Where Can You Get a Cannabis Business Loan?

Where Can You Get a Cannabis Business Loan?

Some of our clients have asked us, “Where can you get a cannabis business loan?” Or, “Where can you get a business loan for a dispensary?”

While it’s not always a loan for a dispensary, it’s pretty challenging for many cannabis business operators to find the funding they need.

Cannabis business funding, in general, is a touchy subject. Even as new states continue legalizing and decriminalizing cannabis for medical and adult-use, the financial sector is hesitant to work with these operations.

However, it’s important to note; there’s a lot of opportunity in the cannabis sector. Entrepreneurs and ganjapreneurs are ecstatic to get involved, and with proper financial backing, many achieve the success they’re chasing.

Traditional lenders aren’t going to help you get a loan for a cannabis dispensary. But we have several options for cannabis business loans worth looking into.

Keep reading to learn more about the options for funding a cannabis business.

Looking for a way to fund your cannabis business? Contact us today to learn more about how we can help you get a marijuana business loan.

marijuana business loan funding

How hard is it to qualify for a business loan?

Before applying for a cannabis business loan, it’s ideal to know what to expect. Simply put, sometimes, it’s pretty challenging to obtain cannabis business funding or loans.

Most of the traditional options for financing a small business aren’t available to cannabis business operators. This is primarily due to federal regulation, which makes funding a challenge for borrowers and lenders.

cbd business loan funding

How can you qualify for a cannabis business loan?

For starters, one of the most typical questions we get asked is, “Can I qualify for a cannabis business loan if I have bad credit?” The answer surprises most people.

Cannabis businesses can get approved for funding with invoice financing. Business Cash Advance is also an option for those with poor credit. However, other options exist.

Asset-Based Financing, while more difficult to get with poor credit, could be an option. But you’ll have to speak with the lender directly to determine whether this will work for you.

Invoice financing is usually one of the best options because it doesn’t account for business credit. If your business invoices customers regularly, this could work for you.

Business Cash Advance is also appealing because it accepts bad credit. However, your terms will depend on your personal credit. With this in mind, it’s crucial to determine which option will work best for you per your credit.

Some people wonder, “Can I get cannabis business loans if I’m a startup? This is doubtful. Your business should have a record of sales or receivables and, if it’s a startup, it likely has neither. 

Even with prior company ownership experience, funding for marijuana or cannabis business isn’t accessible without data from its operations. Thus, if you’re running a cannabis startup, it’s ideal to find alternative options and funding solutions to acquire the capital you seek.

cannabis business loan funding bank traditional banking

Can cannabis businesses borrow through a bank or other commercial lender?

The option to go with a commercial lender to finance your cannabis business is available. But since this option is quite new to the industry, it could be challenging to find one.

With our experience handling the financial aspects of cannabis operations, we know where to find commercial cannabis lenders. Our connections in this industry have made us a resource to marijuana business operators looking for funding to fuel their growth.

Have a cannabis business that needs capital? Contact us today to learn more about how we can obtain a marijuana business loan.

Cannabis Business & Dispensary Loan Types

cannabis private loan funding

Private Loans for Cannabis Businesses

Private loans for marijuana companies come from non-bank lenders. The rates commonly range from 8 to 25 percent, with lending terms spanning from one to three years. The funds are usually available within seven to fourteen days. These lenders offer business funding to growers and manufacturers of cannabis products as opposed to dispensaries. However, if the dispensary has proven revenue, this could be an option. Venture capital firms are the go-to for private loans.

cannabis real estate loan funding

Real Estate Loans for Marijuana Companies

For cannabis CEOs interested in buying land to cultivate cannabis or real estate to operate the business, a real estate loan could be a solid option. Hard money loans, bridge loans, and shorter-term mortgages are generally available for cannabis businesses and medical marijuana dispensaries. The interest rates usually range from 8 to 20 percent, with terms ranging from 1 to five years. Funding takes between 30 and 60 days following the application.

Common Cannabis Business Loan Questions

cannabis business loan funding

What type of information is needed to apply for a cannabis business loan?

Even though cannabis lenders are operating in a non-traditional sector, they still operate the same way as other lenders. This means you’ll need to have your finances in order when the time comes to apply for your loan.

Lenders will want to look over your financial records, which should include income statements, balance sheets, and bank statements. They’ll also want to analyze your credit risk profile and capital needs. In some cases, you might find lenders catering to the cannabis industry interested in looking over your key management staff and active cannabis licenses you’re holding.

cannabis business loan funding

Are monthly inventory and/or cash audits necessary?

While this is something we recommend all of our clients have done, traditional financial institutions will demand monthly inventory and cash audits throughout your loan’s life. This is especially true for the institutions that administer loans for the Small Business Association (SBA). While cannabis-specific lenders might not demand these monthly audits with timely payments, it’s still best practice to keep up with your monthly inventory and cash audits.

cannabis business loan funding

How much money can I borrow for my cannabis company?

Just as with other loans, the credit limit for cannabis businesses depends on a few variables. These include your capital needs, credit risk profile, balance sheets, income statements, bank statements, management personnel, credit score, and others. The size of a cannabis loan is contingent on what kind of loan you pursue, as well as the reason you need cannabis business financing. Loans generally range from a couple of thousand dollars to several million.

How do I determine what type of loan is best for my cannabis business?

Several factors will come into play here. Consider how your business operates in the industry, how much capital you need, your business model, how often you’ll need to access funds, your credit risk profile, and your expected loan term. With any type of loan, it’s best to speak with a lender that will assure compliance as the industry continues expanding and changing.

How to Get a Loan for a Cannabis Business

The first step to getting a cannabis business loan is to ensure you have your financials in order. Documentation is the key to getting the funding your company needs.

Interested in getting your cannabis business on track to get a sizable loan? Contact us today for expert assistance.

Michigan Marijuana Regulatory Agency (MRA) Annual Financial Statement Insight

Michigan Marijuana Regulatory Agency (MRA) Annual Financial Statement Insight

Now that the January 31, 2021 deadline for the medical Annual Financial Statement reports (AFS) has passed, we have some additional insight for cannabis business operators in Michigan. The requirement per the AFS’s section 701 of the Medical Marihuana Facilities Licensing Act (MMFLA) has made our jobs more challenging but certainly not impossible.

Even as many licensees missed the deadline, the MRA has continued to accept reports without officially granting extensions. As such, while we believe the MRA understands the challenges, we doubt the grace period will extend for another year.

So far, many licensees have received notices regarding their adult-use licenses. They’ve been told that they will need an AFS by June 30, 2021. As the deadline for these filings grows nearer, we’re listing some of the most common deficiencies we’ve observed from the MRA that demand more clarification and/or action below.

Need assistance with your Annual Financial Statement? Contact us today to learn more about how we can help.

What is the Annual Financial Statement (AFS)?

As outlined in the AFS’s section 701, the MMFLA now requires licensees to submit to the Marijuana  Regulatory Agency (MRA) financial statements outlining the licensee’s entire operations per the manner and form outlined by the MRA.

The MRA has developed its annual financial statement form report that licensees must use. The agency will not accept any other report formats. Furthermore, the Annual Financial Statement (AFS) Contact Authorization form will need to be submitted with the AFS.

Here are some links to additional essential resources for filing the Annual Financial Statement in Michigan:

Who Can Prepare the Annual Financial Statement (AFS) Report?

The AFS report must be conducted by an independent certified public accountant (CPA) licensed in Michigan. But does this CPA need to be located in Michigan to prepare the AFS report?

Can an out-of-state CPA firm registered in Michigan prepare the Annual Financial Statement report? Yes, as long as the CPA is licensed in the State of Michigan.

For CPA firms registered in Michigan, the individual CPA handling your report must be licensed in the state. If the CPA is not licensed in Michigan, this person cannot prepare the report on your behalf. This information is under Section 701 of the Medical Marijuana Facilities Licensing Act and MCL 339.722.

Requirements for the Annual Financial Statement (AFS)

Reporting periods and annual requirements are announced by bulletin like the one found here. The bulletin was issued on June 3, 2020, which announced that the Annual Financial Statements requirements for all businesses and individuals with marijuana licenses on or before December 31, 2019 include the following:

  • Licenses obtained prior to October 1, 2019 must deport by October 31, 2020. However, the initial licenses acquired from October 1, 2019 to December 31, 2019 should report by January 31, 2021.
  • Any marijuana licensee who has acquired a license on or before December 31, 2019 needs to file their report for 2020. This report should include information regarding all licenses held at any point during the applicable reporting period.
  • The report outlines an agreed-upon procedures engagement that has to be handled by an independent certified public accountant (CPA).
  • CPAs have to communicate all findings using the report structure created and implemented by the MRA designed explicitly for the marijuana industry. License holders are responsible for filing these reports with the MRA – the agency will not accept other reports.

Without compliance with these reporting requirements, licensees operating in the State of Michigan could be opening themselves up to liability. Filing a late report forwards licensee names to the MRA Enforcement Division, which could result in disciplinary action, such as potential license suspension.

Need assistance with your Annual Financial Statement? Contact us today to have a CPA handle your AFS for you.

Common Annual Financial Statement Deficiencies from the MRA

Preparing a Michigan AFS per the MRA’s demands can be challenging. Here’s a list of the most common deficiencies to consider:

  • Entities structured with multiple licensees and a centralized corporate management function don’t clearly outline their allocation of expenses with each corresponding license tested.
  • Payroll found in the general ledger isn’t reconciled with payroll tax returns.
  • Transactions don’t include properly-maintained supporting documentation.
  • Customers and vendors recorded in the general ledger don’t use the legal entity names.
  • Revenue found in the general ledger was not reconciled with the POS or METRC.
  • Individual sales transactions from METRC do not align with the underlying support observed in the general ledger.
  • Ownership tables are not aligned with the documents offered to the MRA.
  • Lease agreements are matching the information offered to the MRA.
  • Initial licensure dates offered were not accurate, which impacted the reporting periods.

Tips to Prepare for Michigan Marijuana Regulatory Agency Financial Report

As we prepare for the next round of adult-use AFS reports, it’s essential to prepare cannabis companies for the testing. This will involve reviewing and reconciling 2020 record keeping.

Here are some tips to ensure you’re prepared for this testing:

  • Properly identify your ownership structure and make sure it agrees to all underlying agreements on file with the MRA.
  • Maintain the right documentation for your license approval dates.
  • Perform wage reconciliation of the 941s to the general ledger quarterly.
  • Check all of the supporting documentation for revenue and expense transactions to ensure they’re all properly maintained. Include this as a component of your accounting process and controls.
  • Get form W-9 for every vendor and check the information recorded in the general ledger to ensure it includes the full legal entity name vendor. Maintain caregiver numbers and license numbers for all vendors where applicable.
  • Reconcile sales to METRC and, if applicable, to the POS, each month. Make sure to document reasons for any discrepancies.
  • Check all agreements to ensure they’re appropriately executed by all parties and are documented with the MRA. For revisions, regardless of whether written or verbal, must be documented.
  • Check all legal documents, including but not limited to licensing agreements, leases, and other agreements, to ensure they’re all readily available with all transactions in the general ledger properly recorded in accordance with the agreements.

Need an expert CPA to handle your Annual Financial Statement? Contact us today to learn more about how we can help.


Cannabis Nursery Businesses: The Right Investment for You?

Cannabis Nursery Businesses: The Right Investment for You?

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.

California Cannabis Excise Tax & Cultivation Tax Insight

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.

And let’s not forget about compliance. Each state has its own regulations in place for cultivators. For example, in California, cannabis waste disposal is regulated.

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 apiece. 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.

taking care cannabis trees

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.


How to Determine the Break-Even Point for Your Cannabis Dispensary

How to Determine the Break-Even Point for Your Cannabis Dispensary

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.

Interested in learning more? Make sure to check out our other post about cannabis dispensary profit margin.

Looking for expert assistance managing your legal cannabis business’s financials? Northstar is ready to increase your dispensary’s profitability!

Contact us now to learn more about how we’ll enhance your profits with the right financial services.

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.

Financial Forecasting Methods & Factors for Cannabis Businesses

Financial Forecasting Methods & Factors for Cannabis Businesses

Financial forecasting methods in cannabis are essential for success. The industry environment is continuously changing, and the right predictions can make it easier to navigate.

Every business should utilize a financial forecast. This is especially true for those operating in cannabis.

The cannabis sector is experiencing tremendous growth at the moment, with Investopedia reporting canna-companies raised $116.8 billion in capital during 2019. Now is the time to understand what will happen throughout the industry, especially when considering the legal market should be worth approximately $73.6 billion by 2027.

To acquire your share of this expanding market, data is essential. With this insight, you’ll create a financial plan or forecast and know which factors will come into play. In this article, we’ll discuss financial forecasting and ways to improve your efforts with data.

Why Use Financial Forecasting?

The right financial forecasting methods give your canna-business an advantage by encouraging decisions based on uniform and cohesive reports. This information makes it easier to establish a foundation of realistic goals to build your business’s success.

Your canna-company can experience the following specifics with financial forecasting:

Maintain More Control Over Cash Flow

As you analyze your financial forecast, you’ll better understand your business’s future cash demands. With your projected expenses known, you’ll also know how much cash you’ll need to keep on-hand to cover your business’s costs.

A simple calculation of the minimum net operating cash you should have on-hand depends on a few factors, such as your risk tolerance. Regardless, it’s best to have between two and six months of your overhead expenses on-hand at any given time.

With your forecasted financials, you’ll know your monthly expenses. Then, you can multiply this number by the number of months per your risk tolerance.

For instance, if your company costs $6,000 to operate and you feel comfortable when you have six months of operating expenses covered, you’ll want to have at least $36,000 on-hand.

With cash-on-hand, you’ll have money in case something goes awry. Regardless of which industry you operate, there’s always some unexpected expense to cover.

Effective financial forecasting produces cash flow control that will cover any fluctuations in your expenses. Whether a mistake was made or the industry changes, you’re covered.

Use an Operations Budget as a Key Performance Indicator (KPI)

Your annual operating budget for the year ensures you’re always on track. With this budget, you’ll manage your progress month to month and calculate how your business performs in comparison to your plan.

You’ll know which costs are high or low, along with which sales are higher or lower on average. This information will guide you in taking corrective measures whenever necessary.

An operations budget also acts as a key performance indicator that you can use to perfect your financial forecast model. For instance, if your business performed better last year than this year, it might be best to make adjustments next year. This is the sort of insight your operations budget will provide.

Keep Yourself Ready for Significant Price & Revenue Changes

Operating with insight ensures you’re prepared for the worst. Some months will be better than others, and accurate data will help you appropriately manage the cash you have on-hand. But this will ultimately come down to the financial forecasting methods you have in place.

Financial Forecasting Methods to Incorporate in Your Efforts

Your financial forecasting methods are how you’ll gather the data your company needs to operate successfully. Instead of doing things based on ideas or what you think will work, you’ll have hard evidence to project your canna-business forward. 

Analyze Comparable Businesses

Determining how accurate your financial forecast is can involve comparing your projections with other similar businesses.

Since the majority of canna-companies keep to themselves, you won’t always find their projects readily available. This is where you can get creative.

A cannabis CPA will have access to this information, so when it comes time to gather this insight, you can always ask for help. If this is something you need assistance with, we can help by comparing your forecast to our other clients operating in cannabis.

Map Multiple Scenarios

As you forecast your business’s performance, you might consider sandbagging. This is when you predict a low value you believe is easy to achieve because it feels safer to set lower expectations.

Another common strategy is to be optimistic, establishing high expectations for your canna-company. While these two methods differ, you can use both to analyze your business’s potential.

You should map out at least two scenarios. We suggest mapping at least one that’s optimistic and another that’s more conservative.

Mapping multiple scenarios is especially important in the cannabis industry. This sector is characterized by uncertainty due to the various government regulations. But other qualities can influence the unpredictability of this industry, including economic growth and new competition or licenses.

All in all, it’s best to track your business throughout the year. This will give you an average for your financial performance, making it easier to calculate more accurate predictions for the year.

Predict Expenses First

Your expenses will usually be easier to predict than your revenues because they involve fixed numbers. These include rent, licensing, insurance, and other expenses you expect to pay each period.

You’ll then have to anticipate your variable expenses. Include your utilities and other costs that fluctuate in this calculation.

To ensure your prediction is as accurate as possible, it’s best to analyze all details of your product costs. For example, retailers should know their inventory costs, as well as what they pay in salaries and wages. As a retailer, you’ll need to know your cost per pound of flower, per gram of oil, and for any other products you carry. 

These variable numbers will guide you as you find your topline revenue numbers for your forecast.

While your expenses and revenue will vary, you’ll add any additional factors as you calculate. You’ll begin with your known fixed costs, and then you’ll analyze other aspects of your operations to predict everything else.

For example, if you’re a grower, you know your rent because it’s fixed. You also know how large your grow space is, and you can calculate how many grams per square foot you’re likely to produce. In turn, you can estimate the revenue you’ll generate each growing season.

These numbers provide you with insight-driven data, leading to a more accurate forecast. And this is where you can change certain variables to ensure a positive ROI.

Reanalyze Your Model Regularly

Your business’s progress should never remain static, and neither should its financial models.

Analyzing and reanalyzing your model will reveal your growth rates. But you’ll also get a good idea of your true product cost inputs, how your marketing campaigns affect your business and offer insight into how your business performs.

You’ll also take the guesswork out of your business’s updates. Look over expense percentages, revenue, input assumptions, and other internal and external factors to determine more accurate numbers. These numbers tend to change throughout the year.

Your business’s past performance can be used as a signal for change. Alter your model under newer and more accurate data.

Factors to Consider During Financial Forecasting

While you can’t predict everything that will affect your business, you can perform an analysis for financial forecasting purposes. Understanding some of the factors that come into play will contribute to your success in creating your cannabis business’s operating budget.

Keep in mind, this is not a list of all factors that could impact your business’s financial forecasting. But these are essential to consider as you build out your financial projections.


If your operation is located in or en route to a seasonal tourist destination, you’ll likely notice a peak in revenue during the year. This, of course, all depends on when tourists are drawn to the area.

If your seasonal tourist destination is a lake or beach, the warmer months will likely produce an uptick. But if you’re more of a winter destination, like the X Games in Denver, you’ll notice it during the colder months.

Understanding when these upticks occur will encourage you to save during these busier months. This ensures you’ll have enough cash-on-hand to get through your slower months.


Seasons will impact your business’s finances too. If you’re in retail, your raw material costs could go up or down. Knowing your input costs will help you maintain your margins as these costs increase.

Cultivators, in particular, know all too well how seasonality affects business. October harvests from outdoor crops usually result in lower prices, especially for those operating in outdoor flower. Oil and other cannabis product prices might also decrease.

Changes in supply are seasonal and should be tracked. There’s also opportunity associated with some seasonal changes, like holiday offerings and sales that could increase revenue when appropriately navigated.

Daily Fluctuations

Even though daily fluctuations usually belong in a more granular forecast, it’s still ideal to consider how your sales fluctuate daily. This is especially the case when considering how your business’s location can affect the amount of traffic it receives each day.

For instance, if your business is in your city’s downtown area you’ll likely notice more traffic Friday and Saturday. But if you’re operating in or near a central business district, your traffic will be more significant on weekdays rather than weekends.

Your Marketing

Each market campaign is on a mission: to drive more revenue. But there’s no telling how your campaign will go, especially if this is your first campaign.

While long-term campaigns can be easier to predict, you’ll need to track your sales to fully understand how the campaign will affect your sales.

For instance, let’s say you distribute coupons to some neighboring communities. These coupons are delivered on Wednesday, and then, you’ll analyze how your sales are impacted each day following their release until your coupon expires.

As time passes, you’ll notice a curve. This curve will help you determine how much inventory you’ll need in the future as you incorporate a similar campaign into your marketing efforts.

Suppose you plan to operate multiple similar campaigns this year. In that case, you would use the insight you gained from that initial campaign to forecast campaign expenses and the resulting increases in sales.

Weather & Climate Fluctuations

Consider the typical weather where you’re located. For instance, when it rains, you might notice a decrease in sales. Depending on where and what you operate, the weather could impact your sales, and it’s important to know what to expect.

As far as climate is concerned, winter and summer temperatures can cause fluctuations in sales too.

For example, as a retailer, you might sell more flower during the warmer months when people are more likely to go outside to smoke. On the other hand, you could see an uptick in vape cartridge sales during the winter when people are more likely to consume indoors.

Natural Disasters & Pandemics

There’s no predicting when a natural disaster or pandemic will occur. But it’s crucial to know how these uncontrollable events could impact your operations.

For instance, the COVID-19 pandemic has brought on an increase in cannabis sales as the average ticket price rose. Once it was deemed an essential industry, the cannabis sector in California has observed some of its best months since legalization.

But during Cali’s wild-fire season, its outdoor grows could be impacted. The fires can burn away supply, cut off the power supply for indoor grows, and result in other damage. For times like these, it’s important to have a fall-back fund to handle these emergencies.

As you can see, a state of emergency can increase or decrease revenue, and it’s critical to consider whether your business will be impacted during a time of crisis.

Tax Increases

Tax increases are especially relevant in the cannabis sector.

Consumer taxes on cannabis have been known to rise, and if the state’s black market operates in full force, there’s a chance that some consumers will begin shopping at unlicensed retailers. This is especially common in California.

However, some states don’t have such an active black market. For example, Michigan doesn’t have many illegal pot shops in operation.

Another option for consumers is to purchase directly from the source. If the taxes increase, local growers will offer direct access to their product. But it really varies from consumer to consumer as most might not feel comfortable purchasing from a local grower.

For cannabis operations, increases in taxes could mean your minimum cash-on-hand requirements could rise. Your tax money should be kept separate from your working capital.

Tax money should be taken from revenue and kept in a separate safe or account. This ensures you’ll always have enough money to cover your taxes come tax season.

Cannabis Sector Growth Rate

Natural growth and shrinkage happen in every industry. But in cannabis, we see it grow in popularity month after month and year after year.

Your financial forecast will probably include natural growth. But the main thing to track is whether you’re maintaining, expanding, or losing your market share.

Since there isn’t much public data available, it could be challenging to get an accurate forecast of how your market share is evolving. Thus, you’ll likely have to make estimates to determine how your market share is changing.

As you maintain a good understanding of your financials, you’ll become more strategic with your decision-making. If you’d like assistance with financial forecasting in the cannabis sector, please feel free to contact us at any time.

Your Guide to M&A Due Diligence Preparation

Your Guide to M&A Due Diligence Preparation

There’s rarely a sign with big red letters warning us of the need for due diligence during an M&A. But maybe there should be.

83% of mergers and acquisitions (M&A) fail. But with some preparation, it’s possible to join the minority of successful M&A transactions.

M&A is a term that describes the combination of two businesses. As the buyer, the idea is to implement strategic goals through an acquisition rather than grow organically. On the other hand, M&A is an opportunity for a seller to cash out or raise funds and share the risk and reward of a new business.

Successful M&A provides value to buyers and sellers. But buyers have the opportunity to:

  1. Bring their products or services to market faster with new products and channels
  2. Lessen competition by purchasing a competitor’s market share
  3. Establish supply chain efficiencies when purchasing a supplier or customer

However, while both the buyer and seller can get what they want out of an M&A, the transaction isn’t always successful. The value of a business can become damaged during an M&A, and without due diligence, overestimating the potential cost savings can result in failure on the buyer’s part.

With failure a possibility, buyers usually prefer to perform in-depth due diligence. If they see something they don’t like, it’s possible they’ll move on from the deal without making a purchase. The key here is to make it as easy as possible for the buyer to determine your company is worth the investment.

This is where diligence is crucial for a successful transaction. By facilitating a comprehensive appraisal of assets and liabilities and an accurate analysis of your company’s commercial potential, you can increase your chance of a successful M&A.

The Importance of a Virtual Data Room (VDR) During an M&A

Today’s corporate environment has produced three significant trends to consider. First, technological advancements now redefine the way companies conduct business. Second, the global M&A transaction volume is increasing by an average of 37 percent each year, highlighting how corporate executives commonly use these transactions to achieve short- and long-term strategic objectives. And third, cross-border M&A activity is on the rise as a result of globalization.

With these trends in mind, nearly 20 percent of all executives involved in an M&A deal feel that due diligence is essential to the success of a deal. The crucial nature of a VDR is to enable the buyer to analyze the target’s risks, overall strategic fit, and potential combination benefits. Having this information readily available ensures a buyer finds the answers to these concerns during the due diligence process of the transaction.

The VDR digitizes the physical data your buyer needs to make an informed purchase decision. Documents stored in a VDR have a more efficient and effective presentation in digital format. It’s also possible to provide access to a VDR to multiple buyer teams as well as several potential buyers simultaneously.

For a buyer, a VDR offers cost savings, time savings, comfort, transparency, and a fair playing field. On the other hand, the seller benefits from a VDR’s simplicity, ease of setup, cost savings, competitive price, legal compliance, time savings, and security. In essence, the VDR facilitates the M&A transaction for both the buyer and seller.

M&A VDR Preparation Checklist

Any company interested in fundraising (debt or equity) for or selling their company should have a VDR containing all of their (corporate/financial/legal/operational) information for the due diligence process.

Here’s a checklist highlighting some of the documents and information most commonly requested during an M&A transaction:

1. Corporate Records – These documents generally include Articles of Incorporation (as well as all amendments), the Bylaws (as well as all amendments), Corporate Minute Book (along with all meeting minutes and resolutions of executive committees, shareholders and directors, and other governing groups), a list of shareholders (and the number of shares each shareholder holds), and an organizational chart.

2. Financial Statements – Your financial statements should include the three most recent sets of the following: balance sheet, income, and statement of cash flows; monthly or by shortest regular accounting period close; as well as key performance indicators and management discussion and analysis.

3. Audit of Financial Statements & Internal Controls – This documentation should include the most recent audit of your financial statements and internal controls, if available. Also, it’s ideal to include CPA-reviewed or -compiled financial statements, if possible.

4. Tax Returns – It’s best to have the last three years of tax returns, along with all schedules and corresponding financial statements on hand.

5. Fiscal Policies & Procedures – Your provided fiscal policies and procedures should include all related processes. This can include payroll processing, accounts payable, purchases, bank reconciliations, accounts receivable, and more.

6. Significant Contracts – Consider any and all significant contracts that relate to your company’s equity rights, leases, debt, employees, customers, suppliers, professional service providers, legal settlements, and anything else that could impact the company.

7. Annual Budget – Including your current and prior annual budget, along with sales, financial, and other forecasts, is also ideal for your potential buyer’s analysis.

8. Plans & Guidance – All plans and guidance associated with your company should be available. This includes the company’s business plan, executive summary, strategic plan, and any other general guidance that could prove beneficial for analysis.

9. Accounting Books – Staying up to date on your accounting and having a copy of or access to the accounting information system database on hand is a sure-fire way to provide insight into your company’s finances. This could include QuickBooks, Sage, Oracle, or some other accounting software.

The Goal: Facilitating the Valuation of Your Company

By performing M&A due diligence, buyers and investors can conduct an analysis to accurately value a company or its assets. The valuation approaches utilized during an M&A transaction can include analyzing the future cash flows (income approach), the value of the company’s assets (asset approach), and/or the value of similar companies (market approach).

Each potential buyer’s due diligence requirements differ in accordance with which valuation approach(es) they plan to use. Since it’s possible to simplify due diligence and increase tax and strategic advantages, many of these M&A deals convert into asset sales instead.

Whether the M&A will change or not, each party must prepare to ask and answer all questions pertaining to the valuation of the company. This, of course, includes providing information to support any of the valuation approaches that might be used.

Regardless of how your M&A might change, as the seller, it’s crucial to focus on providing the right information to allow the buyer or investor to appropriately value your company. While keeping the best possible outcome in mind can help you achieve the best deal possible, it’s equally important to consider the other party’s needs to successfully complete the M&A transaction.