Indoor (Weed) Harvest Corp.

Below are sections of an SEC filing for Indo' Harvest y'all. An S motherfuckin' 1 from an indoor farming company in Texas! Damn, it just hit me how crazy this shit is, that these words get filed with the SEC, a federal agency of the U.S. Government. This is really happening. They issued some publicly traded stock too. Text directly from the SEC filing is in italics. 

(Update: I came across a webcast interview with the CEO snooping around online. What a country!)

Check this out, these Texans want to help you grow a lot of really high quality Ganja. They have a pilot going with Tweed in Canada too. 

Indoor Harvest Corp, through its brand name Indoor Harvest®, is a full service, state of the art design-build, engineering, procurement and construction firm for the indoor and vertical farming industry. The company provides production platforms, mechanical systems and complete custom designed build outs for both Controlled Environment Agriculture ("CEA") and Building Integrated Agriculture ("BIA"), tailored to the specific needs of virtually any cultivar.

CEA is the process of manipulating any agricultural technology to allow the farmer an ability to manipulate a crop's environment to desired conditions. Technologies include greenhouse production, hydroponics, aquaculture, aquaponics and indoor farmings. Controlled variables may include temperature, lighting, humidity, pH and nutrient analysis.

BIA is the process of locating CEA methods on, or in, mixed use buildings to provide synergy with the buildings infrastructure and the agriculture process. Earliest examples of BIA include the use of hydroponics, indoor farmings and aquaponics, where waste heat is captured through the buildings existing heating, ventilation and air conditioning system as well as the combined use of solar, rainwater collection and evaporative systems.

The filing continues with a lot of legalese stuff, going concern assumption this, shareholder dilution risk that, then at the end of the risk section is one the strangest corporate disclosures I've had the pleasure of reading:

Our indoor farming equipment may in the future be purchased by customers who intend to use our equipment to grow cannabis. If the U.S. Federal government changes its current non-enforcement practices and starts enforcing federal law prohibiting the growth or sale of cannabis regardless of the legality of these activities under state laws, we could lose potential future customers for our indoor farming equipment. Strict enforcement of certain state laws may also cause us to lose potential future customers as well.

Although under the federal Controlled Substances Act, growth, sale and possession of cannabis are illegal, the federal government has not started any broad scale enforcement of this law with respect to cannabis.  If the U.S. Federal government changes its current non-enforcement practices and starts enforcing federal law prohibiting the growth or sale of cannabis, regardless of the legality of these activities under state laws, we could lose potential future customers for our indoor farming equipment. A permit is necessary to grow cannabis in most states in which the production and sale of cannabis has been legalized.  If states aggressively pursue enforcement of this provision of state laws in states where a permit is required, we could lose potential future customers intending to use our equipment to grow cannabis as they could fear federal prosecution for growing cannabis with our equipment, reducing our future potential revenue.  However, it is difficult, if not impossible, to forecast the degree of enforcement of these laws now or in the future or the impact these laws would have on our future sales; however strict enforcement of these laws would limit our potential customer base and thus hinder our ability to generate revenues from sales to this potential customer base.

As the possession and use of cannabis is illegal under the Federal Controlled Substances Act, we may be deemed to be aiding and abetting illegal activities through the equipment we intend to sell if such equipment is used by customers who intend to purchase and use our indoor farming equipment to grow cannabis. As a result, we may be subject to enforcement actions by law enforcement authorities, which would materially and adversely affect our business. Under Federal law, and more specifically the Federal Controlled Substances Act, the possession, use, cultivation, and transfer of cannabis is illegal. Our equipment could be used by persons or entities engaged in the business of possession, use, cultivation, and/or transfer of cannabis. As a result, law enforcement authorities, in their attempt to regulate the illegal use of cannabis, could seek to bring an action or actions against us, including, but not limited, to a claim of aiding and abetting another's criminal activities. The Federal aiding and abetting statute provides that anyone who "commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal." 18 U.S.C. §2(a).  If such an action were brought and we were unsuccessful in a defense, we may be forced to cease operations and our investors could lose their entire investment. Regardless of the outcome, however, the federal government merely bringing such an action would have a material negative effect on our business and operations.

Basically they're saying, first, we might lose some customers if you, the federal government, one of the readers of this filing, start to enforce the law again.  Some of our customers need to keep growing weed so they can get that money and give us some by buying our stuff. Second, if the law starts to get enforced again not only are our customers and business at risk, but we may become a criminal target for breaking the law. 

I get that if I buy your stock I could lose my money, but what about my freedom?  Could they come after me for being one who "commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission"?  I'm not a lawyer, but I'd want to talk to one before I bought in.  

Oh well, ha ha, I've already worked in the industry and am proud of it.  It would appear the tide of state legalization is unstoppable at this point, but that could change fast with a future regime. Remember when the Feds never used to enforce money laundering and tax evasion using Swiss banks?   Now it's game on and Swiss banking is a whole new animal. At least Indo' is disclosing the legal issues as a risk, and what a disclosure it is! 

I bet Firstfire Global Opportunities Fund, LLC, Rockwell Capital Partners Inc, and Kodiak Capital Group, LLC have attorneys, and they're providing capital to Indo' to sell equipment, services, skills and knowledge to those who grow weed.  Maybe this industry is worth a further look for gamblers, rescheduling of cannabis could happen any day really.  

Speaking of customers, here's a description of some of them, who hope to grow a lot of herb since the state in which they're located says it's totally cool:

On October 15, 2015, we entered into a design-build, EPCM, cost plus agreement, to engineer the cultivation and mechanical systems for a 38,000 square foot, building integrated agricultural cannabis production facility in Maryland. On October 21, 2015, an earnest money deposit of $10,000 was paid to begin initial assessments. The project is currently on hold due to delays in the Maryland cannabis licensing process. The client was given an initial estimate assessment of $3.4 million to complete the project prior to signing the design-build, EPCM, cost plus agreement. 

On March 8, 2016, we entered into a design-build, EPCM contract for a 7,000 sq. ft. cannabis production facility in Alaska. The contract includes an EPCM agreement for HVAC, LED lighting and facility controls. The contract also includes an equipment schedule to provide 59 HPA units, 3 process skids with an estimated (not to exceed) contract price of $446,220, which included a $35,000 deposit to begin design work. Upon completion of the first phase of design work, additional pricing will be provided to the client for HVAC, LED lighting and facility controls, which are not currently covered in the contract price.

Another customer is mentioned in detail, a publicly traded cannabis company in Canada.  This company is regulated under the country's federal MMJ program, which eliminates a lot of legal and financial risks that U.S. cannabis firms still face, such as access to banking and insurance services.

 Canopy Growth Corporation (formerly Tweed Marijuana Inc.), a Canadian company. Canopy Growth Corporation ("Canopy Growth") is a TSX Venture Exchange listed company. Its wholly owned subsidiaries Tweed Inc., Tweed Farms Inc. (formerly Prime1 Construction Services Corp.) and Bedrocan Canada are licensed producers of medical cannabis in Canada. The principal activities of Canopy Growth are the production and sale of cannabis through its wholly owned subsidiaries as regulated by the Marihuana for Medical Purposes Regulations.

Set forth below is a brief description of the terms and conditions of the Agreement that are material to Indoor Harvest:

The Pilot Project will test the production of Cannabis using an aeroponics system designed by Indoor Harvest. The Pilot Project will make a record of the growth rate, phytocannabinoid production, water usage, fertilizer usage and labor using the aeroponics system(s) provided by Indoor Harvest. The recorded data from the Pilot Project will be compared to Tweed's existing production methods. At the conclusion of the Pilot Project, upon review of the data, Canopy Growth and Indoor Harvest shall jointly secure intellectual property rights for the resulting aeroponics system(s) (at each Party's discretion as to whether they wish to participate in intellectual property filings) and Indoor Harvest will be provided manufacturing rights.

The Pilot Project is broken into two separate phases, as follows:

During Phase One, tests will be conducted using equipment initially provided by Indoor Harvest. The purpose of Phase One is to test the initial design and evaluate  the root mass development of various strains of Cannabis chosen by Canopy Growth.

Upon completion of Phase One, Canopy Growth, based on the results of Phase One, will have the option to request Design Build services to be provided by Indoor Harvest.  Indoor Harvest will provide these services free of charge. Indoor Harvest will provide  projected costs associated with the manufacture and installation of the new aeroponics  designs. TweedCanopy Growth will then have the option to purchase equipment from  Indoor Harvest based on these projected costs. There is no obligation to purchase equipment under the Agreement.

Indoor Harvest will be responsible for providing all the equipment related to the aeroponics system being tested, to include a temporary partitioned testing lab structure to be used within Canopy Growth's existing facilities and the cost associated with delivery and installation of the aeroponics system and testing lab, including design changes and subsequent changes based on feedback from Phase One testing.

Canopy Growth will be responsible for providing adequate space in a Controlled Environment for testing purposes to include water service, local area drain and electrical service. Canopy Growth will also provide the personnel and labor to operate and maintain the equipment provided by Indoor Harvest. Canopy Growth will make a reasonable effort to provide Indoor Harvest with weekly updates to include photographs of the plants being grown and their root development as well as all associated data required under the Agreement.

The Pilot Project shall be conducted for a period (the "Pilot Period") commencing on the date of this Agreement (the "Commencement Date") and ending (the "Termination Date") upon the earlier of (a) the parties' mutual determination that the Pilot Criteria has been satisfied or (b) one year after the Commencement Date.  This agreement can be extended if both parties mutually agree in writing.

Upon completion of the Pilot Project, Indoor Harvest and Canopy Growth will jointly apply for patents ("New IP") on the technology developed under the Pilot Agreement. Canopy Growth will be provided exclusive rights to cultivate cannabis using the New IP in Canada and other jurisdictions outside the United States, at a royalty-free rate for the duration of the patent (including any extension of the patent). Indoor Harvest will have exclusive royalty-free rights to cultivate cannabis using the New IP in the United States for the duration of the patent (including any extension of the patent) and will be provided rights to use the New IP in all jurisdictions, royalty-free, for the cultivation of all other species of cultivars, to specifically exclude cultivation of cannabis using the New IP. Indoor Harvest will only have rights to cultivate cannabis in the United States using the New IP. All of these rights are intended to be for commercial production of cultivars.

Indoor Harvest will be provided exclusive manufacturing rights for a period of 10 years on the New IP developed under the agreement. All equipment manufactured by Indoor Harvest will be provided to Canopy Growth by way of a "cost plus agreement" not to exceed 15% allowable for profit.

Both parties are responsible for the costs associated with meeting their obligations outlined in this Agreement. Under no circumstance, do Canopy Growth's costs exceed those associated with the cost of plants, labor and general costs of production including water and electricity. However, any costs related to third party laboratory analysis and testing of phytocannabinoids will be shared equally by both parties.

From February 19 through March 7, 2015, the Company completed installation of three mobile research labs at Canopy Growth's, subsidiary Tweed located in Smith Falls Canada per a Cannabis Production Pilot Agreement between the two Companies.

The initial Cannabis Production Pilot took place between March and August 2015. A sativa dominant strain, Ghost Train Haze, was selected and 8 plants were grown in a 4' X 8' X 2' system using a "Screen of Green" cultivation method, in which plants are cropped and trained to produce a higher yield from a single plant. The Company's patent pending aeroponic system showed a significant increase in growth rate during the vegetative stage, as compared to more traditional production methods such as drip irrigation using coco.

Fertilizer usage was reduced by as much as 68% over Canopy Growth's existing production with the aeroponic system averaging 8 gallons a day under high pressure sodium and 9 gallons a day under LED, operating drain to waste. As tuning of the system progressed, average water use was reduced to approximately 5 gallons per day drain to waste. The Company believes that through additional tuning, more water savings for drain to waste and under recirculated operation can be achieved, and water use could be reduced by as much as 98% overall. Under 2,000 watts of high-pressure sodium lighting, the aeroponic system produced 3.1 pounds of dried flowers and under 1,040 watts of LED lighting produced 2.8 pounds of dried flowers in its initial test. The Company believes that with additional tuning, yield can be increased.

On September 28, 2015, the Company and Canopy Growth mutually agreed to extend collaborative research and development for an additional two years.

On December 10, 2015, we began a second pilot under our Cannabis Production Pilot Agreement with Canopy Growth. The results from this second pilot are expected on or before April 30, 2016.

Reading on we learn:

Currently, our potential client base is nearly evenly split, with 44% in Cannabis and 56% in edible produce production. We believe that cannabis has the potential to be a large market for our equipment. We are currently developing and offering products which could be specifically used in the production of cannabis under our agreement with Canopy Growth in Canada, where cannabis is legal throughout the country. We will only directly enter that market outside the U.S. where cannabis is legal, such as in Canada, and in the U.S. only in jurisdictions where cannabis is legal and only then if we do not believe there is any material likelihood that we could be found in violation of federal law in the U. S. through the sale of our products.

We intend to market our products to customers desiring to grow all varieties of agricultural products. We do not intend to exclude the growers of any agricultural products, including cannabis, from our marketing efforts. As of the date of this report, we are developing and offering fixtures specifically for cannabis production in Canada under our agreement with Canopy Growth. All of our current fixtures can be adapted for use by cannabis growers. In the future we may develop additional fixtures, or be contracted to design additional systems, specifically for cannabis production. Marketing our products in the U.S. in state and local jurisdictions where marijuana is legal is still uncertain due to the uncertain legal status of the growth, sale and use of cannabis due to conflicting laws under which what is illegal federally is to varying extents legal under certain state laws to the contrary [and even greater uncertainty as to what would constitute ancillary illegal activities such as aiding or abetting if any such direct actions are deemed illegal; and even if direct illegality laws were enforced, whether any ancillary related laws such as aiding and abetting would, if ever, be enforced]. We believe that if the cannabis industry were to become fully legal under both U.S. federal and state law, then this industry may well be where the most advances in technology related to our products could come from. We are also working on developing cannabis-specific products in Canada under our agreement with Canopy Growth.  Thus, it is not unreasonable, but is not certain, to assume that the cannabis industry will become the biggest market for the type of equipment that we manufacture."

"As the possession and use of cannabis is illegal under the Federal Controlled Substances Act, we could be deemed to be aiding and abetting illegal activities through the equipment we intend to sell in the U.S. if such equipment is used by customers who intend to purchase and use our aeroponic and vertical farm framing systems to grow cannabis. Under Federal law, and more specifically the Federal Controlled Substances Act, the possession, use, cultivation, and transfer of cannabis is illegal. Our equipment could be used by persons or entities engaged in the business of possession, use, cultivation, and/or transfer of cannabis. As a result, law enforcement authorities, in their attempt to regulate the illegal use of cannabis, could seek to bring an action or actions against us, including, but not limited, to a claim of aiding and abetting another's criminal activities. The Federal aiding and abetting statute provides that anyone who "commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal." 18 U.S.C. §2(a). However, we do not believe that the Company's current and intended business as described in this report violates federal law and believe we would prevail if any such action were brought against us.

I'll finish this post by leaving you with some management details. These are the people making it happen and who the investors in this firm are trusting their money to:

The following sets forth our officers and directors as of December 31, 2015.  The board of directors elects our executive officers annually. Our directors shall be elected for the term of one year, and until their successors are elected and qualified, or until their earlier resignation or removal. Our officers also shall be elected for the term of one year, and until a successor is elected and qualified, or until an earlier resignation or removal.  Our directors and executive officers are as follows:

Chad Sykes, CEO, Secretary and Director

Mr. Chad Sykes is the sole founder and CEO of Indoor Harvest, Corp. He designed and developed the Company's modular aeroponic system and has been responsible for all R&D since inception. Prior to founding Indoor Harvest, Mr. Sykes operated a boutique investor and public relations consulting firm. For the past five years, Mr. Sykes has helped generate market awareness and investor relation programs for six publicly traded small and microcap companies in the manufacturing, healthcare, oil & gas and agricultural industries.

Prior to 2007, Mr. Sykes served in the U.S. Army. During his 5-year enlistment he served two combat tours to Iraq during OIF1 and OIF3. Serving as a M1A1 Abrahams Tank Crewman in OIF1 and then later serving at the Brigade level for S4 logistics operations during OIF3.

Before joining the U.S. Army, Mr. Sykes worked in the mechanical trades construction industry for 10 years. Mr. Sykes was a member of Plumbers Local Union 68, he previously managed projects for Gowan, Inc., Har-Con Mechanical, Letsos Company and MLN Company. He held positions as a medical gas endorsed journeyman plumber, plumbing superintendent and project manager. His primary industry focus was medical gas systems, process piping and control systems. As a member of the board, Mr. Sykes contributes his knowledge of the Company and a deep understanding of all aspects of our business, products and markets, as well substantial experience developing corporate strategy, assessing emerging industry trends, and business operations.

John Choo, President, Director

On March 13, 2015, Mr. John Choo was elected as a Director and on August 14, 2015 was elected as President of the Corporation. From April to December 2014, Mr. Choo held positions at Tweed Marijuana, Inc., a medical cannabis producer and distributor in Canada, as Architect of Strategic Alliances and Specialized Business Development. From May 2012 to April 2014, Mr. Choo operated a consultancy as a Chief Strategist providing clients with professional strategy development for pre and post IPO technology companies.

From April 2008 through May 2012, Mr. Choo was a partner and Director of Business Development for Tekinsion, Inc., a technology company providing products and user experience design for the mobile industry. From November 2004 through April 2008, Mr. Choo held the position as Sr. Business Analyst for Sitebrand, Inc., an E-Commerce marketing software Company.  In 1997, Mr. Choo received a degree in Law and Administration from Algonquin College in Ottawa Ontario.

Mr. Choo has spent over a decade in the technology space advising pre and post IPO organizations on strategy architecture and execution. Leading early stage groups into international technology IP licensing, product and services architecture, acquisitions and valuation building for investment activities.  As a member of the board, Mr. John Choo contributes the benefits of his executive leadership and management experience in developing corporate strategy, assessing emerging industry trends, and business operations.  His contributions and deep understanding of all aspects of our business, products and markets will provide substantial experience to fuel our corporate growth.

John Zimmerman, Vice President, Director

On April 15, 2015, John Zimmerman was elected as a Director of the Corporation. On April 8, 2016, Mr. Zimmerman was elected as Vice President of Business Development. Mr. Zimmerman was previously the Director of Sales and Marketing at PUE 1.0. Prior to joining PUE 1.0, Mr. Zimmerman held positions as a Project Manager and Business Development Manager for The Brandt Companies, from February 2011 until July 2014. From January 2004 through February 2011, Mr. Zimmerman held the position of Project Manager for TDIndustries.  In these positions, he spent much of his career designing, selling, and building mechanical systems for large-scale commercial buildings.

He obtained a Bachelor's degree in Mechanical Engineering from the University of Texas at Austin.  John also obtained a Master's degree in Building Construction Management from Purdue University, and is a registered Professional Engineer in the State of Texas.

As Vice President and member of the Board, John contributes his expertise in mechanical system design and construction in developing mechanical systems to support and optimize the indoor farms of the future.  His mission it to have Indoor Harvest be the leader in research and development of mechanical systems for use in indoor farming, which we believe currently is nearly non-existent.

William Jamieson, Director

On March 1, 2015, Mr. William Jamieson was elected as a Director of the Corporation.  Since January 2010, he has been owner of 420 Patients LLC, a Consulting Company. He holds a Bachelor's Degree: BA- Psych from Arizona State University 1994 and a Master's Degree: MA- Clinical Psych from Arizona School of Professional Psychology 2000.

As a member of the board, Mr. Jamieson contributes significant industry-specific experience and expertise. He obtained his Masters degree in Clinical Psychology in 2000 and has focused much of his career on pain management and cannabis therapy. Having a lifetime of cultivation experience and over 20 years' experience in the medical marijuana industry he brings a wealth of executive leadership and management experience. Mr. Jamieson contributes this and a deep understanding of all aspects of the this business, products and markets, as well substantial experience developing corporate strategy, assessing emerging industry trends, and business operations.

Here is the full  S-1 filing for any other nerds out there.

Disclosure: I don't own any shares in Indoor Harvest.