USE CASE: Ensuring Cultivator Profitability from the Very First Sale

Ensuring Cultivator Profitability from the Very First Sale

Too often cannabis business owners, especially cultivators, wait until they’re within striking distance of opening to start understanding the cost of running their business. By not creating grow cost sheets or developing relationships ahead of time, they are leaving money—and profitability—on the table. Then, during their first year in business, as they do bookkeeping and taxes, they wonder why their businesses aren’t profitable and come to us to unravel their finances.

The Accounting for Green Approach to Consulting with Cultivators

Accounting for Green has a well-earned reputation for excellence when it comes to financial advice for cannabis businesses. 

Cultivators are unique in the cannabis industry in that it takes time to get a grow going after receiving a license for operations. As a result, it’s especially important to put the right practices and costing in place to ensure you’re profitable as soon as you can begin harvesting and selling your crop,

The single most valuable piece of advice we give cultivators with a provisional license is: start building out your cost accounting and projected profitability as soon as you can.

Building a Buzzworthy Business from the Ground Up Starts With Profitability

The first piece of advice we give cultivators who come to us is “It’s never too early to start creating your grow cost sheets.” Even if you don’t have all of the numbers or factors yet, you can start filling in what you know and estimate the rest.

What goes into a cost grow sheet?

  • Cost per KwH electricity
  • Square footage
  • # of lights
  • Cost to run each light
  • Cost of seeds or clones
  • Soil and nutrient costs
  • Irrigation line  
  • Water costs
  • Automation and tech costs (varies depending on level of sophistication)
  • # of plants to grow
  • Yield per strain
  • Percentage by product 
  • Labor costs

MAXIMIZE YOUR REAL ESTATE INVESTMENT

Understanding How to Maximize Your Real Estate Investment

Keep in mind that you should purchase your real estate under one entity and lease the space back to your cannabis cultivation business. This is always true, but particularly so if you’re not planning to use all of the square footage.

FLOWER VS BYPRODUCT

Differentiating Between Flower and Byproduct

While this should be a line item in your grow cost sheets, it’s also important to note here. How much of your yield is flower compared with byproduct? Depending on your client base, the strain, and how they plan to use the product, you’ll sell the parts of the plant at different rates.

BUILDING OUT

Building Out Your Network and Your Building

It’s always a good idea to build a network of other cannabis businesses. It’s particularly true in states like Massachusetts, where dispensaries and manufacturers are competing for product from a small number of cultivators. Because cannabis cannot cross state lines, you must have a finger on the pulse of your cannabis community.

We recently published this use case on building a network to maximize your provisional license. While specifically for dispensaries, much of the information is relevant to cultivators.

SETTING PAYMENT TERMS

Setting Payment Terms

While you want to make it easy to work with you, you also want to be sure you get paid timely. Cashflow is important to every business. Be sure you are setting yourself up for success. Two of the biggest factors that affect accounts receivable are:

  • Not having credit and collections policies
  • Establish a requirement that an agreement is signed before products are provided

You can absolutely set terms that pay you over time, but you may want to get cash upfront.  Make sure that you have a signed agreement or—at an absolute minimum—a very clear agreement before providing product.

Learn How to Get and Leverage Expert Support

While all of this may seem like common sense, the truth is that far too many cultivators skimp on these details and open their doors in the red. By bringing on a financial team you can overcome many of the challenges, get a head start on cost accounting and bookkeeping, and ensure you have a solid understanding of your tax liability. Doing so allows you to focus on what you do best and enjoy most.

Accounting for Green consults with up-and-coming cannapreneurs as well as established businesses on best financial and business practices. They come to us with their big ideas, and we help them understand and explore the financial and business ramifications of each of them. In fact, we frequently tell them, “just because you can, doesn’t mean that you should.” 

We’d love to talk with you.

Contact us today to start exploring your big idea or get financial expertise to build a profitable cannabis business.