What Accountants Need to Know About Serving Cannabis Businesses

Speaker A: Hello everyone. Thank you so much for joining us today. This is Lauren Fogelman, A business account business success solution. And I'm showing accounting firm owners how to be able to double their revenue working half the time. Today's topic is what accountants need to know about serving the cannabis business. And I have Raymond Guns going to have that conversation with me. And some of the things that we're going to touch on is if you want a clear view of CFO advisory in the complex, highly regulated cannabis industry. Also, if you're curious about how financial strategy will help cannabis companies survive and grow, and if you would like some insights into building scalable accounting and finance systems for cannabis businesses, I suggest you have some sheets available to take notes because Raymond and I, we're going to really go deep into this topic so that you can really get some ideas to how that would work for you and your firm. And also we're going to let you know how to connect with Raymond Raymond as well. A little bit about Raymond. Raymond Guns works with cannabis investors and operators to help them build finance teams and financial systems that support profitability and growth. He began his career as a CPA and eventually he transitioned into the cannabis industry and he now focuses on accounting gap compliance, tax audit readiness and financial strategy. Ray has worked with both national as well as international organizations and he's known for helping companies build financial structures that can hold up in a highly regulated and often unpredictable environment. His work centers on helping cannabis businesses operate with stronger financial discipline so they can grow and remain profitable. And if you want to find out more about Raymond as Well as dope CFO, you can go to dopecfo.com it is all there. Anyway, Raymond, I am looking forward to our conversation. Thanks so much for joining me today.

Speaker B: I appreciate you having me on. I, you know, it was very kind introduction of you is very flattering. I appreciate it. And uh, yeah, I really enjoy your podcast. I was listening, been listening to it for a while and just trading best practices. You know, we're all in this together so I appreciate you having me on and hopefully we can provide some value, um, to your listeners and our audience.

Speaker A: And before we get into the conversation, I'm curious about how did you actually get into really being that person that wants to help with the, uh, cannabis businesses have really strong financials.

Speaker B: Mhm. For me it was more of a decision of like, what industry do I want to serve? I was a little bit too young for the, the Internet and the tech boom that happened after that and all the e commerce companies and Software companies and fintech companies. Um, but I'm in like the prime of my career for the, you know, the growth of this cannabis industry that's, you know, didn't exist a few months ago and still doesn't exist in many parts of the world. I live in Wisconsin. We don't have any medical, adult medical cannabis or adult use cannabis in our state. So it was really a decision by industry. I was like, oh, this is sweet. It's once in a career opportunity to be part of something as a, you know, it's getting built for the first time, only one time, and so we get to be a part of it. So that's kind of why I chose the cannabis industry. Um, and then it's just the velocity of learning because you're, it's a startup industry and I came from a very traditional, you know, career with, you know, company. I last company I worked for was 100 years old. You know, they invented the thermostat, you know, massive multinational. So to go from that, you know, very, you know, tenured, multi generational type business and you know, many, many countries with many, many subsidiaries and product lines to then working with real humans and real founders and private, you know, companies, it's been a, ah, it's been a joy and it's been very interesting. So that was kind of like what drew me to the cannabis industry is this unique industry and then the, the owners and investors are a lot more interesting on the private side versus the public side.

Speaker A: And you're definitely on the ground floor when it comes to cannabis. Uh, and there's so many moving parts because what might be legal on September 30th could also be illegal as of October 1st. So I've seen some changes quickly happen in the as well. Um, and when we first start thinking about working with early stage cannabis operators as their fractional cfo, where do you tend to begin from that financial perspective in order to really help them stabilize their business as well as set it up for growth?

Speaker B: Step number one for me is always setting up the accounting correctly. Um, you know, it's because it's. Everything builds upon itself. That's what makes accounting and finance so beautiful to me. You know, it's, it's very black and white, but it's also very much a philosophy. And so I love that about it. Where, you know, you're accounting, your daily accounting builds weekly reports, your weekly reports build monthly reports. So step number one is just getting your arms around how are we currently doing things if they're already an operating business? You know, someone's accounting for the cash in and the cash out. How are we doing it? Um, someone's accounting for the AR and the ap. How are we doing it? Someone's updating the balance sheet at some point throughout the year. You know, we should be doing it every month, but you know, they could do it at some point. So step number one is just get your arms around what are they currently doing for accounting and then get that ship righted because you really can't do anything else without good financial reports. The financial reports are going to be the input to your budget to actual analysis. The financial reports are going to be the input to your cash flow forecast. Um, and your, whether it's 13 week or nine months. And so yeah, step number one is always building the foundation of accounting and then from there you can start to do a lot of the fun, more value add stuff to the C suite and the ownership group or the other various stakeholders of the business group.

Speaker A: And, and I know that with cannabis businesses they actually have a lot of cash transactions. So there's some additional things that you might need to put in place for that type of business in order to protect all the cash that's flowing in and out of the business.

Speaker B: Yeah, no, for sure it's a cash intensive business, especially at the retail level. It's very much a supply chain. Just like most industries where we cultivate the initial inputs, we turn them into products and then it kind of turns into cpg and then those manufactured products go get sold at a retail store. Um, and so at the retail store though. Yes, because it's federally illegal in the United States, we don't, we're not able to use a lot of like national credit cards, you know, national banks and so minimal debit and credit card transactions, which lends itself to a lot of ATMs and cash transactions. And so just like any good, because we're not the first cash intensive business, there's many other businesses that are cash intensive. And so just like any good internal control minded, you know, financial controller, you implement the cash controls. And so that requires, you know, maybe a little bit more cash counts when we're closing the day or closing the week, doing more of these reconciliations between what do we, what cash do we have in the bank, what do we have in the vault, what did we ship, um, or not ship or get picked up. So luckily for us we're not reinventing the wheel at all. We're just, but it does require a knowledge of, okay, what is best practice for cash controls? Okay, this is a cash intensive business unit, um, or part of the supply chain. Make sure we're implementing the cash controls and monitoring that each, luckily for us, cash ties to the banks, you know, in theory, you know, there's not a lot of like leeway with that one. But yes, it's a unique part of the industry where just like every industry has its nuances of the, you know, what's part of the, which part of Gap or ASC impacts it more than others? Um, this happens to be in the cannabis industry. It's cash intensive. So the cash controls tend to be more impactful. So yeah, implementing this, your standard daily, weekly, monthly cash controls, if you're looking at it quarterly, it's, you know, you're too far gone at that point.

Speaker A: And one of the things that um, I also think you mentioned as well was the accounting system. So what are some of the things that they need to do? Remain compliant and audit ready, uh, without maybe adding any extra complexity to it?

Speaker B: Mhm, that's a good question. I would say without adding any more complexity to the accounting and finance function. And how do you stay compliant? I would say it's being consistent with your month end close. Like that's honestly what comes to mind. It's, it's like you, you, you got to review these numbers anyways to know if you hit your sales target or did you, you know, operate within the operating budget. So because if you're not reviewing that, like candidly like your competition is, and you're going to be one of the four out of five companies that fail. So if you want to be one out of the, you know, one out of five or whatever the stat is from the SBA that's still in business five years later, you got to review your numbers anyways and look at them and make sure that you're hitting your sales targets, you're operating within a budget. Because like we could hire a massive sales team and hit the sales target, but if our payroll gets completely out of budget, we, you know, we crushed our margin. So you got to review the numbers anyways. So closing your books on a regular basis, but doing an actual full close where you update the balance sheet assets, update the balance sheet liabilities, update the balance sheet equity, actually make sure you prepare a cash flow statement. Doing that consistently helps people stay compliant. What happens is they don't do a full month end close and then it's easy to get out of compliance because then you things slip through the cracks. Payments, um, that need to be made or organizations that need to be notified lenders that need reports, stuff like that will get through the cracks and then you'll start sending it on a quarterly basis. But if you read the fine print, it's actually supposed to be every month by the 20th. And so that's why if you close your books every month, follow a very structured process where week one, we do this, week two, week three, okay com financial statements are closed now we got to give them to the lenders, get them to the equity owners, so on and so forth. That'll keep you in compliance, um, without adding any more complexity. Like that's just the uh, blocking and tackling of an accounting and finance team. Like you got to close the books. You should compare your books to something. Then you should give that to a C suite or the stakeholders, whether it's the investors or C suite. So that doesn't add any more complexity but will definitely keep you compliant. If you're on top of it every

Speaker A: four weeks, then it's really sticking with the fundamentals of uh, making sure that you have what you need so you can do that full month end close and that ought to be able to keep it compliant but not add to the complexity. Now when you are advising cannabis founders, are ah, there financial metrics or forecasting tools that you tend to rely on so that you can help them make confident decisions?

Speaker B: Yeah, for sure. Um, and the tools, I mean there's dozens of them out there. I would say the biggest tools we use is the budget to actual analysis. Whether it's, you know, because it's like an actual process but it's a deliverable. And then their cash flow forecast, like 13 week rolling cash flow forecast, 3 month, 6 month, 9 month. Those are the two biggest ones where you can actually like provide value to them. Of like, all right, we've done, we've now closed the books. Accounting is done, the historical accounting is complete. You know, we're getting to the end of March here. So February we've done all the accounting but now we got to take those books and compare them to something. And so most CPAs and accountants just stop at that. And most CPAs don't even do the month end close. So they're just like, they're so far removed from like what it actually takes to run a business. They only see businesses like what assurance work do you need and what taxes do you need? And could I do your bookkeeping if that'll help me get my taxes and assurance work. And so because they focus on um, cat, they even call it cast client accounting. Service so they just stop at accounting. And that's the past. And it's super useful if you can take the past and then like forecast it into the future. That's why cars big windshield. Because finance future view finance is more important than the tiny little rear view of accounting. So that's kind of how you help them out. The tools that you use for FPA is usually your budget to actual analysis. Like what's your process, how do you meet with operations, when do you talk to the sales guys, when do you talk to the ops guys? And just getting that actually that becomes a tool. And most people don't really think of it that way. They think of it as like kind of a control I guess. And yes, in theory it's an internal control, but really it's a tool that you use to actually know if your business is growing or dying. Um, and you get feedback between ops and finance when you have those conversations every month. And then the 13 week cash flow forecasts, hopefully you're not week to week on your cash position, but for some of these startups they very, they are, I'll just be honest. And so having that dialed in of like, okay, we know every two weeks this payment's gonna hit. We have these exit of cash for payroll. Utilities get paid on this week, rent gets paid on this week. You kind of start to really get into the weeds of the business. You know, pun intended. Of um, what that was funny takes. Yeah, like what is the cash inflows and outflows. Because the cannabis industry does have an AR issue, especially as the companies get bigger, they're starting to deal with bigger orders. Um, accounts receivable. It, it's a known fact in the industry. It's, it's very M high, you know, and you can have 10 to 30% bad debt where it's like, we know we not want to have that less than 5% minimum or else we're kind of just giving away our product. So that's where having that cash flow forecast, um, is a tool that we use on the finance side every month.

Speaker A: So I'm curious about maybe particular company that you were working with where before they had someone that was only doing after the fact accounting and now they start, they started working with you so that they can take those after the fact numbers and actually apply them strategically for business growth and business development. Any particular company that comes to mind that you've helped kind of make some transitions?

Speaker B: Yeah, pretty much every client we work with.

Speaker A: I, I, I understand, but I'm thinking of you Know, is there one that comes to mind for you that you can give. Give an example.

Speaker B: Yeah. Yes. Again, it's like every client, so the most recent example is, um. Yeah, and no harm, no foul. Like, accounting's still valuable. It's the foundation. We can't do anything else, but it's just the nature of, I guess, skills and experience. Like, if you only learned accounting, you're just gonna stop there. Um, whereas if you only learn finance, you can't even pick, you can't even connect the dots until accounting does their job. So you're also kind of use useless. So it's like having that gap between accounting and finance and knowing how that works, which is kind of like what the financial controllers do. That's like, pretty useful. But anyway, so long story short, um, yeah, they just had accounting. So they, yeah, they knew what their payroll was, but they didn't really know what their cash flows were. And their payroll compared to the sales, compared to the cash flow. Like, what. What can they actually spend money on? What is their operating capital? Like, how much does it cost to run this business each month? So once we were able to implement, and it's all data that's there, you know, it just hasn't been presented in a, a logical way. And so, you know, accounting accounts for it, but they don't do anything with it. And so that's where finance picks up the accounting data. Uh, we recreate it, we compare it to things we create, derive analysis from it, trends, insights, we speak with operations, and then we present it up to the business units to make decisions. But yeah, once they knew what their operating capital was, they knew how much money is tied up in the business. Now they can start to be like, okay, minimum, I need to sell this amount. So they were able to now, like, hold their sales team to an actual, like, to your point, a KPI that ties directly to the financial statements. And so it's like, all right, we need to at least make this amount of money per month to cover payroll, rent, utilities, all the other operating expenses. So then they kind of have weekly KPIs. From there, they know how much sales they need to make. And then payroll, they were, you know, we were able to look at their payroll. And then, like, because I can see where the bottleneck is, it's like, hey, you know, sales are starting to go good, but our inventory is starting to grow. We're not. We have one sale that's working, like, with one, you know, unit or one, like, campaign, but we need to get this other inventory Moved. And so there was a bottleneck with like packaging or something. And so look at the cash flows, look at the payroll. What can the business actually support in its operating budget? Insight. Cool. Hire this person, relieve that bottleneck, take this person back over there. And so yeah, now their inventory is back to where it should be. Sales are steadily growing. So that's the kind of insight where it's like accounting can tell you what the expenses are and after they've been paid, but until you start to analyze it and compare it to the future and mhm. Start to figure out how we can drive profit, that's where the value starts. That's like the most recent example. And again it's because it's the most recent client, that's usually what they brought on.

Speaker A: And I think when you talk about these companies, uh, there's always going to be a bottleneck somewhere. So really looking for that bottleneck, identifying it, relieving it, and then you move on to the next one, the next. It's an ongoing process actually.

Speaker B: It's. Aw, yeah. But it never ends.

Speaker A: Yeah, it's, it's definitely never ending. And it makes such a big difference. Um, the other thing that it brings to mind for me is the challenges from a tax perspective perspective, because the 280E, and as a result of that, people don't always think about it, but they could be at a tax rate over 70%. So is it something that you do to help them with structuring their operations so, so that they can remain compliant but also just uh, be able to be as profitable and reduce audit risk?

Speaker B: Yeah, yeah, for sure. Um, 280 is a real thing. Um, depending on who you ask, it impacts the industry more or less. Um, but it's very much impactful. Like you can't get away from it. Um, but yes, I would say like without getting too technical, but I know this is more like an accounting CPA podcast, but essentially most small companies run on the cash basis and they're just for better or for worse, they're not really required to be on the accrual basis. And so they just would, they don't really worry about closing their books because they're not going to accrue in these expenses and calculate this, you know, accumulated depreciation and the interest liability that they're just, they leave that to the accountants during tax time. Um, but if you actually like keep your books up to date on a gap basis, you can start to allocate a lot of these costs into inventory that are associated with manufacturing. Products or producing products. And so as long as it's like production and manufacturing costs, we can, if we do the correct accrual based bookkeeping, keep the books on the accrual basis. We're able to allocate a lot of these expenses in to the inventory because even though it's an overhead expense, it's actually related to the production and manufacturing of inventory. Um, so that's kind of where we come in. And then candidly, just keeping straight books and records, like, yes, we have like little cannabis accounting tips and tricks and best practices from serving the industry. That is very, trust me, it is bespoke to the cannabis industry. But what I've seen is like this, the CPA in me is like, well, a lot of you guys aren't even doing the bare minimum of just like, even if you were just a small business outside of cannabis, you're not even keeping your books and records straight enough to like have the best tax position or to even have a tax strategy. And I think that's something I had to learn working with startups, small business owners. I came from Wall Street. It's like, well, of course every one of our subsidiaries is completely buttoned up and they have financial reporting and the beauty of that is they just fire them if they don't do it. Whereas, like when you have a small business owner, you can't fire them if they don't get their reports in on time. They own the business. These businesses do tens of millions of dollars a year in revenue. Um, and so I was, I, I had to relearn almost of like, wait, so you guys don't just do this because that's what you do. And it's like, no, we don't really have a reason. Whereas like where I came from, week one, we started the month end close, week two, we were finalizing everything to get the reports out. Ah, week three, we were very much finalizing the reports. And then like week four, I think they had to go out. You know, we had to file our 10Ks and our 10Qs with the public for the prior month and it just happened like clockwork, where privately held companies don't have that. And so they can kind of just do whatever they want. So that's why I kind of, um, I'm rambling a little bit. I lost track of like the original question, but essentially 280 is still very impactful. And so because they're on the, they do whatever they want, they, they just miss a lot of tax strategy that they should be aware of. And then candidly, 280 E is going away. And so that's another unique thing where all these business owners just neglected deductions and credits. They're like, well, I'm 280s, no deductions, no credits, if you follow the letter of the law. But now once 280E goes away, you know, if it does schedule three happens, goes from schedule one to schedule three, then they're they able to take advantage of all these like normal businesses and tax strategy is going to become even more important than it already has. Um, but yeah, so to summarize, there's definitely ways that we address the effective, um, tax strategy. And yes, it's through entity structuring, accounting and then also just big picture understanding of the industry. But I would argue that's the same if you are serving purely oil and gas companies or purely media entertainment companies. Every industry has tax advantages. You just got to know where to look. And that's why we're like big on niche industry, focused on one industry. Actually become an expert because you just provide way more value than you can charge higher fees. But anyways, that's all I have to say on that.

Speaker A: And really what I'm hearing is because the fact that you are, uh, focused on the cannabis industry, you know some nuances, some things that are happening, you're aware of trends, you're aware of changes going on in the industry so that you can give your clients the best advantage possible. And I think that goes right into the advisor that you do, um, is that you're really not just looking at things after the fact or uh, realize, you know, helping them just get less messy with their accounting and their cash flow. But you're approaching this from that CFO role. And as a result of that, you're probably bringing some strategic guidance as opposed to just the financial reporting. So anything as far as that, um, CFO advisory role that you bring that really helps to elevate a business?

Speaker B: Yeah, no, good, good question. The way I kind of think about it is the first two things that came to mind are guardrails and capital. Um, because accounting is accounting, finance is finance. Like, yes, in finance we can draw insights and do trend analysis, but your blocking and tackling is going to be a budget to actual like you do need to actually know how to forecast accurately a bit, but once you have that dialed in, it's pretty straightforward. Um, and so finance is finance, accounting is accounting. But once you get more into like that advisory work, that's where it's a little bit you know there's a little bit more gray area and so, and you're more tasked with managing the capital. And by that I mean turning your investors capital into more capital. It's all about positive roi. Um, and so once you get to that CFO advisor, the way that I think through it is it's more, it's for sure, it's capital focused. Like accounting and finance is the base and you, you really can't raise capital unless you can pass due diligence. So if you've been operating for a number of years, no one's going to lend you money. If you can't give them financial statements that are GAP compliant. Income statement flows into balance sheet flows into cash flow. Here's the other year's tax returns, you can see how they tie perfectly. Here's the support for the assets, support for the liabilities, support for the equity. Like if you can't do that in a uh, few days, it's just, it's going to really hurt your ability to like raise capital. Sets up, line up, set up lines of credit, get good interest rates for equipment, buildings, working capital. There's so many reasons we need capital in this industry. So that's kind of what I really think of as the cfo because like finance and accounting is more the financial controller level work where yes, you have an accounting manager, yes you have a finance manager that rolls up to the controller, controller rolls up to the cfo. And so the CFO is not really involved in the day to day accounting. And honestly they don't really go talk to the sales team and be like why didn't we hit our numbers? Like we do all the analysis and then we give it to them who give it to the cfo. Then they have to look at why we didn't hit our numbers, then go talk to the CEO or the investors or the board. Um, but with that all in mind, you got to know where your guard rails are. And so like as like the advisory services, especially on the tax side, you got to be aggressive. Like you can't just sit on the sidelines and be like what's the most conservative tax strategy we can find? If you're just spitting off money and you just don't care, then um, and your owners, that's their risk appetite of course, you know, meet your ownership group where they're at or they're bored. But in our experience in startup land with startup risky small businesses, they, they're pretty, they're okay with risk and so they want an aggressive tax strategy and so Because. And I used to be a CPA, you know, still active license. But I'll see tax CPAs on stage. Disagree. And I love it. As the CFO, I'm m like, perfect. You're both supposed to be the experts. You both disagree. Same with the tax attorneys. Oh, you both disagree on how to handle this. Perfect. That means I know where the guardrails are. They're somewhere between this guy's argument and this girl's argument. And so once you know where the guardrails are, you can play to your advantage. And so when I put on my CFO hat, now that I know where the guardrails are, my job is just again, drive profit, drive value of the company, expand the value of the company. And so then you use the guardrails to do that. Um, and so that's kind of how I think through the CFO advisory. Like, you got to be able to manage capital at that point, and it's easier said than done. And it's not just raising capital. It's like being able to forecast again into the future what are going to be your future capital needs. Okay, how much do we need and by when in the future? Let's work backwards and speak to the various sources of capital to make sure we get the capital, you know, at a price that allows the project or the expansion or the investment to be profitable. So that's kind of how you start to think at the advisory level. And that's kind of how I think through that.

Speaker A: So thinking about that is really about knowing the guardrails and what's at both ends of the spectrum with the conservative as opposed to the higher risk. Because we're talking about the cannabis industry. Uh, overall, the people going into this, uh, industry tend to be more, uh, more of, um, kind of like Robinhood. You know, they're more, uh, they're forging the path forward because things are constantly changing. It's not legal in every state. They're not quite as risk adverse. And as a result of that, you are tending to, from that CFO role, give them insights so that they can make strategic business decisions moving forward and also have more capital available to them. Uh, does that sound about right?

Speaker B: Yep. Yep. I always kind of joke. It's like, it's a risky industry. Like, they're gonna find ways to break the laws anyways. So like, we kind of pull them back in. Be like, no, don't do that. That's too aggressive. This is where the line is or the guardrail. Um, so, yeah, no, then I think that's kind of a fun thing of startup industry. I imagine it was similar in the tech industry that you have a lot of young founders and capital is coming and we're trying to figure this out in real time and also educate the public, but also build regulation as we build this in real time. Like I remember when you used to have to go inside a bank, like online banking was scary and like now everybody does online banking so it's like same thing, got to educate the consumers, get people educated with it, get banks comfortable with it, get businesses comfortable with it. So yeah, it's very interesting.

Speaker A: I want to talk about some of the blind spots regarding the cannabis industry. So what are some of the things maybe that you're looking at and possibly even helping them reposition on in order to look at pricing, compression, regulatory friction, limited banking access. Um, how are some, what are some of the blind spots that they need to be aware of?

Speaker B: I'm biased because I'm on the finance side so I normally just see all the blind spots from like the finance perspective. But um, I would say it's like knowing true cost of operations, um, it's capital intensive. And so you know, you can look at how much did we sell? How much was the cost of those? Well, you know, what was our gross margin? And even operating some of these businesses, you know, a lot. Sometimes it doesn't take that much to operate them. A lot of those costs are, you know, direct labor in the cost of the product. And so you really need to get down to your you know, net profit after tax like to really understand like okay, ages, how profitable are we? And then the unit economics, I would say that's kind of another one where you can kind of know who's really a dialed in business or owner operator. If they can tell you confidently like yeah, we're at about 0.85 cost per gram or I can, yeah, I can land these units in Europe at about A$50 per gram. And so once they get to that like program, unit economics, that's kind of when you know they're solids but a lot of people can't do that. So I would say that's like a blind spot. Um, and I would also say just the um, the need of capital in the industry. Like everybody knows it's capital intensive but they kind of forgot it for some reason and they. And uh, and candidly it was very easy to raise capital for a number of years and people took advantage of it. Um, and it was fairly easy to get like put on the Canadian stock exchange and to be, you know, quote unquote, publicly traded company. And so people took advantage of that and then, you know, capital kind of dried up the last few years. Um, it's like over a 50 reduction on some estimates, which would be, you know, very catastrophic to most industries. And it was to the cannabis industry. Um, so people kind of forgot how capital intensive it is. And so blind spot of like most of your businesses are like under capitalized and. But long story short, if you do want to be remaining a going concern and expand, it's going to need capital and you got to clean up your books. So kind of like without going into a whole spiel of like, you got to have good accounting books and records, close your books each month. That's what we do. But like, that's a blind spot. That's honestly why like, we like focus on it so much. Because it's like, it's like so core to getting capital. And so because capital is so useful and everybody focuses on capital. But the blind spot is actually their books and records are a mess and they like, they couldn't actually pass due diligence. So I don't know, obviously those are kind of the, the blind spots. And then accounts receivable, aging and bad debt. That'd be my third one that I'll get off my high horse. But, um, but there's like, there's tons of things we can do on the front end to make sure our bad debts don't exceed 5% or 10%. Whereas in the cannabis industry, there's some estimates of bad debt as high as 20 to 30%, which is terrible. And so, and I get it, there's not a lot of repercussions because, like, some of these are still federally illegal. So there's not these, uh, you know, normal repercussions, but there's much more, you know, internal controls on the front end of vetting the customer, starting small with the customer, and only getting up to full orders over time, um, to mitigate some of this bad debt expense we're seeing. So I'd say those are kind of

Speaker A: the blinds and it's a reality for the cannabis industry is the bad debt part of it, um, because of the industry and the nature of it. So it's know your program unit, uh, be able to mitigate, uh, bad debt as much as possible and then closing your books at the end of the month so that you have really clean financials. So those are some of the things that help to reduce the blind spot. And the other thing is because things are constantly changing as well as what's going to be required, what's going to be um, legal one day, not legal the next day. Uh, as. Because that I see a lot of operators looking at going international and expanding into the uk, into the EU as a result of that. Um, so any financial risks that, or considerations maybe that you would help, uh, cannabis business evaluate before they start to expand into another country and become international? M

Speaker B: It's, it's not that common yet. Um, just because in the States we're still federally illegal. So we don't do a lot of importing and exporting. But I would say it's just this, it's the same process of going from California to opening up offices in New York. Essentially you're trying to expand to a new market having come from international business. It's kind of the same when you're expanding to a new country, it's a new market. And so the biggest thing is just again, just analyzing the A B analysis of the uses of capital. Like we have very limited resources of time, capital and people and so we got to allocate them and use, put them to work in the most logical way that produces the, you know, the largest return that in the most acceptable time frame. And so initially it's just like an analysis. Like how much capital do you think it will cost to get your products from California to New York or from the United States to Canada or from Canada to Europe? You know, regardless of where the import export is going, how much is it going to cost us and then how much money do you think we can make from it and what's the time frame? And then with those three data points of cost, potential, sales, you know, revenue and time, we can kind of back into if it's the best use of capital. So again, I try to, I just over oversimplify everything because I feel like there's too many people like making things too complicated and like they get like exalted for it. I'm like, I don't think that's like Einstein was the one guy who said like, if you really understand something, you can explain it to a fifth grader. M so I kind of think about the same way of like complex problems. It's like, well, let's just think about it from like what's the most important? No more than three things, but ideally like one thing. And uh, so yeah, so thinking about going to new markets, what's it going to cost us? How much can we make? As a cpa, I always, you know, attach compliance it's like, hey, because that's going to impact cost. And so like, yes, get this specific product at this specific standard in this specific market through this specific supply channel. You know, what is the cost of that? And it's usually, you know, higher compliance, higher standards is gonna be higher cost. Um, and so again, just factoring everything into the cost because that's like what really forces you when you really try to factor in the everything into the cost. It forces you to analyze your partners. What's the, you know, the split gonna be? What is it going to cost to work with them? What's the exchange rate of going to new markets? Um, and so by sitting with the cost cost, you can really start to understand operations. And that's what I love about finance is like, it's not on an island. Everything that operations does, selling products and making products and joint ventures, it all involves money and feeds back to finance. And so that's what I would say about kind of thinking about new markets and expanding to new markets of like, first sit with the cost, because that's going to force you to actually analyze everything in the supply chain and every player and every relationship you're gonna need to make. And then after you sit with the cost, sit with the sales, because that'll also force you like, okay, we, we used to be able to market it this way in this market, but now we have to advertise it this specific way which could lower the uh, sale through velocity, so on and so forth. And like sitting with those two data points and factoring everything in which like, seems kind of nerdy, but like, that's business at the end of the day. That's how you analyze, you know, if expanding to this market versus that market makes sense and all things considered, what would be best use of our investors capital.

Speaker A: So the three factors I hear, which are the fundamentals are, uh, looking at the course, which is the primary. If we were looking at a delta would be at the top of the delta and then the two bottom points would be the profit margins and the time frame of, uh, how long would it take to get this operational, to get a return on the investment and to see profit stock coming in. So Ray, we've covered a lot of different areas as far as the financials, the CFO side regarding cannabis operations, um, really learn from you. Every single time that we get together, some of the things that we touched on is that clear view of CFO advisory in this highly regulated cannabis industry, how to be able to maybe help cannabis companies survive and grow. And also some of the insights into scaling, accounting and finance, uh, systems for cannabis businesses. So Ray, if somebody wanted to follow up and connect with you and find out more about what you're doing and dope cfo, what's the best way for them to do that?

Speaker B: I'm a modern man, so I'm, I'm on the Internet. You can Google me, um, raymondpcfo.com I'm active on LinkedIn. Um, that's been kind of a fun thing I started two or three years ago, so pretty easy to find. And despite like getting into the weeds a little bit on this one, like, I try to keep things very high level and I'm always willing to talk to anybody, you know, anybody who's interested in business operations. People ages, because I'm learning the whole time, but also, you know, I learn best practices. We can, you know, work with each other potentially. So, yeah, Google me. And then I also, I'll be traveling around, I, I again focus on the cannabis industry specifically. Um, so I'll be at some of the conferences here across the pond, um, and then I think I'll be at AICPA Engage in Vegas. So I'll be around between the, between the different expos and conferences, trying to stay sharp, stay on top of my game.

Speaker A: Absolutely. Thank you so much for the engaging conversation. And this is Lauren Fogelman with Business Success Solution, showing accounting firm owners how to be able to double their revenue working half the time.