Cannabis nursery businesses can be excellent investments for nearly anyone operating in the cannabis sector. While starting or purchasing a nursery sounds like a smart move, it’s ideal to know what you should expect.
Cannabis nurseries add diversification to your operations. While you’re likely operating in a separate niche of cannabis and have considered becoming involved in a full cultivation operation, a cannabis nursery business model offers a less-involved way to work with plants and seeds.
A cannabis nursery business can bring in the big bucks–when done correctly. While you’ll need to develop a solid cannabis nursery business plan to follow, it’s possible to grow a nursery’s income over time.
Tax-wise, your immature seeds in California don’t receive the same cannabis cultivation, sales, and excise taxes. But we’ll talk more about that later.
Interested in having the financial aspects of a cannabis nursery handled by an expert? Contact us today to learn more about how we can help.
Cannabis Nursery Business: What Does it Involve?
The Text of Final Proposed Regulations from the Medical Cannabis Cultivation Program (MCCP) defines nurseries as “all activities associated with producing clones, immature plants, seeds, and other agricultural products used specifically for the propagation and cultivation of cannabis.” Since cannabis became legal for recreational adult-use, the definition now includes recreational cannabis too.
Thus, opening a cannabis nursery presents opportunities for cannabis entrepreneurs as you can become involved in the cultivation of your products. Nurseries enable you to produce consistent genetics.
Growers can be fantastic at growing cannabis. But when it comes to breeding cannabis, a cannabis nursery specialist can be worth his or her weight in gold.
Your nursery–managed by the right cannabis nursery specialist–also could allow you to specialize and focus on developing a specific strain of cannabis plant. And if you grow something with superior genetics, you’ll also have control over those genetics by culling out weak plants before they become a problem.
Most importantly, implementing a cannabis nursery business model gives you a new revenue stream. So if you’re a manufacturer or a cultivator who has some extra space, adding a nursery could be the investment you need to bring your business to the next level.
Estimated Financials of a Cannabis Nursery Business: What to Expect
What should a cannabis nursery license bring to the table? Is it really worth the investment?
Let’s crunch some numbers in an example of a cannabis nursery business model.
In a 2,000 square foot warehouse, you can house between 40 and 80 mother plants. This depends on the size of the plant and how you use your space.
If each mother plant gives you between 15 and 30 healthy cannabis clones per month–depending on how well you or your cannabis nursery specialist cares for them and their regeneration capabilities. This translates to between 600 and 2,400 clones per month.
Let’s say you sell each clone for $10 a piece. This means your nursery could bring in $6,000 to $24,000 per month selling cannabis clones.
These are conservative estimates too. Some cannabis nursery businesses can pull more clones out of a warehouse this size.
The amount of income you can expect from a clone nursery in California depends on a few factors:
The number of clones purchased in a single order.
The frequency a grower purchases your clones.
The demand for your genetics.
Your reputation as a cannabis nursery specialist.
A cannabis nursery license is usually essential to conduct a clone nursery in California. But just because you have a license to sell clones does not mean you’ll be successful.
You’ll need an excellent reputation in this highly competitive market too.
Consider how consistent and fair you are in your business relationships. Rather than focusing on the THC or CBD potency of your strains, it’s crucial to establish your reputation by investing in your business relationships. This means dedicating attention, time, and respect to your growers. In turn, they’ll do the same.
Cannabis Nursery Business Expenses
You’ve seen the profits a cannabis nursery business model can deliver. But knowing how to start a clone business and its potential earnings is only part of what you should know.
A license to sell clones comes with expenses. These costs vary depending on your location. License, real estate, utilities, marketing, and labor are all costs associated with your nursery’s location. For example, LA nurseries have more expensive costs than a nursery in Oklahoma.
For business owners who already operate a cannabis facility, real estate is already something you’re paying. This means most of your incremental costs will be utilities and labor.
Cannabis nurseries have taxes to pay too. But cannabis cultivation, sales, and excise taxes apply differently to immature seeds in Cali. Here’s what to expect:
Cultivation tax: Cultivation tax doesn’t apply when you’re selling immature seeds, clones, and plants.
Sales tax: Sales tax only applies if you’re selling a cannabis product in the retail market. So as long as you’re selling your seeds, clones, and immature plants to cannabis growers, you don’t have to worry about sales and use tax.
Excise tax: Cannabis nursery businesses can sell seeds, immature plants, and clones to other cannabis licensees. But distributors need to transport plants from the nursery to the licensee. If you’re selling or transporting seeds, immature plants, and clones to a retailer, you–as the distributor–will have to collect a 15% cannabis excise tax from the retailer.
Could Opening a Cannabis Nursery Be the Right Move for You?
Before you develop a cannabis nursery business plan, it’s important to consider the actions you’ll need to succeed.
As a cannabis nursery specialist, you’ll need to test your plants’ genetics through full bloom to determine the quality of your seeds and clones. You’ll document the entire process across several mediums (writing, photos, and video), as well. With this information available, you can show growers the quality of your plants.
Consider what growers you’d like to target. Since some growers prefer specific characteristics–for example, some look for short and wide plants while others seek tall and thin plants–it’s important to allow a seed to mature fully to let growers know what they can expect. You’ll also need to offer a certificate of analysis as proof of the quality of your seeds and clones.
If you plan to bring plants to maturity, you’ll need a cultivation license. Depending on the size and specifications of your grow space, you might need other licenses too.
Interested in investing in a cannabis nursery business? Contact us today for expert assistance.
Vertically-integrated cannabis businesses successfully operate in the cannabis sector. But what’s so special about vertical integration in cannabis?
Vertical integration in the cannabis space ensures your operation runs like a well-oiled machine. Consumers receive higher quality, fresher products––without the hefty price tag. This comes from the control you have over your operations.
So how do vertically-integrated cannabis businesses work?
Vertically integrating your canna-business means you own all parts of the supply chain. In essence, you’re in control of all costs, allowing you to determine the final price on your products and maintain all value from the ideation stage to sale.
In the battle of vertical integration vs. specialization, it’s crucial to consider the benefits of specialization too. Depending on the business model you choose, you could make your business more efficient and decrease your costs. Simply put, the right business model will make your company more competitive.
Curious about how vertical integration or specialization could work for your cannabis business? Contact us at any time for guidance.
Between cultivation, manufacturing and processing, retail, and distribution cannabis business licensing available, a lot is going on in this sector. But the business model that’s not often discussed is vertical integration in cannabis. This involves operating a business across all verticals to keep as much value as possible.
Let’s discuss vertical integration for cannabis businesses, how it works, what it means, its benefits, and more.
What Does Vertical Integration Mean in Cannabis?
What is vertical integration anyway? This business model enables companies to maintain control over their product throughout the entire process––from creation to distribution to retail.
Eventually, you’ll sell your product to end-users. If you’ve ever heard of seed to sale or Farm to Table, this is basically how it works. Vertical integration for cannabis involves growing the cannabis, processing it, distributing it, and selling it to consumers yourself.
Since the cannabis space is still expanding, it’s still developing terms to discuss how operations work. But it has adopted the term “vertical integration” because it means the same across all industries.
For instance, if you own a cultivation operation, it’d probably be beneficial to complete the supply chain. This would involve starting a lab for extraction or processing, a location for manufacturing and distribution, and a retail shop to sell to consumers directly. Each vertical works with each other, allowing you more control over each stage of the seed to sale process.
For a cultivation facility, you’d grow plants until they’re mature. As soon as they’re ready to harvest, you’d have a team cut the plants and prep them for the lab and extraction facilities––or to sell to consumers.
When the cannabis plants reach your lab or extraction facilities, the team removes cannabinoids for edible or concentrate production. But if you keep the plant in flower form, it’s sent to your manufacturing facility for weighing, packaging, and labeling.
After the products are labeled with local state law compliance a priority, it’s ready to travel to retail or medical shelves. As you can see, vertical integration in cannabis means you own all aspects of the process.
Vertical integration vs. specialization
In the fight of vertical integration vs. specialization, it’s essential to know that these two business models are opposites. While vertical integration can work for some, specialization is the right move for others.
But should you vertically integrate or specialize in a particular vertical?
Does Vertical Integration Work for Cannabis?
Vertical integration ensures you gain more say over how your supply chain operates. This can involve either purchasing existing businesses, creating and developing partnerships with them, or establishing new enterprises.
While vertically integrated canna-business can work in the same state, we’re seeing more canna-companies spreading the span of their operations across state borders and into other regions to reach more people.
Possessing a retail arm is typically viewed as a critical component of any vertical integration plan for cannabis. This is how your business will have direct access to end-of-the-line consumers.
As we observe a trending shift towards purchasing online, becoming active on e-commerce platforms is increasing in popularity. The role online purchases play in vertically integrated operations has grown significantly since the COVID-19 pandemic began, and it’s not likely to fade away any time soon.
However, the way this works for you can be contingent on where you’re located because implementing vertical integration in cannabis differs from state to state. For instance, some states––like Washington––don’t allow vertical integration. However, in states like Florida and New Mexico, vertical integration is required.
Why are some states mandating or banning vertical integration in cannabis?
States banning vertical integration are afraid because of what happened with alcohol before prohibition. Prior to prohibition, alcohol manufacturers formed sheisty business partnerships with bars. This promoted excessive consumption and decreased the competition, effectively putting some companies in control of everything related to alcohol.
To minimize these shady practices, alcohol post-prohibition regulations banned vertical integration in the alcohol industry. The states banning vertical integration are now fearful of cannabis business monopolization that could result in a decrease in competition. These states believe that this can damage the industry, making it more challenging for small businesses to enter the market because of the excessive upfront capital vertical integration demands.
However, some states believe in mandating vertical integration because they think it permits more oversight and control of the seed to sale process. Furthermore, some states claim that it helps to reduce purchases from the black market because requiring vertical integration forces the businesses to produce, manufacture, and distribute their own products.
Why support or avoid vertical integration in cannabis?
People operating in support of vertical integration also highlight that federal tax issues are resolved. For instance, since cannabusinesses aren’t allowed to deduce regular business expenses under Section 280E of the Federal Income Tax Code, they vertically integrate to share their overhead costs across multiple businesses. Rent and utility costs are split between vertically integrated businesses, thus relieving the 280E burden.
In Colorado and Oregon, cannabis vertical integration is allowed. But neither of these states demand it in the cannabis sector.
While this can work for cannabis, it’s not always an option. Sometimes, cities cease licensing for specific license types. For example, some cities only permit a certain number of cultivation or retail licenses.
Some people prefer to avoid vertical integration too. For instance, craft growers and small scale businesses servicing certain niches within the cannabis sector can become stressed if they attempt to integrate vertically. If required, these small operations are then pressured to build out their businesses––sometimes, while lacking the appropriate capital to make it work.
Vertical Integration in Cannabis: Why or Why Not?
Advantages of Vertical Integration
While the disadvantages of vertical integration can dissuade some people from participating in it, this business model comes with several key advantages that make it appealing.
Don’t bypass the benefits of vertical integration just because of some potentially problematic aspects. Here’s what you can expect when you vertically integrate your cannabusiness:
More control. Business owners who vertically integrate have control over their whole production process. This can usually translate to producing products at a cheaper cost, and this can help you bring your costs––and your consumers’ costs––down significantly. In turn, your operation can become more competitive and receive a larger market share. You also control the prices because you no longer have to worry about including third-party product and service providers in your operations.
Better quality. Quality control is easier to manage when you have and maintain complete control over your production. You’ll have more opportunities to improve your accuracy, and this can translate to providing the higher level of quality consumers expect from a top-notch cannabusiness.
More savings. Vertically integrated canna-companies have the potential to save on overhead costs. Between rent and utilities, sharing these costs makes having multiple operations less expensive for each business.
More reliability. By bringing cultivation, manufacturing, and retail together, your supply chain becomes more reliable than when these verticals run independently of one another. Your retail and processor components are given access to high-quality raw materials and finished products, and the cultivation facet doesn’t have to worry about finding someone to purchase the yields.
Greater economies of scale. Since vertical integration can lower overhead costs and increase your profitability, you can drastically improve your economies of scale. You can increase your cash flow, allowing you to reinvest more money into your business. Increases in profits can also enable you to purchase state-of-the-art equipment to improve your output and efficiency in processing, extracting, and manufacturing. You also have the option to expand horizontally by purchasing or opening more facilities, increasing your capacity. Thus, you’re capable of utilizing greater economies of scale.
Control over supply and production plans. Operating a parent company allows you to monitor your retail outlets’ sales trends and plan for your future. Since you have more control over your planting and manufacturing activities, you’ll make decisions on your supply and production plans that can vastly improve your processing and stocking efficiency.
Faster adjustments. Vertical integration also permits rapid changes to product offerings, allowing your business to stay ahead of the competition. For instance, if Gorilla Glue is soaring out of your inventory, your retail team can reach out to your cultivation team to adjust the supply chain to meet those needs.
Technology leveraging capabilities. Instantaneous data sharing in this digital era ensures you can coordinate your management and administrative functions effectively. Operating a vertically integrated company streamlines decision-making, lessens overhead costs, and achieves new levels of efficiency. Real-time communications between each vertical can improve most aspects of your operations.
Effective structuring to create, promote, and sell branded products. Launching your own line of branded products becomes more straightforward when you control all aspects of your cannabis operation. While it’s challenging to break into a crowded marketplace, vertically integrated companies bypass the barriers. Since you’re using your cultivation, production, manufacturing, extraction, distribution, etc., you know the quality is on point. This is critical for those seeking to establish a solid reputation for a new brand.
Attractive to big investors. For business operators interested in an M&A for their cannabusiness, significant investors find vertical integration appealing. These are the investors who are looking for plug and play models with proven track records. Vertically integrated cannabis businesses are usually acquired at a premium because it’s challenging to build a cannabis supply chain, integrate teams, implement systems, and handle other aspects of creating these operations.
Disadvantages of Vertical Integration
Controlling the entirety of your supply chain sounds great when considering the benefits of vertical integration for cannabis. But the disadvantages are equally important to note.
Keep the following cons in mind if you’re considering vertically integrating your cannabiz:
It’s expensive. Cannabusinesses considering vertical integration must have or raise significant capital to make it work. This means it’s incredibly challenging for small businesses to enter the cannabis industry in states that demand vertical integration. For these smaller operations, it can be overwhelming to handle all the requirements from a financial standpoint.
“Jack of all trades, master of none” scenario. Sometimes, it’s best to specialize in a single vertical rather than specializing in all of them. While it’s possible to specialize in various verticals, this usually requires time and experience operating in each vertical before becoming a master.
State requirements can prove problematic. For cannabis business owners operating across multiple states, variances in state requirements can be challenging. One state could demand vertical integration while another could ban the practice. With this in mind, multi-state operators have to adjust their business model accordingly, which takes a lot of time and money to implement.
While valid pros and cons for vertical integration in cannabis are essential to consider, you can weigh them together to determine whether you can improve your business by vertically integrating. Regardless, you’ll still need to determine whether the business model will work in the state(s) you operate in.
Is Vertical Integration the Right Approach for Your Cannabis Business?
Even though the cannabis sector will always have space for specialized companies, motivated entrepreneurs and management teams can succeed with vertical integration. The benefits of vertical integration for cannabis are easy to see. But it’s critical to consider the location of your operations and potential cons before committing to vertically integrating.
Interested in growing your cannabis business? Contact us today for an analysis of your specialized or vertically integrated canna-company.
Sometimes, business owners don’t consider their break-even point. But knowing when you’ll become profitable means understanding how to calculate your break-even point. This is also how you’ll bypass the inflated numbers to reveal how long your profitability will take – with expenses in mind.
All too often, we see catchy headlines marketing to the masses. They proclaim how cannabis dispensaries are earning millions of dollars each year. These figures sound too good to be true, and that’s because they’re focused on the gross revenue.
But we need to bypass gross revenue and determine how much your dispensary earns after factoring in expenses. This is the right way to judge your business.
The first step is understanding break-even point meaning and how to calculate it.
Net income and net margins have their roles to play. With this information, you’ll know what you should set aside for taxes. And this ensures you effectively manage your costs.
The value in knowing your costs is knowing when your dispensary will be in a better position to become profitable. In this article, we’re covering what a break-even point in accounting is and the calculations you can do to uncover your dispensary’s break-even point.
What is a Break-Even Point (BEP)?
A break-even point in accounting for cannabis is the point when your costs and total revenue are the same. For instance, if you’ve invested $100,000 in your dispensary, you’ll break even when your total profit reaches $100,000.
But according to Investopedia, conducting a break-even analysis is as easy as dividing the fixed costs by the price per unit minus the variable cost of production. While this is a simplified definition, it highlights that your business’s goal should be to hit this point early on in its lifecycle.
After reaching your break-even point, the next step is to achieve profitability. This is when your revenue grows beyond your costs. Typically, the break-even point for a cannabis dispensary involves:
People – The wages and benefits for the people working in your dispensary.
Products – Think about where and how you source your products.
Space – Real estate regulations mean you have limited options for spaces.
For every break-even analysis example, your expenses won’t always be flexible. However, you can adjust some of them to determine what will work best to achieve profitability. For instance, you can cut the cost of your products by sourcing from somewhere else. You can also hire fewer staff or adjust the hours they work in your dispensary.
Calculating the Break-Even Point for a Cannabis Dispensary
As you calculate your cannabis dispensary break-even point, these are the variables to consider:
Average Sales Order – To calculate your average sales order, add all of your sales and divide the sum by the number of transactions.
Average Monthly Contribution Margin – To calculate your average monthly contribution margin, you’ll add your cost of goods sold (this should include shipping and any other direct costs) and divide it by your revenue. Keep in mind that this does not account for your taxes, which will take between 7% and 10% of your margins.
Average Monthly Fixed Costs – Combine all monthly fixed costs. This should include your bank/merchant fees, licensing fees, office supplies, software subscriptions, total payroll, rent or mortgage, utilities, and any other expenses you pay every month.
With this information on-hand, you can determine your break-even point, as well as how many sales per day or per month you’ll need to make to break-even. While a break-even point calculator will make this easier, some simple math can produce results too.
As a break-even point example, suppose your average sales order is $200 and your average monthly contribution margin is 50%. Your monthly fixed costs are $3,000 and you’ve invested $100,000 in your dispensary. With these numbers, you can calculate the number of sales per month or day to break-even. If you want to break-even in 6 months, you could uncover daily, weekly, and monthly sales targets.
In this break-even analysis formula, you’d multiply the number of months (6) by the monthly expenses ($3,000). Then, you’d add that to what you’ve invested ($100,000). This equals $118,000.
You’d then divide $118,000 by 50% of your average sales order ($200). This shows you’d need 197 orders per month to reach your break-even point in 6 months.
This math can also be applied to calculate how many orders you’d need per day, week, year, etc. However, keep in mind that you’ll need to include local state and federal taxes in your calculations.
What to Do After You Know Your BEP
Once you know your BEP, you know your sales targets to maintain your progress. While sales will fluctuate from day to day, this offers insight that can guide your marketing and management decisions.
Now that you have information contributing to your operation, you should maintain a sales journal. With a sales journal, you’ll track your sales, the number of transactions, and other relevant information. As you continue updating your sales diary with relevant information, you can look back to gain more insight regarding your business’s sustainability and how to maintain and grow it.
A sales journal allows you to look back at the days you’re not breaking even. There could be a trend that reveals when and why certain days aren’t profitable. This will allow you to take action and determine where you can cut costs and increase your chances of making a profit on those days.
You might decide to cut costs. This will involve checking your variable costs. You may be able to cut costs by scheduling fewer hours for your team. Or perhaps you can decrease your marketing costs for the days you’re not profitable.
Another option is to sell more product on those days. This could involve some creativity. For example, you could try hosting events or running a promotion on those days to increase profits and cover your overhead costs.
Most of the time, the best option is to market profitable items. This isn’t always the priciest product you sell. You’d focus on selling the products that offer the best margins. For many dispensaries, this product is pre-rolls.
Running percentage discounts isn’t always the best choice. Some customers will alter when they purchase to ensure they’re buying during times you’re offering a discount. The goal here is to get your customers to spend more and get a better deal simultaneously.
After you know what’s causing your unprofitable days, it’s also important to determine what’s causing your most profitable days. Perhaps some employees are making those days better. Or maybe other external factors are coming into play. Your sales journal should highlight macro-trends you can use to improve your dispensary’s profitability.
While data can be tedious, this is the business end of things. With more in-depth data, you can ensure your dispensary’s long-term and sustainable success as you serve consumers.
Need a financial analysis of your dispensary? Looking for help with your dispensary accounting? Feel free to contact us today.
While filing for bankruptcy as a cannabusiness operator isn’t an option, receivership could work. This involves having an appointed trustee restructure your company and is especially helpful for business owners interested in exiting the cannabis sector and recouping some of the resources invested in the business.
But why is a receiver appointed? And what is the role of a receiver?
While we can use receivership for limited purposes, it also works as an alternative to foreclosure. Let’s talk about how receivers and receivership and how they can work for cannabis business investors.
Many cannabis business operators have found themselves in dire situations following the market downturn. We’re observing some bankruptcies move to Canada because it’s federally legal there. But some operators are finding it increasingly challenging to cope with the downturn as customers are stuck at home, and partners cannot operate the business properly.
Since Federal regulations prohibit cannabis, filing for bankruptcy protection isn’t an option for those operating in cannabis. This being the case, struggling cannabis business operators have an option called receivership.
Receivership is a financial process that allows a trustee to step in and restructure the company to bypass bankruptcy. Through this process, a court-appointed person can either try to improve the business or assist in liquidating assets and paying off obligations that could include debt owed to those who’ve invested.
If you’re a cannabis investor who has taken on a debt note rather than an equity stake in the company, receivership is usually an effective option. If you opted for an equity arrangement, the company has no obligation to pay you back. With this in mind, you might have to exit the receivership arrangement of the cannabusiness with nothing.
On the other hand, if you’re in a debt-relationship, you could use receivership to recover some of your financial resources from the cannabusiness. This could also work if you entered into a joint venture deal with a cannabusiness and the company owes you money from the arrangement. If this is the case, this is viewed as a debt that must be repaid.
If you have a debt note or a loan out to a cannabusiness, you can request that the court force the business into receivership. If this happens, the business will be taken over by a court-appointed receiver, and the current operator will no longer have a say.
You don’t need to be a third party investor to enter into receivership. While you can be a third party investor, you might be a founder who has funded the business on the books. This initial capital contribution could have been journaled as a loan to the canna-company. You might have equity in the business too. But if you made a loan to the company, that’s a debt that it owes you. This, of course, is contingent on the details of the agreement.
If you decide to trigger receivership for a cannabusiness you’ve invested in, here’s what you can expect:
Role of Receivership for Cannabis Business Investors
Who can appoint a receiver? The court.
Court-appointed receiver duties include managing the cannabusiness’s properties and assets. This is comparable to the role of a bankruptcy trustee.
The receiver acts as new management, managing, selling, or maintaining assets with the primary goal of attempting to pay creditors and stabilize the company to the point of recovery.
Even though the receiver gets to decide what they should handle first, their responsibilities and duties are put in place by the court. The judge sets the receiver’s powers, and if the receiver cannot recover the business, the court could order asset liquidation and assign a liquidator.
But what’s the difference between a receiver and a liquidator?
The Court Grants Power to the Receiver
Unlike liquidators, the power a receiver gains over a canna-company depends on the circumstances and the court’s orders. These duties go more in-depth to resolve problems within a company.
You can use a receivership for a limited purpose. For example, you could implement a receivership to preserve a property pending a foreclosure sale or lawsuit judgment. It can also be used as an alternative to foreclosure, putting someone in charge of managing assets rather than claiming them as collateral.
In some cases, a receivership can be a possible alternative to bankruptcy. This is when a stakeholder wants to liquidate a property and requests the court assign a receiver to handle the liquidation responsibly.
What are the Benefits of Receivership?
A receivership could be the right move for your cannabusiness. But ultimately, it depends on your situation. Here’s how you can benefit from a receivership.
Receivership can preserve assets and even stop fraud. This is beneficial in instances when you’re worried about embezzlement damaging your business.
In some cases, a loan could be backed by assets, such as a building or pricey equipment. These assets can become damaged, stolen, or misused. With this in mind, a court could appoint a receiver accountability over that asset. This can prevent mismanagement or intentional misconduct.
Sometimes, employees or stakeholders within your business might be purposefully committing fraud, damaging your business, or diverting cash. In these instances, a receiver can be a useful ally. If you’re nervous that a company or individual might damage or waste company property or assets, it’s ideal to appoint a receiver to ensure this doesn’t happen.
Receiver relationships can also insulate a secured creditor from lender liability. Lender liability ensures that lenders don’t mistreat their borrowers. If they don’t, the lender could be held liable for any resulting damage to the borrower. A receiver helps you bypass this issue by controlling how the borrower (the cannabis business) is treated and directed.
Receiverships also benefit creditors. A receiver has the ability to freeze and stop all other creditor actions and ensures your claim is honored before others. This is especially helpful when other creditors have a personal relationship with the cannabis business operator or attempt to take advantage of the business in another manner.
With a receiver, you also may have the option to purchase the business using your initial investment. While the receiver comes in to set the company up to recover, the recovery plan might not work out. Then, the receiver needs to liquidate.
As the receiver begins selling off the assets, the creditor’s initial investment (your initial investment) can act as an opening bid to purchase the whole business. If you think you can effectively run the company profitably, this could be a good option for you.
The Receivership Process
The receivership process looks different for each company. However, the process has four main phases:
Receiver tries to stabilize the business. At this stage, the receiver is trying to get the company to a state of profitability. This can involve negotiating with creditors and lowering expenses.
Receiver determines why receivership was essential. The receiver attempts to gain an understanding of the problems that caused the need for intervention. They then must either initiate litigation or convince insurers to abide by the original policy terms and conditions.
If they find litigation is essential, the receiver files a lawsuit if they believe investors will benefit from it. The lawsuit is only filed if the claim will benefit all investors in the entity in receivership. If the claim only helps some investors, it won’t be filed. Thus, if your case isn’t aligned with the mission of the receivership, it could be best to pursue an individual claim.
The receivership concludes with distribution. Assets are distributed to investors at the end of the receivership. This phase can take months or even years, depending on who can claim certain parts of the business. In some cases, investors receive less than 5% of their losses. However, others can recover nearly 100% of their investment losses.
Considering entering into receivership? Feel free to contact us at any time for assistance.
Cash management is crucial for any small business. But when it comes to operating in the cannabis sector, inappropriately managing cash can become a severe issue.
This industry is characterized by inaccessible banking services that force many cannabusiness operators to handle transactions in cash. With this in mind, strong cash handling policies can ensure your dispensary’s survival.
For instance, without the right cash handling methods, sales tax can become a serious problem if you don’t correctly pay it. But if you’re dealing with cash transactions, sales tax is money that belongs to the state.
One significant issue is that companies tend to misuse cash that should be put to the side for sales taxes. Instead, they use this money on operating expenses. Then, when incoming cash flow pauses and sales tax bills are due, cannabis business operators have problems with the IRS and other state authorities.
It’s crucial to know which cash belongs to you and how much to set aside to pay your taxes. Understanding your operating capital cash ensures you know what you’re working with and what belongs to the state.
With this in mind, try these tips to manage your cash:
Get Informed on State, Local, and Federal Taxes
If you’re managing cash on your own, stay up to date on the state, local, and federal taxation. But if you’re working with a CPA, make sure they’re experienced in handling cash for cannabis businesses. Your CPA should be able to teach you about the percentages and calculations you’ll need to set aside cash to pay your taxes.
Your CPA will explain whether your taxes are based on gross receipts, the base that your tax rate is calculated on, and other information about your taxes. This information will vary depending on what you do, so speaking with an expert about your situation can shed some light on it.
For example, dispensaries should have some sort of target revenue monthly, quarterly, and annually. This allows you to calculate what you expect your tax bill to be for each period. With this insight, you’ll have a good idea of what you should set aside to cover your taxes.
Set an SOP for Cash Reconciliation
Once each day ends, reconcile your cash on hand using your POS system. This is how you’ll ensure there hasn’t been a theft or diversion.
Your team should have a standard operating procedure for handling cash. Here’s what your procedure should cover:
Where cash is kept
How cash is counted and who is responsible for counting it
If your business has a bank account, the bank’s location
How the cash is to be transported from the business to the bank
Where the safe is located
What type of safe you’re using
Set Aside Cash for Regulating Agencies
Compliance is essential in the cannabis sector, and your business must remain compliant with regulations set by the state, local, and federal agencies. Cash should be put aside for taxes, but also for license renewal fees and potential penalties you might incur.
Handling your cash flow involves putting cash aside to manage every aspect of your business. This should also include an emergency fund that’s capable of covering your company’s operating expenses for at least 60 days. Emergency funds can be a serious blessing in instances when you find yourself dealing with an unexpected expense like a high tax bill or something else.
Use Banking Services for Cannabis
Sometimes, it’s challenging to get a business account for a cannabis endeavor. However, it’s not impossible. If you have a business bank account, make your cash deposits at least two or three times weekly.
If you can, deposit cash into separate accounts to hold your tax money. But if you can’t separate your cash, make sure you have at least 115% of what you estimate your tax bill will be in your account.
Incorporating a Drop Safe
While a drop safe isn’t always a priority, it’s one of the most effective ways to keep your cash safe and ensure you’re allotting money towards everything you need to handle. A drop safe physically separates the cash you have into categories. For instance, you can have a drop safe for taxes, another for operating expenses, one for payroll, etc.
You should only grant access to your drop safes if it’s essential. The fewer people with access, the better. The only people who should have access are the owner, their lawyer, and perhaps a designated cash handler. Recording each drop in a cash log is also recommended because this will help with reconciling your dispensary’s cash at the end of each month.
For Digital Payments, Separate Your Income from Taxes Automatically
Some merchant processors will let you automatically set aside income money from tax money. For example, if you’ve recorded $1,000 through your POS, you can set the system to deposit part of that money into separate accounts automatically. You can set it to send 10% into your sales tax account, 20% into an account designated for state and federal taxes, 10% into a city tax account, and everything else into your main account.
Incorporate Counterfeit Cash Detection Procedures
Your employees likely haven’t been properly trained to spot fake bills. But that won’t stop the government from taxing you based on fake cash your employees have accepted.
With this in mind, avoid paying taxes on fake cash by incorporating counterfeit cash detection procedures. You also have the option to use a device that checks for authenticity.
Hold People Accountable for Their Tills
Cannabis cash handling demands accountability. Someone, whether it’s your general manager or shift manager, should be responsible for counting the cash at the state and end of each workday.
The cashier or budtender responsible for the till should watch as the GM or SM counts the money. They should then sign off on the count in or out. Once this is completed, whoever is in charge should reconcile the cash with the day’s sales. This should all be done in a recorded room that offers clear views from all angles.
Need help determining the best course of action for cash management at your dispensary? Contact us today to learn more about how we can help.