Fusion Financial Holding, Inc.

RISK FACTORS

Risk Management

We estimate that we will obtain licensing for approximately 1 to 5 financial institutions licensed to provide financial services in one or more U.S. States with the net proceeds of our anticipated SEC Registered offering(s) and will attempt to diversify the market size and location of our portfolio of licensed entities in order to manage our portfolio-level risk. Over the long term, we intend that no single financial entity will exceed 25% of our total. However, until a sufficient number of financial licenses are acquired, we anticipate that we will have single operating entities in excess these long-term targets.

We expect the success of our financial services business will be materially dependent on the financial stability of these market operators. We expect to evaluate the credit quality of our operators and any guarantors on an ongoing basis by reviewing, where available, the publicly filed financial reports, press releases and other publicly available industry information regarding our account holders and any guarantors. In addition, we will monitor the payment history data for all of our accounts and, in some instances, we will be required to monitor our account holders by periodically conducting site visits and meeting with the operators to discuss, inspect and verify their operations. In many instances, we will generally be entitled to financial results or other credit-related data from our operators. See the section entitled “Risk Factors— Risks Related to Our Business.”

Summary Risk Factors

An investment in shares of our Class A common stock involves various risks. You should carefully consider the risks discussed below and under the section entitled “Risk Factors” of this prospectus before purchasing our Class A common stock. If any of the factors enumerated below or in the section entitled “Risk Factors” occurs, our business, financial condition, liquidity, results of operations and prospects could be materially and adversely affected. In that case, the trading price of our Class A common stock could decline, and you may lose some or all of your investment. Some of the more significant risks relating to the offering and an investment in our shares of Class A common stock include:

We were recently formed and have no operating history and may not be able to operate our business successfully or generate sufficient cash flow to make or sustain distributions to our stockholders.

We do not currently own any U.S. bank licenses. We have identified one (1) priority license to which we intend to apply and have not entered into binding contracts or commitments to make any application for any other jurisdiction or any other specific licenses or committed a substantial portion of the net proceeds of any of our intended SEC Registered offering(s) to any other specific business offering in medical and/or adult recreational use cannabis facilities. Investors will not be able to evaluate the economic merits of the financial services we offer with a substantial portion of the net proceeds of this offering before purchasing our Class A common stock.

We may be unable to invest the proceeds of our intended SEC Registered offering(s) on acceptable terms, or at all.

Although the federal government currently has a relaxed enforcement position as it relates to states that have legalized medical and/or recreational adult-use cannabis, it remains illegal under federal law, and therefore, strict enforcement of federal laws regarding cannabis would likely result in our inability and the inability of our operators to execute our respective business plans.

New laws that are adverse to the business of our operators may be enacted, and current favorable state laws relating to cultivation and production of cannabis may be modified or eliminated in the future.

We are depending on our senior management team to select investments and conduct our operations. The loss of their services could have an adverse impact on our business.

Our growth depends on external sources of capital, which may not be available on favorable terms or at all.

Our financial services may be adversely affected by current economic conditions and uncertainty.

Our account holder portfolio will be concentrated in a limited number of accounts with a limited number of operators and such lack of diversification will increase the potential that a single underperforming business could have a material impact on our operations.

Our financial service offerings will consist of primarily licensed operators involved in the cultivation and production of recreational or medical-use cannabis, which may be difficult to keep compliant, which would adversely affect returns to stockholders.

We may be unable to acquire or experience significant delays in acquiring certain accounts that otherwise would be a suitable account holder for our services.

Maintenance of our exemption from registration under the Investment Company Act of 1940, as amended, or the Investment Company Act impose significant limits on our operations.

Our board of directors may change our operating objectives and strategies may be changed without stockholder consent.

No public market currently exists and no active market may ever develop for shares of our Class A common stock.

We may be unable to pay or maintain cash dividends or increase dividends over time.

We may borrow money, sell assets or use proceeds of this offering to make distributions to our stockholders, if we are unable to make distributions with respect to our cash flows from operations.

Our Operating Structure

We were formed as a Canada corporation on February 7, 2018. We intend to conduct business as an external management advisor to wholly-owned operating subsidiaries. We are the sole owner of our Operating Subsidiaries and, upon completion of this offering, we will own, directly or through a subsidiary, 100% of the shareholder certificates in our wholly-owned subsidiary Fusion Banking Services Group, LLC doing-business-as Fusion Financial. Our board of directors will oversee our business and affairs.

Fusion Banking Services Group, LLC was formed as a Bahamas limited liability corporation on October 1, 2017 and commenced operations in January 2018. Upon the completion of the anticipated SEC Registered offering we will commence application for a state-chartered bank in Alaska. Following the completion of the intended SEC offering, all of our assets will be held by, and our operations will be conducted through, our wholly-owned subsidiaries. We will contribute an agreed-upon portion of the net proceeds from the intended SEC offering to our wholly-owned subsidiaries in exchange for profits generated from operations. Our interest in our subsidiaries will generally entitle us to share in cash distributions from, and in the profits and losses of, our subsidiaries in proportion to our percentage ownership, which is currently 100%. As the sole shareholder of our subsidiaries, we generally will have the exclusive power under the ownership agreement to manage and conduct our subsidiaries’ business and affairs, subject to certain limited approval and voting rights of the Board, which are described in the section entitled “Our Operating Subsidiaries and the Operating Subsidiaries Agreement.”

Sovereign Friendly Society (SFS), a Bahamian Friendly Society that is controlled by Kendell Lang, our Chairman is funding certain aspects of our organization, offering and transaction costs in connection with this offering. SFS has agreed to license under a Joint Venture Agreement all licenses, contacts, agreements, strategy and trade secrets to FFH and Kendell Lang will enter into an employment agreement as Chairman of FFH that will contain an industry standard covenant not to compete with FFH. Kendell Lang will seek reimbursement from FFH for all advanced expenses related to this offering upon completion of this offering.

The chart below reflects our corporate structure after giving effect to this offering and the issuance of shares of our Class A common stock as described in this prospectus.

Corporate Information

Our principal executive offices are located at 422 Richards St, Suite 170, Vancouver, British Columbia V6B 2Z4. Our telephone number is (866) 347-3321. Our website is www.FusionFinancial.us. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this prospectus or any other report or document we file with or furnish to the Ontario Securities Commission.

RISK FACTORS

An investment in shares of our Class A common stock involves a high degree of risk. Before making an investment decision, you should carefully consider the following risk factors, together with the other information contained in this prospectus. If any of the risks discussed in this prospectus were to occur, our business, prospects, financial condition, liquidity, and results of operations and our ability to make distributions to our stockholders and achieve our goals could be materially and adversely affected, the value of our Class A common stock could decline significantly and you could lose all or a part of your investment. Some statements in this prospectus, including statements in the following risk factors constitute forward-looking statements. Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”

Risks Related to Our Business

We have not yet committed a substantial portion of the net proceeds from this offering to any specific financial service operation, other than our Initial U.S. Bank License and, therefore, you will not have the opportunity to evaluate the terms of transactions or other economic or financial data concerning our delivery of financial services before purchasing shares of our Class A common stock, which makes an investment more speculative.

We currently do not own any U.S. bank or financial institution licenses. We have entered into an agreement to apply for a license for our Initial U.S. Bank License upon the closing of this offering and have identified certain other jurisdictions where an application may be deemed appropriate, but have not yet committed a substantial portion of the net proceeds of this offering to any other specific state or foreign country license. Accordingly, you will not have the opportunity to evaluate the terms of transactions or other economic or financial data concerning our acquisition of a financial services license before purchasing shares of our Class A common stock and you have to rely entirely on the ability of our senior management team to select suitable and successful licensing opportunities. These factors increase the speculative nature of an investment in our Class A common stock.

We were recently formed and have no operating history and may not be able to operate our business successfully, find suitable licensing in jurisdictions that meet our financial services criteria, or generate sufficient revenue to make or sustain distributions to our stockholders.

We were formed on February 7, 2018 and have no operating history. We have nominal assets and will commence operations only upon completion of this offering. We intend to use the net proceeds of this offering to apply for licensing which will allow us to provide financial services to licensed cannabis operators. We expect that most of our future account holders will be independent cannabis operations about which there is generally little or no publicly available operating and financial information. As a result, we will rely on our management team to perform due diligence investigations of these potential account holders and their operations, facilities and business prospects. We may not learn all of the material information we need to know regarding these businesses through our investigations. As a result, it is possible that we could enter into account holder arrangements with businesses that ultimately are unable to bank with us, which could adversely impact our cash available for distributions.

We are subject to many of the business risks and uncertainties associated with any new business enterprise. We cannot assure you that we will be able to operate our business successfully or profitably, find suitable operating licenses or implement our operating policies as described in this prospectus. Our ability to provide attractive risk-adjusted returns to our stockholders over the long term is dependent on our ability both to generate sufficient cash flow to pay an attractive dividend and to achieve capital appreciation, and we cannot assure you we will do either. There can be no assurance that we will be able to generate sufficient revenue from operations to pay our operating expenses and make distributions to stockholders. The results of our operations and the implementation of our business plan depend on several factors, including the availability of opportunities for investment, the availability of adequate equity and debt financing, the federal and state regulatory environment relating to the recreational and medical-use cannabis industry, conditions in the financial markets and economic conditions.

We may suffer from delays in locating suitable state licenses, which could adversely affect the return on your investment.

Our ability to achieve our licensing objectives and to make distributions to our stockholders is dependent upon our senior management team’s performance in identifying potential bank licenses and financial service licenses that are to be applied for and used for recreational and medical-use cannabis operators. You will not have the opportunity to evaluate the terms of transactions or other economic or financial data concerning our delivery of financial services before purchasing shares of our Class A common stock. Currently, only a portion of the net proceeds of this offering is committed to specific license applications. Accordingly, you will not be able to evaluate the manner in which the majority of the net proceeds of this offering will be invested and the economic merits of any particular financial entity license to be acquired by us.

The current market for account holders that meet our banking objectives may be limited. We intend to conduct due diligence with respect to each account holder and suitable candidates may not be immediately available. Until appropriate account holders can be identified and acquired, we may invest the net proceeds of this offering in interest-bearing short-term investments, including money market accounts and/or funds that are consistent with our longer term objectives. These investments are expected to provide a lower net return than we will seek to achieve from investments in our target assets. Any significant delay in investing the net proceeds of this offering would have a material adverse effect on our ability to generate cash flow and make distributions to our stockholders.

Competition for the qualified account holders may impede our ability to secure new accounts or increase the cost of these acquisitions, which could adversely affect our operating results and financial condition.

We will compete for the acquisition of new account holders suitable for the client guidelines we have established. These competitors may prevent us from acquiring desirable account holders or may cause a decrease in the price we must charge for services. Our competitors may have greater resources than we do and may be willing to charge less for certain services or may be willing to accept more risk than we believe can be prudently managed. In particular, larger financial institutions may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Our competitors may also adopt transaction structures similar to ours, which would decrease our competitive advantage in offering flexible financial service terms. In addition, due to a number of factors, including but not limited to potential greater clarity of the laws and regulations governing recreational and medical-use cannabis by state and federal governments, the number of entities and the amount of funds competing for suitable account holders may increase, resulting in increased demand and decreased prices paid by these account holders. If we charge lower prices for services, our profitability may decrease, and you may experience a lower return on your investment. Increased competition for accounts may also preclude us from acquiring those accounts that would generate attractive returns to us.

Our growth will depend upon future acquisitions of account holders, and we may be unable to consummate new accounts on advantageous terms.

Our growth strategy is focused on the delivery of specialized financial services on favorable terms as opportunities arise. Our ability to deliver these services on favorable terms is subject to the following risks:

  • competition from other potential service providers may significantly decrease the fee revenue associated with delivering these services;
  • we may not successfully land new accounts to meet our expectations;
  • we may be unable to obtain the necessary equity or debt financing to consummate the ongoing delivery of our services on satisfactory terms or at all;
  • agreements for the acquisition of new accounts are typically subject to closing conditions, including satisfactory completion of due diligence investigations, and we may spend significant time and money on potential new account holders that we do not consummate.

Our new account portfolio will be concentrated in a limited number of clients, which subjects us to an increased risk of significant loss if any account declines in value or if we are unable to keep their deposits coming in.

Based on the anticipated net proceeds to be received from this offering, the expected new account size and our senior management team’s experience in the marketplace, we estimate that we will successfully achieve approximately 1 to 5 bank licenses with the net proceeds of our intended SEC Registered offering. However, currently, a substantial portion of the net proceeds of this offering is not committed to any licensing. To the extent we are able to leverage our operations with borrowed funds, we will continue and grow operations with the net proceeds of borrowings, subject to our debt policy. One consequence of a limited number of licenses or associated accounts is that the aggregate returns we realize may be substantially adversely affected by the unfavorable performance of a small number of licenses or a significant decline in the value of any single account holder. Lack of diversification will increase the potential that a single underperforming account holder could have a material adverse effect on our cash flows and the price we could realize from the sale of our stock. Because we expect that the licenses we initially acquire will be geographically concentrated in Alaska, Pennsylvania, Florida, Colorado, New York, Illinois, Maryland, California, Arizona, Washington, Nevada, Massachusetts, Michigan and Oregon, we will be subject to any adverse change in the political or regulatory climate in those states or specific counties where our account holders are located that could adversely affect our operations and our ability to grow our account base.

We may acquire a bank or financial institution, “as-is,” which increases the risk of an investment that requires us to remedy defects or costs without recourse to the prior owner.

We may acquire a bank or financial institution, “as is” with only limited representations and warranties from the seller regarding matters affecting the condition, use and ownership of the bank license. There may also be environmental conditions associated with properties we acquire of which we are unaware despite our diligence efforts. If environmental contamination exists on properties we acquire, we could become subject to liability for the contamination. As a result, if defects in the property (including any building on the property) or other matters adversely affecting the property are discovered, including but not limited to environmental matters, we may not be able to pursue a claim for any or all damage against the property seller. Such a situation could harm our business, financial condition, liquidity and results of operations.

We expect that the properties that we initially acquire will be geographically concentrated in Alaska, Pennsylvania, Florida, Colorado, New York, Illinois, Maryland, California, Arizona, Washington, Nevada, Massachusetts, Michigan and Oregon, and we will be subject to social, political and economic risks of doing business in these states and any other state in which we may own property.

We expect that the properties that we initially acquire will be geographically concentrated in Alaska, Pennsylvania, Florida, Colorado, New York, Illinois, Maryland, California, Arizona, Washington, Nevada, Massachusetts, Michigan and Oregon. Circumstances and developments related to operations in these markets that could negatively affect our business, financial condition, liquidity and results of operations include, but are not limited to, the following factors:

  • the responsibility of complying with multiple and likely conflicting state and federal laws, including with respect to recreational or medical-use cannabis, licensing, banking and insurance;
  • difficulties and costs of staffing and managing operations;
  • unexpected changes in regulatory requirements and other laws;
  • potentially adverse tax consequences;
  • the impact of regional or state specific business cycles and economic instability; and
  • access to capital may be more restricted, or unavailable on favorable terms or at all in certain locations.

Some of our account holders may be unable to make deposits, which could adversely affect our cash available to make distributions to our stockholders or otherwise impair the value of your investment.

We expect that some of our account holders will experience regulatory or general business interference and, therefore, the success of our financial services will be materially dependent on the financial stability of these operators. Some of our operators may have been recently restructured using leverage acquired in a leveraged transaction or may otherwise be subject to significant debt obligations. Operators that are subject to significant debt obligations may be unable to sustain operations if there are adverse changes in their businesses, the regulatory environment in which they operate or in general economic conditions. Operators that have experienced leveraged restructurings or acquisitions will generally have substantially greater debt and substantially lower net worth than they had prior to the leveraged transaction. In addition, the payment of rent and debt service may reduce the working capital available to leveraged entities and prevent them from devoting the resources necessary to remain competitive in their industries. In general, our operators will be more vulnerable to adverse conditions resulting from federal and state regulations affecting their businesses or industries and will have limited access to traditional forms of financing. Furthermore, we may be unable to monitor and evaluate operator credit quality on an on-going basis.

Any defaults by an operator could adversely affect our cash flows and cause us to reduce the amount of distributions to stockholders. In the event of a default by an operator, we may also experience delays in enforcing our rights and may incur substantial costs in protecting our standing.

Some of our account holders could be susceptible to bankruptcy, which would affect our ability to generate fee revenue from them and therefore negatively affect our results of operations.

In addition to the risk of operators being unable to make regular deposits, certain of our operators who may depend on debt and leverage could be especially susceptible to bankruptcy in the event that their cash flows are insufficient to satisfy their debt. Any bankruptcy of one of our operators would result in a loss of deposit fee payments to us, as well as an increase in our costs to carry the account.

Additionally, under bankruptcy law, an operator who is the subject of bankruptcy proceedings has the option of continuing (“assuming”) or giving up (“rejecting”) any unexpired lease of non-residential real property. The laws governing bankruptcy cases would impact the treatment of our general unsecured claim. Our claim would likely be capped at the amount the operator owed us for unpaid bank fees prior to the bankruptcy. In addition to the cap on our damages for breach of the deposit terms, even if our claim is timely submitted to the bankruptcy court, there is no guaranty that the operator’s bankruptcy estate would have funds to satisfy the claims of general unsecured creditors. Finally, a bankruptcy court could re-characterize a bank account as a disguised secured lending transaction. If that were to occur, we might have additional rights as a secured creditor. This would mean our claim in bankruptcy court could be limited, which could adversely impact our financial condition.

Liability for uninsured losses could adversely affect our financial condition.

While the terms of our deposit agreements with our operators generally will require that they carry property and casualty insurance, losses from disaster-type occurrences, such as earthquakes, floods and weather-related disasters, may be either uninsurable or not insurable on economically viable terms. Should an uninsured loss occur, we could lose an account or anticipated profits and cash flows from one or more account holders.

Contingent or unknown liabilities could materially and adversely affect our business, financial condition, liquidity and results of operations.

We may in the future acquire financial institutions, subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a claim were asserted against us based on ownership of any of these institutions, we may have to pay substantial amounts to defend or settle the claim. If the magnitude of such unknown liabilities is high, individually or in the aggregate, our business, financial condition, liquidity and results of operations would be materially and adversely affected.

Due to our involvement in the regulated cannabis industry, we may have a difficult time obtaining the various insurances that are desired to operate our business, which may expose us to additional risk and financial liabilities.

Insurance that is otherwise readily available, such as workers’ compensation, general liability, and directors’ and officers’ insurance, is more difficult for us to find and more expensive, because we provide our services to companies in the regulated recreational and medical-use cannabis industry. There are no guarantees that we will be able to find such insurances in the future, or that the cost will be affordable to us. If we are forced to go without such insurances, it may prevent us from entering into certain business sectors, may inhibit our growth, and may expose us to additional risk and financial liabilities.

Risks Related to Financing Our Business

Our growth depends on external sources of capital, which may not be available on favorable terms or at all.

We intend to grow by acquiring or licensing new financial entities, which we intend to finance primarily through newly issued equity or debt. We may not be in a position to take advantage of attractive investment opportunities for growth if we are unable, due to global or regional economic uncertainty, changes in the state or federal regulatory environment relating to the recreational or medical-use cannabis industry, our own operating or financial performance or otherwise, to access capital markets on a timely basis and on favorable terms or at all. Because we intend to grow our business, this limitation may require us to raise additional equity or incur debt at a time when it may be disadvantageous to do so.

Our access to capital will depend upon a number of factors over which we have little or no control, including general market conditions and the market’s perception of our current and potential future earnings. If general economic instability or downturn leads to an inability to borrow at attractive rates or at all, our ability to obtain capital to finance the purchase of real estate assets could be negatively impacted. In addition, while we do not consider our company to be engaged in the recreational or medical-use cannabis industry, banks and other financial institutions may be reluctant to enter into lending transactions with us, particularly secured lending, because we intend to acquire, including through sale-leaseback transactions, properties used in the cultivation and production of cannabis. If this source of funding is unavailable to us, our levered return on the properties we purchase may be lower.

If we are unable to obtain capital on terms and conditions that we find acceptable, we likely will have to reduce the number of properties we can purchase. In addition, our ability to refinance all or any debt we may incur in the future, on acceptable terms or at all, is subject to all of the above factors, and will also be affected by our future financial position, results of operations and cash flows, which additional factors are also subject to significant uncertainties, and therefore we may be unable to refinance any debt we may incur in the future, as it matures, on acceptable terms or at all. All of these events would have a material adverse effect on our business, financial condition, liquidity and results of operations.

Any future indebtedness reduces cash available for distribution and may expose us to the risk of default under debt obligations that we may incur in the future.

Payments of principal and interest on borrowings that we may incur in the future may leave us with insufficient cash resources to operate the financial institutions that we expect to operate or to pay the distributions currently contemplated. Our level of debt and the limitations imposed on us by these debt agreements could have significant material and adverse consequences, including the following:

  • our cash flow may be insufficient to meet our required principal and interest payments;
  • we may be unable to borrow additional funds as needed or on favorable terms, or at all;
  • we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;
  • to the extent we borrow debt that bears interest at variable rates, increases in interest rates could materially increase our interest expense;
  • we may be forced to dispose of one or more of the licensed institutions that we expect to acquire, possibly on disadvantageous terms;
  • we may default on our obligations or violate restrictive covenants, in which case the lenders may accelerate these debt obligations; and
  • our default under any loan with cross default provisions could result in a default on other indebtedness.

If any one of these events were to occur, our financial condition, results of operations, cash flow, and our ability to make distributions to our stockholders could be materially and adversely affected.

Risks Relating to Regulation

Current favorable state laws relating to cultivation and production of recreational medical-use cannabis may be modified or eliminated in the future, and new laws that are adverse to the business of our operators may be enacted.

As of August 10, 2018, 31 states, plus the District of Columbia, have passed laws allowing their citizens to use medical cannabis. We are targeting our financial services to entities that are owned by licensed cultivators and producers of recreational and medical-use cannabis. However, relevant state laws may be amended or new laws enacted in the future to eliminate existing laws permitting cultivation and production of cannabis. If our operators involved in the cultivation and production of regulated cannabis were forced to close their operations, we would need to replace those operators with operators who are not engaged in the cannabis industry, who may pay lower fees. Moreover, any changes in state laws that reduce or eliminate the ability to cultivate and produce recreational or medical-use cannabis would likely result in a low acquisition rate for the kinds of account holders that we seek to acquire, which would depress our deposit fee rates and asset values.

Our ability to grow our business depends on state laws pertaining to the cannabis industry.

Continued development of the cannabis industry depends upon continued legislative authorization of cannabis at the state level. Progress in the regulated recreational and medical-use cannabis industry, while encouraging, is not assured and any number of factors could slow or halt progress in this area. While there may be ample public support for legislative action, numerous factors impact the legislative process. For example, in 2015, voters in Ohio rejected a ballot initiative that would have legalized medical and adult-use cannabis. Ohio voters may have rejected this ballot initiative due to the provision that allowed commercial cultivation only at ten specifically designated parcels owned by certain private investors. Further legalization attempts at the state level that create bad public policy could slow or stop further development of the regulated cannabis industry. Any one of these factors could slow or halt additional legislative authorization of cannabis, which could harm our business prospects.

Although the federal government currently has a relaxed enforcement position as it relates to states that have legalized medical-use cannabis, it remains illegal under federal law, and therefore, strict enforcement of federal laws regarding cannabis would likely result in our inability to execute our business plan.

Cannabis is a Schedule-I controlled substance. Even in those jurisdictions in which the use of medical and/or recreational cannabis has been legalized at the state level, its use remains 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, strict enforcement of federal law regarding cannabis would likely result in our inability to execute our business plan.

The Obama administration has effectively stated that it is not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of cannabis. In furtherance thereof, the U.S. Department of Justice provided guidance in the so-called “Cole Memo” to federal prosecutors regarding enforcement of laws regarding cannabis, which states that enforcement should be focused on eight priorities, which are to prevent: (1) distribution of cannabis to minors; (2) revenue from sale of cannabis to criminal enterprises, gangs and cartels; (3) transfer of cannabis from states where it is legal to states where it is illegal; (4) cannabis activity from being a pretext for trafficking of other illegal drugs or illegal activity; (5) violence or use of firearms in cannabis growth and distribution; (6) drugged driving and adverse public health consequences from cannabis use; (7) growth of cannabis on federal lands; and (8) cannabis possession or use on federal property.

In addition, as it did for the fiscal year 2015, Congress enacted an omnibus spending bill for fiscal year 2016 including a provision prohibiting the U.S. Department of Justice (which includes the DEA) from using funds appropriated by that bill to prevent states from implementing their medical and recreational-use cannabis laws. This provision, however, is effective only for fiscal year 2016 and must be renewed by Congress in subsequent years. In USA vs. McIntosh, the 9th Circuit Court of Appeals held that this provision prohibits the U.S. Department of Justice from spending funds from relevant appropriations acts for the prosecution of individuals who engaged in conduct permitted by state medical and recreational-use cannabis laws and who fully complied with such laws. However, the 9th Circuit Court also wrote that persons who do not strictly comply with all state laws and regulations regarding the use, distribution, possession and cultivation of medical and recreational-use cannabis have engaged in conduct that is unauthorized, and in such instances the U.S. Department of Justice may seek prosecution of those individuals.

We do not intend to offer financial services to companies whose activities involve those enumerated in the Cole Memo, but federal prosecutors have significant discretion in their interpretation of these priorities. Therefore, no assurance can be given that the federal prosecutor in each judicial district where we provide services will agree that the activities of our account holders located in such prosecutor’s district do not involve those enumerated in the Cole Memo. There is also no guarantee that the current or future administrations will not revise the federal enforcement priorities enumerated in the Cole Memo and decide to strictly enforce the federal laws. Any such change in the federal government’s current enforcement posture with respect to state-licensed cultivation of medical and recreational-use cannabis would result in our inability to execute our business plan and we would likely suffer significant losses with respect to our investment in cannabis accounts in the U.S. Furthermore, if our operators were to continue the cultivation and production of cannabis following any such change in the federal government’s enforcement position, we could be subject to penalties, fines, forfeiture and criminal prosecution.

FDA regulation of cannabis and the possible registration of facilities where cannabis is grown could negatively affect the cannabis industry, which would directly affect our financial condition.

Should the federal government legalize cannabis for medical-use, it is possible that the U.S. Food and Drug Administration, or the FDA, would seek to regulate it under the Food, Drug and Cosmetics Act of 1938. Additionally, the FDA may issue rules and regulations including certified good manufacturing practices, or cGMPs, related to the growth, cultivation, harvesting and processing of cannabis. Clinical trials may be needed to verify efficacy and safety. It is also possible that the FDA would require that facilities where cannabis is grown register with the FDA and comply with certain federally prescribed regulations. In the event that some or all of these regulations are imposed, we do not know what the impact would be on the cannabis industry, including what costs, requirements and possible prohibitions may be enforced. If our operators are unable to comply with the regulations or registration as prescribed by the FDA, our operators may be unable to continue to operate their business in its current form or at all.

Our operators may have difficulty accessing the service of our bank, which may make it difficult to continue to generate fee revenue.

Despite recent rules issued by the U.S. Department of the Treasury mitigating the risk to banks that do business with cannabis companies operating in compliance with applicable state laws, as well as recent guidance from the U.S. Department of Justice, banks remain wary of accepting funds from businesses in the cannabis industry. Because the use of cannabis remains illegal under federal law, strict enforcement of those laws could result in banks being found in violation of federal law when accepting for deposit funds derived from the sale or distribution of medical and recreational-use cannabis. Consequently, even those businesses involved in the regulated cannabis industry continue to encounter difficulty in establishing banking relationships, including with ours. The terms of our accounts will require that our operators bank exclusively through our financial institutions. The inability of our potential operators to open accounts or be qualified for the ongoing monthly use of the services we offer may make it difficult for them which could materially harm our business.

Laws and regulations affecting the regulated cannabis industry are constantly changing, which could materially adversely affect our proposed operations, and we cannot predict the impact that future regulations may have on us.

Local, state and federal cannabis laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations. It is also possible that regulations may be enacted in the future that will be directly applicable to our proposed business. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.

Applicable state laws may prevent us from maximizing our potential income.

Depending on the state, and the laws of that particular state, we may not be able to fully realize our potential to generate profit. Colorado and Washington have residency requirements for those directly involved in the cannabis industry, which may impede our ability to contract with cannabis businesses in those states. Furthermore, cities and counties are being given broad discretion to ban certain cannabis activities. Even if these activities are legal under state law, specific cities and counties may ban them.

Assets leased to cannabis businesses may be forfeited to the federal government.

Any assets that are being used in conjunction with the violation of federal law are potentially subject to federal forfeiture, even in states where cannabis is legal. If the federal government decides to initiate forfeiture proceedings against cannabis businesses such as the cannabis operators that we intend to provide financial services, our investment in those accounts may be lost.

The bank licenses that we expect to acquire will be subject to extensive regulations, which may result in significant costs and materially and adversely affect our business, financial condition, liquidity and results of operations.

The bank licenses that we expect to acquire will be subject to various local laws and regulatory requirements. Local bank regulations may restrict our operations. We cannot assure you that existing regulatory policies will not materially and adversely affect us or that additional regulations will not be adopted that would increase such delays or result in additional costs. Our failure to obtain such regulatory approvals could have a material adverse effect on our business, financial condition, liquidity and results of operations.

Risks Related to Our Organization and Structure

We are dependent on our key personnel for our success.

We will depend upon the efforts, experience, diligence, skill and network of business contacts of our senior management team; therefore, our success will depend on their continued service. The departure of any of our executive officers or key personnel could have a material adverse effect on our performance. If any of our key personnel were to cease their employment, our operating results could suffer. We do intend to maintain key person life insurance that would provide us with proceeds in the event of death or disability of any of our key personnel, but this cannot assure us of finding alternate management.

We believe our future success depends upon our senior management team’s ability to hire and retain highly skilled managerial, operational and marketing personnel. Competition for such personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such skilled personnel. If we lose or are unable to obtain the services of key personnel, our ability to implement our investment strategies could be delayed or hindered, and the value of your investment may decline.

Furthermore, we may retain independent contractors to provide various services for us, including administrative services, transfer agent services and professional services. Such contractors have no fiduciary duty to us and may not perform as expected or desired.

Our board of directors will approve very broad operating guidelines for our senior management team and will not approve each decision made.

Our senior management team has broad discretion over the use of proceeds from this offering, and you will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments that are not described in this prospectus or other periodic filings with the SEC. Furthermore, currently, a substantial portion of the net proceeds of this offering is not committed to specific operations and is intended to cover organizational costs associated with raising capital through SEC Offerings and all related expenses. We will rely on the senior management team’s ability, subject to the oversight and approval of our board of directors. Our senior management team will be authorized to follow very broad investment guidelines. Our board of directors will periodically review our investment guidelines and our portfolio but will not, and will not be required to, review all of our proposed investments. Our senior management team will have great latitude within the broad parameters of our investment guidelines in determining the assets it may decide are proper investments for us, which could result in investment returns that are substantially below expectations or that result in losses, which would materially and adversely affect our business operations and results. Accordingly, you should not purchase shares of our Class A common stock unless you are willing to entrust all aspects of our day-to-day management to our senior management team.

Stockholders have limited control over changes in our policies and operations.

Our board of directors determines our major policies, including with regard to financing, growth, debt capitalization, financial institution licensing, qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. Under our charter, our stockholders generally have a right to vote only on the following matters:

  • The election or removal of directors;
  • The amendment of our charter, except that our board of directors may amend our charter without stockholder approval to:
  • Change our name;
  • Change the name or other designation or the par value of any class or series of stock and the aggregate par value of our stock;
  • Increase or decrease the aggregate number of shares of stock that we have the authority to issue;
  • Increase or decrease the number of our shares of any class or series of stock that we have the authority to issue;
  • Effect certain reverse stock splits;
  • Our liquidation and dissolution; and
  • Our being a party to a merger, consolidation, sale or other disposition of all or substantially all of our assets or statutory share exchange.

All other matters are subject to the discretion of our board of directors.

Our authorized but unissued shares of common and preferred stock may prevent a change in our control.

Our charter permits our board of directors to authorize us to issue additional shares of our authorized but unissued common or preferred stock. In addition, our board of directors may, without stockholder approval, amend our charter to increase the aggregate number of our shares of stock or the number of shares of stock of any class or series that we have the authority to issue and classify or reclassify any unissued shares of common or preferred stock and set the terms of the classified or reclassified shares. As a result, our board of directors may establish a class or series of shares of common or preferred stock that could delay or prevent a transaction or a change in control that might involve a premium price for shares of our Class A common stock or otherwise be in the best interest of our stockholders.

We plan to operate our business so that we are not required to register as an investment company under the Investment Company Act.

We intend to engage primarily in the business of offering financial services and we do not intend to register as an investment company under the Investment Company Act. If our primary business were to change in a manner that would require us register as an investment company under the Investment Company Act, we would have to comply with substantial regulation under the Investment Company Act which could restrict the manner in which we operate and finance our business and could materially and adversely affect our business operations and results.

Risks Related to Our Class A Common Stock

We set the initial offering price of our shares of Class A common stock arbitrarily and such price may not accurately reflect the value of our assets or our expected operating income.

We established the initial offering price of our shares of Class A common stock on an arbitrary basis. This price bears no relationship to our book or asset values or to any other established criteria for valuing shares.

There is no public market for our Class A common stock and a market may never develop which could make it difficult for holders of our Class A common stock to sell their shares.

We cannot assure you of our ability to make distributions in the future. We may be required to borrow funds to make distributions.

We intend to make regular quarterly distributions to our stockholders. However, we cannot assure you that distributions will be made or sustained. Any distributions we make will be at the direction of our board of directors and will depend upon a number of factors, including our actual results of operations, economic conditions and other factors that could differ materially from our current expectations. See the section entitled “Distribution Policy.”

Our charter permits us to pay distributions from any source and, as a result, the amount of distributions paid at any time may not reflect the performance of our operations or as cash flow from operations.

Our organizational documents permit us to make distributions from any source. To the extent that our cash available for distribution is insufficient to cover our distributions, we expect to use the proceeds from this offering, the proceeds from the issuance of securities in the future, the proceeds from borrowings or other sources to pay distributions. It is possible that in our initial years of operation, any distributions declared will be paid from our offering proceeds, which would constitute a return of capital to our stockholders. If we fund distributions from borrowings, sales of assets or the net proceeds from this offering, we will have fewer funds available for the acquisition of additional licensed financial institutions resulting in potentially fewer investments, less diversification of our portfolio and a reduced overall return to our stockholders. In addition, the value of our shares of Class A common stock may be diluted because funds that would otherwise be available to make investments would be diverted to fund distributions.

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We’d like to invite you to become part of the initial shareholders before we take the company public. There’s no catch here: here at Fusion Financial, we’re totally passionate about financial solutions for the cannabis industry, so we like to do what we can to help cannabis operators take the risk out of dealing in cash. Learn more about how you can participate as an equity shareholder:

If you would like to speak with a representative of the company, please submit your contact information below and a telephone call will be scheduled: