Cannabis Dispensary – the Face of the Legal Marijuana Industry

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Alan Brochstein  recently published an article on the new growth driver for cannabis industry.  While I am not sure it is new, I agree that the real opportunity is going to be to create an experience that resonates with baby boomers.  And we are agreed that a well-designed dispensary will increase the comfort of the more mainstream and upscale cannabis customers.  These new retail stores are redefining the feel of the cannabis purchase.

Picture from Cannabis  Ventures

Inside SPARC from New Cannabis
Ventures 2/29/16

Many of Alan’s ideas were originally discussed by Larissa Sand in a 2011 TEDxTalk A Modern Speakeasy.  Ms. Sand is a principal of Sand Studios, a multidisciplinary architecture, interior design and lighting design office in San Francisco. The studio houses its own fabrication facility. At TEDxAlcatraz, Larissa walked the audience through her then-recent project, SPARC, a  San Francisco medicinal marijuana dispensary, with a design goal of compassionate care for its patients.

In case you missed it – Alan’s article, which highlighted Ajoya Life in Colorado and Harborside Health Center of Oakland, in addition to SPARC, can be found here: A New Emerging Growth Driver in the Cannabis Industry

CannaBiz, Looking for Investors?

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While the legal cannabis industry is generating lot of interest, new investment dollars have not been coming to the industry from most venture capitalists nor institutional investors. Reading filings with the Securities and Exchange Commission (SEC) from the public companies participating in the cannabis industry has been described by one investment banker and industry observer as “It feels like taking the wrong exit off the freeway and ending up in a bad

Chart from CBInsights

Chart from CBInsights

neighborhood.”

It appears that up until now, most of the investment dollars are coming from angel investors (wealthy individuals) and family offices (wealthy families). It also appears that family offices are split, with the senior generation and the youngest generation more positively predisposed towards investing in cannabis than the middle generations. Seniors, having watched friends experience the side-effects of chemo or living with arthritis appear less concerned about reputation risk to their family-name than their children. But those businesses seeking investors should be aware that all three groups are equally focused on return of their original capital and a reasonable, risk-adjusted return from a company in an industry that is still perceived as having high regulatory risk.

In addition to cannabis companies receiving most of their investment dollars from non-Venture Capital sources, these companies are also bucking another trend. CBInsights tracks trends in private equity investments, and this chart shows that investments by institutions into cannabis companies went up in 4Q15. This only represented 1.7% of all VC deals in the December quarter, but cannabis company executives can take some comfort from the trend. (Globally, 4Q15 saw a 13% drop in deals, to only $27.2 billion in 1,742 VC deals, breaking the upward trend of the prior 8 quarters.)

The trend may be up, but dollars invested in cannabis companies are measured in hundreds of thousands and millions of dollars  ($65 million total for 4Q15) vs billions for tech and other sectors. Fourth quarter’s largest cannabis fundings were for Illinois’ PharmaCannis and MJ Freeway, the cannabis sales-tracking software.

In cannabis, most of the investment dollars are coming from those few financial organizations which are focused on the industry – and their investments, while rising are still small. The most active investors in cannabis industry are CanopyBoulder, ArcView Group, Casa Verde Capital, Canada’s PharmaCan Capital, Slow Ventures, Y Combinator and Poseideon Asset Management. Of these, CanopyBoulder is the most active, with more than a dozen investments. ArcView Group is a group of angel investors who share research and deal flow, most recently funding a clone company.

I’m a financial consultant, who as an equity analyst, studied over 1,000 companies in a wide variety of industries.  I am interested in offering my insights to business owners and managers, in the legal marijuana industry, who want to improve the efficiency and financial performance. Call me if you would like a business plan, need a financial model for investors, or would like assistance with finding financing for your company.

EPearce Consulting

Accounting Information and Business Acumen

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Do you know the difference between data, information, knowledge and wisdom?  In the context of Accounting Information, data is the raw information (such as the receipts and invoices).  This information is collected and recorded by a bookkeeper, who converts the raw data into Financial Statements:  the P&L and Balance Sheet, with the help of an accounting software program.

Accounting Information is prepared for the business owner, and used for tax filings.  You may have a CPA, an enrolled agent or use a tax software,  but in all cases the information is only as good as the conversion from the raw data to financial statements.  That is, the next step, from information to knowledge, Accounting Information has a high Gi-Go risk.  That is, Garbage-In, Garbage-Out.  The data from the receipts may be recorded incorrectly or categorized incorrectly, so the information created is not accurate.  Of course, you think, That would never happen to me.

The truth is, almost every business-owner loves their bookkeeper, because their bookkeeper allows them to avoid thinking about their financial data. What the owner asks is Do I have enough money?  Am I doing better?  If the answer is YES, then most business owners don’t care to dive any deeper.

Yet, the majority of businesses have bad data – And this data is used to create their tax filings (Accounting Knowledge, using the terminology of the article).  This may result in paying more taxes, or having a tax liability and penalty when audited.  Generally, the tax person is not looking under the hood at the bigger issues of how the business is run or how performance and profitability can be enhanced. They take the bookkeeper’s output, Accounting Information, at face value.

That next step, which outside of the sphere of accounting information would be called wisdom, or experience, we would call Business Acumen.  That’s where a financial consultant can help – ensuring that the Accounting Information is correctly categorized and then presented in a way that is useful information to the decision maker.  A financial consultant is a person with business experience (Acumen) who can both dive into the details and share the view from 30,000 feet.  In between are the levers to change and improve profitability.

Often, this involves converting the Accounting Information into ratios and graphs.  With the right half a dozen ratios, the business owner can see the business from the perspective of a banker or investor.  Knowing the drivers behind the ratios, the business owner can change the ratios making the business more attractive to a buyer, an investor or a banker.  Different ratios and the information can be useful for goal setting with employees. Yet different Accounting Information is helpful in setting prices or focusing on costs.

Every business needs a P&L and a Balance Sheet, but most business owners struggle to see anything between the top and the bottom line.  Their eyes go blurry and their attention wanders.  This is typical, and yet owners feel guilty.  They know understanding Accounting Information is important, but almost everything else seems more urgent.

This is one of the places a financial consultant can help – by converting rows of numbers that go blurry in your eyes into charts and graphs, showing you trends and influencing your goals and expectations.

Call me for help – I have access to several bookkeeping firms willing to take on new clients, especially in the areas of restaurants, food manufacturing and legal cannabis companies.  I know business brokers who specialize in these sectors, as well as non-traditional lenders. I also know specialist in helping chains of restaurants or retailers into a  franchise for rapid growth.

This concept of the data, information, knowledge and wisdom was developed by Russell Ackoff.  Robert Sternberg has a model of wisdom that talks about evaluating the consequences for the individual, for the community, and the broader society. It also includes both short-term and long-term effects, and in the context of a set of values.

This is not the way most bookkeepers are looking at your business.  Owners need someone in their corner who can help them turn information into business acumen and coach them to higher profits and cash flow.

EPearce Consulting

Out of Date Websites Hurt Your Business

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I recently went to a business address that was wrong because the website had not been updated with the current address.  This is an extreme example, but an out of date websites hurts your business: it destroys credibility.  For a 10G Deb_0447restaurant or dispensary, potential customers craving a specific item can be lost if the menu is not refreshed.  Yet, most business owners either pay too much or are too busy to keep their website current.

Most restaurant owners see two alternatives to keeping their website current, either (A) the owner spends valuable time or (B) he or she hires an expensive social media manager to build a virtual presence on Twitter, Facebook and through a website.  The challenge and the cost increase substantially.  There is to be a more cost effective and efficient way to keep the website current and to build a social media presence.

As a Financial Consultant, I help business owners improve their profitability, and driving top line revenue and evaluating the Return on Investment (ROI) for a marketing program is part of the working towards higher profits and better cash flow.  Today, in the early 21st century, keeping your website current needs to be part of any marketing program – even if your company is strictly bricks and mortar operation selling a tangible product, such as a restaurant or medical marijuana dispensary.

Again and again, I have seen clients spend over $10,000 to build and maintain a website.  I have been referring clients to a friend who has a low cost solution for the initial website build, and for assistance with for keeping the website current and for keeping the menus current.

An out of date website:

  1. Creates a perception of poor quality of the comp any and its products.
  2. Sends prospective customers a sign that the business doesn’t care enough about their business to try to attract or entice them.
  3. Send buyers seeking a specific item either to competition or brings them into your location in order to have a negative and disappointing experience – hurting your brand.

Bottom line, an out dated website can hurt your business’ credibility in customer’s eyes.  If the information is old, and offers no value, visitors will spend 1.6 seconds dismissing your business before they jump way.  They will retain only that first impression.  In contrast, each time you update your site, the search engines re-log its existence, creating a higher perceived value raising the visibility in cyber space.  Hence, keeping your website current has a double positive impact.

Again, it should not be painful to maintain your businesses website. For a restaurant, dispensary or retailer, changes in the menu will be sufficient.  The website can be simple, and low cost, although it needs to be visual and engaging.  Customers want a quick sense of your location but don’t want to read a life history on the home page.  They want to be educated, but links to information and reviews  will drive traffic. So if you neglect your website, you will not only deter potential customers but also put off the existing ones.

Additional articles you might find interesting:

Finally, this shouldn’t be hard and it shouldn’t be expensive. Let me send introduce you to some very cost effective solutions for websites or social media monitoring/marketing.

EPearce Consulting

 

Finding a Cannabis Bookkeeper

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At a holiday party, the owner of a legal medical marijuana company told me, Finding a cannabis bookkeeper is as hard as finding a babysitter in San Francisco.  Once you have one, you don’t want to share the name, because Cannabis Bookkeepingeveryone you know needs one.  Your friends and competitors will steal yours if they can.

After weeks of interviewing people, I now have recommendations for bookkeepers who work with legal cannabis business. These cannabis-aware bookkeepers work under the supervision of an experienced tax accountant, and will be generating reports that help the business owner manage the business AND manage the tax challenges associated with 280E.  Their team has over 30 years of financial and accounting experience.

There are 5 keys to successful bookkeeping for companies in the cannabis industry:

  1. Setting up the accounting records correctly in the first place.  Whether you are a dispensary, a cultivator or a manufacturer of marijuana infused products, there are specific ways information should be captured.  Some of these accounting issues are specific to the industry, but others are specific to legal cannabis company bookkeeping.
  2. Find a team with experience broader than cannabis.  Setting up the books for a dispensary, for example, requires knowledge of best practices for retailers.  Similarly, MIPs (manufacturers of marijuana infused products) have many of the same record keeping needs as food manufacturers.
  3. Skills, Competencies, Education. More than a competent bookkeeper, you want cost effective accounting and financial resources that you can leverage to improve your profits and cash flow.  Overseeing the bookkeeper, a team with a CPA, an MBA and experience problem solving, reconciling statements and presenting the results to various stakeholders (lenders, investors, IRS auditors, etc.)
  4. Communication Skills. You need the financial information for your legal cannabis business recorded and available.  But you also want information without MEGO (My Eyes Glaze Over).  This may mean customized reports showing you, graphically, in text or with ratios, the key drivers for your business.
  5. A Partner. Finally, in your accounting help, you want a reliable partner who you can trust.  Competence and integrity are the keys to trust and reliability.

Business owners have plenty of urgent and important issues on their plates.  Their time is better spent on sales, operations and staffing issues.  Yet, accurate accounting is the lifeblood of your firm.  Business survival is dependent upon using a competent bookkeeper who specialize in legal cannabis businesses.

While bookkeepers for cannabis business may be hard to find, I have been doing due diligence and have found several.  My business, financial consulting with business owners, relies on having good data.  So contact me if you would like a recommendation of a cannabis bookkeeper.

EPearce Consulting

Illusions: Optical, Federal and Other

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What day feels like the shortest of the year?  If you thought, December 21st, you would be partially right. The Winter Solstice, December 21st is the day with the shortest amount of daylight.  But if you are a night person, THIS WEEK felt like the shortest.  Here in California, the sun sets over the ocean at 4:51 PM  from December 1st to December 15.  If you were watching the sunset, it happened later in November and the sun will, again, set later in the day beginning on Wednesday, December 16.

The time of the sunrise also moves around, and the changes are on a different schedule than the change in the timing of the sunset.  They cross over, resulting in the shortest day on the Winter Solstice.  If you are morning person, you notice the dark mornings continuing into January.  The sun will rise each morning at 7:26 AM from December 30 to January 14th,2016.  Fortunately, starting January 15th, each day’s sunrise is a bit earlier and the day will be lighter when we arise.

Kanizsa TriangleWhich brings to mind Kanizsa’s Triangle.  A famous optical illusion where spatially separate fragments give the impression a bright white triangle, defined by a sharp, but  illusory, contour.  Look at it:  In reality, there are 3 black circles, with notches carved out and 3 black-lined angles.  Your mind fills in a white form.

The white triangle is a perfect image for the current state of the marijuana’s legal status.  Cannabis is legal or illegal, depending upon your location, your perspective and which regulations you operating under.

If you need a new perspective on your business to enhance your profitability and growth, reach out to me.

Over two decades as a small company investor, I evaluated the business model of over 1,000 companies in almost every industry.  Let’s talk about what I have learned to help your company get to the next level.EPearce Consulting

 

Financial Checkup for Your Business

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Do you find accounting mysterious?  Confusing? Challenging?  Would you like to have a clearer understanding of your company’s financial condition?

Get a Financial Check UpMany owners eagerly hand their bookkeeper the responsibility for the financial functioning of their firm.  They want to make money, but avoid diving into the intricacies of the record keeping.  Owners always have more important things to do: making sales or resolving production issues.

This week I have spoken to three business owners who don’t understand their pricing.  They think, “As long as money keeps coming in … and I am covering the cost of the products going into my edibles, I am  doing OK.” In reality, they are on a slow march towards going out of business.

They need to spend a few hours with a financial consultant – an independent financial checkup would reveal if they even have the financial records to calculate breakeven.  More than 60% of small businesses have poor financial records – primarily because the books were initially set up incorrectly.  A quick review during the first few months of operation can save significant money in taxes over time, and can help the business owner understand the financial drivers of their business.

This isn’t unique to cannabis companies, although the rush to become compliant with MMRSA and the issues related to cash transactions and 280E may put legal marijuana companies at a higher risk of bad accounting records.

You have periodic medical exams for your health, a financial checkup is the same.  Once the business is operating, checking in with a financial consultant is an opportunity for the owner to save time to learn which metrics really matter.  The early goal is to set up a system where the bookkeeper gives the owner information in a format that is useful for monitoring the business. With the help of regular updates prepared by your bookkeeper, you will spot emerging trends faster and keep the company on track. Even more importantly, by establishing a relationship early with a financial consultant, you will have a resource for the inevitable challenges that come with growth.

The bottom line is that you, as the owner, may dread thinking about traditional accounting information – but by focusing on the five key variables that matter to your business, and getting them in a format you can absorb, you can focus on what matters.

EPearce Consulting

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