(This is a contributed guest column. To be considered as an MJBizDaily guest columnist, please submit your request here.)
From small-town dispensaries to multistate operators, cannabis executives must be particularly savvy with their financial management.
Cannabis companies can leverage certain strategies to gain an edge over their competitors, including cultivating relationships with industry experts, brainstorming innovative revenue streams and prioritizing compliance management.
Here are five key financial strategies for cannabis operators:
1. Prioritize positive cash flow
Achieving and maintaining positive cash flow is essential, and it requires closely monitoring revenue streams and expenses while paying special attention to key performance indicators, such as average basket size for retailers or yields per square foot for cultivators.
Many new operators overspend on unnecessary facility build-outs or excessive staffing levels.
By carefully managing these costs without compromising quality or service, businesses can reach profitability more quickly and maintain financial stability.
2. Maintain impeccable financial records
Clean, detailed financial records are the backbone of a well-run marijuana business.
Not only are they necessary for regulatory compliance, but they also play a vital role in attracting potential investors or securing loans.
Operators should consider working alongside accountants who specialize in the cannabis industry to ensure their books meet the highest standards of accuracy and detail.
Implementing systems to consistently track and report on key performance indicators (KPIs) will provide valuable insights to assist in decision-making and prepare the business for potential regulatory changes, such as the much-anticipated removal of Section 280E restrictions.
3. Optimize tax strategy
Navigating the complex tax landscape of the cannabis industry requires expert guidance.
Operators should work closely with tax professionals who have specific expertise in marijuana regulations.
Developing a granular understanding of Section 280E and its implications is essential for minimizing unnecessary tax exposure.
While strategies such as allocating expenses to cost of goods sold (COGS) can be effective, it’s crucial that all tax practices are legal and compliant.
Staying informed about potential regulatory changes and being prepared to adapt quickly can give operators a significant advantage in this rapidly evolving sector.
4. Invest in compliance
In the cannabis industry, compliance isn’t just a legal requirement – it’s a fundamental business aspect.
Operators must recognize that their license is their most valuable asset and prioritize protecting it above all else.
Building a strong team of professionals with experience in the marijuana industry can help address the unique regulatory challenges this sector faces.
It’s crucial to stay informed about regulatory requirements in each market of operation, as they can vary significantly from state to state or even between municipalities.
Treating compliance as a core part of the business rather than an afterthought will help protect the operation and position it for long-term success.
2024 MJBiz Factbook – now available!
Exclusive industry data and analysis to help you make informed business decisions and avoid costly missteps. All the facts, none of the hype.
Featured inside:
- Financial forecasts + capital investment trends
- 200+ pages and 49 charts highlighting key data figures and sales trends
- State-by-state guide to regulations, taxes & market opportunities
- Monthly and quarterly updates, with new data & insights
- And more!
5. Cultivate strong banking relationships
In an industry where banking services have historically been challenging to secure, establishing strong relationships with financial institutions or their subsidiaries is paramount.
Operators should seek out banks that understand the distinct needs of the marijuana industry and can offer tailored services.
It’s worth shopping around to find the best rates and services, as some institutions might charge excessive fees.
Look for banks offering interest-bearing accounts, which can provide an additional revenue stream at no extra cost to your business.
Lastly, make sure you always work with reputable organizations to maintain transparency and reduce risk.
Tyler Beuerlein is the chief strategic business development officer at Colorado-based Safe Harbor Financial. He can be reached at tyler.beuerlein@shfinancial.org.
