The Modern CPA Success Show: Episode 104

Tom is joined by Summit colleagues, Christy Buchanan and Guillermo Rodriguez, as they discuss the cannabis industry as a niche for accounting firms. Guillermo, a Virtual CFO specializing in the cannabis industry, shares his expertise and explains the challenges and opportunities in the industry. They discuss the differences between the cannabis industry and CBD, regulatory challenges, financial forecasting, and obstacles faced by cannabis businesses. Guillermo emphasizes the importance of building relationships with banks and navigating the challenges of banking in the cannabis industry. They also talk about valuable metrics for retailers in the cannabis space and the passion and purpose behind many cannabis business owners.

intro (00:00:00) - Welcome to the Modern CPA Success Show, the podcast dedicated to helping accounting firms stay ahead of the curve. Our mission is to provide you with the latest and greatest insights on cutting edge tools, innovative marketing strategies, virtual CFO services and alternative billing methods. Join us as we change the way people think about accounting.

Tom (00:00:22) - Hey, Christy. How are you today?

Christy (00:00:24) - Very good. How are you, Tom?

Tom (00:00:25) - I'm doing well. We're introducing an episode with Guillermo Rodriguez today. I think our listeners are going really enjoy it. What were your thoughts about kind of things he talked about?

Christy (00:00:36) - Oh, I thought it was fantastic the way that he described putting together the KPIs and the forecast for working with the folks in the cannabis industry. So that was really cool. I'm also looking forward to being going to the trade show with him in just a few weeks. So it was good information to hear from me and give me a little bit of more of a background of what will what I'll experience.

Tom (00:00:57) - I couldn't agree more.

Tom (00:00:58) - Yeah, it was great. And for me, it motivated me. He knows so much about the industry that I'm thinking of the own, the niche that I work in, and thinking, okay, I've got to step my game up because I don't think I could describe quite as much about the clients I work with as he can for his. So I hope people really enjoy this episode.

Christy (00:01:15) - Yeah, and he's got that tearjerker story as well. So be listening for that.

Tom (00:01:20) - He does. All right. Welcome to this version of this episode of the Modern CPA Success Show. Today, we're going to keep it internal and have an internal team and think it's going to be exciting. We'll talk niches, we'll talk a specific industry, and we're gonna get into that in just a moment. I'm Tom Wadleton. I'm a virtual CFO with Summit Virtual CFO by Anders, my co-host today, Christy Buchanan. Christy, you haven't done co-host with me before. Do you want to tell people just a little bit about yourself?

Christy (00:01:49) - Hi, Tom.

Christy (00:01:50) - I'm Christy Buchanan. I am the director of Strategic Growth for Summit Virtual CFO by Anders. And I have been in this role for two years and five years with the CPA firms. And I have over 25 years of experience and senior leadership roles with Fortune 500 companies, mostly in technology and CPG. But that's where my background is from, and I'm happy to be here with you today.

Tom (00:02:15) - Excellent. I love having you here. And then our guests today, Guillermo Rodriguez and Guillermo, welcome. And we'd love for you to tell our guests just a little bit about yourself.

*Guillermo * (00:02:23) - Sure. Yeah. Thanks, Tom. Guillermo Rodriguez. I'm one of the virtual CFOs as well. And, you know, with our growth, we're in expanding into different verticals. And I'm one of the virtual CFO within the cannabis vertical. So my professional experience is maybe right about 20 years and wish I could say that I majored in accounting because I loved it, but it was really because I really wanted to get a job after I graduated college.

*Guillermo * (00:02:54) - So I went into work in the corporate world and my background is in construction and in engineering, and I spent a few years working as a regular accountant and in financial accounting. But, due to the growth and that in that company that I was working for, we had a lot of finance opportunities with acquisitions and growth. And so I shifted maybe about 4 or 5 years into my career into more of a corporate finance role. And so that's how I got into forecasting and cash flow management. And a lot of the things that we now do for our clients, that's more about, you know, being a CFO, being more forward looking and strategic. So that was really the turning point in my career. And then as part of that, I love the company that I worked for because people moved around and I got to work in different departments or at least just learn about, you know, risk management or Treasury management while I was in a corporate finance role. So, you know, many years later during the Covid year, I decided it was time for me to make a change.

*Guillermo * (00:03:59) - And then that's when I went into consulting. And doing what we do now is really having a knowledge of all the way the different functional departments work and how we help guide our owners. I thought that background would be very helpful and of course doing what we do now and helping our clients be more profitable and get to where they want to get.

Tom (00:04:23) - It's a great background. So you mentioned you're one of the leaders building this niche. We talk about niches here a lot and we'll mention to a lot of people digital agencies is one of the big niches that we follow. But you're helping us build cannabis industry as a niche. Can you talk about why that's a good niche? Why that for you? A little bit more about that.

*Guillermo * (00:04:42) - Yeah, I think a lot of folks are getting into cannabis as far as, you know, ancillary businesses just thinking that it's profitable, it's a growth industry, but it's really a lot about the purpose behind the industry. Um, and while there is a lot of growth, there is a lot of struggle for companies in cannabis to, to remain profitable and to, to achieve profitability.

*Guillermo * (00:05:09) - And so the main thing about what's important about being in a niche is just that really if you have the interest to be in that industry in a lot of purpose, you're going to spend the time doing it. And so that’s one of the big differences between working with a CPA and a virtual CFO is really the expertise in the industry. And it really takes a lot, especially in cannabis, being on top of, you know, the regulatory environment, the nuances with taxation and really understanding the economics right now around, you know, price compression and all the things that are going on in the industry. So really important to really stay on top of that and know what our clients are going through to be able to help them.

Tom (00:05:57) - So for someone who doesn't have expertise in the industry, can you tell us a little bit about it?

*Guillermo * (00:06:03) - Sure, as far as the background, So, so really, you know, cannabis we've talked about on the previous episode is, it involves cultivation processors, manufacturing and retail.

*Guillermo * (00:06:21) - And the main thing about the industry is that there's a lot of growth right now. Started off as a, you know, 2 to $3 billion industry in the first years of legalization and it's experiencing a growth as new states are coming on. I think it's something like 22 states now have recreational use programs and from a medical standpoint it's now like in the low 40. So we're almost going to get to a point where there's only there's every state in the country is going to have either a rec or a federal program. But the thing to understand as far as getting in the niche is, is the margins that retailers are needing to achieve right now and the difficulty in achieving higher margins because the cannabis consumer is still very much driven by price, by price sensitivity. And so given the increased competition in the industry, a lot of licenses have been issued. There's an oversupply, especially in the Western states. Retailers are seeing some compression and price at the point of sale. And so that's really one of the things that as a getting into this niche, you need to be able to understand that, you know, what is the profitability going to look like and how to guide your clients there.

Christy (00:07:45) - So I was reading that the cannabis industry is in revenue of 57 billion right now. What do you see the differences are between cannabis industry and CBD?

*Guillermo * (00:08:26) - Yeah, that's a good question, Christy. Something really important to explore in terms of the industry. The main difference is that, you know, cannabis is still considered a schedule one controlled substance. And so what that means is there's no interstate commerce because it's federally illegal and most importantly are the biggest, you know, kind of thing that we talk about in the industry is it's subject to federal taxation as an illegal business.

*Guillermo * (00:08:57) - So to shortcut the explanation, it's almost like saying cannabis businesses are taxed at the gross margin level. So a much higher effective tax rate at the end of the day for a cannabis businesses CBD businesses operate or most of them operate under the federal hemp program or the or the farm bill made hemp legal in 2018. It's going to be renewed here in a couple of months. But so there's interstate commerce and it's not taxed the same way a cannabis company would be taxed. But from an overall kind of market size, you know, cannabis is going to be about a $30 billion industry by the end of this year annual run rate. And I think the $60 million number that you mentioned will be here in the next five years. So a lot of growth projected there. The thing about is that it's a it's an extremely fast growing industry. And so while it may be at 5 billion right now, it's going to grow to maybe 10 billion over the next few years if the FDA stands comes in and regulates CBD products.

*Guillermo * (00:10:11) - So that's the big hiccup in that industry right now, is that the FDA doesn't regulate CBD. And so that's another reason for, you know, the pricing compression and the industry overall is because. Um, consumers don't yet trust. They don't have trust in the products and the dosage in the content. And so without that consistency, consumers aren't willing to pay higher prices, you know, Um, and so that's something that to look out for. The other thing CBD is you hear probably a lot about Delta eight, Delta nine products. That's a separate market as well. When the, when the farm bill was passed, the regulators didn't really understand that you could still make psychoactive, you know, products out of hemp. You know, hemp is just defined as 0.3 THC and then and then it's legal. There's some work to increase the limit right now with the next farm bill coming up. But so a lot of companies are manufacturing Delta eight, Delta nine products. And a lot of states have come in and kind of recall those products or illegal.

*Guillermo * (00:10:59) - So that's really something to look out and how that plays out. Every states can be different and how they're looking at that at that market and so time will tell but those are three big markets within cannabis that kind of operate differently from a regulatory standpoint.

Tom (00:11:19) - So is it a case care more than that. So you see, if I get this right, cannabis not legal at the federal level. Some states have said yes, lots of states have said yes. And then on the farm bill side, with hemp legal at the federal level and some states have said, hey, wait, there's a certain element of this that we're going to make illegal.

*Guillermo * (00:11:37) - That's correct. Like in Texas, like in Texas, our farm bill allowed for hemp production. I don't know if it was that same year or the next year, but the intent was to build an industrial hemp market, to use the the fibers of the plant for building materials that kind of thing. I don't think they ever anticipated that the the derivative products that we're talking about. And so in Texas, like there's a ban on smokable hemp. You can't smoke hemp in Texas or sell it. But the production of hemp is legal, you know, and each of the states have come on with their own hemp programs or farm bills and have slightly, slightly different rules around hemp.

Tom (00:13:10) - In addition to the stat that Kristi mentioned from dollars, one of the ones from the material you sent to us was that 80% of the US population has access to either recreational or medical marijuana and almost 50% have access to just recreational only.

Tom (00:13:26) - So a large portion of the population. Yet the laws, I think are really confusing. And it's interesting, as you're describing here, I think many people wouldn't necessarily assume that there would help them navigate that. But everyone I've talked to in cannabis, that's one of the biggest issues that the owners are dealing with, is just the confusing regulations, including what we just chatted about. So some legal state, some federal. Do you want to talk about some of those obstacles? Because I know that gets in the way of the owners and something you you have to deal with if you're going to work with them, right?

*Guillermo * (00:14:55) - Yeah, I think it's the it's also the change and the unpredictability of how states and municipalities will behave, you know, in terms of the regulatory, you know, framework. And so that's one of the things that owners struggle with is the constant change. And sometimes regulatory regulation moves backwards in the industry. And so it's always changing. It's hard to predict and you have to really look out for how the neighboring states around a market will behave from a regulatory standpoint because that affects you know the overall market. You know, and I think a lot of folks companies got into cannabis anticipating better, you know, progress at the federal level, that that just hasn't happened. And so I think that's what the industry is struggling with, is trying to continue to to to move forward in the current environment. And so you see a lot of companies that haven't made it. There will be a lot this year that haven't as well that won't quite make it. There'll be a lot of more corporate type, larger businesses that have more capital than can kind of survive the current environment.

Tom (00:15:20) - What is  so for a starting out, maybe not starting out is you come in as a what are some of the impacts of those laws you have to help people deal with from a financial perspective, What are some of the things that they're like, Here are the problems.

Tom (00:15:33) - I'm having my business that maybe a normal or a different kind of industry doesn't have to deal with?

*Guillermo * (00:15:38) - Yeah, I think the, the main thing is like we talk about forecasting, you know, and helping our owners stay afloat. One of the things that can happen is, you know, owners build up operators, you know, build up their operations, anticipating a certain level of sales, a certain level of production. And it just doesn't happen for because the recreational programs could take longer to get off the ground that kind of thing. So within this industry, um, and with all and that's where the forecasting piece becomes much more crucial and that's what we really try to help our clients understand is, is the run rate and where they need to get to, to stay afloat. I had a question last night on this YouTube channel that was speaking on and the question was like how accurate is your forecasting, you know, as a CFO and I really just want to say, well, it's really accurate, you know, but that's not to.

*Guillermo * (00:16:46) - The answer is, you know, how we talk about forecasting is not not that it's predictable, but it allows our clients to know exactly where. If this happens, this is where you'll be. You know, how we talk about with the marketing agencies is, you know, we'll have a client that wants to get to 10 million, but their people can only produce revenue of 8 million, you know. And so that's where we help our clients in and say, okay, if you want to get here, you have to hire people. You have to either increase your utilization or change your pricing or, you know, the different levers that we talk about. And so that's what it is in cannabis is really trying to help our clients understand what they need to do, what levers they need to pull to get to where they want to be. And a lot of that in cannabis is around making margins at the retail level, increasing the average transaction, understanding discounting and how customers are behaving.

*Guillermo * (00:17:51) - Most of the CEOs are talking about how they can do that. And it's really improving the customer experience when someone comes into your store and to keep people coming back. So that's not our expertise, but our as a CFO, you know, we try to help our clients see what are the metrics you need to track to get there. And if you didn't, why? And you know, what do we need to do next month to improve on this?

Tom (00:18:19) - I love that thought. With the forecast that you could see, I could see the value would bring if you're going to give me your $10 million and maybe that's my 12 month goal, your forecast should say that on a monthly basis. Here's how I go from where I am up to $10 million. And here are the metrics. And here's what you're maybe you're hiring because you said you didn't have enough people to get yourself to ten. Well, if three months in, you're missing all of your measures and you don't think it's going to make up, then you have a chance to course correct and not hire a bunch of people you planned on.

Tom (00:18:48) - And if it's going faster, then you can hire more. And so you could almost get to saying it doesn't really matter if my end forecast is accurate. The use is really and how do I help you pivot along the way so you don't make the mistake and hire a huge team of people that you're paying for while you can't support them and you're the one helping them see that kind of stuff that you're not moving the units, you're not at the price you thought you would. Whatever those factors are that are in there, you did say something. I want to explore, though, a little bit. You talked about recreational programs not being in place. Is that a scenario where someone's going ahead and setting up shop, assuming that it's going to be legal and at the point where it's legal, I'm on the ground ready to run with this. Is that the usual thing that and then when it's delayed by. Six months or something. That's what puts me back. Is it that.

*Guillermo * (00:19:32) - That's correct. Yeah. So like in 22 there was a lot of wins and states legal like Maryland and Missouri. Christy your home state legalizing recreational programs that got off the ground pretty quickly but there was also some states that did not that had ballot initiatives that failed like South Dakota. And so I was in South Dakota last summer and meeting with a lot of owners. And there was a lot of frustration over that and there are cases that South Dakota would be an example where the ballot initiative failed. And you do have owners, um, they operate under a medical program, but they were anticipating getting up to speed with the Rec program and they now have to navigate through that or wait and wait till the next year. And so some of that does happen. Or you have states like New York, New Jersey that are very slow to move on, issuing licenses and getting their rec programs up and running but I think Missouri and Maryland will be a good example, you know, for the rest of the industry because the programs have gotten off the ground and transitioned, you know, from the medical to the Rec pretty seamlessly in terms of sales getting off the ground pretty, pretty fast.

*Guillermo * (00:20:54) - And so hopefully states will do a good job to avoid kind of what's happened on the Western states where we had an oversupply. Too many licenses and wholesale prices have just kind of plummeted in a lot of those states. 

Tom (00:21:08) - Okay. You probably answered my follow up question. Then in that last part, I was going to ask, Why don't you just wait until it's legal and then start your business and set that up front? But the slow license issue, or maybe there are limits on the number of licenses, would say if you're going to wait until it's legal and then start, you're going to find yourself way behind it sounds like.

*Guillermo * (00:21:28) - Right. Or the way the application process works is there's limited licenses and so you got to get in there pretty quick. The licensing fees, they vary from state to state, but really it's the legal costs and the time that it takes to apply for a license. And sometimes there's a lot of cost and the license is an issue to the applicant. So there's some risk with that as well.

Tom (00:21:54) - I pass along a question to you recently from an outside firm who was commenting that I think it was an expense reporting solution is not available to cannabis companies. And then you also hear things about banking. Those are probably some obstacles that many business owners don't even think of, right. That they're going to find out that what's normally available for banking, credit card, that kind of stuff might not be available to them. Is that right?

*Guillermo * (00:22:19) - That's right. And the cost as well. You know, like we do our forecasting, we have an average, you know, overhead cost, you know, for our clients. And cannabis might be a little bit higher because there's a little bit higher banking costs. There's a cost to move the cash from your retail store to the bank. And so some of those costs are unique with cannabis. But yeah, safe banking would have allowed a, you know, federal institution banks to bank cannabis and think this was about the seventh time that it was introduced and don't think it'll move forward this year.

*Guillermo * (00:23:01) - And so that is something that is unique in the cannabis is that high percentage of the sales are cash even though there's some debit solution debit kind of pin card solutions out there. The majority of transactions are cash based and. Um. I don't know. This is just a personal opinion, but, um, that, you know, safe banking is kind of like. Like the answer. And I think it is. It would be a big jump to the industry. I mean, people spend more when they're able to use a credit card, but the reality is that, you know, cannabis, the consumers are already kind of trained on using cash. And I think that even if safe banking were to pass, the average consumer would still use cash. I mean, and part of that is just the nature of the product. People still try to hide the transaction on their friends or their family or whoever they think. And so there is still going to be a heavy cash component to the business.

*Guillermo * (00:24:02) - And now it would bring in, you know, the branded credit card companies to the mix as well, like it's a Mastercard and Visa. But in any case, I mean, think cannabis would still be considered high risk. So those branded credit card companies can still opt out of working with cannabis retailers and stuff. So there's still going to be some challenges in the industry. I mean, it's only, you know, about ten years old. So there's still a lot of growing pains and moving forward.

Tom (00:24:35) - In the safe banking laws just to help us understand that better at the federal level, they would say, okay, it's okay for the national banks to deal with these kinds of companies and there won't be penalties for that, Is that right? Mainly.

*Guillermo * (00:24:45) - And the reality is that they could take the risk and still bank cannabis companies. But these institutions are so large, they wouldn't put their charter at risk, you know, for a very small segment. So that's another thing with safe banking.

*Guillermo * (00:25:04) - I think the reality of it now is that most cannabis companies have some form of access to banking in terms of state banks, you know, local credit unions. And so it's available. It's just it's just a little bit more expensive and more to navigate through at the time. But yeah, and you know, I'm on the on a banking committee with the National Cannabis Industry Association and that's one of the things that we we focus on is just building relationships with bankers to help institutions, to help our clients, because that's really the way through. I mean, regulation, we can only control it up to a point, but we can keep building relationships to help our clients and to bridge that gap. And so that's one thing we'll be really focused on this year is to keep building those relationships. And we have some information out there where clients can just or anybody can go out there and look at the various, you know, banking relationships that we've vetted across the different states and that we recommend.

Christy (00:26:10) - You know, I'll be attending the cannabis trade show with you in October. And I was curious as far as like people that attend. Will there be bankers there or is it mostly just owners and farmers and.

*Guillermo * (00:26:23) - Yeah, yeah. So we'll be at Benzinga September 27th, I believe. So if anybody's out there, we look to connect. And so the Benzinga's capital focus and so there is a lot of that is one conference that's very focused on capital banking and you have a lot of more of the institutional type investors, larger MSOs that attend Benzinga. So we'll get we'll get to meet a lot of folks there too. And I'm looking forward to that.

Tom (00:26:58) - We've met quite a few CFOs who are focusing on cannabis as an industry. Is it? So do you primarily work with retailers when you're doing it, or are you also working with. Is it the growers? Would that be the other big segment for ones who actually handle the product?

Tom (00:27:16) - Is your focus on both of those or do you have are you sort of niched within that?

*Guillermo * (00:27:21) - The reality is that a lot of the larger type clients that we deal with will usually have operations within the three areas you know that were doing some maybe doing processing and as well as the retail side. But I think the reason I focus more on retail when we talk about, you know, KPIs and and, you know, driving profitability is because I think that's where most of the the variability is and I think that's where you can pull more levers in terms of improving profitability at the retail level. But yeah, we work with clients and, you know, that are involved in all of the three. Okay.

Tom (00:28:09) - I'm curious, when you first start, is there a typical kind of set of issues when you first start working with the client that you often get that here are the main struggles they're having and the advice and things like that? Is it somewhat predictable that this is what I'm going to say they haven't dealt with, or is it kind of all over the place? I'm curious what those issues are they might be talking about.

*Guillermo * (00:28:29) - Yeah. So. You and Christy do a lot more sales calls than I do. But I'm sure you've heard. Every time when you ask them about their books of how their books are, you know, and everyone always says, oh, we got great books. You don't have to worry about it. And yes, the onboarding process is going to be smooth. And we you know, our books shouldn't be so hard. I can't I don't know how many times I've heard that. Right. And that will be the typical,, type of challenge is getting cost revenue in the right buckets and getting books cleaned up and started and ready to go. And so that is the main challenge. But you know outside of the accounting things think it it just varies so much um in terms of the state the market you know they're states that were just um, challenged by getting product into their stores. There was just not enough cultivators.

*Guillermo * (00:29:31) - You know, now you have markets that have the complete opposite problem. Um, the cultivators are losing money and the retail stores, maybe their problem is more around. There's too many cannabis brands. Consumers are a bit confused and they're having a hard time really optimizing their product mix so that they have a clear, consistent message to their customers. And so those are some of the kind of common problems that we see. And retail is challenging because unlike our other clients where, you know, you receive upfront payments, retail is just very much your sales is your cash. And so any variability in and seasonality and dip in sales impacts cash flow immediately.

Tom (00:30:24) - Yeah. Are most of them pretty expensive retail or is the KPIs? I'd love to hear some of the KPIs you use is a lot of it teaching them how to be a retailer, as you mentioned, improving the customer experience and understanding that.

*Guillermo * (00:30:36) - Yeah, a lot of it is that, you know, the industries have kind of sophisticated businesses, multiple state operators.

*Guillermo * (00:30:47) - You have people with backgrounds, you know, executive backgrounds and things like that. And those folks will just really understand the analytics and their consumer behavior and that kind of thing. But the other half of the industry is, um, maybe brand new business owners, um, not new to business, much more newer to cannabis and how and how that industry behaves. And so that a lot of the loss and profitability over the last year has been kind of unnecessarily because of over discounting. And so that's one of the things that we want to teach our clients is we have the data, but gotta learn how to use it and how to look at your pricing to make sure that it's driving higher sales. If you're going to discount a product, there's got to be a good strategy around, you got to move the inventory or you got to drive higher sales or you got to build awareness. And so that's where we're trying to really educate our clients. And you can use that with your existing data. But there's so many great tools out there that really kind of can empower the retailers to make quick, quicker decisions at the point of sale. And those are the kind of things that we're trying to that's what we have. We educate our clients.

Tom (00:32:09) - What are some of the metrics you found most valuable?

*Guillermo * (00:32:13) - The most so, you know, as you all know, we look at our metrics in terms of the production. You know, that's sales. We look at financial metrics and pipeline on the production side, we really focus on basket size and number of transactions. So, basket size and retail just refers to the you know, when Tom goes into the dispensary on Friday nights, he usually spends about $80. And the focus is on growing that basket size to about $100 and getting you to spend more and not getting you to spend more, but having the products choices for you or really understanding that like, for example, flour is really, you know, about half the revenue in the industry.

*Guillermo * (00:33:05) - But, you know, we found that consumers that purchase flour also purchase concentrates and so if you're able to educate your bud tender that you know, also offer this or these products are higher margin you start to drive higher basket size at the point of sale. And so that is really one of the key metrics that we track and that we look at on a month and month basis is the average basket size. And the other one is the customer retention rate. Customer retention rate is really important in cannabis because usually you look at that metric and say it's because it's expensive to acquire a new customer. But in cannabis it's also because marketing is limited. And so the biggest, the a good source of marketing is, is your existing customers that will tell you, you know, I want to you know, especially for new cannabis consumers, they'll usually ask their friends, you know, where do I go? And so building loyal customers is really important in cannabis and also from from the standpoint of valuation, you know, the the business is much more valuable if you have more predictability and visibility into your into your future revenue and having a high customer retention rate, especially if you're looking to exit, is, you know, lets your potential buyers know that, hey, this business has a high level of reoccurring revenue and that has been a good strategy in place there to to build, to build loyalty.

Tom (00:34:43) - And something you've told me before or at least learned on a webinar. An advantage in the cannabis industry is, am I right? They know who each individual customer is with through a registration process or something else. Is that true? Where many stores, especially if someone's paying cash, they don't know who that is. Otherwise, they're trying to figure out probably from credit card data and matching things up. But am I right? Cannabis knows their customers.

*Guillermo * (00:35:05) - Like if I go into, you know, the 711 and buy cigarettes, I mean, don't buy cigarettes, but like something like that, they don't know who I am. They don't know how many times in the purchase. But in cannabis, each state has a reporting system where for the plant itself, where the plant needs to be tracked from seed all the way to sale, but also for consumers because there's limits on how much you can buy in a day. And so the store owner needs to know when the customer is coming in and how much they're buying.

*Guillermo * (00:36:07) - But all the data is there in the point of sale system to be able to make more of those, you know, empowered decisions.

Tom (00:35:44) - Yeah, that sounds incredible. And the ability to use that, right. Someone sees that Christy was a long time customer and all of a sudden she stops coming to be able to do something and reach out that maybe she switched to a different place and can I do something to try to pull her back into my store that many stores wouldn't even have that ability to notice when someone has disappeared from them.

*Guillermo * (00:36:04) - More targeted marketing around your marketing to. Is that it helps with that? Yeah.

Christy (00:36:12) - I've even seen some advertising where some of the cannabis stores in Missouri, they actually are doing delivery now like an Instacart. And so I wonder if that's another avenue to track some sales or get incremental business.

*Guillermo * (00:36:29) - Yeah. Yeah. And we work with delivery companies as well. That's another part of the retail the supply chain that we didn't mention. But yeah, the delivery part of cannabis, it was huge, especially during Covid. But you're starting to see more sales from the delivery standpoint. And a lot of consumers still prefer like, you know, kind of that discretion around it. And so it's especially important to know like if your customer base is includes those customers that, you know, maybe don't don't want to be seen or or whatever, you know, you have those options available.

Tom (00:37:15) - So we've gone the whole time without any kind of cannabis jokes. Is that typical? Because I know when we were at the retreat, a couple things started and you had one after another that was obviously you had heard these before. Is that your typical that in meetings even with like when you go to this conference, is it going to be a lot of people making little fun references or is it a much more serious group than what I would like to believe?

*Guillermo * (00:37:35) - It's not a very serious group, especially the pre parties or the after parties are not very serious.

*Guillermo * (00:37:45) - It's just not a place that not a lot of business talk going on but a lot of fun. And so yeah that's really what what what I love about the industry is that in some ways it's it's laid back and and folks really, you know, have a purpose for for what they're doing and and there's a lot of new business owners that you know for the first time have had a chance now have a chance to build, you know, generational wealth and get into an industry that they love. And so I really love that about the industry.

Tom (00:38:18) - It's cool that they're fun. It does make me wonder and maybe there's not a typical the people that are opening businesses, do they tend do you tend to find that their passion have been maybe a cannabis user and a real believer in this? Or do you think it tends to be more they're good business people and they're looking at this and saying this is a moneymaking growth industry, don't really care what the product is?

*Guillermo * (00:38:39) - A combination of both because mean will say there's a lot of good business people in cannabis. But I will say I have not met an owner, a client that doesn't have some kind of story of how they've been helped by by cannabis in terms of or maybe a family member or that, you know, have been previously impacted by the harsh laws, the drug laws in the country and have now our business owners selling the the very product they were, you know, incarcerated for or dealt with the charge some years back. And now are selling the product or in business legally. And so there's just kind of endless stories within the industry. And so most everyone I talk to has some kind of purpose behind why they're doing what they're doing.

Tom (00:39:33) - Interesting. Any particular ones that really stand out for you? Anyone's stories that really moved you?

*Guillermo * (00:39:38) - Yeah. There was one that almost made me that almost made me cry. I was at the hemp conference here at Texas A&M. And so industrial hemp is used for housing as well. It's a brand new you probably won't see it for many, many years until the infrastructure is built out. But people are using industrial hemp to build houses because it essentially builds its mold free. There's no way to get mold that's it's very breathable. Mold is a big health issue now, and people become more aware of that. And so there was a panel and this person was talking about how he was, his wife was they found mold in the house. And she actually had a their child was stillborn because of the issue. The AMA was just almost in tears. Wow. And so he changed his business and it became a processor to build their own house with these materials because of that experience. And so, you know, the product from an industrial standpoint to is just has incredible health benefits and has the potential to save lives. The crop itself is very good for the environment. And so I think it's something that as people become more aware, as the economies of scale grow, I mean, it has amazing potential to do good from a health standpoint for and the environment as well. And so it's just a it's just a cool thing to be a part of, you know, to help move forward.

Tom (00:41:26) - That's an amazing story. And I can hear your passion for this also, Guillermo, when you talk about just your understanding at the industry and wanting to help people out is it's inspiring. Definitely growing from the virtual. Now we talk about in the agency space, kind of a 3 to $5 million revenue tends to be our main target. Those are the ones who can probably benefit the most and afford what we do. Is there a similar measure that you would say within cannabis companies?

*Guillermo * (00:41:54) - Yeah, I would say we're. Right about the same range. You know, when you start having cannabis operators that are over 20 million, they're usually multiple state operators that hire their own controller and departments and all that kind of thing. And so yeah, we're really still focused on the on the 2 to $20 million range. And when we get even smaller, I mean, as you know, a good reason to hire virtual in that early stages is if you're anticipating really rapid growth and it's a good idea to have someone guide you through that growth in the early stages, even if you're if you're just starting up.

Tom (00:42:35) - So a $2 million if you're on the retail side, is that typically broken in like a certain number of stores that you would say that's kind of what this would probably look like? Or is that not a good way to look at how big that business is?

*Guillermo * (00:42:47) - A lot of times a license will be a you can have one license and multiple stores. You don't have to issue different licenses for different stores. But yeah, I mean, on average, I know we talk about average revenue per, I think in cannabis it's somewhere around $1,000 per square foot for retail if you want to think about it like that. And so. If you think about it in size, you know, 2 million, you can kind of kind of do the numbers. But yeah, a 2 million store would probably be one location. And when you start to get up into the 10 million, you have multiple locations and you know, people wise, it varies somewhat from 200 on up for, you know, kind of your average revenue per employee. You know, we look at that in cannabis as well. And so the industry average is right about 200,000 per employee in terms of revenue per person.

Tom (00:43:50) - Just having access to those measures I think is probably really valuable to some of the people that you talk with. I think for people who are listening, even if they're this isn't the industry, they want to focus on hearing how much you know, about the regulatory environment and kind of what those metrics are. Hope is having people wonder, do I know this about the industry that I focus in and where would I go get that knowledge and things like that, just to see the value that you could bring to your clients in there?

*Guillermo * (00:44:19) - Yeah. And you know, I work with clients in like all different industries and that's that was kind of my focus is, is when I changed my careers, from corporate to being a consultant is that I really wanted to, to prove out that being a consultant is more about, yes, it's important to be an expert in that niche, but also part of the growth is learning how to apply the consulting approach to, to any business, and having the curiosity to ask the questions and, and dig out the information.

*Guillermo * (00:44:53) - At the end of the day, we're just trying to uncover how do you how do you make money, how do you build, how do you build cash flow and asking all the right questions and getting to the answers and building the KPIs regardless of the regardless of the industry? But with that being said, it's much easier if you focus on one industry. You don't have to use much brainpower and you can scale much more efficiently by focusing on a niche.

*Guillermo * (00:45:21) - And help your clients more.

Tom (00:45:23) - Yeah. I think that's a great description. As we talk about being advisors to clients, having that knowledge and I love what you said about asking questions because you probably found similar to me, the questions are the ones that can be the most powerful. More than saying, I want you to do one, two and three, asking them something that makes a client really think about where they're going and then advising them to get to that destination is really important.

*Guillermo * (00:45:46) - Yeah, like a good therapist. Right. The pause is really powerful. Yeah. Question and then was waiting.

Tom (00:45:57) - That's a great point. I think of times where clients have gotten very personal with me and they've said, this feels like a therapy session. I love that they trust me to bring that. Usually that's when they get into something going on in their personal life. But I appreciate that there's that level of trust there.

*Guillermo * (00:46:13) - Yeah. It's necessary, right? We've got to yeah, you got to have the trust for a good consulting relationship and to really be able to help. 

Tom (00:46:24) - Yeah. Maybe it's a closing 1 or 2 resources. If someone said, okay, you piqued my interest, I want to learn a little bit more about cannabis industry. Where might you send someone who feels like they don't know very much now to learn more about. In general as a business industry.

*Guillermo * (00:46:40) - Yeah. Being a Virtual CFO, I really focus on data. And so like really understanding all the different markets, data revenue, consumer behavior. There's a few kind of data analytics platforms out there like Headset or BSA that can help you get the, you know, get the numbers and there'll be more of those as the industry grows. And if you're trying to learn the regulatory, I'll throw out the NCIA because we're a part of that. The National Cannabis Industry Association can give you a little bit more background on what are the initiatives from a regulatory standpoint kind of nationwide.

Tom (00:47:25) - Excellent. And then you already mentioned a conference. So there are also conferences that people could attend, right?

*Guillermo * (00:47:39) - Yeah, conferences. And then in your within your own state, you know, there's usually some kind of trade group, you know, Texas where we were hemp state. And so we have the national I mean, the A hemp coalition, the Texas Hemp Coalition, Missouri has the Mo can and so just get involved within your within your state. And it takes some time to forge those relationships to to kind of just force yourself in there. But but you just got to do it.

Tom (00:48:01) - Yeah. Excellent. Well, thank you both very much. For me, I found it very educational. I'm fascinated by the topic, but just your demonstration of the knowledge. But then, as I said at the beginning, just the reinforcement of if you're in a niche, the value you can get by bringing this understanding to your clients and then be doing similar work across clients is really powerful.

*Guillermo * (00:48:20) - Yeah. Thanks, Tom. I'm sorry I wasn't able to think of any good, good puns on this one, but I'll work on that.

Tom (00:48:25) - In the next 20 minutes. When you're doing something, we're going to come to you one after another. Well, thank you both very much.

Christy (00:48:35) - Thank you.

Outro (00:48:36) - Enjoy this podcast. Visit our website, SummitCPA.Net to get more tips and strategy for achieving modern CPA firm success. We are here to be a resource in this ever changing industry.