOT BE LISTED ON A STOCK EXCHANGE AND SHOULD ONLY BE

PURCHASED BY PERSONS WITH NO NEED FOR LIQUIDITY IN THEIR

INVESTMENT AND WHO ARE ABLE TO RISK THE ENTIRE LOSS OF THEIR

INVESTMENT. SEE SECTION II BELOW, “RISK FACTORS”.

General Notices

Potential Investors are urged to read this Memorandum and the accompanying Exhibits

carefully. This Memorandum is not all-inclusive and does not purport to contain all the

information that a potential investor may desire, or should consider, in determining

whether to invest in the Fund. Potential investors must conduct and rely on their own

evaluation of the Fund and the terms of this Offering, including, without limitation, the

merits and risks involved in making a decision to buy the Units offered. The Fund will

make available to potential investors, prior to the sale of Units described in this

Memorandum, the opportunity to ask questions of, and receive answers from the Fund’s

Manager concerning the terms and conditions of this Offering and to obtain any additional

information (including information made available to other potential investors) which may

be necessary to verify the accuracy of the information in this Memorandum; provided,

however, that the Fund possesses such information or can acquire it without unreasonable

effort or expense. The Fund may require potential investors to sign a Confidentiality

Agreement if investors wish to receive additional information that it deems proprietary.

Potential investors and their representatives, if any, will be asked to acknowledge in a

Subscription Agreement for Units in the Fund, that they were given the opportunity to

obtain additional information, and either did so or elected to waive the opportunity.

No representations or warranties of any kind are intended, nor should any be inferred with

respect to the economic viability of an investment in the Fund or with respect to any

benefits that may accrue to any investment in the Units. The Fund, its Manager, and its

Manager’s officers and employees do not in any way represent, guarantee or warrant an

economic gain or profit with regard to the Fund’s business, or that favorable income tax

consequences will flow there from. Neither the Fund nor its Manager in any way

represents or warrants the advisability of buying the Units offered herein. Certain of the

3

information contained herein concerning economic trends and performance is based upon

or derived from information provided by third parties and other sources. The Fund

believes that such information is accurate and that the sources from which it has been

obtained are reliable. The Fund cannot guarantee the accuracy of such information,

however, and has not independently verified the assumptions on which projections of

future trends and performance are based.

Potential Investors should not consider the contents of this Memorandum, or any prior or

subsequent communications from the Fund or its Manager regarding the Offering as legal,

accounting, business or tax advice. Prior to making the decision to buy the Units, potential

investors should carefully review and consider this Memorandum and should consult their

own attorneys, business advisors, accountants and tax advisors as legal, business,

accounting and tax matters concerning this Offering.

The Fund reserves the right, in its sole discretion and for any reason whatsoever, to modify,

amend, and/or withdraw all or a portion of the Offering and/or accept or reject, in whole

or in part, any or all of the offers to invest in the Units without obligation, or to allot to any

potential investor less than the amount of Units such investor desires to purchase.

Additionally, the Fund reserves the right to waive the minimum subscription amount, to

negotiate with one or more parties at any time, and to enter into a definitive agreement for

an equity investment in the Fund, without prior notice to the recipient or to other

prospective investors. The Fund also reserves the right to terminate, at any time,

solicitations or indications of interest in the Fund or the further participation in the

investigation and proposal process by any party.

Restriction on Use of this Memorandum

This Memorandum does not constitute an offer to sell to, or a solicitation of an offer to buy

from, anyone in any state or other jurisdiction in which an offer or solicitation is not

authorized, or to any person to whom it is unlawful to make an offer or solicitation. This

Memorandum is for review by the recipient (and its advisors) only. The recipient, by

accepting delivery of this Memorandum, agrees to return this Memorandum, all enclosed

or attached documents and all other documents, if any, provided in connection with the

Offering if the recipient does not undertake to purchase any of the Units offered hereby.

The sole purpose of this Memorandum is to assist the recipient in deciding whether a

potential investor wishes to commit to purchase all or any portion of the Units offered. The

Fund has not authorized any other use of this information. Any distribution of this

Memorandum to a person other than representatives of the original recipient of this

Memorandum is prohibited and any reproduction of this Memorandum or the divulgence

of any of its contents, without the prior written consent of the Fund, is prohibited.

Exclusive Nature of this Memorandum

Potential Investors should rely only on the information contained in this Memorandum.

The information contained in this Memorandum supersedes all other information provided

to potential Investors. The Fund has not authorized any person to provide any information

or to make any representations except to the extent contained in this Memorandum. If any

such representations are given or made, such information and representations must not be

relied upon as having been authorized by the Fund. The information in this Memorandum

4

is accurate as of the date on the front cover, but the information may have changed since

that date. The Fund does not intend to update the information provided in this

Memorandum.

Forward-Looking Statements

Certain statements in this Memorandum may constitute “forward-looking statements”. All

statements that address expectations or projections about the future, including statements

about expected expenditures and financial results, are forward-looking statements.

Some of the forward-looking statements may be identified by words like “may”, “believes”,

“expects”, “anticipates”, “plans”, “intends”, “projects”, “indicates”, “estimates”, “will”,

and similar expressions. Any statements contained herein that are not statements of

historical fact may be deemed to be forward-looking statements. These statements are not

guarantees of future performance and involve a number of risks, uncertainties, and

assumptions. Accordingly, actual results or performance of the Fund may differ

significantly, positively or negatively, form forward-looking statements made herein.

Unanticipated events and circumstances are likely to occur. Factors that might cause such

differences include, but are not limited to, those discussed under the heading “Risk

Factors”, which potential investors should carefully consider. This list of factors is not

exclusive. The Fund undertakes no obligation to update any forward-looking statements.

No representation or warranty, expressed or implied, is made by the Fund as to the

accuracy or completeness of the information contained herein or omitted from this

Memorandum.

Inquiries

For more information, inquiries may be directed to the Manager of the Fund:

Avalon Management Group, Inc.

Attn: Thomas Garlock, President


P.O. Box 30,000


800-914-2689


5

I. SUMMARY OF THE OFFERING

The following summary is qualified in its entirety by the detailed information appearing

elsewhere in this Memorandum, the Operating Agreement and all Exhibits attached hereto.

Each potential Investor is urged to read this Memorandum, as well as the Operating Agreement

as well as all other Exhibits attached hereto, in their entirety.

Issuer: Verde Mountain Fund, LLC (the “Fund”), is a Wyoming limited

liability company formed on February 26, 2016. See Section III

below, “The Fund.”

Offering: The Fund is offering two hundred (200) Units (membership

interests) in the Fund for $12,500 per Unit. The minimum

investment is 2 Units or $25,000, although the Manager reserves

the right to accept less than the minimum investment amount, in its

sole discretion. The maximum Offering amount is $2,500,000.

Risk Factors: The purchase of the Units offered hereby involves a high degree of

risk and should be considered only by potential Investors who are

able to sustain the total loss of their investments. See Section II

below, “Risk Factors”.

Investor Suitability

Standards: In order to purchase Units, potential Investors must qualify as

“accredited investors” within the meaning of Rule 501 of

Regulation D of the Act, or meet the knowledge and business

requirements set forth in Rule 506 of Regulation D, or other

applicable federal or state securities regulations. See Section X

below, “Investor Suitability Standards”.

Offering Period: The offering period during which potential Investors may purchase

Units will commence on the date of this Memorandum and will

terminate on the earlier of (i) July 31, 2016 (subject to the

Manager’s right to extend this period, in its sole discretion); or (ii)

the date on which the Manager elects in its sole discretion to

terminate the Offering. If subscriptions for at least $125,000 (10

Units) have not been received prior to April 30, 2016, the Manager

may, in its sole discretion, terminate this Offering. and return all

subscription funds received to the respective potential Investors.

Business of the Fund: The Fund was organized in February 2016 with a focus on

providing financing to established companies in the legalized

cannabis (marijuana) industry in the form of debt financing

(hereinafter referred to collectively as “Fund Loans”) or equity

investments (hereinafter referred to collectively as “Equity

Investments”) or a combination of the two. See Section IV below,

“Proposed Business Plan.”

6

Use of Proceeds: The proceeds of this Offering will be used by the Fund to provide

financing to established companies in the legalized cannabis

industry by providing Fund Loans and/or Equity Investments to

such companies. See Section VIII below, “Sources and Uses of

Proceeds”.

Management: Avalon Management Group, Inc., a Wyoming corporation (the

“Manager”), is the manager of the Fund. As of the date of this

Memorandum, the Manager owns 1 Unit of the Fund as its original

Member. Pursuant to the Operating Agreement of the Fund, the

Manager will own a non-dilutive One Percent (1%) interest in the

Fund at all times as its carried interest in the Fund. Assuming that

all Two Hundred (200) Units offered hereunder are sold, the

Manager will own 2 Units (approximately 1% of 200 Units that

would then be issued and outstanding). The Manager may issue

Unit Certificates to itself from time-to-time hereunder to evidence

ownership of 1% of all issued and outstanding Units. The Manager

will be entitled to an amount equal to 20% of the Fund’s Gross

Adjusted Revenue (as defined below), as determined by the Fund’s

accountants, as its carried interest in the Fund. In addition, as

compensation for the management services provided to the Fund

by the Manager, the Fund will pay the Manager a management fee

of $120,000 per year , payable quarterly provided that funds are

available. The Fund will reimburse the Manager for expenses

incurred by it on behalf of the Fund, including, without limitation,

legal, accounting, organizational and payroll expenses. The

Manager also may purchase Units in this Offering on the same

terms and conditions as all other potential Investors.

Capitalization: The following table summarizes the Fund’s anticipated

capitalization and ownership immediately following this Offering,

assuming all Units offered in this Offering are sold:

(1) Ownership percentages have been rounded to one

decimal point.

Investors Capitalization Ownership(1)

Manager

Organizational,

management and

other services

2 Units

1.0%

Investors in this

Offering

$2,500,000

200 Units

99.0%

Total

$2,500,000 202 Units

100%

7

The following table summarizes the Fund’s anticipated

capitalization and ownership, assuming all Units offered in this

Offering are sold and assuming the Fund undertakes additional

rounds of equity financing in the future at increased Unit prices

based on the assumptions set forth below and all Units offered in

any such future rounds of financing are sold. There are no

assurances that all of the Units being offered in this Offering will

sold or that additional offering rounds will occur and, if so, all

Units offered in those rounds will be sold.

Investors Capitalization Ownership (1)

Manager (2)

Organizational,

management and

other services

6 Units

1.0%

Investors in

this Offering

(Round 1)

$2,500,000

200 Units

33.0%

Investors in

possible

Round 2

Offering (3)

$3,000,000

200 Units

33.0%

Investors in

possible

Round 3

Offering(4)

$2,000,000

100 Units

16.5%

Investors in

possible

Round 4

Offering(5)

$2,500,000

100 Units

16.5%

TOTALS

$10,000,000

606 Units

100.0%

(1) Pursuant to the Fund’s Operating Agreement, the Manager

is entitled to a number of Units equal to 1% of all issued

and outstanding Units, calculated immediately prior to the

issuance of the Units to the Manager (i.e., not taking into

account the Units to be issued to the Manager).

(2) Ownership percentages have been rounded to one decimal

point.

(3)

Assumes a per Unit price of $15,000.

(4)


(5)


8

Voting Rights: Each Unit is entitled to one (1) vote on all matters requiring

Member Approval. Member approval is required only for certain

extraordinary events. In all other instances, the Manager has the

authority and power to act without Member approval. See Section

VI below, “Terms of Offering; Description of Units.”

Cash Distributions: The Manager will distribute “Gross Adjusted Revenue” of the

Company to the Members as soon as practical after, and if, Gross

Adjusted Revenue shall become available for distribution, as

determined by the Manager in its sole discretion. Any such

distributions will be allocated as follows: eighty percent (80%) to

the Members in the aggregate (and among the Members in

accordance with their respective pro rata ownership in the Fund,

determined with reference to the total Units held by a Member

over the total Units issued and outstanding, reflected as a

percentage (“Percentage Interest”) and twenty percent (20%) to the

Manager. For these purposes, “Gross Adjusted Revenue” shall

mean all cash or proceeds received by the Fund including, without

limitation, interest income received from borrowers under Fund

Loans, dividends received from Equity Investments, proceeds from

the sale or other disposition of any assets of the Fund, including,

without limitation, the sale or other disposition of any Fund Loans

or Equity Investments, and any other cash or proceeds from the

Fund’s operations or any other source, less all Fund expenses and

liabilities and any reserves the Manager determines, in its sole

discretion, should be maintained by the Fund. To the extent that

funds are available for distribution, the Fund anticipates that it will

make quarterly distributions to the Members, although there is no

guarantee that this will occur. The Manager, in its sole discretion,

will determine when cash distributions will be made. The

Manager will endeavor, however, to make distributions to the

Members in amounts intended to enable the Members to discharge

any US federal, state and local income tax liabilities arising from

the allocations of the Fund income. The amount of any such tax

distribution will be determined by the Manager in its sole

discretion. The Fund expects that any cash available for

distribution would most likely result from principal and interest

payments by borrowers under the Fund Loans, although, from

time-to-time, the Fund could receive distributions from its Equity

Investments, which may also be a source of cash available for

distribution to the Members.

Withdrawal/Transfer

Restrictions: Members may not withdraw from the Fund unless their Units are

transferred in accordance with the provisions of the Operating

9

Agreement. No public market for the Units currently exists or is

expected to exist in the future and Investors will have limited

ability to sell or transfer their Units. Units may not be marketed,

sold, assigned or transferred without complying with the

restrictions on transfer contained in the Operating Agreement.

Sales, assignments, or transfers of Units that are affected without

compliance with the Operating Agreement of the Fund, will be null

and void and without any force and effect.

How to Subscribe: Potential Investors wishing to subscribe for the Units offered

herein may do so by delivering to the Manager the following:

1. A dated, completed and executed Subscription Agreement,

a copy of which is attached as Exhibit “B” to this

Memorandum;

2. A dated, completed and executed Investor Questionnaire, a

copy of which also is included with the Subscription

Agreement attached as Exhibit “B” to this Memorandum;

3. A dated, completed and executed Signature Page to the

Operating Agreement of the Fund, a copy of which is

included with this Memorandum;

4. A check made to “Verde Mountain Fund, LLC” for the

Units purchased or a wire transfer into an account held by

the Fund as payment for the Units. Upon request, the

Manager will provide potential Investors with wire transfer

instructions.

All subscriptions will be binding and irrevocable by the

potential Investor. The Fund may accept or reject any

subscriptions in its sole and absolute discretion. If a

subscription is rejected, the Fund will refund all

subscription funds received from the potential Investor.

10

II. RISK FACTORS

An investment in the Units offered hereby is highly speculative and is not an appropriate

investment for potential Investors who cannot afford the loss of their entire investment. Potential

Investors should be fully aware of the following Risk Factors and are urged to discuss with the

Fund and the Manager the nature and extent of the risks inherent with investing in the Fund.

The Fund’s returns may be unpredictable and, accordingly, an investment in the Fund is not

suitable as the sole investment vehicle for a potential investor. An investment in the Fund should

only be considered as part of an overall investment strategy and only if the Investor is able to

withstand the total loss of its investment.

A. General Risks Associated with an Investment in Units

1. The Fund has no operating history.

The Fund was formed on February 26, 2016 and has not yet begun operations. Although, through

affiliated entities, the Manager has extensive experience sponsoring and managing investment

funds, mainly in the real estate market, the Manager has no previous experience managing an

entity, like the Fund, that will provide financing to businesses that operate in the legalized

cannabis industry. The likelihood of the success of the Fund must be considered in light of the

problems, expenses, difficulties, complications and delays frequently encountered in connection

with a new business enterprise and the new industry in which the Fund will operate.

The legalized cannabis industry is a new industry that, as a whole, may not succeed, particularly

if the federal government changes course and decides to prosecute those engaged in the cannabis

industry under federal law, despite the fact that these activities may be legal under state law. If

that happens, there may not be an adequate demand for Fund Loans or acceptable business in

which to make Equity Investments. As a new industry, there are not established players whose

business models the Fund can follow or build upon. Similarly, there is limited information about

comparable companies available for potential Investors to review in making a decision about

whether to invest in the Fund.

Potential Investors should further consider, among other factors, the Fund’s prospects for success

in light of the risks and uncertainties encountered by companies that, like us, are in their early

stages. Should such risks arise, the Fund might not be able to successfully address these risks and

uncertainties or successfully implement the Fund’s business plan. If the Fund fails to do so, such

failure could have a significant and negative impact on the Fund’s business, operations and

financial condition.

2. No comparable businesses in the legalized cannabis industry.

To the Fund’s knowledge, there is no track record for companies pursuing our business plan in

the legalized cannabis industry. As a result, there is no guarantee that our business plan can be

implemented or, if implemented, will be successful or profitable. If our strategy is unsuccessful,

the Fund may fail to meet its objectives and not realize anticipated revenues or profits from the

Fund Loans and Equity Investments we anticipate making. Should this occur, it would have a

significant and negative impact on the Fund’s business, operations and financial condition.

11

3. Dependence on Limited Sources of Revenue.

Because the Fund has been formed and will operate for the main purpose providing debt and

equity financing through Fund Loans and Equity Financing to the legalized cannabis industry, it

will have a limited number of qualified investments to select from.

4. Investors will have limited management control or input.

Investors will take no part in the management or control of the Fund and the Fund’s operations,

including decisions regarding Fund Loans, Equity Investments and distribution of cash to

Investors. The Fund’s policies with respect to these activities are determined by the Manager

and may be changed from time to time at the discretion of the Manager without a vote of the

other Members of the Fund, including the Investors. No assurances can be given that such a

change would not be adverse to the interests of the Investors. In addition, the voting rights of the

Investors will be limited to approval of certain extraordinary matters such as dissolution of the

Fund, certain amendments to the organizational documents of the Fund and the sale of all or

substantially all of the Fund’s assets (e.g., sale of the Fund Loans and Equity Investments).

5. The Fund will be dependent on the Manager.

The Manager’s ability to manage the Fund’s business and other affairs successfully will depend

on the key management personnel described herein. See Section VII below, “Management.”

The death, resignation or incapacity of Thomas Garlock, the President and sole owner of

Manager, could have a material adverse impact upon the business of the Fund. There can be no

assurance that the Manager will remain as the manager of the Fund, or otherwise continue to be

able to carry on its current duties throughout the term of the Fund.

6. The Manager will have substantial discretion regarding the use of the proceeds

from this Offering.

The Manager will have considerable discretion in the application of the net proceeds of this

Offering. See Section VIII below, “Sources and Uses of Proceeds”.

7. The Fund will have little or no recourse against the Manager.

There are very limited circumstances in which the Manager of the Fund can be held liable to the

Fund. Generally, the Manager is not liable to the Fund, provided the Manager has acted (i) in

good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of

the Fund; (ii) with respect to any criminal matter, with no reasonable cause to believe its conduct

was unlawful; and (iii) without gross negligence, fraud or willful misconduct that had a material

adverse effect on the interests of the Investors.

8. There is a limited market for the Units and there are restrictions on the transfer of

the Units.

Units will only be transferable in accordance with certain restrictions in the Operating

Agreement of the Fund, which include, without limitation, that any transfer of Units must be

approved by the Manager, which approval may be granted or denied in its sole discretion. The

12

Units have not been registered under the Securities Act of 1933, as amended, or any other state

securities laws and the Units cannot be sold unless they are subsequently registered or exempt

from registration. There is no public market for the Units. Such factors may affect the price that

a Member would be able to obtain for the Units if a transfer of those Units were approved and

otherwise in accordance with the terms of the Fund’s Operating Agreement, and most likely

would inhibit third parties from making any offers to purchase Units. Thus, Units cannot be

readily sold, exchanged for other property, or used as collateral for borrowings by a Member of

the Fund.

9. The offering price of the Units has been determined arbitrarily by the Fund.

The Fund arbitrarily has determined the offering price for the Units ($12,500 per Unit) and other

terms of this Offering. The offering price for the Units is no indication of any intrinsic value or

any standard evaluation process, such as book value, nor is it indicative of the price a purchaser

would be willing to pay for such Units.

10. The Fund may engage in business transactions with its affiliates.

The Fund may engage in business transactions with other businesses that may be affiliated with

the Manager. For example, administrative, clerical and other operational services may be

provided by an affiliate of the Fund, the cost of which will be allocated among several affiliates,

including, without limitation, the Fund, without mark-up. Any business transactions with

affiliates of the Fund may not be the result of arms-length negotiations and could result in

conflicts of interest. Nonetheless, in this respect, and all others with respect to the Fund, the

Manager is obligated to act in good faith and in a manner in which the Manager, in its sole

discretion, believes is in the best interests of the Fund.

11. The Fund is obligated to indemnify the Manager.

The Manager is entitled to indemnification out of the Fund’s assets for actions or failures to act

by the Manager on behalf of the Fund that are authorized under the organizational documents of

the Fund. In addition, the Manager may be entitled to advancement of expenses from the Fund

prior to a final determination as to whether it is entitled to indemnification. The assets of the

Fund will be available to satisfy any such indemnification obligations, should they arise.

12. The Manager has no obligation of full time service to the Fund.

The Manager and its officers and directors have no obligation to devote their full time to the

business of the Fund. They are only required to devote such time and attention to the affairs of

the Fund as they decide is appropriate, and they may engage in other activities or ventures,

including competing ventures and/or unrelated employment, which may result in various

conflicts of interest between such persons and the Fund.

13. Conflicts of interest may develop due to potential diversity of Members.

The Members are expected to include taxable entities and persons or entities resident of or

organized in various jurisdictions. As a result, conflicts of interest may arise in connection with

decisions made by the Manager that may be more beneficial for one type of Investor over

another type of Investor. In making such decisions, the Manager intends to consider the

13

investment objectives of the Fund as a whole, not the investment objectives of any individual

Investor.

14. The Fund and the Manager do not have separate legal representation.

Neither the Operating Agreement nor any of the agreements, contracts and arrangements

between the Fund, on the one hand, and the Manager on the other hand, were or will be the result

of arm’s-length negotiations. The attorneys and others who have performed services for the

Fund in connection with this Offering, and who will perform services for the Fund in the future,

have been and will be selected by the Manager. No independent counsel has been retained to

represent the interests of the Members (including the Investors), and the Operating Agreement

has not been reviewed by any attorney on their behalf. Each potential Investor is therefore urged

to consult that potential Investor’s own legal counsel and financial and other advisors as to the

terms and provisions of the Operating Agreement and all other related documents to this

Offering.

15. Securities regulation is dependent on the federal and/or state government or

particular divisions thereof and is subject to change and differing interpretation by regulators.

This Offering is intended to be a private placement of securities under federal and applicable

state laws. The offering of private placement, non-registered securities, is governed by the

Securities Act of 1933, as amended, and the “blue sky laws” of the states in which the Fund

offers or sells the Units. Though the Fund will strive to always be in compliance with federal

and state securities regulations, and the business plan of the Fund makes assumptions that its

operations will be in compliance, there is no guarantee that government regulators may interpret

the operations of the Fund as in contravention of certain provisions of the Act. If this happens,

the results could have negative implications for the profitability of the Fund. The Fund cannot

affect the interpretation of these regulations, but can only attempt to comply at all times.

16. Unidentified Fund Loan and Equity Investments.

The Fund was organized on February 26, 2016 and has not funded any Fund Loans, made any

Equity Investments or otherwise begun operations. As a result, it isn’t possible for potential

Investors to evaluate the Fund’s loan and investment portfolios at this time. In addition, since

the short-term investments in which Investor contributions to the Fund will be placed until they

are invested in Fund Loans or Equity Investments meeting the Fund's criteria, any returns during

the period prior to investing the contributions in Fund Loans and Equity Investments are likely to

be less than the amount that would be earned from investing in Fund Loans and Equity

Investments, any delay in investing the net proceeds of this Offering will, to that extent, reduce

the earnings of the Fund.

17. Phantom Income.

For any number of reasons, in any given year, the Members may be allocated taxable income in

excess of their share of cash distributions. This may occur, for example, if (i) an investment in a

Fund Loan with fixed or contingent interest that must be accrued for tax purposes before the

interest is actually received by the Fund, (ii) operating profits are placed in a reserve account or

are being used by the Fund for other purposes, or (iv) cash attributable to taxable income is spent

on non-deductible items, such as capitalized expenses.

14

18. Loan Defaults and Foreclosures.

The Fund will invest in both Fund Loans and Equity Investments. With respect to the Fund

Loans, the Fund bears the risks of defaults by borrowers. Many Fund Loans may be interest-only

loans providing for monthly interest payments with a large balloon payment of principal due at

the end of the term. Borrowers may be unable to repay such balloon payments out of their own

funds and may be compelled to refinance. Fluctuations in interest rates and the unavailability of

funds could adversely affect the ability of borrowers to refinance their loans at maturity. If

borrowers are unable to re-finance a Fund Loan, the borrower may default in repaying the Fund

Loan to the Fund.

The Fund will rely primarily on the real property securing the loans to protect its investment in

the Fund Loans. In addition, to a lesser extent, the Fund will be relying on the creditworthiness

of a particular borrower. There are a number of factors that could adversely affect the value of

the real property securing repayment of the Fund Loans, including, among other things, the

following:

(a) The Fund will rely on appraisals or the Manager’s discretion in order to

determine the fair market value of real property used to secure Fund Loans. In exercising that

discretion, the Manages will conduct reasonable due diligence to determine the fair market value

of the real property. No assurance can be given that any appraisals will, in any or all cases, be

accurate. Moreover, since an appraisal is based upon the value of real property at a given point in

time, subsequent events could adversely affect the value of real property used to secure a Fund

Loan. Such subsequent events may include general or local economic conditions, neighborhood

values, interest rates and other factors.

(b) If a borrower defaults, the Fund may have no feasible alternative other than to

repossess the property at a foreclosure sale. If the Fund cannot quickly sell such property, and

the property does not produce any significant income, the cost of owning and maintaining the

property will directly affect the Fund's profitability.

(c) Subsequent changes in applicable laws and regulations may have the effect of

severely limiting the permitted uses of the property, thereby drastically reducing its value.

(d) Due to certain provisions of state law applicable to real property secured

loans, in general, if the real property security proves insufficient to repay amounts owed to the

Fund, it is unlikely that the Fund would have any right to recover any deficiency from the

borrower. See Section IV(C)(1)(c) below, "Business Overview - Certain Legal Considerations

regarding Fund Loans").

(e) Some of the Fund Loans may be secured by junior deeds of trust, which are

subject to greater risk than first deeds of trust. In the event of foreclosure, the debt secured by the

senior deed of trust must be satisfied before any proceeds from the sale of the property can be

applied toward the debt owed to the Fund that are in junior positions. Furthermore, to protect its

junior security interest, the Fund may be required to make substantial cash outlays for such items

as loan payments to senior lien holder to prevent their foreclosure; property taxes; insurance and

15

repairs. The Fund may not have adequate cash reserves on hand at all times to protect its security

for a Fund Loan, in which event the Fund could suffer a loss of its investment in that Fund Loan.

See Section IV(C)(1)(c) below, "Business Overview - Certain Legal Considerations regarding

Fund Loans").

(f) The recovery of sums advanced by the Fund in making Fund Loans and

protecting its security may also be delayed or impaired by the operation of the federal

bankruptcy laws or by irregularities in the manner in which the Fund Loan was made. Any

borrower has the ability to delay a foreclosure sale for a period ranging from several months to

several years simply by filing a petition in bankruptcy that automatically stays any actions to

enforce the terms of the loan. It can be assumed that such delays and the costs associated

therewith will reduce the Fund’s profitability.

Since the Fund will be relying on real property security to protect its investment to a greater

extent than the creditworthiness of its borrowers, the Fund is likely to experience a borrower

default rate higher than would be experienced if its loan portfolio were more heavily focused on

borrower creditworthiness.

The Fund intends to comply fully with all applicable State and Federal laws, including applicable

lender, finance, consumer protection and loan servicing laws. However, these laws vary from

State-to-State and it is possible that the Fund may not be fully aware of all applicable laws.

Failure to comply with the laws and regulatory requirements applicable to our business and

making the Fund Loans may, among other things, limit our ability to make, collect on and

service the Fund Loans. In addition, any non-compliance could subject the Fund to damages,

revocation of required licenses or other authorities, lawsuits and enforcement actions.

19. The Fund may encounter unexpected risks that may adversely affect its

performance.

The risks listed in this Section II (A) and Sections II (B) and (C) below are not a complete list of

all potential risks facing the Fund or that may otherwise impact an investment in the Fund.

Significant risks may exist that are not as yet recognized or encountered and the Fund may not be

able to effectively respond to those unknown risks. There can be no assurance that the Fund will

be successful in addressing the risks or potential risks it faces or may face, and any failure to do

so could have a material and adverse effect on the Fund's financial condition and results of

operations.

B. Risk Associated with Doing Business in the Legalized Cannabis Industry

1. Cannabis remains illegal under federal law.

Although the Fund will not be engaged in the production, sale or distribution of legalized

cannabis itself, it anticipates proving funding through Fund Loans and Equity Investments to

business that do as well as businesses that provide products and services to such businesses (e.g.,

equipment providers, real property lessors, consultants, etc.). As a result, the legal status of

medical and adult recreational use of cannabis will directly impact the Fund’s business,

operations and financial condition. Cannabis remains illegal under federal law. It is a schedule-I

controlled substance. Even in those jurisdictions in which the use of medical cannabis has been

16

legalized at the state level, its prescription is, technically, a violation of federal law. The United

States Supreme Court has ruled in United States v. Oakland Cannabis Buyers’ Coop.

and Gonzales v. Raich that it is the federal government that has the right to regulate and

criminalize cannabis, even for medical purposes. Therefore, federal law criminalizing the use of

cannabis preempts state laws that legalize its use for medicinal purposes. Presently, despite

federal law, many states are maintaining existing laws and passing new ones in this area. This

may be because the Obama Administration has made a policy decision to allow states to

implement these laws and not prosecute anyone operating in accordance with applicable state

law. Regardless of the Obama Administration’s policy decision, the federal government may at

any time choose to enforce the federal law. Moreover, we face another presidential election

cycle in 2016, and a new administration could introduce a less favorable policy. A change in the

federal attitude towards enforcement could cripple the industry and the Fund’s proposed

business.

Although the Fund doesn’t produce, market or sell cannabis or cannabis-related products, there is

a risk that the Fund could be deemed to facilitate the selling or distribution of cannabis in

violation of the federal Controlled Substances Act, or be deemed to be aiding or abetting, or

being an accessory to, a violation of the Controlled Substances Act. Adverse actions taken by

the federal government may lead to delays of our business operations, disruptions to our revenue

streams, losses of substantial assets and potentially substantial litigation expenses. Furthermore,

the medical marijuana industry is our primary target market, and if this industry were unable to

operate, the value of Equity Investments made by the Fund and the ability of borrowers under

Fund Loans to repay the Fund Loans timely and otherwise in accordance with their terms would

be significantly and negatively impacted, which would have a significant and negative impact on

the Fund’s business, operations and financial condition.

2. Banking limitations negatively impact business in the legalized cannabis industry.

As discussed above, the possession and use of cannabis for any purposes is illegal under federal

law. Therefore, there is a strong argument that banks cannot, and they typically do not, accept

for deposit funds from the drug trade and therefore cannot do business with businesses engaged

in the production, sale or distribution of cannabis, as well as businesses that provide products and

services to these businesses, despite the fact that the activities these businesses are engage in may

be legal under applicable state law. On February 14, 2014, the U.S. Department of the Treasury

Financial Crimes Enforcement Network (“FinCEN”) released guidance to banks “clarifying

Bank Secrecy Act (“BSA”) expectations for financial institutions seeking to provide services to

cannabis-related businesses.” In addition, U.S. Rep. Jared Polis (D-CO) has stated he will seek

an amendment to banking regulations and laws in order to allow banks to transact business with

state-authorized medical marijuana businesses. While these are positive developments, there can

be no assurance this legislation will be successful, or that, even with the FinCEN guidance,

banks will decide to do business with businesses in the legalized cannabis industry, or that, in the

absence of actual legislation, state and federal banking regulators will not strictly enforce current

prohibitions on banks handling funds generated from an activity that is illegal under federal law.

The inability of businesses operating in the legalized cannabis industry to open accounts and

otherwise use the services of banks may make it difficult for such businesses to prosper and

expand, which could have a significant and negative impact on the Fund’s business, operations

and financial condition.

17

The Fund is trying to fill what it believes is a void left by traditional banking institutions by

providing Fund Loans to qualified borrowers and making Equity Investments in businesses that

the Manager, in its sole discretion, has determined would be appropriate for the Fund. As a

result, the Company will be engaging in a business that other well-funded financial institutions

deem risky. The Company’s lending activities may subject it to enforcement actions. Further,

enforcement actions related to the Company or a borrower could jeopardize the Company’s

collateral (e.g., real estate securing repayment of the Fund Loans). Lending to businesses

operating in the legalized cannabis industry is a high-risk business activity, and potential

Investors should consider this before investing in the Fund. Enforcement actions or other legal

proceedings involving a borrower under a Fund Loan or a business in which the Fund makes an

Equity Investment could have a significant and negative impact on the Fund’s business,

operations and financial condition.

3. Varying state laws.

Although the federal government has the right to regulate and criminalize cannabis, which it has

in fact done, state and municipal governments may adopt additional laws and regulations that

further criminalize or negatively affect cannabis businesses. States that currently have laws that

decriminalize or legalize certain aspects of cannabis, such as medical or adult recreational use

cannabis, could, in the future, reverse course and adopt new laws that further criminalize or

negatively affect the cannabis industry. Additionally, municipal governments in these states may

have laws that adversely affect cannabis businesses, even though there are no such laws at the

state level. For example, municipal governments may have zoning laws that restrict where

cannabis operations can be located and the manner and size of which they can expand and

operate. These municipal laws, like the federal laws, may adversely affect our ability to do

business, and adverse enforcement actions under these laws may lead to costly litigation and a

closure of the businesses with which the Fund has provided Fund Loans and businesses in which

the Fund has provided Equity Investments, which, in turn, could significantly and negatively

impact our business, operations and financial condition.

4. The alternative medicine industry faces strong opposition.

Although recent public opinion appears to support some form of legalized cannabis use, it is

believed that well-funded, significant businesses may have a strong economic opposition to the

medical cannabis industry as currently formed. For example, we believe that the pharmaceutical

industry clearly does not want to cede control of any compound that could become a strong

selling drug. For example, medical marijuana will likely adversely impact the existing market

for Marinol, the current “marijuana pill” sold by mainstream pharmaceutical companies. The

pharmaceutical industry is well funded with a strong and experienced lobby that greatly eclipses

the funding of the legalized cannabis movement (and most other movements or lobbies). Any

inroads the pharmaceutical industry makes in halting or rolling back the legalized cannabis

movement could have a significant and negative impact on the legalized medical marijuana

industry, the demand for Fund Loan and availability of acceptable Equity Investments for the

Fund and, consequently, on our business, operations and financial condition.

18

5. The Fund’s success is, in part, dependent on additional states legalizing medical

and/or adult recreational use cannabis.

Although the Fund believes that the demand in the legalized cannabis industry as it currently

exists for the type of financing the Fund intends to provide (i.e., Fund Loans and Equity

Investments) is strong and that there should be sufficient demand for Fund Loans and financing

through Equity Investments, continued development of the industry may be necessary in order

for the Fund to expand and potentially generate additional return for Investors. Continued

development of the legalized cannabis industry is dependent upon continued legislative

authorization of cannabis at the state level for medical purposes and, in certain states, based on

the specifics of the legislation passed in that state. Any number of factors could slow or halt that

development. Furthermore, while the current progress in the industry is encouraging, it is not

assured, and the process normally encounters setbacks before achieving success. While there

may be ample public support for legislative proposals, key support must be created in the

legislative committee or a bill may never advance to a vote. A numerous factors impact the

legislative process. Any one of these factors could slow or halt the progress and adoption of

marijuana for medical or adult recreation purposes, which could substantially and negatively

impact the Fund’s business, operations and financial condition.

C. Tax Risks

There are a number of federal income tax risks relating to the intended business of the Fund and

an investment in the Units of the Fund that could impact the advisability of a potential Investor

investing in the Fund. No rulings have been sought from the Internal Revenue Service (“IRS”)

with respect to any of the tax matters described in this Memorandum, and each potential Investor

should consult such potential Investor’s own tax advisor as to the relevant tax considerations and

as to how those considerations may affect its investment, and to determine whether an

investment in the Fund is a suitable investment for the potential Investor. Set forth below are

some of the tax risks relating to an investment in the Fund. This list is not intended to be all-

inclusive. INVESTORS ARE NOT TO CONSTRUE ANY OF THE CONTENTS OF THIS

MEMORANDUM, INCLUDING, WITHOUT LIMITATION, THE INFORMATION

PRESENTED BELOW, AS TAX ADVICE AND ARE URGED TO CONSULT WITH THEIR

OWN TAX ADVISORS CONCERNING THE TAX ASPECTS AND ALL OTHER MATTERS

RELATING TO AN INVESTMENT IN THE FUND.

Significant and fundamental changes in the federal income tax laws have been made in recent

years and additional changes are likely. Any such change may affect the Fund and the Investors.

Moreover, judicial decisions, regulations or administrative pronouncements could unfavorably

affect the tax consequences of an investment in the Fund.

Treasury regulations under section 7701 of the Internal Revenue Code of 1986, as amended (the

“Code”), provide that a domestic business entity, other than a corporation, may elect whether to

be treated as a partnership or an association taxable as a corporation for federal income tax

purposes. Treasury Regulation Section 301.7701--2 defines “corporations” to include

corporations denominated as such under applicable law, associations that elect to be classified as

such, joint stock companies, insurance companies and other business entities, but not including

limited liability companies. The Fund is a limited liability company. Under a default rule in the

Treasury Regulations, limited liability companies formed under a state statute, such as the Fund,

are treated as partnerships for federal income tax purposes, unless such entities affirmatively

19

elect to be treated as associations taxable as corporations. The Fund will not elect to be treated as

an association nor taxable as a corporation for federal income tax purposes.

The proper federal income tax treatment for all Fund items of income and loss will be

determined at the Fund level. Adjustments, if any, resulting from any audit of the Fund, should

the Fund ever be audited, will result in corresponding adjustments of Fund items of income and

loss reflected on the Investor’s own tax returns. In addition, the Manager is designated as the

“tax matters partner” of the Fund, and, as such, has primary responsibility for Fund level matters

involving the IRS, including the power to extend the statute of limitations for all Members of the

Fund, including, without limitation, the Investors, as to Fund items of income and loss.

Each Member, including, without limitation, the Investors in this Offering, must include in such

Member’s gross income for federal income tax purposes its distributive share of the Fund’s

income. Such income is subject to taxation without regard to whether any cash or property is

distributed to the Member. Taxable income may exceed distributable cash because of

differences in timing and possible expenditure of cash for nondeductible items. Taxable income

also may exceed distributable cash because of amounts paid by the Fund to lenders to repay

principal on any Fund borrowings (although the Fund doesn’t anticipate incurring any such

debt).

Potential investors should seek the advice and counsel of their own tax advisors. See also Section

IX below, “Certain Tax Considerations ”.

20

III. THE FUND

A. Overview

The Verde Mountain Fund, LLC (the “Fund”), is a Wyoming limited liability company

organized on February 26, 2016. Avalon Management Group, Inc., is the Manager of the Fund

and was formed in September of 2012 as a Wyoming corporation. The Manager was the original

Member of the Fund, owning one (1) Unit. The Manager is entitled at all times to a non-dilutive

One Percent (1%) of and all issued and outstanding Units, determined immediately prior to the

issuance of the Units to the Manager. Assuming that all Units offered hereby are sold, the

Manager will own 2 Units after completion of this Offering. Thomas W. Garlock is the

President and sole owner of the Manager.

The business address for the Fund and the Manager currently is:


P.O. Box 30,000


Tel: 800-914-2689


B. Capitalization

The Fund initially will be capitalized mainly with the proceeds of this Offering. Assuming that

this Offering is fully subscribed and all Units offered hereby are sold, the Company will receive

$2,500,000 in gross proceeds from this Offering. See Section I above, “Summary of the Offering

– Capitalization”.

C. Potential Conflicts of Interest

1. Other Investment Funds Managed by the Manager.

The Fund’s Manager is involved in, or may be involved in the future, with numerous other

businesses, funds and investment opportunities. Furthermore, the Manager may form additional

investment funds in the future, whether public or private, which may or may not have similar

business plans to that of the Fund. Although the Manager currently manages another investment

funds that are engaged in the business of making loans to or investing in other businesses, these

funds are focused on the real estate market. Currently, the Manager doesn’t manage any other

investment funds that focus on loans to and investing in businesses operating in the cannabis

industry. Nonetheless, through the efforts of the Manager, several of these other investment

funds are actively engaged in private placement securities offerings themselves, seeking equity

financing. A conflict may arise if a potential Investor must decided between investing in this

Offering or investing in one of the other investment funds currently managed by the Manager or

any of its affiliates, or which may be managed by the Manager in the future. See Section VII.C

below, “Management - Thomas W. Garlock”.

21

2. Legal Representation.

Legal counsel to the Manager also will serve as legal counsel to the Fund. In the event that any

controversy arises during or following the termination of the Offering in which the interests of

the Fund appear to be in conflict with those of the Manager, it may be necessary to retain other

counsel for one or both of these parties.

3. Transactions with Affiliates will not be Arms-Length.

Certain agreements and arrangements, including those relating to compensation between the

Fund and the Manager, have been established by the Manager and are not the result of arms-

length negotiations between unrelated parties. For its services in managing the Fund, the Fund

will pay the Manager a management fee of $120,000 per year, payable quarterly provided that

funds are available, as well as a number of Units equal to 1% of all Units then issued and

outstanding. In addition, the Fund may enter into other agreements and arrangements on terms

and conditions that the Manager believes are fair and reasonable to the Fund and its Members,

without any approval or input from the Members. The Manager may be deemed to have a

conflict of interest in making such decisions. See also Section VII.E below, “Compensation of

the Manager and Affiliates”.

D. Future Dilution

Although the Fund currently expects that any Units sold in any future offerings will be at prices

greater than $12,500 per Unit, and, as a result, no dilution in net tangible book value per Unit

should result from any such future offerings, there can be no assurance that Units issued in the

future will be issued at prices greater than $12,500 per Unit and that the net tangible book value

per Unit will not decrease for Investors in this Offering. See Section 1 above, “Summary of the

Offering - Capitalization”, regarding possible ownership dilution if the Fund issues additional

Units.

22

IV. PROPOSED BUSINESS PLAN

A. Introduction

The Fund will focus on providing financing to established companies in the legalized cannabis

(marijuana) industry in the form of Fund Loans or Equity Investments, or both. The legalized

cannabis industry is comprised of different business segments, including, without limitation,

businesses engaged in (i) cannabis cultivation, production, sales and distribution for medicinal

uses pursuant to applicable state laws; (ii) cannabis cultivation, production, sales and

distribution for adult recreational use pursuant to applicable state laws; and/or (iii) providing

equipment, products and services to business engaged in cannabis cultivation, production, sales

and distribution. Currently, the yield per acre on legal cannabis cultivation exceeds those of

many widely grown crops in the United States.

In 1996, California passed the nation’s first medical marijuana initiative known as Proposition

215, which permitted patients and their primary caregivers, with a physician's prescription or

order, to possess and cultivate cannabis for the treatment of AIDS, cancer, muscular spasticity,

migraines, and several other disorders. Since that time, companies seeking to enter the industry

offering both medicinal products and services faced a number of challenges, including access to

capital.

Today, there are a total of twenty-three (23) states and the District of Columbia that have passed

medical marijuana laws, including four (4) that have also passed adult recreational use laws.1

23

New and established businesses in the legalized cannabis industry continue to have difficulty

obtaining necessary financing and often seek alternative funding sources given the uncertainty

regarding federal banking laws, which, technically, prohibit banks and other traditional lenders

from engaging in any banking practices with businesses engaged in the legalized cannabis

industry. This uncertainty will continue to exist until, if at all, Congress enacts legislation that

removes cannabis from being classified as a Schedule 1 controlled substance.

1. Why was this plant ever made illegal?

The history of cannabis in the United States is complex. Many feel any examination of

this plant and its properties is motivated by prejudice and a campaign of deliberate deception that

continues to this day. However, the truth about this plant cannot be hidden forever. There is

currently a mountain of undeniable evidence that demonstrates that the harms of keeping

cannabis illegal far outweigh the benefits of legalization.

The prohibition of cannabis has never been about the inherent properties of the plant but instead

about the people who choose to use it. This plant is easily grown in almost any environment and

is useful for fiber, food, fuel and medicine.

24

Many poets, novelists, musicians and artists through the ages have prized cannabis for its ability

to catalyze the creative process. In fact, George Washington and many of the other Founding

Father grew cannabis. The Declaration of Independence was drafted on hemp paper; it was

widely reported that the first American Flag was woven from hemp fiber. Even the covers of the

Conestoga wagons and the homespun clothing American settlers wore as they travelled West

were largely made of hemp.

After its medical applications became more widely known in the 1800s, cannabis was officially

listed in the United States Pharmacopoeia and prescribed by numerous physicians. During this

time, most people viewed cannabis as a medicine or a raw material if they even thought about it

at all. Even though current United States federal government officials currently maintain that

cannabis has no medical benefits, the American government actually holds patents for the

medical use of the plant including US Patent 6630507 which is titled, “Cannabinoids as

antioxidants and neuroprotectants”. The use of this patent is assigned to the United States of

America, as represented by the Department of Health and Human Services.2

2. Cannabis Has Always Been a Medicine

While modern science has conclusively demonstrated the safety and medical efficacy of

cannabis, its close association with historically marginalized social classes has earned it the

suspicion of religious and political elites in many different times and places. In fact, cannabis

may be the most investigated therapeutic substance in history. More than 20,000 studies and

reviews regarding cannabis have been published in scientific literature. The vast majority prove

the plant’s active ingredients are uniquely safe and effective. Its side effects are relatively mild

and short-acting with no lethal dose. While it is possible for one to theoretically die of carbon-

monoxide poisoning if enough smoke is inhaled, there are no recorded deaths from ingesting too

much cannabis.

Indeed, cannabis is a medicine that was most likely used by human beings since the dawn of

civilization. In the thousands of years before the invention of modern chemistry, plants were the

only medicine available and were utilized to treat a number of medical ailments even when it

wasn’t fully understood why they were effective. When cannabis was first made illegal, it wasn’t

possible to understand the specifics of why it helped treat such a wide range of conditions. It

wasn’t until Raphel Medhoulam used gas chromatography in the 1960s that the first active

ingredients in cannabis were isolated.3

Since that time, scientists have discovered that cannabis is packed with a number of therapeutic

substances known as cannabinoids. To date, researchers have identified 85 different

cannabinoids but suspect there still are more to be discovered. Each of these cannabinoids

produces a distinct action in the human body; different combinations and ratios of cannabinoids

produce yet another range of distinct actions. THC is the best known of the cannabinoids and is

notorious for its psychoactive effects. Research shows this cannabinoid is powerfully effective

for many conditions including insomnia, chronic pain, cancer, PTSD, glaucoma, low libido and

many more. In fact, the impact THC has on the human mind is often viewed as its most

therapeutic contribution to the treatment of many different disorders.

25

By contrast, cannabidol (also known as CBD) is generally considered non-psychoactive. It

suppresses or balances the psychoactive effects of THC. Because of this, CBD is the primary

ingredient in the tinctures responsible for the remarkable recovery of thousands of epilepsy

patients. It is an extraordinarily potent anti-inflammatory, anti-spasmodic, and neuroprotective

substance that can dramatically reduce anxiety without impacting mental processes. CBD has

also been found effective for the treatment of rheumatoid arthritis, diabetes, alcoholism, PTSD,

antibiotic-resistant infections and neurological disorders.

Twenty years ago, scientists first discovered the presence of the endocannabinoid system.4 This

series of receptors serves as bridge between mind and body that researchers believe has been an

integral part of the evolution of the human brain and nervous system. This is, in part, because the

endocannabinoid system is part of the physiology of all creatures with the exception of insects. It

would be rational to conclude that the discovery of the endocannabinoid system would have

immediately ended all debate about the medicinal use of cannabis. However, the U.S.

government’s policy of classifying cannabis as a drug with high abuse potential and no

therapeutic use prevents medical schools from even offering courses in cannabis medicine. Dr.

Donald Abrams, Chief Oncologist for the UCSF Research Hospital, reports most doctors are not

even aware of the existence of the endocannabinoid system and its purpose as the largest

neurotransmitter system in the human body.5

Citations:

1https://frontierfinancials.com/solmm/

2 Steve DeAngelo The Cannabis Manifesto A New Paradigm for Wellness (North Atlantic Books-2015)

3 http://kalytera.co/dr-raphael-mechoulam/

4 http://www.medicalcannabis.com/cannabis-science/endocannabinoid-system/

5 http://www.medicalcannabis.com/about/faculty/donald-abrams/

http://kalytera.co/dr-raphael-mechoulam/

http://www.medicalcannabis.com/cannabis-science/endocannabinoid-system/

26

B. Market Overview

1. National Market

2015 was a watershed year for the legal cannabis market. National legal sales grew to $5.4

billion (up from $4.6 billion in 2014) and were fueled by explosive growth in adult use market

sales, (See chart below) which grew from $351 million in 2014 to $998 million, an increase of

184%.1 Demand is expected to remain strong in 2016 with legal markets projected to grow to

$6.7 billion, a 24% increase over the previous year.

Source: New Frontier Research & Analysis 2016

Some Wall Street analysts estimate that, by 2020, legal market sales of cannabis will grow to

$21.8 billion, with adult recreational use sales comprising nearly two-thirds of the total market.2

Among the states where adult recreational use is currently legal, Washington is projected to be

the largest market by 2020 at $2.3 billion followed by Colorado at $2 billion. Collectively, the

top 5 states are projected to generate $5.5 billion in sales by 2020 and will account for 47% of

the total adult use market.


27

However, these numbers are solely for the legalized sector of the market. It is estimated that the

cannabis industry today has annual revenues of over $50 billion if black market sales were also

included. It is estimated that, currently, only 10% of the industry has entered the legal sector.

This means that economic losses are being felt on many different levels.3

Because black market

cannabis sales are not legal, there is no tax revenue being generated on these sales. In addition,

other sectors of the field, such as testing labs and advertising, are losing out on the benefits that

legalized cannabis use could bring.

The medical marijuana market in California is expected to continue as the largest market in the

U.S. through 2020, although the combination of strict new medical regulations passed in 2015

and the anticipated legalization of adult recreational use in 2016 is expected to reduce the levels

of patient participation in the medical marijuana market in the coming years. Consequently,

California’s medical market is projected to shrink slightly from $2.7 billion in 2015 to $2.6

billion by 2020.

Many industry analysts project that those states where new legislation is pending (see map

below), will approve the medical use of marijuana within the next two years, while those states

permitting medical use today, will pass legislation that will permit adult use within the next five

years.


2. 2015 State Market Statistics

According to the Denver Post, Colorado dispensaries recorded $996 million in medical and

recreational cannabis sales during 2015.3 Adult use recreational sales totaled $588 million while

medical marijuana revenues totaled $408 million. That’s an increase of nearly $296 million from

2014, the first full calendar year of recreational sales in Colorado when revenue totaled just

28

under $700 million. According to calculations from the state’s revenue department from 2015,

recreational cannabis sales via licensed retail stores grew 88% in Colorado.4

An equally

compelling story is tied to wholesale recreational cannabis sales, which increased by 163% in

2015 to hit $234 million. These wholesale numbers indicate a thriving market for companies

who cultivate cannabis for retailers, as opposed to retailers that only grow for their own needs.

The increase was somewhat expected. During the first nine months of adult use sales in Colorado

during 2014, retailers were required to cultivate at least 70% of their own cannabis. This limited

the potential size of the recreational wholesale market. When this requirement was removed in

October 2015 wholesale transactions naturally increased.

Until wholesale transactions were approved, however, the industry was never sure how large this

market would be. January 2016 figures from the state of Colorado indicate that demand for

wholesale cannabis continues to be strong. A robust wholesale market is a necessity in a market

like Colorado where retail outlets are abundant, consumer demand is high and retail competition

is growing. It’s simply not cost effective for every one of the state’s 400-plus retail stores to

cultivate all or even most of the cannabis they sell, nor is there enough commercial cultivation

space available at this time to meet the current market demand.

The growth in sales (see chart above) signals that Colorado’s market may not have yet reached

its full potential, even though many view the state as already saturated with retailers. One

question for the future of Colorado’s market is whether it will face more competition for

29

cannabis tourists if additional states such as Arizona, California, Nevada, and others legalize

adult recreational use in the November 2016 elections.

Washington also saw strong growth in monthly sales in 2015, growing by 299% from $18.8

million in January to $75.3 million in December. Oregon launched its adult recreational use

market with limited sales through existing medical dispensaries on October 1, 2015. Although

the state does not track adult recreational use sales, the Oregon Retailers of Cannabis Association

estimated that sales in the first week alone were $11 million. In their first 6 months, more than

300 dispensaries licensed to sell adult-use cannabis have exceeded over $200 million in

revenues. This is even more impressive since retailers are not yet allowed to sell edibles or

concentrates in the state.5

The state of Illinois opened its first medical marijuana dispensaries in November 2015.6 Since

then, medical marijuana sales in Illinois hit nearly $1.24 million in January 2016 (up almost 20%

from December 2015 sales of slightly more than $1 million). A little more than $1.1 million of

the sales during January were attributable to dried flowers, while concentrates and edibles

accounted for just $132,000. Illinois also added seven new dispensaries in January, bringing the

total in the state to 28. The state reported that 2,774 unique patients were served during the

month of January alone. Assuming each of those patients bought dried flowers, the price of

cannabis in the state averages a little more than $14 per gram. The state’s wholesalers produced

more than $946,000 in sales according to the state figures. According to the state’s medical

program, there are approximately 4,000 registered medical marijuana patients in Illinois.7

In Nevada, citizens started to apply for medical marijuana cards in December 2015. Applications

for this card have far exceeded expectations. The state’s medical marijuana program had to add

additional staff and funding to keep up with approximately 300 applications for medical card

per month.8 Currently, it is estimated that 60,000 Nevada citizens are able to use cannabis

medicinally. Florida is expected to vote on their own medical marijuana legislation in November.

If this legislation passes, Florida would be the second-largest market for medical marijuana

usage in the nation.9

States such as Arizona who have been able to legalize medical use of cannabis have seen much

economic growth and have demonstrated an ability to withstand legal challenges well. Arizona’s

cannabis dispensaries make nearly $100 million dollars a year in revenue and continue to grow.

The state has established large caps on the number of dispensaries and growers which has

allowed ample yet controllable business growth which is only expected to continue its robust

development.10

3. Legal Cannabis Sales are a Growing Revenue Source for States

Legal cannabis sales have been a boon for state coffers in markets like Colorado, (see chart

below) where the state collected more than $135 million in cannabis taxes and licenses fees in

2015 (a 77% increase over the $76 million the state received in 2014). That’s nearly double the

$42 million collected by Colorado in liquor taxes during the same period, as reported by Time

Magazine. In fact, more than $35 million of the taxes collected from cannabis sales are

earmarked for Colorado state school construction projects.11

30


In Washington, the first year of legal cannabis sales generated $70 million in tax revenues from

sales of $257 million, a significant windfall even after product shortages and pricing instability

plagued the program during its early months. The state of Oregon began taxing the retail sale of

adult recreational use cannabis in January 2016 at a rate of 17%-20%, and has estimated a total

of approximately $10 million in tax revenue during 2016.9 Wholesale medical cannabis sales in

Illinois totaled about $1.5 million during the first two months of legal sales, meaning Illinois

collected about $107,000 in tax revenue during this time because wholesalers pay a 7% tax to the

state, as reported by the Associated Press.12

4. Job Creation in the Cannabis Industry

Currently, it is estimated (see chart above) that 46,000 to 60,000 Americans work in the

Cannabis industry,13

including those who grow cannabis, test for product quality and make

infused products, among other positions. When including those who provide services or ancillary

products for the cannabis industry, these numbers may increase by as much as 50%.

31

While some of these positions may be for low-skilled laborers, others may be retail jobs or

skilled positions as bookkeepers, attorneys or insurance agents providing specialized services to

the cannabis industry. (see chart below)

5. Majority Support for Legalization is Fueling a National Policy Shift

The industry's continued expansion was matched by equally strong growth in popular support for

cannabis legalization nationally. According to Gallup, 58% of Americans now support

legalization of cannabis for adult recreational use. This support is up from 36% in 2005.14

A

separate poll by Harris found 81% of Americans support legalization for medical use.15

While

support for cannabis law reform has risen across all age groups, it is highest amount adults age

18-34, 74% of whom now support legalization of adult recreational use.

32


This broad base of support amount younger voters portends a generational shift in views that is

expected to fundamentally reshape the country's approach to cannabis regulation. (see chart

above)

Currently, 86% of Americans live in a state that allows some degree of legal cannabis use,

including CBD-only, medical and adult recreational use.16

The wide exposure of the majority of

Americans to evolving cannabis laws has been instrumental in shaping the public's increasing

acceptance of cannabis. By almost every metric, the legalization and regulation of adult

recreational use in Colorado and Washington has been a success. Many of the negative outcomes

threatened by prohibitionists have not come to fruition.

In states were cannabis is legal, crime is down, falling prices have made the legal market

increasingly competitive against the black market, diversity has increased and regulatory

compliance is high as businesses dare not risk losing their valuable licenses and product quality.

The success of these markets has provided the first clear evidence that legalization is a viable

alternative to prohibition, a fact-based counterpoint to the agreement that it is in society's best

interests to continue the prohibition of cannabis.

33

The shift in this debate is currently playing out in legislatures across the country (see chart

above) as well as on the national stage. The 2016 presidential election is the first time in U.S.

history that major party candidates have declared support for legal adult recreational use and

cannabis access.

In Congress, lawmakers have slashed the DEA's budget, prohibited the Justice Department from

spending resources to intervene in legal state markets that meet certain criteria, proposed

rescheduling of cannabis to enable more medical research and introduced the first-ever

legislation aimed to end federal cannabis prohibition altogether.17

Congress also took a more assertive stance in allowing states with legally regulated cannabis

markets to proceed without the threat of enforcement from the Drug Enforcement Agency

(DEA). Through a series of legislative actions, Congress prohibited federal agencies from

interfering in state-legal cannabis programs, renewed protections for state-legal hemp programs

and introduced protections for states with CBD programs. Congress has also started to strip the

DEA of funds used to enforce cannabis prohibition in states with legally operating markets. At

this time bills are also being put forth to completely remove funding for the cannabis eradication

program. Additionally, Congress cut the DEA’s budget by $23 million, a reduction that was seen

as a strong signal that the appetite for the aggressive approach to enforcement was falling out of

favor among legislators.

34

6. Medical Research Approval

Although full clinical research approval will likely only come through reclassification of

cannabis through the Controlled Substances Act (CSA), incremental changes to allowing

cannabis research have already begun. On December 23rd, 2015, the DEA eased some of the

regulatory requirements imposed by the CSA for those who are conducting FDA-approved

clinical trials on cannabidiol (CBD), which is an extract of the cannabis plant.18

These

modifications will streamline the exploration of CBD, a compound that has already shown

significant medicinal promise and has generated significant interest in exploring its therapeutic

potential. Of the possible congressional actions, reclassification of cannabis would have the

greatest impact on the cannabis industry as a whole. However, even with mounting scientific

evidence and completed research studies, the DEA does not appear to be interested in

reclassifying cannabis in the near future. It is possible that Congress may reschedule cannabis as

part of the current bills on medical cannabis use or on banking regulations for the cannabis

industry, although that is far from certain.

State Rankings for Medical Marijuana Patients Per Capita

The number of medical marijuana patients in any given state depends on a myriad of factors.

However, certain variables are more influential than others. An analysis of these factors can help

cannabis entrepreneurs evaluate the size and profit potential of a specific market.19

35

For example, consider the qualifying conditions list for usage of medical marijuana. By far,

Illinois has the longest list of specific conditions, yet it has one of the lowest MMJ patient

densities per capita at less than one per 1,000 adults. By comparison, Colorado has one of the

shortest conditions lists, yet has the second highest density per capita at 26 patients per 1,000

adults. So what’s driving this difference? When allowed, generalized severe and/or chronic pain

are by far the most commonly cited qualifying conditions for adult patients, while seizures takes

the top spot for minors. Colorado allows medical cannabis prescriptions for severe pain, whereas

Illinois does not. Other states at the top of the list (see chart above) for patients per capita –

including California, Oregon, Michigan and Washington State—all allow prescriptions to relieve

severe and/or chronic pain.

Post-traumatic stress disorder has also provided a healthy boost to patient counts when permitted.

For instance, in New Mexico this is currently the most commonly cited condition by patients.

However, qualifying conditions aren’t the only consideration. New York requires physicians to

undergo a state-approved training course before they are permitted to recommend medical

cannabis, thus limiting the number willing to do so. In turn, this lowers the number of patients

receiving medical cannabis in the state.

Illinois requires patients to undergo full background checks and fingerprinting, an invasive

application process which may limit the number of patients in the state. Other influential factors

which impact patient counts include state limits on the number of dispensaries and cultivation

facilities. In addition, local moratoriums can leave medical patients without legal access or can

prohibit home cultivation.

7. Conclusion

The legalized cannabis market is in its early stages of growth. It is predicted that with more states

passing adult recreational use legislation the market will only continue to expand. Existing state

sales data in places where cannabis is already legal is only a preview of the growth and point to

the industry’s full potential. Because of the large amount of tax revenue it provides, states

appreciate the new source of revenue that legalize cannabis use provides.

In addition, public opinion across the nation about legalization of cannabis is rapidly changing.

Over 50% of Americans support legalization of cannabis in some form.20

Because of this,

legislators are listening to their constituents and have slowly started to change the laws that

pertain to this market. This has allowed a growth in medical research on the benefits of cannabis

that is anticipated to encourage an increase in its prescribed medical uses. All of these factors

combined indicate that major changes in this market should occur in the next 10 years, perhaps

culminating in possible federal legalization.21

_______________________

Citations:

1http://www.cnbc.com/2016/02/01/legal-us-pot-sales-soar-in-2015.html

2https://www.newcannabisventures.com/wall-street-cannabis-report/

3http://www.thecannabist.co/2016/02/09/colorado-marijuana-sales-2015-reach-996-

million/47886/

36

4

https://www.colorado.gov/pacific/revenue/colorado-marijuana-tax-data

5http://mjbizdaily.com/oregon-dispensaries-seeing-huge-revenue-spikes-rec-sales-picture-not-

rosy/

6http://www.chicagotribune.com/news/local/breaking/ct-illinois-medical-marijuana-first-day-

met-20151108-story.html

7http://www.chicagotribune.com/news/local/breaking/ct-illinois-medical-marijuana-first-day-

met-20151108-story.html

8http://mjbizdaily.com/nevada-struggling-to-keep-up-with-mmj-card-applications/

9http://mjbizdaily.com/medical-cannabis-back-on-florida-ballot-for-2016/

10http://mjbizdaily.com/chart-week-arizonas-mmj-market-gaining-steam-infused-product-sales-

take-off/

11http://www.thecannabist.co/2016/02/09/colorado-marijuana-sales-2015-reach-996-

million/47886/

12http://extract.suntimes.com/news/10/153/11286/illinois-collects-more-than-100-thousand-

taxes-medical-marijuana-sales-first-two-months

13http://www.chicagotribune.com/business/ct-medical-marijuana-staffing-0707-biz-20150707-

story.html

14http://www.gallup.com/poll/186260/back-legal-marijuana.aspx

15http://www.theharrispoll.com/health-and-life/Americans-Ready-for-Legal-Marijuana.html

16http://www.arcviewmarketresearch.com/

17

http://www.usnews.com/news/articles/2015/06/03/house-votes-to-ban-some-pot-law-

enforcement-cut-dea-budget

18http://www.dea.gov/divisions/hq/2015/hq122315.shtml

19https://mjbizdaily.com/chart-week-state-rankings-medical-marijuana-patients-per-capita/

20http://www.gallup.com/poll/186260/back-legal-marijuana.aspx

21 http://www.theharrispoll.com/health-and-life/Americans-Ready-for-Legal-Marijuana.html

37

C. Business Overview

1. Diversification of Financing.

The Fund’s current business plan envisions allocating approximately sixty percent (60%) of its

capital, including, without limitation, the net proceeds from this Offering, into Fund Loans,

which will be secured by real estate, and allocating the remaining forty percent (40%) into

Equity Investments. This strategy should allow the Fund to generate interest income in the short

term from the Fund Loans and potential capital gains from the Equity Investments over the

longer-term. Additional diversification may be achieved from investing the Fund’s capital (in

the form of both Fund Loans and Equity Investments) into businesses in one or more of the

segments of the legalized cannabis industry, including, without limitation, business engaged in

(i) cannabis cultivation, production, sales and distribution for medicinal uses pursuant to

applicable state laws; (ii) cannabis cultivation, production, sales and distribution for adult use

pursuant to applicable state laws; and/or (iii) providing equipment, products and services to

business engaged in cannabis cultivation, production, sales and distribution.

(a) Fund Loans.

The cultivation of cannabis on a large scale is a capital-intensive business. Depending of the

region of the country, an indoor grow facility is estimated to have a construction cost of

approximately $90.00 per square foot, while a modern greenhouse facility may cost $50.00 per

square foot. In addition, both types of facilities require climate control, irrigation, security, data

management and processing systems that range between $40.00 and $65.00 per square foot,

depending on the climate where the facilities are located. Indoor facilities require lighting

systems while modern greenhouses require shading and additional screening to protect against

pests that can potentially harm the crop. Financially prudent cultivators realize they generate

their highest profits from investing in the cultivation of crops vs. owning land and buildings, so

they often look for debt financing to buy or construct their cultivation facilities.

Many cultivators have adapted to this lack of available financing by obtaining loans from private

lenders who typically charge interest rates and loan origination fees well above those charged by

banks and other traditional institutional lenders, who are restricted from making loans to an

industry that is not permitted to operate under federal law. Cultivators have become accustomed

to paying higher costs to obtain the capital they require to operate their businesses. The Fund

expects to market Fund Loans to this segment of the market when loans meet the Fund’s

established lending criteria, including, without limitation, Fund Loans must be sufficiently

secured by real property either used in cultivation or other, unrelated real property owned by the

borrower. See paragraph (b) below, “Lending Standards and Policies for Fund Loans”.

(b) Lending Standards and Policies for Fund Loans.

(i) General Standards for Fund Loans

Fund Loans will be made pursuant to a strict set of guidelines designed to set standards for the

quality of the security given for the loans. Such standards are summarized as follows:

(a) Priority of Mortgages. The lien securing each Fund Loan will

generally be a first (1st) position lien on real property which is to be used as security for the loan;

38

provided, however, that Manager, in its sole discretion, may accept a mortgage that is junior to

one or more other deeds of trust or mortgage encumbrances.

(b) Loan-to-Value Ratios. The Fund intends to make Fund Loans

according to the loan-to-value ratios set forth below. These ratios may be increased if, in the

judgment of the Manager, the loan is supported by sufficient credit worthiness of the borrower,

other collateral and/or desirability and quality of the property, to justify a greater loan-to-value

ratio. The word “value” as used in the term "loan-to-value ratio," shall mean the appraised value

of the security property as determined by an independent written appraisal, Broker Price Opinion

(“BPO”) or the Manager at the time the Fund makes the loan or which is "current" at the time the

Fund makes a loan. An appraisal or BPO will be considered to be "current" if the Manager has

inspected the security property and made a reasonable determination that the value of the

security property has not declined since the date of the appraisal or BPO. The term "loan"

includes both the amount of the Fund Loan and all other outstanding debt secured by any senior

deed of trust on the security property. The amount of the Fund Loan combined with the

outstanding debt secured by any senior deed of trust on the security property will not exceed a

specified percentage of the value of the security property as determined by an independent

written appraisal, BPO, or the Manager at the time the loan is made, according to the following

table:

Loan-to-Value Ratios Loan-to-Value Ratios

Type of Security Property

1st Trust Deeds

Junior Trust Deeds

Residential

75%

55%

Commercial 70%

50%

Vacant Land

65% 50%

The above loan-to-value ratios will not apply to purchase-money financing that may be offered

by the Fund to sell any real estate owned by the Fund (i.e., property which is acquired through

foreclosure) or to refinance an existing loan that is in default at the time of maturity. In such

cases, the Manager, in its sole discretion, shall be free to accept any reasonable financing terms

that he deems to be in the best interests of the Fund.

(c) Terms of Loans. Most Fund Loans will be for a term ranging

from one (1) year to five (5) years. Fund Loans originated whose term exceeds the life of the

Fund will be sold, at the best prevailing rate, on the open market upon or prior to the dissolution

of the Fund. Most Fund Loans will provide for monthly payments of principal and/or interest,

with many Fund Loans providing for payments of interest only and a balloon payment of

principal payable in full at the end of the term. These loans require the borrower to pay the full

amount at maturity.

(d) Interest Rates. Most Fund Loans will provide for a significantly

higher interest rate than the mortgage rates charged by institutional lenders that are prevailing in

the geographical area where the security property is located.

39

(e) Escrow Conditions. Fund Loans will be funded through an

escrow account handled by a title insurance company, public escrow company, attorney, or the

Manager. The escrow agent will be instructed not to disburse any of the Fund's funds out of the

escrow for purposes of funding the Fund Loan until:

(1) Title Insurance. Satisfactory title insurance coverage

has been purchased, with the title insurance policy naming the Fund as the insured and providing

title insurance in an amount not less than the principal amount of the Fund Loan. The Manager

shall select the nature of each policy of title insurance, including the selection of appropriate

endorsements affecting coverage. Title insurance insures only the validity and priority of the

Fund's deed of trust or mortgage, and does not insure the Fund against loss from other causes,

such as a loss in the value of the security property, appraisals, loan defaults, etc.

(2) Fire and Casualty Insurance. Satisfactory fire and

casualty insurance has been obtained for all loans containing improvements, naming the Fund as

a loss payee. Appropriate liability insurance will be obtained on all unimproved real property.

(3) Mortgage Insurance. The Manager does not intend to

arrange for mortgage insurance, which would afford some protection against loss if the Fund

foreclosed on a loan and there existed insufficient equity in the security property to repay all

sums owed. If the Manager elects in its sole discretion to obtain such insurance, however, the

minimum loan-to-value ratio may be increased.

(4) Payee and Beneficiary Name. All new loan origination

documents (notes, deeds of trust, etc.) and insurance policies shall have named the Fund as payee

and beneficiary. In addition, the Fund will make certain that the policy (ies) of fire and casualty

insurance insuring the security property provide that the holder of the loan and/or its assignee is

the loss payee.

(f) Purchase of Loans from Affiliates. Existing loans may be

purchased from Affiliates or third parties, provided, that such loans satisfy all of the foregoing

requirements, and provided that, with respect to loans purchased from Affiliates, the loan is

assigned to the Fund on the same terms as the Affiliate itself had obtained.

(g) Fractional Interests. The Fund may also participate in loans

with other lenders (including other entities controlled by the Manager), by providing funds for or

purchasing a fractional undivided interest in a loan meeting the requirements set forth above. The

Manager will treat the Fund equally with all other entities controlled by the Manager when

making such fractional loans.

(h) Diversification. Most loans will be between Twenty-Five

Thousand Dollars ($25,000) and One Million Dollars ($1,000,000). If and when the Fund raises

Two Million Five Hundred Thousand Dollars ($2,500,000), no Fund Loan will exceed twenty

percent (20%) of the Fund’s capital unless determined by the Manager to be in the best interest

of the Fund.

40

(i) Contingency Reserve Fund. A contingency reserve fund may be

established by the Manager in its discretion and maintained for the purpose of covering

unexpected cash needs of the Fund. Contingency reserve funds will be invested in federally

insured certificates of deposit or Treasury bills. Contingency reserve funds will not be invested

in Fund Loans or Equity Investments.

(ii). Credit Evaluations

The Manager will consider the income level and general creditworthiness of a borrower

to determine his, her, or its ability to repay the Fund Loan according to its terms, in addition to

considering the loan-to-value ratios described above and secondary sources of security for

repayment. Fund Loans may be made to borrowers who are in default under other obligations

(e.g., to consolidate their debts) or who do not have sources of income that would be sufficient to

qualify for loans from other lenders such as banks or savings and loan associations.

(iii) Loan Packaging

The Manager will assemble and/or obtain all necessary information reasonably required

in the sole discretion of the Manager to make a funding decision on each Fund Loan request. The

documents assembled and obtained for the purpose of making the funding decision will become

the property of the Fund.

(iv) Loan Underwriting and Servicing

It is anticipated that all Fund Loans will be underwritten and serviced (i.e., collection of

loan payments) by an outside service provider, the Manager or an affiliate of the Manager (in

any case, the "Servicer"). The Servicer will be compensated for such loan servicing activities.

See Section VII.E(3) below, "Management – Fees Payable in connection with Fund Loans and

other Compensation” regarding compensation payable to the Manager or an affiliate of Manager

if Fund Loans are underwritten and serviced by the Manager or an affiliate of the Manager.

The Fund anticipates that most Fund Loans will require monthly payments of principal and

interest, amortized over the life of the loan, although the Manager will have discretion to

determine payment, interest and other loan terms.

Borrowers will make their checks payable to the Servicer or the Fund. Checks payable to the

Servicer will be deposited in the Servicer's loan servicing trust account and, after deducting the

Servicer’s fees, the funds will be transferred to the Fund's bank account.

The Fund will require the Servicer to adhere to the following payment, delinquency, default, and

foreclosure practices, procedures and policies:

(a) Payments. Generally, payments will be payable monthly, on

the first (1st) day of each month. Interest is generally prorated to the first (1st) day of the month

following the closing of the loan escrow.

41

(b) Delinquency. Generally, Fund Loans will be considered

delinquent if no payment has been received within ten (10) days of the payment due date.

Borrower will be notified of delinquency by mail on the twelfth (12th) day after the payment due

date and a late charge will be assessed. The Servicer will refer to and rely upon the late charge

provisions in the applicable loan documents for each loan.

(c) Default. A Fund Loan will be considered in default if no

payment has been received within thirty (30) days of the payment due date. Foreclosure will

usually be initiated shortly after the thirty-first (31st) day after a default, with the exact timing in

the business judgment of the Manager. Any costs of this process are to be posted to the

borrower’s account for reimbursement to the Fund.

(d) Foreclosure. Statutory guidelines for foreclosures in each

state are to be followed by the Servicer until the underlying property is liquidated and/or the

account is brought current. Any costs of this process are to be posted to the borrower’s account

for reimbursement to the Fund. If a loan is completely foreclosed upon and the property reverts

back to the Fund, the Fund will be responsible for paying the costs and fees associated with the

foreclosure process, maintenance and repair of the property, service of senior liens if any, and

resale expenses.

(v). Sale of Fund Loans

The Fund may sell the Fund Loans (or fractional interests therein) when the Manager

determines that it would be advantageous to the Fund to do so. Decisions by the Manager

concerning the sale of Fund Loans will be based upon the business judgment of the Manager

considering prevailing market interest rates, the length of time that the loan will be held by the

Fund, the payment history on the loan and the investment objectives of the Fund.

c. Certain Legal Considerations regarding Fund Loans.

Each of the Fund Loans will be secured by, among other things, a deed of trust, mortgage,

leasehold deed of trust or leasehold mortgage, security agreement or similar instrument. The

Fund may hold a first deed of trust or a junior deed of trust. If a Fund Loan is secured by a

second or junior deed of trust or mortgage, the senior deed of trust or mortgage holder would

have to be paid or otherwise satisfied before the borrower’s obligations to the Fund can be

satisfied out of the property that is the subject of the deed of trust or mortgage. The deed of trust

or mortgage is the most commonly used real property security device. A deed of trust formally

has three parties; a debtor, referred to as the "trustor"; a third party referred to as the "trustee";

and the lender referred to as the "beneficiary." The trustor irrevocably grants the property until

the debt is paid, "in trust, with power of sale" to the trustee to secure payment of the obligation.

The trustee's authority is governed by law, the express provisions of the deed of trust and the

directions of the beneficiary. The Fund will be the beneficiary under all deeds of trust securing

the Fund Loans. In a mortgage loan, there are only two parties, the mortgagor (borrower) and the

mortgagee (lender). State law determines how a mortgage is foreclosed.

Foreclosure. In most states a statute known as the "one form of action" rule requires the

beneficiary of a deed of trust to exhaust the security under the deed of trust (i.e., foreclose on the

42

property) before any personal action may be brought against the borrower. There are two

methods of foreclosing a deed of trust:

(i) Foreclosure of a deed of trust is accomplished in most cases by a

non-judicial trustee's sale under the power of sale provision in the deed of trust. Prior to such

sale, the trustee must record a notice of default and send a copy to the trustor and to any person

who has recorded a request for a copy of a notice of default, and to the successor in interest to

the trustor and to the beneficiary of any junior deed of trust. The trustor or any person having a

junior lien or encumbrance of record may, during a three (3) month reinstatement period, cure

the default by paying the entire amount of the debt then due, exclusive of principal due only

because of acceleration upon default, plus costs and expenses actually incurred in enforcing the

obligation and statutorily limited attorneys' and trustee's fees. Thereafter, and at least twenty-one

(21) days before the trustee's sale, a notice of sale must be posted in a public place and published

once a week over such period. A copy of the notice of sale must be posted on the property, and

sent to the trustee, to each person who has requested a copy, to any successor in interest to the

trustor and to the beneficiary of any junior deed of trust, at least twenty-one (21) days before the

sale. Following the sale, neither the debtor/trustor nor a junior lien has any right of redemption,

and the beneficiary may not obtain a deficiency judgment against the trustor.

(ii) A judicial foreclosure (in which the beneficiary's purpose is

usually to obtain a deficiency judgment where otherwise unavailable) is subject to most of the

delays and expenses of other lawsuits, sometimes requiring up to several years to complete.

Following a judicial foreclosure sale, the trustor or his, her, or its successors in interest may

redeem for a period of one (1) year (or a period of only three (3) months if the entire amount of

the debt is bid at the foreclosure sale), and until the trustor redeems, foreclosed junior lien holder

may redeem during successive redemption periods of sixty (60) days following the previous

redemption, but in no event later than one (1) year after the judicial foreclosure sale. The Fund

generally will not pursue a judicial foreclosure to obtain a deficiency judgment, except where, in

the sole discretion of the Manager, such a remedy is warranted in light of the time and expense

involved.

Foreclosure statutes vary from state to state. Any Fund Loan foreclosed on by the Fund will be

foreclosed in compliance with the laws of the state where the real property collateral is located.

Other matters, such as litigation instituted by a defaulting borrower or the operation of the

federal bankruptcy laws, may have the effect of delaying enforcement of the lien of a defaulted

Fund Loan and may, in certain circumstances, reduce the amount realizable from sale of a

foreclosed property.

"Due-on-Sale" Clauses. The Fund's form of promissory notes and deeds of trust for Fund

Loans, like those of many lenders, will contain "due-on-sale" clauses permitting the Fund to

accelerate the maturity of a Fund Loan if the borrower sells, conveys or transfers all or any

portion of the property, but may or may not contain "due-on-encumbrance" clauses which would

permit the same action if the borrower further encumbers the property (i.e., executes further

deeds of trust). The enforceability of these types of clauses has been the subject of several major

court decisions and legislation in recent years.

(1) Due-on-Sale. Federal law now provides that, notwithstanding any

contrary pre-existing state law, due-on-sale clauses contained in mortgage loan documents are

43

enforceable in accordance with their terms by any lender. On the other hand, acquisition of a

property by the Fund by foreclosure on a Fund Loan may also constitute a "sale" of the property,

and would entitle a senior lien holder to accelerate its loan against the Fund (if the Fund were a

junior lender). This would be likely to occur if then prevailing interest rates were substantially

higher than the rate provided for under the accelerated Fund Loan. In that event, the Fund may

be compelled to sell or refinance the property within a short period of time, notwithstanding that

it may not be an opportune time to do so.

(2) Due-on-Encumbrance. With respect to mortgage loans on residential

property containing four or less units, federal law prohibits acceleration of the loan merely by

reason of the further encumbering of the property (e.g., execution of a junior deed of trust). This

prohibition does not apply to mortgage loans on other types of property. Although many of the

Fund’s mortgages could be on properties that qualify for the protection afforded by federal law,

some loans may be secured by small apartment buildings, commercial properties or other

properties. Any junior lien mortgage loans made by the Fund may trigger acceleration of senior

loans on properties if the senior loans contain due-on-encumbrance clauses, although both the

number of such instances and the actual likelihood of acceleration are anticipated to be minor.

Failure of a borrower to pay off the senior loan would be an event of default and subject the

Fund (as junior lien holder, if applicable) to the risks attendant thereto.

Prepayment Charges. Fund Loans originated by the Fund may provide for certain prepayment

charges to be imposed on the borrowers. The Manager nonetheless will reserve the right at its

discretion to waive the payment of any prepayment penalties.

Bankruptcy Laws. If a borrower under a Fund Loan files for protection under the federal

bankruptcy statutes, the Fund will initially be barred from taking any foreclosure action on the

real property security by an "automatic stay order" that goes into effect upon the borrower's

filing of a bankruptcy petition. Thereafter, the Fund would be required to incur the time, delay

and expense of filing a motion with the bankruptcy court for permission to foreclose on the real

property security ("relief from the automatic stay order"). Such permission is granted only in

limited circumstances. If permission is denied, the Fund will likely be unable to foreclose on its

security for the duration of the bankruptcy, which could be several years. During any such delay,

the borrower may or may not be required to pay current interest on the Fund Loan. The Fund

would therefore lack the cash flow it anticipated from the Fund Loan, and the total indebtedness

secured by the real property would increase by the amount of the defaulted payments, perhaps

reaching a total that would exceed the market value of the property. In addition, bankruptcy

courts have broad powers to permit a sale of real property free of any liens, including, without

limitation, any mortgage or deed of trust held by the Fund, to compel lenders to accept an

amount less than the balance due under the loan and to permit the borrower to repay the loan

over a term which may be substantially longer than the original term of the loan.

(d) Equity Investments.

While many of the states that have passed medical cannabis and/or recreational adult use laws

often restrict investment into the companies that hold a state-issued license to residents only,

there are far fewer investor prohibitions when investing in the companies that sell equipment,

products or services to the businesses engaged in cultivation. The majority of the companies that

44

cater to the needs of cultivators are relatively new businesses in the high growth stage of their

development, many of which are seeking expansion capital through the sale of equity or debt

securities that later convert into equity ownership. The Fund intends to invest in those

companies that appear to the Manager, in its reasonable judgment, to have advantageous risk to

reward ratios and hold these securities for long-term capital gains. There is, of course, no

guarantee that any Equity Investments made by the Fund in these companies, or any other

business, will result in long-term capital gains to the Fund and its Members, including, without

limitation, the Investors in this Offering.

(e) Possible Equity Investment Opportunities.

Following are examples of companies that have advised the Manager that they may be seeking

equity investments now or in the near future. Although there can be no assurances, if any of

these companies do, in fact, seek equity investments on terms determined by the Manager, in its

sole discretion, to be advantageous for the Fund, the Fund may consider any such companies for

an Equity Investment, including, without limitation, Equity Investments funded by the net

proceeds of this Offering. While each of the companies below have advised the Manager that

they are or may be seeking investments, there is no guarantee that an investment will be made by

the Fund in any of these companies. Some of these companies may complete their financing

before the Fund has an opportunity to invest. The Fund will have to do additional due diligence

on these companies, the result of which may be that the Manager determines that an Equity

Investment in one or more of these companies doesn’t meet the Fund’s investment criteria or

otherwise would not be advantageous to the Fund, in either case as determined by the Manager

in its sole discretion. The summaries provided below are based on information available on the

respective companies’ websites or otherwise based on supplied by the applicable company.

The Fund disclaims any responsibility for the accuracy or completeness of these summaries.

Compliant Cannabis, Inc.

Business: Software and Mobile Applications

Location: Denver, Colorado

Compliant Cannabis, Inc., is a software-as-a-service platform that increases profit and reduces

risk for the legal cannabis industry by minimizing human error, streamlining compliance

reporting to government agencies and empowering decision-making with real time, data driven

inventory management from seed to sale.

Compliant Cannabis provides a best-in-class software solution that helps cannabis cultivation

companies meet the challenges of strict regulatory requirements and an increasingly competitive

marketplace. Nearly all states that have legalized the medical use of cannabis, now require that

each plant be assigned a barcode tag that enables tracking from seed to eventual sale. Even a

small cultivation operation of 25,000 square feet would typically require 7,000 tags to be

scanned on a daily basis and that data reported to the state regulatory department. The Compliant

Cannabis software automates and streamlines inventory management and mandatory reporting,

reducing human error, costs and risk associated with compliance. The software transforms real-

45

time data into visual reports with actionable insights that improve decision making and boost

profitability.

For more information visit: www/compliantcannabis.com.

PathogenDX, Inc.

Business: Biotechnology / Pharmaceutical

Location: Scottsdale, AZ

PathogenDx develops and provides genetic level test kits for microbial contamination testing of

cannabis products. While over seventy five percent (75%) of the legal cannabis consumed in

2015 fell under the medical use category, patients and those prescribing the product demand

safety. The testing laws detailing the amount of product to be tested and the number of pathogens

required in each test are regulated by each state that has legalized cannabis. The importance of

testing cannot be overstated.

PathogenDx's business model is to sell testing kits to laboratories used by the cannabis industry

to test their products for safety and quality. Current microbial testing takes 3 to 7 days which

delays the sale of product and can be very expensive per test. PathogenDx’s PDxC test takes less

than 6 hours from leaf to data, at a fraction of the costs, and can run dozens of cannabis samples

simultaneously. Their customers can generate revenue faster, reduce cost, and ensure safety of

the product they produce.

Beginning in 2014, states began legislating testing requirements for recreational and medical

cannabis. The market in some states has experienced safety and quality issues. In nearly all

states, testing labs are struggling to keep pace with the demand from growers, medical

dispensaries and consumers to provide a third party validated product. PathogenDx sells test kits

to testing labs seeking efficiency, accuracy and higher profit margins. PathogenDx has

developed technologies into one kit that provides advance cannabis contaminant testing while

conducting multiple tests (48) of up to 44 pathogens simultaneously. PathogenDx’s test reduces

test turnaround time from 3 to 7 days to less than 6 hours, while reducing costs from

approximately $7-8 per test to approximately $4 per test.

To learn more visit: http://www.pathogendx.com

Tradiv, Inc.

Business: Software: Online marketplace for licensed cannabis companies

Location: Boulder Co.

Tradiv operates an online marketplace used by state-licensed cultivators and dispensaries to buy

and sell cannabis and cannabis-related consumer products in Colorado. The Tradiv online

marketplace is marketed to state-licensed cannabis dispensaries, cultivators, and manufacturers

of infused products, concentrates, and edibles that are medical, recreational, or hemp-based.

Tradiv drives transaction volume across its network and charges a transaction fee of 1.8% to

46

10% depending on a range of factors. Tradiv has adopted a decentralized distribution approach

that allows product sellers to bid up the percentage transaction fee they’re willing to pay for a

converted sale, similar to what Priceline does for hotels, and Google AdWords does for priority

placement of advertising. Transaction fees are expected to expand to 1.99% -20% over the

course of the next three years. Increased users are expected to increase the average order volume,

or frequency of orders, all leading to an increase in revenue and eventual profits.

Before the online trading platform was launched by Tradiv in 2015, cannabis cultivators and

dispensaries typically spent hours making phone calls or sending text messages to various

vendors or suppliers trying to buy or sell their products. Currently, Tradiv only serves Colorado-

based cannabis businesses, although it plans on expanding to other states, including Oregon,

Washington, Nevada, Arizona, and California, during 2016. Federal law currently prohibits

buying, selling or otherwise engaging in transactions involving cannabis or cannabis-based

products across state lines. As a result, if Tradiv does expand to other states, each state would

likely have its own, separate online marketplace.

To learn more visit: Tradiv.com

FlexMod Solutions, LLC

Business: Design and construction: Cultivation facilities & mobile extraction laboratories.

Location: Denver, CO

As a new industry projected to grow to $21B by 2020, cultivation facilities do not exist today in

most markets where demand will develop, nor are there sufficient facilities in existing legalized

markets today. FlexMod believes that increased demand for cannabis will drive the need for new

large-scale, high-production cultivation facilities and create a need to upgrade today’s smaller or

less productive facilities developed in the early phase of the industry. Most builders and

architects do not have knowledge and expertise specific to the cannabis cultivation industry. By

using a modular design and factory built wall systems assembled on-site, a cultivation facility

can be placed in operation faster and at a lower cost than traditional construction methods.

Today’s growers now have the unique opportunity to increase their “Speed to Market” with a

quality and functioning cultivation facility that includes a proven turnkey system solution with

integrated utility systems already installed. Our modular grow facility construction allows

cultivators to start producing revenue up to 70% faster than the conventional one-off

construction plans and save up to 20% or more over conventional construction costs.

All states that have approved medical or recreational adult use of cannabis to date, have laws that

require the product to be grown in the state where it will be sold. Testing the product before it is

consumed as well as taxing each phase of production and sale are the primary reasons that there

may never be a day when cannabis is grown in one state and then sold across state borders.

These laws will force the industry into requiring cultivation facilities in every state that adopts

legalization.

FlexMod has also introduced a line of mobile extraction laboratories, for cultivators who extract

the precious oils from their cannabis crop for use in medicine, edible products and topical

products. Medicine and Cannabis Infused Products (MIPS) made from the extraction of oils from

47

the harvested plant is the fastest growing sector in the cannabis industry. Extraction labs are sold

or leased for approximately $70,000 and delivered in three weeks vs. building a lab on-site at

costs exceeding $100,000.

To learn more visit: Flexmod.com

Plus Products California Cooperative, Inc

Business: Consumer Health Products

Location: Palo Alto, CA

Plus Products is a cannabis infused products company. Its first product, Plus Gum, is a cannabis

infused chewing gum that is fast-acting, low-calorie, and discreet. The company’s patent-

pending process provides a unique delivery mechanism of THC through sublingual absorption

that is five times as fast acting as a typical edible. The cannabis flavor is also removed from the

product so that it actually tastes like gum, while leaving the active ingredients intact.

Plus Gum is manufactured in California and is currently being sold throughout the state via

licensed dispensaries while the company plans to expand it’s manufacturing and marketing into

Colorado.

To learn more visit: http://plusgum.com

Librede, Inc

Business: Biotechnology Product Development

Location: San Diego, California

Librede is focused on using synthetic biology and metabolic engineering to produce chemicals

found in nature that have applications in the nutraceutical and pharmaceutical markets. Librede

has developed a yeast based cannabinoid production system and drug discovery platform to

create natural (from plants) and synthetic chemical compounds that target the endocannabinoid

system (ECS).

The company has developed and successfully demonstrated a versatile, low cost biosynthetic

cannabinoid production platform by genetically engineering natural cannabinoid-producing

enzymatic pathways which speeds cannabinoid production (days versus several months for

plants) and greatly minimizes separation and purification cost and effort. The company’s

breakthrough work is the first time cannabinoids have been biologically synthesized outside of

Cannabis sativa and enables a low cost, efficient, and environmentally friendly means of

48

producing large quantities of high purity cannabinoids for use in medicine and adult use

consumable products.

To learn more visit: http://www.librede.com

Kiva Confections, Inc

Business: Consumer Products

Location: San Leandro, California

KIVA Confections creates cannabis infused chocolate products and is one of the most

recognized medical cannabis companies in California. The company was born out of a need for

an edible product that was potent, consistent, and enjoyable for patients to consume.

Since its launch in 2010, the company has grown to encompass over a dozen varieties of

chocolate edibles with a loyal customer base throughout hundreds of dispensaries in California.

Its artisan confections have garnered multiple awards and recognition in the marketplace. With

over forty employees dedicated to quality, food safety and compassionate care, KIVA continues

to redefine the edible cannabis category and lead the way in developing premium quality, great

tasting products that deliver certified amounts of medicinal cannabis within a delicious, artisan-

inspired chocolate recipe.

To learn more visit: http://kivaconfections.com

2. Leverage.

It is not anticipated that the Fund will seek any debt financing at this early stage of its operations.

However, in the future, the Manager, in its sole discretion, may decide that borrowing funds

from a lending institution or others might be to the benefit of the Fund. All other factors being

equal, leverage increases potential risk to an investor, as well as possible return.

49

V. MARKET, POTENTIAL CUSTOMERS AND COMPETITION

A. Market

The Fund seeks to capitalize on the growing demand for capital as more states legalize medical

as well as the recreational adult use of cannabis. The year 2016 may be a watershed year for

cannabis legalization. Six states will be voting to allow adult recreational use in the November

elections including California, Arizona and Nevada in the southwest and Maine, Rhode Island

and Vermont in the northeast. Proponents of legalizing cannabis are actively pursuing initiatives

in four states - Florida, Ohio, Missouri and Pennsylvania, which would significantly expand

medical marijuana access in the eastern half of the U.S.

States voting on new cannabis laws in 2016 have a combined population of over 53 million

residents. When added to the 23 states where cannabis use is legal by prescription for medicinal

purposes or for recreational adult use, over one-third of the nation’s population may have legal

access to cannabis. While support for medical and adult recreational use legalization is high in

these states, the passage of the measures is not guaranteed.

The four states that have legalized adult recreational use (Colorado, Washington, Oregon and

Alaska) have experienced a significant increase in tax revenues not only from taxing the plant

each time there is a sale, but also from fees collected during the licensing process. Estimates in

Colorado for 2015 exceed $135 million from cannabis taxes and license fees, which was a 77%

increase over the $76 million the state collected in 2014. The reported $70 million collected by

the state of Washington during its first year with adult use laws exceeded estimates even after

product storages and licensing delays effected both cultivators, retailers and consumers in the

first few months of the year. Recreational adult use of cannabis was approved in the

Washington, D.C.; however, it is limited to personal cultivation and use. Sales and distribution

are not permitted.

As most states struggle to continue recovering from the recession that began in 2007, many see

passing legalized adult recreational use cannabis laws as an attractive alternative to raising taxes

in the traditional manners of the past.

B. Competition

Up until as recently as 2015, when a small number of venture capital firms announced their

initial investments, the cannabis industry was largely financed by start-up entrepreneurs, along

with friends and family members and a few wealthy individuals who funded early stage

companies.

Since 2015, however, a more sophisticated financing environment has emerged in the cannabis

industry comprised of two main categories of financing or value-adding service providers: (1)

venture capital firms that invest in the equity of companies operating in the cannabis industry

and, as with other equity investors, typically wait for a liquidity event to earn a return on their

investments; and (2) companies that offer advice and coaching in a wide variety of areas to

entrepreneurial businesses in the cannabis industry. These programs often are referred to as

incubator or accelerator programs. The services of these companies are typically provided in

exchange for a fee and often include an equity stake in the entrepreneurial business. Some of

50

these programs also provide start-up capital and introductions to sophisticated investors upon

successful completion of the program.

Following are a few examples of venture capital firms and companies offering incubator or

accelerator programs that are currently operating, or in the past have operated, in the legalized

cannabis industry. The Fund will be competing with these and others companies providing

financing and value-added services to businesses operating in the legalized cannabis industry.

These companies could be considered competitors of the Fund.

Venture Capital Firms:

Tuatara Capital

Tuatara Capital, L.P. (Tuatara) was founded in 2014 as a specialized alternative investment

manager to exclusively focus on the legal cannabis industry. Tuatara explores investment

opportunities in companies with strong financial profiles and sound business models that are

well-positioned to benefit from the long-term growth trends within the cannabis industry.

Tuatara will initially deploy capital across four distinct sub-sectors within the cannabis industry

including: research & testing, cannabis cultivation and processing, along with consumer products

and retailing.

For more information in Tuatara Capital visit: http://www.tuataracapital.com.

Privateer Holdings

Privateer Holdings (Privateer) was funded in 2010 by entrepreneurs in Seattle, Washington with

experience in investment banking and venture capital, in order to represent a group of investors

from around the world seeking to end cannabis prohibition and the social harms resulting from

this prohibition. Through a combination of acquisitions, investments and incubation, Privateer

focuses on building a portfolio of global brands with the goal of leading, legitimizing and

defining the future of the legalized cannabis industry.

The Privateer website describes its fundamental beliefs as: (1) Cannabis is a mainstream product

consumed by mainstream people; (2) The end of cannabis prohibition is inevitable; and (3)

brands will determine the future of the cannabis industry.

For more information on Privateer Holdings visit: http://www.privateerholdings.com.

Incubator or Accelerator Firms:

Canopy Boulder

Canopy Boulder is a seed-stage business accelerator firm located in Boulder, Colorado, which is

focused on ancillary products and services in the legalized cannabis industry. The firm provides

capital (up to $70k), a 16-week mentor-driven boot camp, and critical knowledge of the industry

in return for is typically a 6-9.5% equity stake in companies operating in the ancillary products

and services sector of the legalized cannabis industry. Canopy Boulder focuses on working with

both adult-use and medicinally focused companies. The firm’s primary focus is in assisting

entrepreneurs in the technology, data analytics, market research, sales, advertising, and

consumption device segments of the legalized cannabis industry.

51

For more information on Canopy Boulder visit: http://www.canopyboulder.co

Electrum Partners

Electrum Partners (Electrum) is a boutique consulting firm specializing in the legalized cannabis

industry in the United States. Founded by a former investment banker experienced in emerging

markets and technologies, the firm provides business services, strategic guidance and

introductions, license application support, and industry-specific expertise to early-stage

companies that are looking for an edge when navigating their entry into the legalized cannabis

industry.

For more information on Electrum Partners visit: http://electrumpartners.com

VI. TERMS OF OFFERING; DESCRIPTION OF UNITS

A. General

Subject to the terms and conditions set forth in this Memorandum, the Fund is offering and

selling up to 200 Units in the Fund at $12,500 per Unit for maximum proceeds from this

Offering of up to $2,500,000. The minimum number of Units that a potential Investor may

purchase is 2 Units for a minimum investment of $25,000; however the Fund reserves the right

to waive the minimum investment amount, or to allocate to any potential Investor a subscription

amount less than the minimum investment. The Units are being offered to and may be sold to

only accredited investors and a limited number of other qualified Investors meeting certain

statutory requirements. See Section X.B below, “Plan of Distribution; Investor Suitability

Standards.” Currently, the Manager owns 1 Unit in the Fund and, at all times going-forward,

will own a non-dilutive One Percent (1%) of all then issued and outstanding Units at any given

time. The Manager also may purchase additional Units in the Offering at any time, as long as the

Offering remains open to investment.

B. Offering Period

The subscription or offering period for the Offering (the “Offering Period”) commenced on the

date of this Memorandum and will terminate on July 31, 2016, subject to the Manager’s right to

extent the Offering Period or terminate this Offering in the Manager’s sole discretion. If

subscriptions totaling at least $125,000 (Ten (10) Units) have not been received by the Fund

prior to April 30, 2016, the Manager may, in its sole discretion, terminate the Offering and all

funds received by the Fund from potential Investors will be refunded to them.

C. Offering Terms and Conditions Determined by the Manager

All questions and determinations with regard to this Offering, including which potential

Investors will be entitled to purchase Units, the time of receipt of the Subscription Agreement

and Investor Suitability Questionnaire, the suitability of potential Investors to purchase Units in

this Offering, the validity of payments made for subscriptions, compliance with subscription

procedures, the satisfaction of the conditions of the Offering, and the termination of the Offering,

will be made by the Manager, in its sole and absolute discretion, and shall be final and binding.

52

D. Terms of Units

1. Units.

As of the date of this Memorandum, 1 Unit has been issued to the Manager, as the Fund’s initial

Member. If this Offering is fully subscribed and all Units being offered hereunder are sold, there

will be a total of 202 Units issued and outstanding, including the Units issued to the Manager,

who is entitled to a non-dilutive 1% interest in the Fund at all times. Issuance by the Fund of

additional Units will result in dilution of any then-existing Member’s ownership interest in the

Fund, including the interest of the Investors in this Offering.

2. Duration; Termination; Dissolution.

Unless terminated or dissolved earlier in accordance with the provisions of the Operating

Agreement, the period of duration of the Fund will be perpetual. The death, withdrawal,

resignation, expulsion, bankruptcy or dissolution of a Member will not terminate the Fund.

Upon any termination or dissolution of the Fund, after liquidation of all property of the Fund and

payment of all creditors, the net profits and losses and any available cash balance will be

distributed to the Members in the same manner summarized in Subsection 4 below.

3. Capital Accounts; Additional Capital Contributions.

A separate capital account (each, a “Capital Account”) will be established and maintained for

each Member. In general, a Member’s Capital Account (i) will be increased by that Member’s

cash contributions (including, without limitation, the purchase price paid for that Member’s

Units), the agreed upon fair market value of any property contributed by that Member to the

Fund and all items of income or gain allocated to that Member; and (ii) will be decreased by any

cash distributed to that Member, the agreed upon fair market value of any property distributed to

that Member and all losses or deductions allocated to that Member. Capital Accounts will bear

no interest, and no Member has the right to withdraw or receive any return of such Member’s

capital contribution.

4. Allocations of Net Profits and Net Losses from Operations.

Subject to special allocations required under the Code and except as otherwise may be provided

in or required by the Code, net profits, net losses, and other items of income, gain, loss,

deduction and credit shall be apportioned eighty percent (80%) to the Members in the aggregate

(and among the Members in accordance with their respective Percentage Interests) and twenty

percent (20%) to the Manager with respect to its carried interest.

5. Cash Distributions.

The Manager will distribute “Gross Adjusted Revenue” of the Company to the Members as soon

as practical after, and if, Gross Adjusted Revenue shall become available for distribution, as

determined by the Manager in its sole discretion. Except as may otherwise be provided in the

Operating Agreement, any such distributions shall be allocated as follows: eighty percent (80%)

to the Members in the aggregate (and among the Members in accordance with their respective

Percentage Interests) and twenty percent (20%) to the Manager as its carried interest. For

purposes hereof, “Gross Adjusted Revenue” shall mean all cash or proceeds received by the

Fund, including, without limitation, interest income received from borrowers under Fund Loans,

53

dividends received from Equity Investments, proceeds from the sale or other disposition of any

assets of the Fund, including, without limitation, the sale or other disposition of any Fund Loans

or Equity Investments, and any other cash or proceeds from the Fund’s operations or any other

source, less all Fund expenses and liabilities and any reserves the Manager determines, in its sole

discretion, should be maintained by the Fund.

6. Limitations on Distributions.

Notwithstanding any other provision in this Agreement, including, without limitation Section

5above, no distributions shall be declared and paid unless, after the distribution is made, the

Fund’s assets are in excess of all Fund liabilities, except any liabilities to Members relating to

their capital contributions.

7. Voting Rights of Members.

Management of the Fund will be vested almost exclusively in the Manager. See, Section VII

below, “Management”. Notwithstanding this fact, the prior approval of the holders of a majority

of all of the Fund’s issued and outstanding Units will be required for the following actions:

a. Material alteration of the business of the Fund as such business has been

described in this Memorandum;

b. Dissolution and/or liquidation of the Fund;

c. Amendment of the Fund’s Certificate of Formation;

d. Amendment of the Fund’s Operating Agreement; or

e. Merge or consolidate, or agree to merge or consolidate, with any other

entity or acquire, or agree to acquire, all or substantially all of the business

or assets of any other person or entity.

The Manager may be removed and replaced with the vote of Members holding at least Sixty-Six

and 2/3 percent (66-2/3%) of all issued and outstanding Units, excluding Units held by the

Manager.

8. Issuance of Additional Units.

After this Offering has been completed, the Fund may issue additional Units and new Members

may be admitted into the Fund at the discretion of the Manager. The amount of capital to be

contributed by any new Members will be determined by the Manager.

9. Restrictions on Transfer of Units; Disassociation of a Member.

The Units have not been registered under the Securities Act of 1933, as amended (the “Act”) or

under any state securities laws and constitute restricted securities under applicable law. The Fund

is offering the Units in reliance upon certain exemption from registration contained in the Act

and applicable state laws. As a consequence, Investors may not sell the Unit unless they are

54

subsequently registered under the Act and applicable state laws, or an exemption from such

registration is available. In addition, although a Member may sell or transfer such Member’s

Units, any assignee of a Member’s Units shall not become a Member of the Fund, but shall only

be entitled to the economic benefits of Unit ownership as agreed to between the transferring

Member and the assignee, unless approved by the Manager, which approval may be given or

withheld in the Manager’s sole discretion. A person will cease to be a Member upon (i) the

withdrawal of the Member with the consent of the Manager, which consent may be given or

withheld in the Manager’s sole discretion; (ii) the bankruptcy of the Member; or (iii) the death of

a Member or the entry of an order by a court of competent jurisdiction that the Member is

incompetent. See the Fund’s Operating Agreement, a copy of which is attached to this

Memorandum as Exhibit “A”.

10. Reports to Members.

The Fund will provide all Members, including, without limitation, the Investors in this Offering,

with annual reports that will include unaudited financial information.

11. No Expert or Legal Opinions.

No expert has prepared or certified any part of the Memorandum or any report or valuation for

use in connection with this Memorandum and the Fund has not requested counsel to give, nor

has it received, an opinion upon the validity of the Units being offered in this Offering or upon

any other legal matter in connection with this Offering.

12. Legal Proceedings.

Neither the Fund nor the Manager is now or have within the past five (5) years been involved in

any material litigation or arbitration.

In August 2012, however, two funds managed by the President of the Manager (The Income

Fund, LLC, and Trail Creek Crossing, LLC), entered into Consent Decrees with the Arkansas

Securities Commissioner. Pursuant to these Consent Decrees, these entities agreed to pay small

fines to the Arkansas Securities Department to settle allegations made by the Department that

these entities did not comply fully with Arkansas law regarding the registration of securities or

an exemption therefrom in connection with the offer and sale of securities by these entities to

residents of Arkansas. To avoid the time and expense that would have been involved in

contesting these allegations, The Income Fund, LLC and Trail Creek Crossing, LLC entered into

these Consent Decrees and paid the required fines.

Also, in December 2013, the President of the Manager received a Subpoena from the U.S.

Securities and Exchange Commission requiring the production of documents relating to the

offering of securities by other funds managed by the President of the Manager. The parties

involved, including the President of the Manager, fully complied with the SEC’s request and

delivered all documents requested n the Subpoena. The SEC closed its investigation without any

further action.

Neither the Fund nor the Manager is a party to, and neither of them is subject to, any pending

legal proceedings.

55

VII. MANAGEMENT

A. Role of the Manager

The Manager of the Fund is Avalon Management Group, Inc., a Wyoming corporation. The

Manager will have full management control over the Fund, pursuant to the Operating Agreement

of the Fund. Thomas W. Garlock is the President, sole director and sole shareholder of Avalon

Management Group, Inc. The Manager will be compensated as described below in Section

VII.D, “Management - Compensation Payable to the Manager and Affiliates.” The Manager

will own a non-dilutive One Percent (1%) interest in the Fund (Units) at all times.

B. Avalon Management Group, Inc.

Avalon Management Group, Inc., was organized on September 5, 2012 as a Wyoming

corporation.

The President and sole shareholder of Avalon Management Group, Inc. is Thomas W. Garlock.

Mr. Garlock will oversee all activities and operations of the Fund and will have significant

authority with respect to the day-to-day operations of the Fund. Please see Mr. Garlock’s

biography below. Mr. Garlock will be assisted by Phillip A. Baudour, who will serve as a

project manager for the Fund. See Mr. Baudour’s biography below.

C. Thomas W. Garlock

Thomas W. Garlock, 59, began his career in 1982 building portfolios of hard assets for private

clients seeking alternative investment diversification in oil and gas, precious metals, and real

estate assets. He has been active as a real estate investor and developer in the Jackson, Wyoming

area and in Southern California since 1985. A Jackson Hole resident since 1995, Mr. Garlock

appreciates the natural beauty of Wyoming along with its outdoor activities. Mr. Garlock,

directly or through the Manager, currently is the manager of several other investment funds,

including, without limitation, Teton Land & Development Group, LLC, Fiver Rivers Property

Fund, LLC Trail Creek Crossing, LLC, The Income Fund, LLC; Total Return Income Fund,

LLC; and Global Food Security Fund, LLC, all of which (other than the Global Food Security

Fund, LLC, which is engaged in disaster relief products and services) is a real estate

development or real-estate related company operating in the Jackson Hole, Wyoming market.

During the last five (5) years, Mr. Garlock also has sponsored and been the manager of numerous

other real estate development companies, including, Trail Creek Partners, LLC, Teton Property

Fund II, LLC, Grand Teton Property Fund, LLC, and Four Peaks Property Fund, LLC.

For the past 34 years, Mr. Garlock has organized ventures in real estate as well as numerous

wireless communication fields, including cellular telephony, PCS, and wireless data networks.

Mr. Garlock has been the principal in a variety of communications license-based ventures that

have held and developed 55 MSA metropolitan cellular telephone licenses, 9 RSA rural cellular

telephone licenses. In 2013, Mr. Garlock and his wife Karen formed the World Food Crusade, a

501(c)(3) non-profit charity that focuses on educating the public on issues of food security and

healthy food choices.

56

Mr. Garlock is the author of “The Ultimate Guide to Self-Directed Retirement Plans” released in

2012 and the co-author with Richard Lackey of the bestselling book: Radical Response- Free

Market Solutions to Global Crisis. Mr. Garlock completed coursework (Business

Administration) at the University of California at Los Angeles (1976-1978) and coursework

(Business Administration) at Kent State University (1974-1976).

D. Phillip A. Baudour

Phillip A. Baudour,55, began his career in California, where he resided and worked for 30 years,

attending all schooling primary thru graduate. His primary professional field was Application

Engineering in the Manufacturing & Aerospace industry. Supporting fields were Sales &

Marketing. Mr. Baudour is an accomplished technical publications writer and editor.

He retired from the Application Engineering and Manufacturing Aerospace industry in 1991,

when he became involved in Aviation Transportation, Education, Consultation and Marketing.

With relocation to Texas in 1993, His interest and areas of specialization were commanding

helicopter ambulance flights throughout the United States, commanding search and rescue

missions in both the United States & Middle East, drug enforcement operations, and global

aviation, education & consulting to first and third world countries. Mr. Baudour has also served

as an aviation consultant and educator to foreign military commands. Additional areas of

expertise include 30 years’ involvement in real estate, property management, property

renovation, small business entrepreneurship, and computer applications software education.

Mr. Baudour is a Board Member and Treasurer with the World Food Crusade. In his spare time,

he enjoys sailing, trekking, bicycling, culinary arts, metallurgical manufacturing, antique

restoration, and international travel. Mr. Baudour is conversant in Russian, French, and English

languages.

Mr. Baudour has been an investor in projects managed by the Fund’s Manager and its affiliates

for over ten years and in 2015 joined the Fund’s Manager on a part-time and as-needed basis as a

Project Manager focusing on opportunities for the Fund in the legalized cannabis industry. He

relocated his home to Colorado Springs, Colorado in 2015.

E. Compensation Payable to Manager and Affiliates

The Manager is entitled to a Management Fee equal to $120,000 per year, payable in quarterly

installments provided that funds are available to pay this Fee.

The Manager also is entitled to a non-dilutive one percent (1%) interest in the Fund such that, at

all times, the Manager will own one percent (1%) of all issued and outstanding Units, calculated

before taking into account the Units to be issued to the Manager.

The Manager will be entitled to 20% of all cash distributions made by the Fund as its carried

interest. See Section VI.D(5) above, “Terms of Offering; Description of Units – Cash

Distributions”.

57

If the Manager or an affiliate of the Manager provides underwriting services with respect to the

Fund Loans or services the Fund Loans, the Manager or an affiliate of the Manager will be

entitled to the following fees and compensation for such services as described below. Other fees

and compensation payable to the Manager or an affiliate of the Manager also are described

below.

Form and Recipient of

Compensation

Estimated Amount or Method of Compensation

Loan Purchase Fee

on Existing Notes

Paid to LLC Fund, Managers or Affiliates

If the LLC Fund purchases an existing loan from a third party, the

Managers or an Aaffiliate may be paid a fee comparable to a loan

origination fee. This fee will not exceed the discount received by the

LLC Fund for the purchase of said loan and the loan terms and

conditions will be comparable or better than those for originating

loans.

Real Estate Commissions to

Managers or Affiliates

Upon Resale of Any Property

Acquired through

Foreclosure Paid to Managers

or Affiliates

The Managers or an Affiliate may operate a real estate sales

department that may handle the resale of properties taken back in

foreclosure by the LLC Fund. If the Managers or an Affiliates elects to

act as the listing agent with respect to any such properties, its

compensation shall not exceed the prevailing rate in the area where the

real property is located. Such fees are approximately 4-6% of the sales

price depending upon the size of the loan, cooperating brokers, and a

variety of other factors. With respect to any real property not located in

Wyoming a local state real estate broker will be engaged by the LLC

Fund and paid the prevailing commission.

Loan Servicing Fee to

Managers, Affiliates, or a Third

Party

The Managers, its Affiliates or a third party servicer will supervise the

servicing of loans owned by the LLC Fund. This consists of billing and

collecting on the Subject Fund Loans (not including attorneys' fees,

foreclosure fees and court costs, if needed). It is anticipated that these

fees will approximate the following, which will be paid to the Manager

or affiliates of the Manager or a third party that provides this service:

(a) 1/12th of 0.5% to 1.0% of the principal amount of each LLC Fund

Loan, payable monthly (i.e. 0.5% to 1.0% per year). This fee shall be

collected monthly from the payments received by the LLC Fund from

the borrowers. This fee may vary from loan to loan.

(b) 10% of any late charges collected from borrowers. The Managers

reserves the right to waive collection of any late charges or reduce the

percentage retained.

(c) 10% of any prepayment penalties collected from borrowers. The

Managers reserves the right to waive collection of any prepayment

penalties or reduce the percentage retained.

(d) 10% of any default interest. The Managers reserves the right to

waive collection of any default interest or reduce the default interest

rate.

(e) 10% of any extension fees. The Managers reserves the right to

waive collection of any extension fees.

(f) 10% of other fees collected from the borrower as authorized by the

terms of the loan documents for work performed.

58

The Managers reserves the right to waive collection of any such fees.

Managers’ Share of Profits

from the Sale of Subject Fund Loans

The Managers shall be entitled to retain ten percent (10%) of the net

profits from the sale of any Subject Fund Loans.

F. Actions against the Fund and Affiliates

No material administrative, civil or criminal actions have ever been brought against the Fund, the

Manager or Thomas W. Garlock, nor are any of such actions anticipated. See Section VI(D)(10)

above, Terms of Units – Legal Proceedings.

G. Additional Personnel

The Fund has no employees at this time. The Fund may employ personnel or enter into

independent contractual arrangements with additional personnel in the future, as needed.

Administrative, clerical and other operational services of the Fund may be provided by an

affiliate of the Fund, the cost of which will be allocated among several affiliates, including,

without limitation, the Fund, without mark-up.

H. Other Activities of the Manager

The Manager is not required to manage the Fund as its sole and exclusive function. The Manager

and Mr. Garlock, President and sole shareholder of the Manager, may and do engage in other

business activities, including activities that may be competitive with the Fund, and are only

required to devote such time to the Fund as the Manager deems necessary to accomplish the

purposes of the Fund. See Section VII(C) above, Management – Thomas W. Garlock”.

The Manager, Mr. Garlock and any other employees or agents of the Manager or the Fund may

serve as members, partners, stockholders, directors, officers, employees or contractors of other

business entities at their sole discretion, including entities which may compete with the Fund.

I. Indemnification of the Manager

Pursuant to the Fund’s Operating Agreement, the Fund will indemnify and hold harmless the

Manager from and against any and all losses, claims, demands, costs, damages, etc., in

connection with any claims arising out of the business of the Fund, to the fullest extent permitted

under applicable law.

Insofar as indemnification for liabilities under the Securities Act of 1933, as amended, may be

permitted to the Manager or any other persons pursuant to the Operating Agreement or

otherwise, the Fund has been informed that, in the opinion of the Securities and Exchange

Commission, such indemnification is against public policy as expressed in the Act and is

therefore unenforceable.

59

VIII. SOURCES AND USES OF PROCEEDS

Upon receipt, the Manager will deposit the proceeds received from potential Investors into the

business account of the Fund. It is not anticipated that the Fund will utilize the services of any

brokers-dealers or other qualified sales agents in offering and selling the Units in this Offering.

Accordingly, the fund does not anticipate paying any sales fees or commissions to anyone in

connection with the offer and sale of the Units. It is anticipated that Thomas W. Garlock,

President of the Manager, will offer the Units for sale on behalf of the Fund. Mr. Garlock will

receive no sales fees, commissions or any other amounts in connection with offering for sale and

selling the Units on behalf of the Fund.

Provided that the Fund has received the minimum subscription amount of $125,000 by April 30,

2016 the Fund will begin pursuing Fund Loans and Equity Investments for the Fund. Proceeds of

this Offering also may be used for the Fund’s administrative purposes that do not increase the

Fund's profitability or market value. The Manager will have considerable discretion in the

application of the net proceeds of this Offering.

Assuming that this Offering is fully subscribed and all Units offered are sold, the Fund will

receive approximately $2,330,000 in net proceeds from this Offering, calculated as follows:

Number of Units

Offered (1)

Price to

Investors/Unit

Gross Proceeds

Selling Expenses &

Overhead (2)

Net Proceeds to the Fund

200

$12,500 $2,500,000 $170,000 $2,330,000

____________________

(1) The Fund reserves the right to accept or reject subscriptions for Units in its sole discretion.

(2) Estimated to be approximately 6.8%.

The net proceeds from this Offering will be used by the Fund in order to make Fund Loans, to

invest in Equity Investments, for administrative expenses and to fund reserves determined to be

necessary by the Manager in its sole discretion. Assuming all Units offered for sale in this

Offering are sold, the Fund estimates that the net proceeds of this Offering will be used as

follows:

Fund Loans $1,400,000

Equity Investments $800,000

Reserves $130,000

Net Proceeds $2,330,000

Although the Fund anticipates that the Manager may use the proceeds of this Offering to, among

other things, provide Fund Loans to borrowers and fund Equity Investments, the Manager, in its

sole discretion may delay or forego making Fund Loans and/or Equity Investments, based upon

the perceived market demand and potential profits that might result from these investments at

any given time, as determined by the Manager in its sole discretion.

60

IX. CERTAIN TAX CONSIDERATIONS

CAUTION: NOTHING STATED IN THE BRIEF DISCUSSION THAT FOLLOWS IS OR

SHOULD BE CONSTRUED AS TAX ADVICE TO A PROSPECTIVE INVESTOR,

INDIVIDUALLY. THE FOLLOWING DISCUSSION IS INTENDED TO PROVIDE

PROSPECTIVE INVESTORS WITH GENERAL INFORMATION ON CERTAIN U.S.

FEDERAL INCOME TAX MATTERS. THE MATTERS DISCUSSED BELOW ARE

COMPLEX AND THE IRS MAY NOT AGREE WITH THE INFORMATION PRESENTED

BELOW. ALL POTENTIAL INVESTORS ARE ENCOURAGED TO DISCUSS THE TAX

AND OTHER RAMIFICATIONS OF AN INVESTMENT IN THE FUND WITH THEIR TAX

AND LEGAL ADVISORS.

To ensure compliance with Treasury Department Circular 230, potential Investors are

hereby notified that: (a) the following discussion was not intended or written to be used,

and cannot be used, by any taxpayer for the purpose of avoiding any United States federal

tax penalties that may be imposed on such taxpayer; (b) such discussion was written to

support the promotion or marketing of the Units; and (c) each taxpayer should seek advice

regarding an investment in the Units based on its particular circumstances from an

independent tax advisor.

Each potential purchaser of Units in the Fund is urged to consult its own tax advisors concerning

the potential federal, state, local, and foreign tax consequences of an investment in the Fund,

with specific reference to its own tax situation, prior to any investment in the Fund.

Fund Classification.

Under Treasury Regulations, a U.S. domestic entity, such as a limited liability company, that has

two or more members and that is not organized as a corporation under U.S. federal or state law

will be classified as a partnership for U.S. federal income tax purposes, unless it elects to be

classified as an association taxable as a corporation. Therefore, the Fund should be taxable as a

partnership for U.S. federal income tax purposes.

The following discussion assumes that the Fund will be classified as a partnership for U.S.

federal income tax purposes.

Taxation of the Fund and Investors Generally.

Under the Code, the Fund is not subject to U.S. federal income tax, but is required to file a

partnership tax information return each year. In general, a character of each Member’s share of

each item of income, gain, loss, deduction, credit and tax preference is determined at the Fund

level and retains such character when allocated among the Members. Each Member will be

allocated a distributive share of such tax items in accordance with the terms of the Operating

Agreement and applicable provisions of the Code in a manner intended to correspond to the

sharing of economic profits and losses by the Members. Although the allocations provided for in

the Operating Agreement are intended to comply with applicable tax requirements, potential

Investors should note that their respective shares of the Fund's tax items could be adjusted by the

IRS if the Fund's allocations were found not reflect the Members’ respective economic interest in

the Fund.

61

Each Member will be required to include its share of the Fund's tax items in its income for any

taxable year of the Fund ending within or with the taxpayer year of the Member, without regard

to whether the Member has received or will receive any cash distribution from the Fund. The

Code requires the Fund to adopt the taxable year of the Members owning a majority interest in

the Fund capital and profits. It is anticipated that the Fund will adopt a calendar taxable year

under this provision.

Cash distributions, if any, from the Fund are generally not the equivalent of Fund income for tax

purposes. If the cash distributed to a Member exceeds such Member’s share of Fund taxable

income for the year, the excess will constitute a return of capital. A return of capital is applied

first to reduce the adjusted tax basis of the Member’s Units in the Fund and is not taxable to the

extent of such Member’s adjusted tax basis. Any amounts in excess of such adjusted tax basis

will generally be treated as a capital gain from the sale of all or a portion of such Member’s Unit

in the Fund. Such capital gain or loss will be long- or short-term, or potentially in part long-term

and in part short-term, depending on each members holding period for his Unit in the Fund.

Initially, the tax basis of a Member’s Units in the Fund for federal income tax purposes will be

the amount paid by such Member for its Units in the Fund. In general, each Member's tax basis is

increased or decreased by the amount of such Member’s allocable share of the Fund's taxable

income or loss for each year and by such Member’s share of any increase or decrease in any

Fund liabilities. Each Member's tax basis is also reduced by the amount of any cash distributions

made to such Member during the year and is increased by any subsequent cash contributions.

The dissolution and liquidation of the Fund generally will not result in any gain or loss being

recognized by the Fund. Each Member will recognize gain, however, to the extent that the sum

of money received, which includes any decrease in a Member’s share of Fund liabilities, exceeds

such Member’s adjusted tax basis in its interest in the Fund. Subject to the rules concerning

“unrealized receivables” and “substantially appreciated inventory items” (“Section 751

property”), such gain will be capital gain.

Capital loss will be recognized by Members if only “money”(which includes a reduction in the

Member’s share of Fund liabilities), and Section 751 property are distributed, and only to the

extent a Member's adjusted tax basis for its interest in the Fund exceeds the sum of such money

and tax basis to the Member of its share of Section 751 property. If the liquidating distribution

includes property other than money and “Section 751 property”, no loss will be recognized.

At-Risk Rules.

The so-called “at risk” rules contained in Code Section 465 generally provide that a Member

cannot claim its distributive share of the losses incurred by the Fund to the extent such losses

exceed its amount “at risk” in the business activity undertaken, as determined at the close of the

taxable year of the entity. The “at risk” rules of Code Section 465 are applicable only to

individuals (including individual Members in a limited liability company such as the Fund),

estates, trusts, shareholders of an S corporation, and certain closely held “C” Corporations in

which five or fewer individuals own more than 50% of the stock.

An investor generally will be treated as “at risk” under Code Section 465 to the extent of: (i) the

non-borrowed cash and the adjusted basis of other property it contributes to the entity's business

activity; (ii) the Investor’s share of amounts borrowed for use in the entity’s business activity if

62

the Investor is personally liable therefore, or has pledged its property (other than property used in

the entity's business activity) as security for the borrowed amount; and (iii) certain “qualified

nonrecourse financing”. An Investor will not be considered “at risk” with respect to amounts

borrowed from a person who has an interest in the activity or from a person related to a person

(other than the taxpayer) with an interest in the activity. Further, an Investor will not be

considered “at risk” with respect to any amounts as to which it is protected against loss through

nonrecourse financing, guarantees, stop loss or reimbursement agreements, insurance or other

similar arrangements; however, special rules are provided for “qualified nonrecourse financing”.

An Investor is considered at risk with respect to “qualified nonrecourse financing” that is secured

by the real property used in the activity. To the extent that the Fund incurs any debt financing,

the Manager will use its best efforts to obtain qualified nonrecourse financing, although it is not

obligated to do so.

Fund losses deducted by a Member will reduce that Member’s amount “at risk”, and this reduced

“at risk” amount would then be carried forward to the succeeding taxable year. The “at risk”

amount will also be reduced by any cash distributions of the Fund to the Member. If deductions

are suspended due to an insufficient amount “at risk”, the suspended amount will be available to

the Member as a deduction in subsequent taxable years, subject to the “at risk” limitations.

Suspended amounts will be the deductible no later than the taxable year in which a Member

disposes of its interest in the Fund. If the amount “at risk” of a Member is reduced below zero,

the Member must include as income the amount of previously allowed losses to the extent of the

negative amount “at risk”. This recaptured amount would be taxable to the Member as ordinary

income in the subject taxable year.

Passive Activity Rules.

Section 469 of the Code denies a taxpayer the use of deductions and credits generated by

“passive” activities against income from other activities until the taxpayer disposes of the interest

in the passive activities. The passive activity loss rules apply to individuals, estates, and trusts.

They also apply to personal service corporations and closely held “C” corporations that have five

or fewer individuals holding more than 50% of the stock.

The determination of whether or not an activity is “passive” is defined by the statute based on

whether or not a taxpayer “materially participates” in the activity and the activity involves the

conduct of a trade or business. The material participation test divides taxpayers into “active”

participants and “passive” participants. The active/passive determination must be made

separately for each taxpayer and for each activity in which a taxpayer participates. To

“materially participate” in an activity, a taxpayer must be involved in operations on a sufficiently

regular, continuous, and substantial basis. Members in a limited liability company, such as the

Fund, are presumed to be not materially participating in the relevant activity, subject to certain

exceptions.

Potential Investors should consult their own tax advisors for further information about

federal, state, local and other tax consequences of investing in the Fund.

63

X. PLAN OF DISTRIBUTION; INVESTOR SUITABILITY STANDARDS

A. Plan of Distribution

The Units will be offered through the efforts of the Manager on behalf of the Fund. The

Manager will not receive any sales fees, commissions or other fees based upon or determined

with reference to the sale of Units. The Fund does not anticipate engaging any registered broker-

dealers or other qualified sales agents to assist in the Offering.

B. Investor Suitability Standards

The Units offered hereby have not been registered under the Securities Act of 1933, as amended

(the “Act”), and may not be offered or sold within the United States or to U.S. Persons (as such

terms are defined under the Act) except pursuant to an exemption from, or in a transaction not

subject to, the registration requirements of the Act. The Units are being offered and may be sold

only to (i) “accredited investors” (as defined in Rule 501(a) of Regulation D under the Act); and

a limited number (not to exceed 35) of qualified investors that meet the knowledge and business

requirements set forth in Rule 506 of Regulation D, or other applicable federal or state securities

regulations. All potential Investors must execute and return to the Fund executed copies of the

Subscription Agreement, Investor Questionnaire and the Fund’s Operating Agreement, copies of

which are attached to this Memorandum.

In order to qualify as an “accredited investor”, a potential Investor, if a natural person, must (i)

be a director or executive officer of the Fund or the Manager; or (ii) have an individual net worth

or joint net worth with his/her spouse in excess of $1 million at the time of the purchase of the

Units (excluding the value of primary residence and any associated mortgage debt) or (iii) have

had individual income in excess of $200,000 in each of the most two recent years or joint income

with his/her spouse in excess of $300,000 in each of those two years and has a reasonable

expectation of reaching the same income in the current year.

Organizations or entities that wish to purchase Units offered hereby must fall within one of the

following definitions:

1. Any (i) bank as defined in Section 3(a)(2) of the Securities Act, or any savings and loan

association or other institution as defined in Section 3(a)(5)(A) of the Securities Act

whether acting in its individual or fiduciary capacity; (ii) broker or dealer registered

pursuant to Section 15 of the Exchange Act; (iii) insurance Fund as defined in Section

2(13) of the Securities Act; (iv) investment Fund registered under the Investment Fund

Act of 1940 or a business development Fund as defined in Section 2(a)(48) of the

Investment Fund act of 1940; (v) Small Business Investment Fund licensed by the U.S.

Small Business Administration under Section 301(c) or (c) of the Small Business

Investment Act of 1958; (vi) plan established and maintained by a state, its political

subdivisions, or any agency or instrumentality of a state or its political subdivisions, for

benefit of its employees, if such plan has total assets in excess of $5 million; or (vi)

employee benefit plan within the meaning of Title I of the Employee Retirement Income

Security Act of 1974 (“ERISA”), if the investment decision is made by a plan fiduciary,

as defined in Section 3(21) of ERISA, which is either a bank, savings and loan

association, insurance Fund, registered investment advisor, or if the employee benefit

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plan has total assets in excess of $5 million, or if it is a self-directed plan, with

investment decisions made solely by persons that are accredited investors;

2. Any private business development Fund as defined in Section 202(a)(22) of the

Investment Advisers Act of 1940;

3. Any organization described in Section 501(c)(3) of the Internal Revenue Code,

corporation, Massachusetts or similar business trust, or partnership not formed for the

specific purpose of acquiring interests offered, with total assets in excess of $5 million;

4. Any trust with total assets in excess of $5 million, not formed for the specific purpose of

acquiring the Units offered, whose purchases directed by a sophisticated person as

described in Rule 506(b)(2)(ii) of regulation D; or

5. Any entity in which all of the equity owners are accredited investors.

The Fund also may offer and sell Units to a limited number of potential Investors who, although

they are not accredited investors, are sophisticated investors who, either alone or with a

purchaser representative, have sufficient knowledge and experience in financial and business

matters to make them capable of evaluating the merits and risks of an investment in the Fund.

The suitability standards discussed above represent minimum suitability standards for potential

Investors. The satisfaction of such standards by potential Investors does not necessarily mean

that the Units are a suitable investment for such potential Investors. Potential Investors are

encouraged to consult their financial, legal, and tax advisors to determine whether an investment

in the Units is appropriate. The Fund may reject subscriptions, in whole or in part, in its absolute

discretion.

XI. HOW TO SUBSCRIBE; ADDITIONAL INFORMATION

A. How to Subscribe

Potential Investors who wish to purchase Units in the Offering must deliver to the Fund (i) an

executed copy of the Signature Page to the Operating Agreement attached hereto as Exhibit “A”;

(ii) an executed copy of the Subscription Agreement attached hereto as Exhibit “B”, (iii) an

executed copy of the Investor Questionnaire also attached hereto as Exhibit “B”, and (iv) a check

payable to “Verde Mountain Fund, LLC” for the total purchase price of the Units being

purchased by the Investor. Funds also may be wired to the account of the Fund pursuant to wire

transfer instructions that potential Investors can obtain from the Manager. Delivery of the

documents and payment (unless sent via wire transfer) required should be made to the following

address:

Verde Mountain Fund, LLC

c/o Avalon Management Group, Inc.


P.O. Box 30,000


The Manager will, in its sole discretion, determine whether to accept or reject subscriptions

received from potential Investors. Subscriptions will be not be effective unless and until accepted

by the Fund. If a potential Investor's subscription for Units is not accepted, funds received from

such Investor will be returned to the Investor promptly upon such determination.

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If the Fund does not receive the Minimum Offering amount of $125,000 (ten (10) Units) in this

Offering by April 30, 2016, then this Offering will be terminated without liability to the Fund

and all subscription funds received by the Fund will be returned promptly to the respective

potential Investors.

The Fund reserves the right, in its sole discretion and for any reason whatsoever, to modify,

amend, and/or withdraw all or a portion of the Offering and/or accept or reject, in whole or in

part, any or all of the offers to invest in the Units without obligation, or to allot any potential

Investor less than the amount of Units such potential Investor wishes to purchase. Additionally,

the Fund reserves the right to waive the minimum subscription amount of 2 Units ($25,000) on a

case-by-case basis. The Fund also reserves the right to terminate, at anytime, solicitations or

indications of interest in the Fund. If the Fund does not accept all or a portion of a subscription, it

will return any collected portion of the unaccepted portion of the subscription funds to the

prospective Investor promptly, without interest.

B. Additional Information

The information contained in this Memorandum regarding the contents of any agreement or

document described herein are not necessarily complete, and all information presented herein is

qualified in its entirety by reference to such agreements or documents. Copies of all agreements

or documents referred to or described herein applicable to the Fund that are not included as

Exhibits to this Memorandum are available from the Manager at:

Thomas W. Garlock, President

Avalon Management Group, Inc.


P.O. Box 30,000


Tel: 800-914-2689

[email protected]

The Manager is available to all potential Investors and/or their in order to answer all reasonable

inquiries from potential Investors and/or their advisers relating to this Offering and will provide

potential Investors the opportunity to obtain any additional information (to the extent the

Manager possesses such information or can acquire it without unreasonable effort or expense)

necessary to verify the accuracy of the information set forth in this Memorandum. Potential

Investors may be required to sign non-disclosure agreements to protect confidential information

prior to receiving information.

Potential Investors should not construe any statement made in this Memorandum to be made by

anyone other than the Fund. Management has not engaged the services of any individual, entity,

law firm, agent or other party to verify the accuracy or completeness of the statements contained

herein, nor has any such third-party approved or disapproved of the information contained in this

Memorandum. No person is authorized to give any information with respect to the Fund and its

operations other than that contained in this Memorandum or documents or other information

furnished by the Fund or the Manager.

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Exhibits:

Exhibit A: Subscription Agreement and Investor Questionnaire

Exhibit B: Operating Agreement

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