Episode 60: Financial Strategies for Cannabis Entrepreneurs

Lisa Buffo  00:11

Welcome to another episode of Party like a marketer, the podcast dedicated to cannabis marketing, public relations and authentic storytelling. I’m Lisa buffo, your host and the founder and CEO of the cannabis Marketing Association, who produces and sponsors this podcast. Cannabis Marketing Association has been up to some new and exciting things this year. We’ve recently launched our consulting arm. And in addition, we have launched a new set of packages for media. So if you’re looking to reach cannabis marketers across social media, this podcast or our newsletter, please go to our website and check out our media packages or reach out to us at info at marketing cannabis.org. Further, we have also launched a new product called Get Canna facts. Get Canna facts is an add on subscription to the CMA membership. So only CMA members can access this content. It is an additional subscription to your membership. But basically what get Kana facts does is we’ve heard a lot of what you need over the last few years. And this content repository takes scientific studies, and essentially translates them into easy to understand language that marketers can use in their communications and their messaging to help reach specifically the kana curious and the kana averse with factual information that is fighting the stigma and speaking to the science directly, but we’re taking the busy work out of you having to read and understand and digest those scientific papers. And if you’re not already a member of the cannabis Marketing Association, you can join us and access our webinars, our educational content, our online portal, all of that as well as our events at the Cannabis marketing association.com. Now, today’s guest is Guillermo Rodriguez. He has over 20 years of experience in diverse roles from in house corporate positions to being a self employed consultant. Guillermo currently serves as the virtual CFO at Summit virtual CFO by Anders. His journey began with a major corporate job where he had the opportunity to explore various functional departments gaining insight into different aspects of the business, including forecasting around a significant acquisition. This experience fostered a forward thinking approach to financial services, and set Guillermo on the path to becoming a virtual CFO within the cannabis industry, helping guide cannabis operators down the path of profitability. Welcome, everybody to today’s episode. Today’s guest is Guillermo Rodriguez. Guillermo, thank you so much for joining us on the show.

Guillermo Rodriguez  02:58

Thank you, Lisa. It’s good. Good to be here. Yes. Well, could you please introduce yourself to the audience, we’d love to have them hear from you who you are a little bit about your professional background, how you got in the cannabis industry? Tell us a little bit about yourself. Yeah, so I’ve been a CPA a little bit over over 20 years. Now. I didn’t start in, in cannabis. But picture this my first job after college I studied accounting actually, I always say this in my intro, because I just wanted to I wanted to make money. I you know, I was one of those that picked a major that makes sure that I could earn income after I graduated. And that was one of the main reasons that I that I studied accounting. But my very first job right out of college was I worked for the Department of Agricultural, the Agricultural Marketing Services. And I say picture this because what I what I learned through that is that the government had programs to essentially regulate wholesale prices for certain commodities that were that were perishable. And so that’s a lot of what we’re facing in the cannabis industry today is where we have crashing wholesale prices in a lot of markets, and just various different prices across all kinds of different markets and probably something you you deal with on on the marketing side. And so what that program was and I was an auditor, is that the government established these market orders to essentially set the prices for these commodities. And just think like how amazing it would be if within cannabis. Every cultivator in every state knew the price that they were getting, and they weren’t subject to these market fluctuations, right. And so many years later going into cannabis, I can see the big difference in how some industries enjoy this protection over pricing so that they can have better profitability and more predictable versus versus cannabis where we just have high fluctuations because of the different the way each state is a different market. And so that was really my intro into business

05:13

through that first job, and then I went to go work for a large contractor at a San Antonio, Texas working in construction and engineering. And I spent the first half of my career doing financial accounting. So that really just means doing the books for this large company, and looking into the past. And that’s greatly important. And what I do now as a virtual CFO, because that’s the basis for it, we got to have good financial information to look backwards. But then that second half of my career, I started looking forward. And my introduction into that was I was in financial accounting, like I said, halfway through my career ready to do something different now. And I got involved in an acquisition that we were buying another large company. And so we needed to do a forecast to demonstrate to the banks to the interested parties of what that what that acquisition would look like, what the financials for the new company, would look like. And so that process of learning how to look into the future, put together historical financial information, and now put it into the future, it really helped me see and how that piece is really what helps makes decisions and helps deals get done, and helps everybody come together and, you know, speak the business of language, which is through these financials. And so then I started into a career of, on the finance side to be more of a virtual CFO, what I’m what I do today, through forecasting cash, managing cash, and, and becoming a financial consultant. And so what happened was in 2020, right, COVID hit. So when I decided I wanted to do something different, and my company just had a lot of regulations, I think it was it was time, I wasn’t feeling the flexibility that I needed in my career. And so at that point, I decided to go into consulting independently for small businesses, because I thought, like, you know, large businesses have, they have a risk management department and financial accounting, and Treasury and finance and what I was doing, but small businesses don’t have all that. And there’s the same struggles, it’s just on a smaller scale. And so I thought, what if I can take this and all of learned from the corporate side and apply to small business. And, and I found that there is a business model out there for that. And it’s the virtual CFO service where you work with different clients, providing that financial guidance, and financial reporting and different services in just a fixed price, where we can meet with the clients regularly, and help them meet their goals and to not determine what their goals are for them, but help them around strategy. And then push those goals forward from a financial perspective and really being that sounding board and that driver for helping the business move forward. And so then, as I was doing that, independently, I found Summit, virtual CFO by Anders. And they were growing in different verticals. And one of them was cannabis. So right at about a year ago, I decided to join the firm and to grow the the cannabis vertical, as we were gaining more traction with within within the cannabis industry.

Lisa Buffo  08:47

And so quick follow up. Are you from? Did you go to school in San Antonio? And are you from Texas?

08:54

I am from Texas. I went to school in West Texas in San Angelo. And then I spent 20 years in San Antonio. And I just recently moved back to San Angelo.

Lisa Buffo  09:03

Oh, cool. Okay. And what was the examples of some of the commodities in that first job? Like what? What are some examples of the cases are set?

09:14

Oh, good question. So I was there’s about seven different agricultural marketing programs that the USDA has, and different market orders. So my, my market order was Texas and New Mexico. And it was within the dairy division. So if you were a dairy farmer, you joined it was essentially a monopoly. We joined the Dairy Farmers of America, and then the prices were set. So if you were a producer, you knew exactly how much you can sell your your product for. And so that was the one that that was the service that I worked for. And then I later and then I learned that the government had the same programs for peanuts, avocados, just all the various perishable products that they were trying to move have moved to market. And the reason the government you know, did this is many years ago there was, you know, spoiling of product and then as we move more into industrial agricultural, you know, society market, you know, the government had that interest to make sure that that product was moving and people are being fed because now we dependent so much on on industrial agriculture. That

Lisa Buffo  10:23

makes sense. Is that why egg prices got so expensive during the pandemic? Total sidebar? Yeah,

Guillermo Rodriguez  10:29

yeah. And that’s, that’s, that’s a different that’s, that’s the retail level. And so that happens then at the retail level. But that’s the same thing with with dairy, you know, and the same thing within cannabis is that, yes, some cultivators do really well. But the real higher profit margins are in the processing and the downstream the derivative products, like Yeah, like tomatoes are not as profitable as as ketchup, or as you seen in cannabis. Many, many of the processors are very profitable compared to the cultivation side of the supply chain. Okay, that

Lisa Buffo  11:12

makes sense. And also for the audience. We’re speaking a few days after tax day. So thank you for giving us the time totally understand APR and how that can be. But you’re also I think the first financial expert we’ve had on the show, we really tend to talk a lot with marketers, but marketing and in cannabis is so specifically is intertwined, obviously intertwined with cashflow, and finances and with marketing, not being able to be a write off in two ad E, the, just the whole financial system, and cannabis is really different than anywhere else. So talking to experts, like you is important to better understand, you know, there’s just less room for failure, I guess, in this space. So I do want to hear your perspective a little bit about what are some of the key challenges that you encounter in this role? And how do you address them. And if there’s any way you can even tie that to, you know, marketing and working with cannabis businesses and small business owners who don’t really have margins, like what’s kind of the big problems you’re dealing with on a day to day basis.

12:20

The big challenge is, is cashflow. And so it is a interesting industry that has somehow just merged and evolved throughout the last 10 years or so I’m just speaking of like when most of the rec programs came online, and that you’re seeing a lot more consolidation. And like less like that means more companies are buying other companies that just aren’t aren’t making a profit. And so that has really been the biggest challenge is the cash flow for a lot of these a lot of these companies and generating cash flow from the operations of the business, you know, and so there’s been a lot of there was years where there was a lot of outside capital investors pouring money back into these, a lot of these companies, but you’re starting to see a lot of that dry out. So that has really been been the challenge. The other piece of that is helping our clients understand their their cash flow. This is a common question. Just had a call with it’s not a client, but it was someone who was interested in talking to us, they’re like I make a profit, but I don’t see any cash in my bank account. And that’s the piece that we work with our with our clients to help to understand is that profit is is one thing and then cash is separate. And so the challenge there is working with with any operator to understand that the reason that cash is low is because maybe you bought a lot of inventory. And every business is the same. I get the question like, how is cannabis different from are the same and compared to other industries? And, and one of them is that any business has. We call it a conversion site or a cash flow cycle, which basically just means like, there’s a day when cash money goes out the door. Yeah. And then there’s a day where it comes back in the form of profit and a sale. And is that one week is that 30 days or is that 90 days? And so for cultivators, right, it’s a little bit longer because you’re you’re planting the seed and by the time you sell it, you need some cash. And so I think most business owners understand that conceptually. But what we do is through forecasting is come up with financial statements, projected financial statements and a forecast to help clients really understand what that cycle looks like. So that they We could make decisions around, do we need to raise more money? Or is cash going to be tight in week one or week two of this month? And we’re better prepared to, to make decisions around cash flow.

Lisa Buffo  15:13

That makes sense. And you work with companies of all sizes? Yes, by my understanding is they’re also an SEC reporting consultant.

15:22

That was in my, the SEC part was in was in my past. So I went from working with, like, the company I worked with for a long time was two to $4 billion, you know, 20,000 employees, including Kraft employees, really large corporate environment, and it was a private company. So there was no SEC reporting required. And then when I went into consulting I was working with, with public companies, so even larger. And then I said, like, my goal was to get into small business. And so I was like, Why do I keep somehow getting involved with really large companies, right, and so, but what that really taught me is that like with SEC reporting, the counting teams are really managed really well, the numbers are really verified 20 and 40 times. So it really taught me how to just have really good controls around producing really good financial data. And it wasn’t until I went a little bit later on in that journey, where I started working with smaller clients. And so something to really explain about working with a virtual CFO, is that companies that start to get maybe 20 to 50 million over 50 employees, there comes a point where it does make a lot of sense to hire a full time in house CFO and a full finance team. We’re in like two to 20 million range. And that’s really where it doesn’t really make sense to expend the cost of a full time CFO, and we could provide the that service at a fraction of the cost. And so our clients are really kind of more in that range in the in the two to 20 million where they have a virtual CFO, a senior accountant, financial, essentially their full accounting and finance team at a fixed rate that they can rely on and get that support. That

Lisa Buffo  17:16

makes sense. And so you’ve talked about cashflow a little bit. But can you also talk about with the cannabis companies you’ve worked with? Like what are the common challenges that you run into? Related to to ad E? Is it different than that? Like, how do you talk me through that process? Yeah,

17:35

there’s a lot of talk like it. He said he hadn’t had an accountant on but I, as like, I hear so many accounts talking about this, is that okay, the challenge is doing the accounting correctly to be able to file the taxes. I don’t really think that’s the challenge. I mean, I think once you work with a qualified CPA that can help you with your accounting to do your taxes correctly for to add, that’s not the big the big issue, the big challenge. And is, is the cash flow around paying the taxes. And so that’s something that we we work with, you know, I had a client that was like, that came onto us because they’re like our previous CPA, I didn’t know I was going to have this big tax bill, I didn’t hear about it until the end of the year. And so when you work with with a virtual CFO, you’re meeting regularly, there’s a cadence to the meetings. And so we’re able to start to estimate your tax liability, or how much you’re gonna pay in taxes throughout the year, so it’s not a big surprise. And we’re also working to set aside money to be able to pay those taxes. And so that is, that’s the biggest challenge around the 280. E is that for those who may be this cannabis podcast, so most most folks are familiar with what that is. But essentially, to ad e this is the to ad section of the tax code disallows what would normally be an overhead expense. Those are expenses that aren’t related directly to the product. So like a retailer can deduct the cost of buying the products from the brand or the cultivator or the supplier, but they can’t deduct the cost of our of your marketing services or my virtual CFO services. And now that may change this year with the reschedule. So if the Reschedule happens effective this year, then 280 e goes away. And essentially, cannabis companies could deduct overhead expenses, just like any other taxpayer would. But what that causes the non deductibility of these expenses is companies to have to pay. I’ll use a technical term here but an effective tax rate of sometimes a 60 to 80 to 100% of the profits. And so that’s why there’s not cash flow that’s generated after the business pays taxes. And that can be a pretty tough situation. So that that’s been the big challenge is generating enough profits to pay for for taxes. And going into 2024. What a lot of companies are faced with right now is that you’ve may have seen this in the news. But there is a court case. Right now, that’s challenging to add. And many of the large companies have filed amended returns for three years. Citing that case, or in many cases, these public companies haven’t disclosed their tax position. But they’re essentially getting really large refunds. Some are from the IRS, because they took the position that Twitty does not apply. And so there’s big cash inflow payments into the industry right now, from these amended returns. And I’ve talked to, it’s easy to follow the big companies, they have done it, but a lot of our clients have not. And then I kind of just take a poll ism, you know, I was at MGM packed and talking to a lot of the smaller companies that are not MSOs, and many have filed amended returns, the challenge right now is going to be deciding, or what you want to think through is deciding if you want to file amended returns, and what are the risks that the IRS may pull this money back, or assess tax assess penalties, for to for, you know, disagreeing with your tax position, essentially. And so that’s a lot of what’s going on this year with 280 E. But companies who decide to file only have a certain amount of time, because there’s a three year max. And so as we move forward, you know, companies want to file this year to get the the full three year refund. As time goes on, you know, you keep losing a year and how much you can file or this meeting, this thing may not work. And we may find out that a lot of these companies were filing these amended returns to get cash back into the business, knowing that they’re gonna have to pay it back to the IRS.

Lisa Buffo  22:19

That makes sense. And do you think this is probably more of a legal question, but just from your circles? Do you think if rescheduling were to happen this year, that 280 II would go away for the 2024 tax year or 2025.

22:32

It goes away in the current year, it does go away in the current year. And so I advise our clients to go ahead and make your estimated tax payments and just go ahead and start setting aside the money as if 280 II does apply. Right. So and then there’s there’s some clients obviously, are not building enough cash to do that. But I take a more conservative approach. But publicly a lot of companies have gone out and said they’re gonna go ahead and move forward as if to ad e doesn’t apply in the current year and that the Reschedule is going to happen. So there’s really like two things going on right now. That can make two ad ego go away. One is the Reschedule probably the most probable. And then the second one is the the Schiller case that is challenging. Whether the Controlled Substances Act is, again, I’m not a lawyer, but constitutional or given that they’re state legal programs. And so I again, I’m not on the legal side of things, but I don’t understand that case as being related to the tax code, even though it’s been cited as the support for all this amended return. So yeah, it’s really two parallel things going on, that’s going to help either way. And my prediction is that most likely that’s not going to be successful. But more than likely, the Reschedule could happen this year. And so moving forward, it’s exciting that cannabis companies won’t have to pay these outrageous taxes and and we were at MJ impact. And we talked to a lot of folks in the New Jersey market. And they’re like, Well, we’re six months away from, you know, getting starting, I’ve ever talked to so many, like, kind of first time owners that are launching in the current year. And it’s an exciting time, because I mean, think about if you’re starting your cannabis business without the 280 E historical burden. Oh, yeah, it’s a great time. It’s a great time for that.

Lisa Buffo  24:37

Yeah. And I imagine as individually, they’re going to have a lot more energy and optimistic optimism than if you’ve been dealing with this for a while because it is it is definitely difficult. So do you coach as well on maximizing profitability and what you know, what are some of the strategies that you that you are coaching on or, you know, how do you kind of think about that if at the end of the day the goal is, but well, at a minimum have enough to pay the IRS wanted to do but you want to stay liquid and you want to be able to give yourself room for the company to stay afloat and weather tough times, which we know are not few and far between in this industry. So how do you kind of think about maximizing profitability? And, you know, what’s that conversation like with your clients?

25:24

It’s it’s a, it’s a, it’s a standard approach that applies to any business, but we we customize it depending on on your business model. But if you look at any business, there’s, well, first let me define something is, is we break down the financials into non financial drivers. And when that’s the you’ve heard, the term profit focused accounting, or earlier I mentioned, like we want to change the way people are thinking about accounting is that it’s not a backwards looking thing. It’s just to help you understand the future. And that’s, that’s how we help with profitability is that we want to get in there and we start to break things down into non financial drivers. And what that allows you to do, again, I’m using the term there, but that just means is what can I control? What are the actions that I can take to improve my profitability? Because it doesn’t help when, when I just tell a client your profits down or your profits up? Yes, we need to understand why. But then we need to understand what we can do to improve which a lot of what you do on the marketing side starts to play into this. So let me give you an example as a metric for sales, if we’re looking at the production side is the average size of a transaction, right? So markets are rarely low at $30. In some, some markets are averaging over $90 A transaction like like Maryland. And so we’re trying to say, Okay, your revenue is basically the number of transactions speaking to retail times how large these transactions are. And then your level of discounting and your pricing affects your the profit after after you deduct the cost of your product. So we’re looking at is your discounting effective? Is it driving more sales are over discounting and affecting your profit margins. And where the driver side where the behavior comes in is that then we say, well, how can we increase the size of these transactions? understanding who your consumers are, which product categories and how they’re performing, and how we can help the budtender increase those average size of that profitability of that transaction? And so one strategy may be cross selling or looking into, we’re not the marketers, but we’ll ask the questions is, are we asking the question of like, is the pre roll category is, is, is up and coming and it’s it seems to be adding to the transaction value, so are minor cannabinoids, is that budtender, asking the question if they want to add an additional item? If so, we’re gonna track the conversion rate on that. And then we say, well, we’re tracking to 10% this month. And then that’s how we’re able to predict if revenues increasing, but it’s all around working with, you know, the marketing team, and those who are making these decisions, to look at this information and say, Okay, this customer is not coming back, we need to reach back out to them. And then the other piece is I just talked about, really about the production of the business. The other part is the pipeline, which is customers coming in refilling the pipeline. And that has to do with customer retention. So we’ll track the customer retention, and then have actual items. How do we follow up? And how do we keep customers coming back? Right, and that that customer piece is what helps us forecast sales into the future. Because if we know, on average, how long we keep a customer, we start to get better at predicting how much a customer is going to buy over the lifetime, and how long they usually stay around before we start having that churn. So we look at all these math metrics holistically, to be able to put one foot in front of the other and start to drive profits start to drive growth. That’s just one example.

Lisa Buffo  29:41

Yeah, and that that’s all the language that we speak as as marketers too. And so I’m glad to hear you say that and tie the two together because it is green. I’m a first time founder. I’ve been doing this eight, eight and a half years now. But one thing that’s just become so clear to me over time is that it is it is a man game, right? The it’s top of funnel, how many leads? Are you bringing in? Are they qualified leads? You know? Are they getting on some indication of a lead call or like expressing interest? How much are they spending customer lifetime value all of that. And we’re membership base. So we also have that metric of subscriptions, and are they coming back and what’s your turn, but if you can, and then you get into a little bit of a chicken in the egg argument, when things get tough, it’s always when cash gets tight marketing tends to be the first to go. But it’s also if which to some degree, I understand. But at the other, you know, other side, it’s, if you’re not filling the top of the funnel, how are you getting the bottom of the funnel to increase? So I appreciate you putting in that language. But I also want to say because you mentioned Profit First, that I love Profit First Profit First for me is we do a version of it, but and we actually have now a virtual CFO. But before I found her and was working with her, I was doing profit first. And it was a game changer for me and how I thought about managing money, I use it even in my personal life, too. But for anyone who’s listening, it’s a book. And it’s really good particularly for I would say service providers or anyone who has variable income, but just conceptually how you think about it. And the biggest thing too is saving for taxes, like putting aside a percent or whatever that percent is with each time you’re checking in with your cash, which can be twice a month, or whatever it is, allows you to sort of build that and then plan your operating expenses accordingly and what you can spend so I’m glad you if we’re talking about the same thing that you mentioned that because that method has been really a game changer for us.

31:42

Yeah, and you mentioned the personnel and that that’s a that’s a big piece too about it. Because working with with small business, it’s it’s usually the main source of income for an owner, it’s, you know, it’s it’s what’s driving future decisions about what’s what’s going to happen in your life, and, and a part of it is getting away from, from the real technical numbers and thing is just really understanding why you’re doing what you’re doing. You know, and that really helps the consulting relationship and will take some time to build that that trust, right and, and really understanding the why and then coming back to it, you know, right, understanding why the client is in business, what they plan to do. And then keeping the the behaviors and the actions aligned with that, right. If you’re hoping to retire, or maybe take a more minimal role in the business, well, then, if you’re have a plan to take on this another project, or you’re not hiring this person, even though they’re available, and we demonstrate that we have the cash and to do it and stuff, and that’s how we kind of it’s the accountability piece of it, too, is really important. With with profit focused accounting. Yeah, yeah.

Lisa Buffo  33:01

Yeah, thank you for bringing that up. Um, so are there it maybe you’ve mentioned this, but I also like to ask people on the show about their kind of personal marketing philosophy, or you know, how they think about it. So for you, given that you’re in accounting, and we’ve talked a little bit about strategies and some of these things, but do you have kind of your own overarching principle or philosophy that that is your Northstar? When you’re guiding or advising clients, or now that you’ve worked with large companies, public companies and small businesses across commodities and across industries? Are there any threads that sort of guide your thinking that we haven’t talked about already?

33:45

Yeah, I’m more on the call it the soft side of it is, is value right is, especially in an industry where so many are competing on price is that number one principle is to create value and sounds really, really big, right? Keeping it in mind. But that is a guiding principle for me personally, right as a as a virtual CFO and growing our business, but also for for clients is that we can’t just compete on price and price alone, there is a big part of the market that is particularly in the flower category about price, but it’s it’s not been sustainable. And so that is my number one principle is that we got to talk through how we’re building value in the eyes of of your customers and in the eyes of the market. Same thing for myself is how am I building value right for for the client. And so that is really one of my my number one principles and then the other one is is really the the why the way that I mentioned earlier, is understanding why you’re doing things and coming back to that. And I think that that really will help drive through what could be many many years of being in a tough in a tough industry. Because that is needed like I were in jam packed. And I was I don’t do a lot of the talk. So I want to more connect with with folks. But the everyone was talking about some challenges, and somebody just stood up and said, Can you can you share some successes. That’s it’s like, that’s what we need to do in the industry is just start to share the successes because they’re out there. All this, what I’ve just mentioned about 280, e and all these and all these challenges, at the same time. This what I started off talking about as a commodity is such a powerful plant that has done so much good. And then also has so much potential just from from a business standpoint, and how much growth is available, despite all the regulatory challenges. And so it’s just a great industry to be in. I don’t think you disagree, but you got to be in, in this because of a bigger vision and the good that that we know that we see that this plant is doing for people. And so I think that is really something that as a virtual CFO, you know, back to your question, that is the principle of, of serving the industry is that we have to be in this niche, and then we have to be involved. And that’s what’s really different from working with a traditional CPA and a virtual CFO is that it’s someone that is really aligned within the industry helping move policy forward. And that that really is immersed in everything that’s that’s going on. Yeah,

Lisa Buffo  36:52

and I’m really glad you mentioned value and not just in terms of there’s value in terms of your product and the service you’re delivering. But also in from a financial strategy standpoint, one of the things I’ve heard from business owners over the years in cannabis, and I’ll say this, particularly to the Colorado market, because that’s where we fit in for a long time. But there are alternative weekly magazines there and around. At one point, it seemed like all the ads, and all I knew one could do when it came to marketing was put coupons in the back of these alternative weeklies, and you would just look at the back pages, and it was pages of coupons that were all literally competing and speaking to this discount, or this discount, or this discount. And the brands I would talk to in the market at the time would be so frustrated and use the term, you know, it’s a race to the bottom because everyone’s competing on price. And it’s who’s offering it the cheapest. The only way that can become sustainable from a business standpoint is when quality starts to get compromised. And you know, you you’re trying to cut costs because you have to to sell it at that price. And then when everyone has to do that, it just the quality suffers. In some ways the value suffers. And it’s just and I’ve heard from other brands, who will say are more at the top end of the market from a price and maybe a little bit more luxury position where they’ll say, Yeah, we know we are consciously taking less market share. But our customers stay with us because they know they’re getting a consistent product, we know that they’re going to come back we know that if they’re in Michigan or in there in Colorado, they’re going to ask for us because they’re willing to pay it. So there’s there’s something to where it can come a little bit of a I don’t want to say self fulfilling prophecy. But just you got to think through that the financial strategy and what it means from executing on getting your product to market. But also what is it saying to

38:49

consumers? Yeah.

Lisa Buffo  38:52

Yeah, cuz they think, you know, if this product cost this, it can’t actually be good or worth this much. Like, there’s the psychology behind it, too. So yeah, so I just appreciate you kind of mentioning it and putting that into perspective, because at the end of the day, people are buying, of course, their price is important, but they’re they’re trying to get something further their purchase, and they got to actually get it for them to come back no matter what. And

39:18

I had a we had a call with like a new license holder. In New Jersey. We you know, we got into the conversation. This was a couple of weeks back in. He said, Okay, I’m opening on this day. The stores are really doing about 6 million a year. And my question was, okay, what do you think you’re going to be doing on profit on that? And I think like as a new license holder, a lot of times the thought isn’t what’s going to be the profit or what where am I going to be in five in five years? It’s just sales typically are about 5 million a year but it’s very different story between making 5 million at a 10% margin or a five, a 10% loss, and then trying to sustain that. So I’m very early on trying to plant the seed of let’s start thinking strategically. Where we’re going to be like, to your point, I love what you said, and that there’s different models of how you can be successful. Like, do you want to be a smaller, more profitable company? We have clients that they love to just be big and employ more people and do more things. And that’s okay. But if if that is not your goal, we could think of business as Are you more of a high volume, and you have to drive a really high volume of sales, you have to scale? Or are you going to be okay with the 5 million, but really, we got to really think through margins and how we how we get profitable. So yeah, I love what you said, there’s different ways. And what we do is ask those questions. Because many, many businesses haven’t thought about it. They’re just trying to trying to get profitable trying to keep the market share, but at what cost? Right. And

Lisa Buffo  41:15

it affects, you know, as obviously, being a marketing podcast, like it totally affects your marketing and branding, because your that strategy will come through and your positioning and who are you marketing to? Are you reaching them? Is it a, you know, older consumer who has more disposable income, who really want to impress, and is probably going to have a little bit of higher standards than maybe somebody in their early 20s? And how does that come through in your branding and packaging, and your messaging and where you are putting out those marketing, communications and reaching them should all tie back to those business goals and those business strategy, which what you said in the beginning is that the language of business is finance. And if the leadership can’t sort of communicate that all the way down the chain to the budtender, at the point of sale, that’s how you can just get stuck in these problems. And look at them with almost a one track and not realize that there’s a sort of a holistic reinforcing thing going on that, you know, marketing can’t solve if if operations isn’t thinking about it, or products can’t solve if marketing can’t communicate it like it’s all, it’s all very much, so tired. So I appreciate having your perspective, from the financial side, it’s kind of tying it into the bigger picture of what we talk about all the time on the show, which is who are you reaching? How are you reaching them? Do you know who they are? And have you, you know, validated your assumptions about how, why and like, why are they buying your product. So

42:43

I’m sure you agree, there’s enough data to make to make all these decisions. It’s just not being used. And in many cases, like to your to your example of diminishing your bad brand through discounting, there’s also the the lost opportunity of, of using technology, because maybe in some cases, or in most cases, there is a really clear calculation on how much there may be a time where discounting makes sense. You got to move things for cash flow purposes. But there’s a very clear way of looking at these decisions with numbers, and even more market data to make sure that you’re not overdoing it when you do have to.

Lisa Buffo  43:23

Yeah, yeah, because there’s a point where it doesn’t make sense. Like when when the numbers can also tell you that like there’s, there’s a line in the sand there. When you’re doing too much. And for and for it’s funny, right? So it’s where we’re after tax day, but we’re before for 20 As of this recording, but that is the time where from a marketing standpoint, and I’ve seen this mature a bit over the years, but the kind of gut instinct is discount volume, you know, create the hype go for the the big numbers in terms of revenue. But if again, and we’ve had presentations, from some of the data companies in our membership about this over the years, that that might all look good on paper in terms of gross revenue, but when you actually get done with the numbers, did you make money on on that? Or did you, you know, generate just a lot of hype for the brand. But ultimately, you actually lost money, given the effort it took to get those promotions out and, you know, activate your brand ambassadors or do whatever you had to do to get those sales. But we’ll see I’m actually really excited to see what the post for 20 data will look like this year. It’s on a Saturday and weekends as a whole have higher sales volume than weekdays. I think last year, I think it was on a Thursday, but I don’t think it’s been on the weekend in a in a while so And last year, while national sales were really high in Colorado specifically they were actually the worst they had been in a long time. So there’s something to be said about what’s the trend going to be this year given that We have more markets than we’ve ever had. We have mature markets at this point, there’s more competition as a whole, how that’s gonna play out. But if you do have any early for 20 predictions based on what you’ve seen behind the scenes, or just in general, your thoughts?

45:17

Yeah, yeah. I mean, I think it’ll be a good one. Well, you know, the big hype around, or 20 was that we would get the Reschedule news on during this time, you know, and so, I just, I do see a lot, just generally a lot more more excitement during this month, especially given all the good things that that can happen. And this is the year that I’ve seen the most optimism across operators given everything that’s going on, on the regulatory side of things, and so I think it could be a really good year. And I think, as we have matured, that we are doing more and more as an industry, the types of things that you’re talking about, and that we’re holding to more sustainable strategies. That’s not the case for all. But in that case, I would, I would say, like, Let’s see your point, look back at what the story is, after this month and see really what what happened because the the vanity metrics of just overall sales, sometimes it’s just don’t tell the full picture, right. And so, success could be lower sales, but better profitability, are somehow capturing more customers through this through this month, and this time, and so we really got to dig into the story. But overall, I’d say it’s going to it’s going to be a good year.

Lisa Buffo  46:43

I’m so glad you said that. And I’m so glad you feel your clients are more optimistic than they’ve been because we’ve gotten that general sense too. But I’ve been in the industry 10 years, and I think it you know, in 2014, when we started if we thought, Oh, by 2024, none of this will still be a problem. And it all still is, is you know, but it is starting to change. I agree. And I think the rescheduling news, if that happens is going to be obviously a really big deal. And the number one we thing we hear at CMA, even with our own product, right, our membership is we don’t have money to spend on marketing, we don’t you know, we just we can’t write it off. So it’s seen not as an investment, but like last year, a sunk cost in a sense. But that’s what drives the is the top of funnel for your business too. And I will make that case till I’m blue in the face. But being able to start to write off marketing and treat it the way CPG companies are, you know, who spend a lot of money on their marketing, because the branding is important. All of that really matters. I think we’ll we’ll change the game even though we can easily make the case for cannabis as a commodity and all that. But right now, where it is. There’s a lot of excitement to see where it goes. But being able to have to add out of the big picture. And even the stigma of schedule one, I think will be a step that’s been long awaited it Yeah,

48:08

yeah. I couple things that they said there. Yes. I think what the stigma is almost like it’s almost going to take we’re doing just massive education. But it’s also just the the aging of of people that were not, you know, growing up during this time will happen at some point. And then at some point, yeah, just with time. It’ll it’ll go away. But But you’re absolutely right, that it’s a catch 22 in that cannabis companies need the support, marketing and financial. But it’s a it’s a catch 22 and that they don’t have the cash flow to, to generate to pay for the services. So it’s going to be a huge, huge bump for the industry. Yeah.

Lisa Buffo  48:57

Well, with that, it’s a great way to wrap up garryvoe But do you have any last anything we need to talk about any other messages or points you want to say to the audience before we go,

49:09

I think I may have already touched on it, but just really, you know, we talked about about marketing about, you know, taking full advantage of maximizing profitability. And I would say just the trend is is to use the information that there’s a lot available in terms of tools to use AI to make better better pricing decisions so you can stick to your strategy of building value. But with with really good, really good data. And then I know you’ll have some thoughts on this too, but then going into the year, and as we’re talking to more clients in the hemp space is that regardless of the Reschedule, I think there is going to be more growth on the hemp derived space, because of the ability to grow value across the country and even internationally, too. So I, that is something to really watch closely and look out for, into how the states are cracking down on Delta eight and delta nine. But also just the level of enforcement and how this will play out in terms of how companies can operate. Because there is a tremendous chance opportunity to keep growing brands nationally and internationally through the hemp space. And so I think that’s something that’s gonna be really big over the next few years.

Lisa Buffo  50:36

Yeah, that’s a good point. We should do a whole episode on that. Yeah. But that will be for another day, we’ll get for 20 and rescheduling, and see what happens first, but thank you for joining us. Do you have any contact information you want to share? How can the audience get a hold of you?

50:54

Yeah, so I am on LinkedIn, Guillermo Rodriguez, just type it in that might be hard to hard to spell. But if if you Yeah, link it. Summit, virtual CFO by Anders, find me there as well, I have a link to my calendar page. And then we also have our podcast that just launched his the cannabis Success Show. And you can find that on Apple podcasts. And that’s where we’re really trying to share some of the things we talked about today. We talked about challenges, but we’re trying to bring out and share the success stories so that others can learn and what other operators are doing well and apply it and learn from that and get to profitability and a thriving business.

Lisa Buffo  51:33

Thank you, Gary, MO. Appreciate your time.

51:36

Thank you, Lisa enjoyed it.

Lisa Buffo  51:38

And that’s a wrap for today’s episode. We hope you’ve learned a lot from Guillermo and feel empowered to take your cannabis marketing efforts and your financial efforts to the next level. If you want to take them even further, please reach out to us at info at marketing cannabis.com For our spring 2024 media package to reach our audience and our members across this podcast, social media and our newsletter. And if you’re ready to join and you’re not already a CMA member, you can join and find us at the Cannabis marketing association.com You can also reach out to us at membership at marketing cannabis.org If you want to get on a call with our member manager, learn more about our benefits or just talk about what you’re doing as a whole. We’ll see you next week.

 

— Transcribed by otter.ai