The Benefits of Bringing in a Niche-Specific Accountant
An accountant specializing in cannabis is not always on the top of early investors' and founders' to-do lists, but skipping this step is one of the most common reasons cannabis investments fail to pay off. Without the right financial insight, founders lack the data to demonstrate the health and trajectory of their company to potential investors.
The right cannabis accountant will ensure you bypass common errors and increase your business's value by maintaining its financial health. Since the majority of investors do not participate in the day-to-day operations of the business, a cannabis accountant is essential to maintain and monitor the investment. These professionals can prevent downside loss from theft, severe bookkeeping error penalties, and fraud.
Investors look for solid, visible data that shows them your business is the right investment. This information should demonstrate the profitability and smooth operations of an investment-worthy business, but it is not accessible without a professional to compile it properly. Correct cost accounting, accounting policies and procedures, a tailored chart of accounts, and documented internal controls must all be customized for your cannabis business.
Cannabis-related businesses have complex accounting requirements that differ across verticals including chemical manufacturing, product manufacturing, retail, labs, and farming. Your accounting team should have a firm understanding of the niche-specific regulations that impact the cannabis sector, along with a successful track record of supporting other cannabis businesses.
Create an Incredible Pitch Deck
With the right data on hand, it becomes much easier to put together an effective pitch deck. Cannabis investors want to scan your deck and quickly understand why your company is a solid investment. Your pitch deck should include a clear description of the market opportunity and your competitive position, your current revenue and unit economics, the management team and their relevant experience, how much capital you are raising and how it will be deployed, and the projected return on investment with supporting financial data. Keep it concise and data-driven. No one has the time to read through an in-depth business plan, so the simpler it is to identify what makes your company investment-worthy, the more likely you are to raise capital.
Develop an Impressive 5-Year Financial Model
Your financial model should be fully aligned with the information in your pitch deck. When the model receives an update, the pitch deck numbers must also be updated, or investors will question the accuracy of both documents. Your model should include detailed revenue projections by product line and channel, a complete expense budget covering direct costs, overhead, and regulatory compliance costs, capital expenditure requirements and timing, cash flow projections showing when the business reaches breakeven and profitability, sensitivity analysis showing how results change under different growth scenarios, and clear assumptions that are documented and defensible.
Other Considerations to Raise Capital for Cannabis
As you raise capital for your cannabis business, several other factors will come into play. Before you begin reaching out to investors, make sure all state and local licenses are current and in good standing, clean up your capitalization table so ownership is clear, prepare a data room with financial statements, tax returns, compliance documentation, and key contracts, understand the federal banking limitations that affect cannabis companies and have a plan for how investor funds will be held and deployed, and research the investor landscape to target firms and individuals who have experience with cannabis and understand the unique risks of the industry. Having these elements in order before your first investor meeting demonstrates the operational discipline that separates fundable companies from those that struggle to close a round.