Presenters: • Chuck Miller, CEO, NgenX Energy • Martin Harski, Cost Segregation Principal, National Tax Service Group, Withum • Cary Milstein, Early Entrepreneur, Medical Cannabis Sector

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Your Path to Profitability
with Cannabis
Presented by Withum & NgenX
February 8, 2022

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Today’s
Speakers
Chuck Miller, Chief Executive
Officer, NgenX Energy
Cary Millstein, Partner, Millstein
Consulting
Martin Harski, Cost Segregation
Principal, Withum

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CHUCK MILLER
NgenX

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About NgenX
Founded in 2018, NgenX Energy is a development focused Limited
Liability Corporation​.
NgenX focus is to broker energy related project opportunities bringing
together clients, who have unique energy needs, with financial, technical,
design, and construction resources to facilitate project completion​.
In 2021 NgenX formed a strategic alliance with KMB Design Group of Wall
NJ to bring critical engineering experience to our portfolio. KMB is
licensed to stamp in all 50 States plus the Caribbean, and they bring a
wealth of experience to the energy side of the equation including design
of renewable solutions, battery storage and microgrids.​
In 2022 NgenX launched our controlled environments grow solution
(CEAPOD) teaming with grow technology providers, engine and thermal
conversion manufacturers and financier to deliver a turnkey quick start
solution for rapid deployment of revenue generating assets for new and
existing grow facilities.
NgenX supports our clients through
consultative technical development.
Working for end users NgenX
sources turn key solutions inclusive of
project finance or third
party ownership and
transitions project from client to
financial owners.

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With a successful history of designing and deploying energy
solutions for large scale grow facilities, the NGENX team has
designed, constructed, optimized, and financed some of the
largest grow facilities in the US for single license holders as well as
Large MSO’s​.
Unequivocally, the same issue of time to market was raised by all
constituents​.
The second major issue was product quality followed closely by
cost of goods sold​.
To uniquely address this set of criteria, NGENX Launched CEAPOD
to​:
• Deliver fast start solutions custom designed for power, cooling
and resiliency requirements with optional CO2 capture ​
• Provide a rapidly deployable modular scalable approach​
• Provide a 3rd party ownership structure enabling clients to
accelerate your expansion while preserving your own capital.

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As an emerging entity either as an MSO in a new state or a new licensee
on their first grow, what are the keys to success (as an observer)
1. Have a solid plan with a vision of the future
• (Cheap and dirty now usually means slow and expensive do over’s
later)
2. As markets emerge being quick to market gets market share
• (Having quality product at a fair price keeps market share)
3. Understand how your business plan intersects with your
technology plan
• (Build to flip or build to last)
4. Understand your market and how your cultivation strategy plays to it
1. If your target market is predominantly extract products your grow
investment should consider the path versus an exclusive high-
quality flower approach
2. Technologies and costs vary based on cultivation strategy
Under the NgenX approach Grow Facilities improve product quality
through tighter control of environmental conditions while yielding
the lowest cost per gram of product.
Key Takeaways of the NGENX approach:​
1. Preserve owner capital​
2. Reduce cost of operations​
3. Leverage 3P ownership of lighting,
power, and HVAC Infrastructure

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CARY MILLSTEIN
Millstein Consulting

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Understanding where time is spent
As it relates to production, too much time is wasted in guessing how to design a facility
• Find people who understand your business plan and tie your production strategies to
that plan.
• Don’t just hire contractors and expect them to know what you need
“If all you have is a hammer, everything looks like a nail”
• Look at the market holistically including all the players competing for product and
understand where you fit and who you are targeting
“It is easier to produce lower quality product in a higher quality facility than the
other way around. There are severe limitations in capabilities based on technology
selection”
• Obviously manage your cash flow – Remember OPM
“NgenX and KMB can get you started fast and on the right path with solutions that will
provide flexibility in your strategy regardless of your approach. Our goal is to help you make
money faster and keep it longer”​
Accelerating Deliverables

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Cultivation – Site Development
• License Caps / Limitations
• Grow Method
• Facility Layout
• Utility Demand Analysis
• Cost Review
• Fundraising
• Construction Management
• Operations Start-up

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Begin with the
end in mind…
• Proforma
• Financing
• Sharks
• Speed to Market
• EBITA
Millstein Consulting – All Rights Reserved

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Long and
winding
road….
• Mental Attitude
• Physical Health
• Experienced Advisors
• Cash Needs
• Timing Of Purchases
• Entrepreneurs Dream
• Plan For An Exit
Millstein Consulting – All Rights Reserved

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MARTIN HARSKI
Withum

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§280E, Cannabis, & Cost Segregation … Don’t Let Your
Profits Go Up In Smoke!
According to IRC §280E:
“No deduction or credit shall be allowed for any amount paid or incurred during the taxable
year in carrying on any trade or business if such trade of business (or activities which
comprise such trade or business) consists of trafficking in controlled substances (within the
meaning of schedule I and II of the Controlled Substances Act) which prohibited by Federal
law or the law of any State in which such trade or business is conducted.”
• This by and large means, that cannabis business may not deduct necessary costs (other
than cost of goods sold) in computing gross income for Federal tax purposes… not to
worry, this is where understanding what cost of goods sold are and how they relate to
your business and cost segregation comes into play!

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Understanding Cost of Goods Sold
• Californians Helping to Alleviate Medical Problems, Inc., v. Commissioner,
128 T.C. 173 (2007), the government acknowledged that § 280E does not
prohibit a taxpayer from claiming COGS.
• COGS are at the heart of all cannabis related business as it is one of the key
factors in helping to reduce your taxable income.
• Here are just a few examples of items that are directly related to COGS:
• Building and Internal structures related to the growing and cultivation process,
• Electrical, Plumbing & HAVC components related to the growing and cultivation
process, and
• Grow lights and other-machinery & equipment related to the growing and
cultivation process.

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What is Cost Segregation?
• Cost segregation is a strategic tax savings tool
that increases your cash flow by accelerating
your depreciation deductions and thereby,
deferring your federal and state income taxes.
• Cost segregation is a strategic tax savings tool
that increases your cash flow by accelerating
your depreciation deductions and thereby,
deferring your federal and state income taxes.

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Benefits of Cost Segregation
• The primary goal of cost segregation is to identify, segregate, and reclassify the
various project-related costs currently classified as non-residential real property
(39-yrs.) to a shorter tax life (i.e., 5 yrs., 7 yrs., 15 yrs. etc.).
• Recent tax law changes have given cost segregation a boost in the form of
increasing bonus depreciation from 50% to 100% on certain qualifying short lived
assets (5 yrs., 7 yrs., 15 yrs.).
• Let’s say you construct a $40m cannabis facility, typically, through a cost
segregation study, we can identify, segregate, and reclassify anywhere from 20% to
50% of the total project costs into the shorter depreciable tax lives. Which means,
that $8m to $20m of your project costs would be eligible for the 100% bonus
depreciation… and of course, help to offset your income taxes.

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When Should You Begin?
• The ideal time to begin a Cost Segregation study is when plans are drafted to
construct a new building, expand, or remodel, or when you plan to purchase
a building. Ideally, the study should be completed during the year the
building is placed in service. However, if you didn’t… DON’T WORRY!
• Recent IRS procedures make it easier for you to change your accounting
method without amending prior tax returns.

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Conclusion
Remember, “A dollar earned today is better that a dollar earned tomorrow.”
Ben Franklin – paraphrased
Or as Wimpy said “ I’ll gladly pay you Tuesday for a hamburger today.”

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Thank you!
Questions?
Chuck Miller
cjmiller@ngenxenergy.com
Cary Millstein
cary@millsteinconsulting.com
Martin Harski
mharski@withum.com