This interview is taken from an episode of the Spend Culture Stories podcast. In the month of April 2019, we’re launching a monthly segment that focuses on cannabis businesses and best finance and operational practices. In this episode, Chris Cody, CEO of Highly Functioning and former cannabis dispensary owner shares his insights on how to manage cash flow and the mistakes cannabis small businesses make when it comes to operations.
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Cash Flow Lessons Learned from a Cannabis Dispensary Owner
Cannabis Activist/Builder. Former Dispensary Owner. Consultant
Chris Cody is the CEO and Founder of Highly Functioning – a builder of the cannabis industry. By managing grows, brands, retail outlets, and real estate, they seek to create vibrant, responsible cannabis companies in legal states across the country. Formerly, Chris founded Seattle dispensary Herban Legends and served as founder for over 7 years.
In this episode, Chris shares his insights on how to manage cash flow and the mistakes cannabis small businesses make when it comes to operations.
Special co-host of the day Carlo Alvarez, Vancouver-based cannabis technology consultant is also featured in this episode.
Speakers: Chris Cody, Founder & CEO, Highly Functioning
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How do you think cannabis business owners are currently managing their spend?
Mom & Pops
There are two types of entrepreneurs normally in this space – first, you have the “mom & pop” type of shops, where these people don’t necessarily understand cash flow. They don’t understand budgeting, cash flow, very basic things. There are a lot of issues there.
Well Funded Companies
What I’ve seen though is there’s still a lot of mismanagement and poor spending habits from even companies that are incredibly well-funded. You know, there’s the company middlemen, which you’ve probably heard of. They’re fairly large, and right now they’re getting the owners the two primaries, who are being sued by several of their investors for basically what amounts to misappropriation of funds where they have total control over their books.
They have raised hundreds of millions of dollars and simply spent it – beyond their acquisitions and licensing that they have to. It’s really all over the board.
What kind of tools do you think a responsible cannabis company needs to deploy in order to become successful?
Being Well-Informed on Tax Planning
Tax planning is a big one in having a very good standard operating procedure. Having these positions defined, making sure that people operate within their roles, making sure that you can back up your explanations in an audit, to be able to tie things into your cost of goods sold that are directly related – it’s very important.
There’s now traceability software, and the government is now tracking everything, and now [business owners] are not able to kind of push stuff under the rug. It’s all tracked. So they’re starting to look at their tax burdens and they’re going to be significant.
Having a Great Compliance Team:
You just have to be very,very organized. You have to have a good team that understands all of these things. They must understand compliance, because it’s less of a marijuana or cannabis selling business. It’s more of a government compliant business.
What are some misconceptions and issues when it comes to financial controls in cannabis dispensaries?
Lack of Financial Discipline:
You know, the mom and pops have a real problem in that, like a lot of them actually have like a mom and pop in them. I’ve seen instances where the owner’s dad would take money from the til and give free products to customers.
Budgetary Issues + Controls:
But you know, it’s not just the mom and pops that have these issues. The other thing I’ve seen is that a lot of these bigger companies that have managed to raise all this money – a lot of them have real budgetary issues where they don’t have real control. There’s usually a group of owners at the top, people who hold equity and are signers in the bank accounts, and they will spend, spend, spend. Some of them are making plenty of cash and some of them have just raised plenty of cash, but they spend it like it never ends.
I have told these guys: “You are going to waste a million dollars, you’re going to have this whole crop fail.” And they say “Well we’ll just spend another million.”
In terms of the technological tools, what kind of tools do you recommend to your clients when it comes to managing and tracking spend? Are there any gaps in the landscape?
Generally speaking, the tools you need is a good forecasting model and tool, a good bookkeeper/good CPA, and just you know just good financial practices and solutions that can minimize some of the manual tasks so you can really focus on optimizing your bottom line.
What I wish though is that there is an actual point of sale system that is integrated with Quickbooks, so you can simply run all the numbers directly into Quickbooks and not have to pay somebody to input them all to try to sort them all out.
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