The data that your business is ALREADY producing is a valuable tool that you can use to improve the operation and profitability of your cannabis business.
But, with so much activity happening in your business, the biggest question is choosing which key metrics you should use to manage your business.
If you need help with analyzing your cannabis business data or would like to learn more about our Outsourced-CFO Service, then please reach out to us today or call 800-674-9050.
In this webinar, we cover:
- Why Data Is Critical to Long-Term Success
- Benefits of Using Data to Guide Your Cannabis Business
- Cannabis Retail Stats to Watch
- Cannabis Cultivation Stats to Watch
- Stats for ALL Cannabis Businesses to Watch
- Does GreenGrowth CPAs perform GAAP Audits?
Cannabis Business Data Webinar Transcript
So again, thank you for joining our webinar today, where we’re going to talk about using data to improve your Cannabis business profitability. And this presentation is brought to you by Green Growth CPAs. Now, first a little bit about GreenGrowth CPAs. Before we get started. Now, we are a cannabis only tax and finance firm, and yes, we help with tax preparation and filings, but we also help with business financial audits, business, valuations compliance, outsource CFO service, where we really helped you get a grip around the numbers of your cannabis business, as well as IPO readiness. So if you’re ready to hit the public markets can help you out with that as well. We have hundreds active clients throughout the United States and internationally, and we service all verticals of the cannabis industry from the cultivation, the manufacturing, the distribution, the processing, the retail, storefront, and retail delivery, anything cannabis and finance or cannabis and cash we can help you out with.
And before we get started, I need to let you know that the information contained in this presentation is meant for guidance purposes only in, not as professional legal or tax advice and further, it does not give any personalized legal tax investment or any business advice in general. So with that, another way, let’s review what we’re going to cover in today’s webinar. So, first we’re going to talk about the importance of data for long-term success of your cannabis business. And then we’ll talk about some benefits of using data to actually guide your cannabis business to success. Then we’ll jump into some cannabis retail stats to track. We’ll talk about some cannabis cultivation, stats to track, and then some stats for all cannabis businesses to track. So first let’s better understand why data is critical to the longterm success of your cannabis business. Now, as you may see throughout some news stories, mega giant cannabis companies are experiencing issues and it’s all throughout the entire cannabis industry, whether it’s the retailers, the cultivators or anything in between now having big scale and a lot of cash, doesn’t always mean big rewards and big profits.
It could be a big fall from the top. Now, most people think that, Hey, having a bigger war chest means a higher probability of winning. And in most cases that’s true, but it also opens up the opportunity for more wasted capital because people are acting on their emotions and not the data that the business is producing to help you actually guide that business. Now, the novelty of starting a cannabis business has really worn off, especially in those mature markets. And it wears off pretty quickly in the first few months after you open up a new market, right? At the beginning of January, Illinois, it was a novel business to have a cannabis dispensary. Everybody was excited, but that novelty seems to wear off the news cycle changes. And now you have to really build a thoughtful and powerful business. Now don’t bank on trends or fads, or that something is new and novel will keep your business sustainable and protected and defensible to be around for that long-term and experienced sustained profits.
You need to be a data-driven business. Now, there are so many tools out there to actually help you capture the data that you’re already producing within your business. For financial data, you can look at your POS system or your QuickBooks data for product data. You can look at your POS system or your ERP system for operations data looking at simply just the time clocks or at your ERP system. Then you look at it, maybe marketing and customer data. You can pull all that from your CRM, right? It’s never been cheaper to have so much intelligence around your cannabis business at your fingertips. Data is the new oil. You hear that all the time, right? This is where the real pay dirt is at. So capitalize on this opportunity sooner, rather than later, if you want to experience that big burst of profit, as well as a sustained level of profit for your cannabis business.
So now that you understand why data is critical to success, let’s talk about some benefits of using data to actually guide your business to that success. And there are many, many benefits to having data guide your business. I’m just going to hit on a few here. So first data gives you the ability to look at your business objectively. Now, as startup founders, it’s easy to want to rely on your gut instinct because you’re in the business daily, in the motions, in the movements, in the operations, you have a pulse for the business and what’s going on, but that’s the problem. You’re too close to the business to make objective calls for the betterment of your organization. So don’t let emotions drive your business because they ebb and flow and they go all around depending on the circumstances. And in most instances, you want to use data to help you guide your business.
Again, don’t let your personal lens cloud the way that you actually see your cannabis business and its performance. Don’t delude yourself into thinking that you’re successful. When you look at the numbers, it’s not really successful as a business, it may be the most money you’ve ever had at one time. But relative to your competition, you may be really low in sales, or you may be really low in profitability. So again, use the data to look at your business objectively and make choices for the betterment of the organization. Next, the second benefit is that data gives you the ability to diagnose and optimize your business. So if you’re not measuring something, you can’t manage it or improve it. And when you’re making changes in your business, whether it’s operationally on how you actually handle client check-ins or even implementing a new manufacturing process, you’ll need to look at data about the business, to see if your updates are actually improving or hurting the business productivity or the business profitability and having historical data about your business performance will give you an incredible competitive advantage and gives you a better understanding of how your business is trending and how to optimize the business.
When you hit rough times or certain seasons of the business, which leads me to my next point to elaborate on this one. Data gives you the ability to spot trends, whether those are good trends or bad trends about your business. Now, numbers they’re everywhere. And half the time cannabis business operators don’t know what to make of them or any other business operators for that matter data and trends in your data, help you to put a story behind your numbers and humanize these numbers lie to actually see what they’re telling you, looking at lines, which are actually the trends in your data and not the dots, which are points in time can help you anticipate the needs of your business and the needs of your customers. And it can also help you mitigate risk in your cannabis business. An example of a good trend to see is a sizable increase in your margins month over month with stable revenue and an example of a bad trend to see that needs addressing could be that customer frequency is trending down, but average ticket is staying the same.
Is this because of an increase in local competition, or maybe due to a change in the procedures for client handling that makes people not want to come back to your store. So again, looking at these trends allows you to see and spot opportunities as well as mitigate risk for the business. And lastly, data can help you increase the value of your cannabis business, because if you’re looking to exit at any time, any savvy investor or acquisition partner will want to see data to back up your claims of revenue or the trends in your revenue or your expenses or your marketing mix, or any other piece of information that you state about your company, they’re going to want to see data to back that up. Now, if you have no data available, then expect a massive discount on your business valuation compared to another cannabis business in your same vertical that has data, whether that data is good or not, right?
Whether they’re trending up or trending down data can really help an investor make a thoughtful estimation and cannabis business valuation and decide whether or not they want to acquire you or partner with you. And just some last notes to understand is that maybe you can’t actually interpret the data that you have. Now you should at least capture this data. Then analysts can come in later to help you optimize your business or understand what’s happening inside your business, because that’s the beauty of data. You can capture it, store it, and look at it at a later time when you have time and resources to focus on it and to build on that one reason people don’t actually interpret their data is because there is a ton of data to look at, and it’s very easy to get overwhelmed. And there are basics to keep your eyes on, right? Average ticket or average order size, customer frequency, weekly sales and things like that. But in the rest of this presentation, we’d like to discuss some stats that most operators don’t watch, but should keep an eye on. But again, it’s up to you, whatever you want to track, whatever’s most important to you and the stakeholders in your business track that, but be open to considering different stats to track based on your vertical and based on the stage your cannabis business.
So that brings us up to the cannabis dispensary data to watch I’m going to cover three of them here, but again, there are many different stats to check, but we’re going to bring some of them that we think you should consider tracking for your business. First is going to be customer acquisition, cost, or CAC. Now with cannabis businesses, you can’t advertise in the major networks, such as Facebook, Instagram, Google, but you can advertise on places like Weedmaps or organic Google SEO. And to compound that issue of not being able to advertise in the big channels that have a lot of stats and data not being able to do that attribution for broad marketing campaigns can be extremely hard, which means you can’t really tie a customer to a specific campaign without asking that client where they came from or how they heard about you. But it’s important to know how much it costs to acquire a new customer for any business, especially cannabis businesses, because it can help you to better understand how much product you need to sell to break.
Even when you acquire that customer. One very, very crude way of finding a customer acquisition costs is to add up all of your marketing costs for a given period, say it’s the second quarter and divide that by the new incremental customers that you gained during that second quarter. So say if you spend $5,000 on marketing or new customer acquisition and actually get 300 new customers during that period of time, your customer acquisition cost is 5,000 divided by 300, which is about $17 each. And if you’re able to actually ask each customer where they heard about you, whether that’s Weedmaps Google or wherever, then you can look into actual customer acquisition costs by channel. And this will help you to better understand where to focus your money, to get the best ROI on marketing. For example, if you hear that 80% of your clients are hearing about you through a Google search, then maybe you want to start to triple down on Google SEO and not really look at those other paid advertising opportunities, but it’s different for every business.
You just have to ask and use the data that’s available to you. Now, the second stat that cannabis dispensary’s or cannabis delivery businesses should look at is customer lifetime value. Now this builds on customer acquisition costs. And once you find out this information, the lifetime value, then you know what your customer acquisition costs can reasonably be to stay profitable. For example, if you can make over the lifetime of a client $500, then you can probably spend up to half of that $250 to acquire a new customer and still stay profitable at a 50% gross margin. And typically it costs less to keep an existing customer than to acquire a new one. So you should try to squeeze all the juice out of every orange, instead of going to get a new batch of oranges every month, try to get as much money in value out of your current clients.
Instead of going to find new clients every month, prioritize those current clients, whether that’s reengaging them with a text message or an email, use your marketing dollars wisely to, again, squeeze all the juice out of those current customers. Before going to look to new ones now to calculate lifetime value, you’re going to need to actually calculate a few different things. And there’s some Liberty in looking into customer lifetime value. So I’ll explain this at a 30,000 foot look and you choose what’s right for your business. So first you’re going to need to calculate your average ticket price and then multiply that by the average purchase frequency per customer. For example, if your average ticket price is a hundred dollars and your average purchase frequency per customer is five, then your lifetime value of a customer is $500. Now, average ticket, it’s easy to calculate total sales divided by the number of transactions over a period of time.
But for frequency, you should consider looking at active customers or active clients. And you’re going to need to define what that is, and it can be different for each dispensary. For example, you may want to include only clients that have come two or more times in the past six weeks, and then look at their average frequency. There’s a little bit of nuance there. You decide what your thresholds are, but what this can do is help take out the noise from the clients who just stopped by because they’re on that side of town or the deal finders who hit every first time patient deal that they can get their hands on. You want to find a way to, again, take out that noise and get a good customer frequency. And with customer lifetime value, you can calculate this at an aggregate level. You can calculate it and slice it by gender, by age bracket, or even by channel of acquisition if you have that data.
It all depends again on the granularity of the data that you have to analyze, and these can give you deeper insights into the business and help you guide your marketing efforts. For example, you may find that female clients have a 48% higher customer lifetime value than male clients. Or you may find that clients who found you organically through Google have a 62% higher customer lifetime value compared to those who found you on weedmaps, because weedmaps clients are looking for deals and are willing to jump from shop to shop more often compared to the people that found you on Google. Those are just examples that may not be the case for your business, but slicing the data in different ways allows you to uncover these types of insights because one channel will work better. One gender will have a higher customer, lifetime value. One age bracket will have a higher customer lifetime value.
You just need to find what that is. And lastly, a stat for cannabis, retail businesses to pay attention to is the average margin per ticket. And you hear people looking at their average ticket and that’s a good indicator as to how much money someone will actually quote unquote, spend in your business. But as operators of cannabis businesses, we want to know how much gross profit a client is generating for our business. That’s more important cause that’s money that we can keep to help run the entire business. Now, average margin per ticket will require some other pieces of data to be input to your systems, such as costs to the dispensary for specific item, and then the sale price for that item. And you’re obviously going to have the sales price per item, cause that’s how you’re ringing up the clients. But that cost for each cannabis item is going to be very important to have for this type of analysis.
And maybe after a month or two of transactions, you’ll be able to see clearly with some statistical significance, how much profit each visit brings to your business. And you may even want again, break this down by other parameters, such as male versus female, or even by age group, because some clients may be spending more per visit, but they may be buying less profitable products consistently, which then makes them not as profitable customers. So it’s good to understand who drives the revenue for your business, but it’s more important to understand who’s driving the profitability for your business. Now, some cannabis cultivation stats that we think you should consider watching. Again, this is not a full list. Just a few to look at consider and think about adding to your data dashboard. The first one here is the average cost and average sale price per pound of cannabis. Now we’ve talked about this in many other videos and many other webinars.
So we won’t go too deep here on how to calculate that or any details of that nature. But it’s critical to look at this stat in totality and get your full, true cost per pound. And that can take a long time to figure out must complete one or even many cycles of your harvest to get solid cost numbers, and then have an accounting system that allows you to allocate expenses as granularly as possible. You want to be able to allocate nutrients per strain or per room, or at least indoor versus outdoor, how much labor is going for indoor versus outdoor, how much labor is going for each strain. If you’re doing all indoor, because some strains or some rooms or some grow houses may be harder to work in than others. And this helps you get a better idea of that cost per pound for each specific strain and where it’s grown at.
But aside from knowing this specific stat, which could again be hard to actually calculate, if you don’t have the right systems, you may want to look at leading indicators of this statistic, which means that you’ll want to look at the primary costs, which are labor and utilities. Most specifically electricity. For example, if you want to target $600 per pound cost to produce, you’ll need to budget out these expenses, which will then give you a guide to see if you’re actually on the right track to hitting your target cost per pound. Yes, there will be some variability in these costs, but a plan or a budget can help you to understand if you’re close to your target cost per pound or not. It’s better to learn through the process. And actually when you’re in the process, then after it’s all over said and done with now, you should do your best to calculate this cost per pound, by strain and by location such as indoor and outdoor.
After enough time, you may want to even analyze this on a monthly basis and see what seasonal changes there are in your cost per pound. The next stat for cannabis cultivation, businesses is yield per square foot, and this will be measured in grams per square foot. In many States, indoor grows are limited to a square footage amounts such as 20,000 or 10,000 square foot of cannabis canopy. So you really need to produce as much cannabis as possible for each bit of area you’re given under your license. Now this step may require a fair amount of internal tracking of your products, but this information should be partly available in metric and the rest you can track within house systems. For example, you’re going to need to know where each plant came from, which room it came from and keep them separated or tracked throughout the entire cut, trim and cure stage of the growth cycle so that your yields by strain or even by room can be assessed and look at those if necessary, because you may be testing out some new nutrients or even new lights in different rooms, and you want to be able to track the impact of that on your yield per square foot.
And knowing this statistic helps, you know, which plants help you produce the most revenue for your limited space. And you can take it a bit further and multiply your gram per square foot by its respective profitability per strain. To see if that actually gives you the most profit per square foot, or should you change it up with a different strain. Next, what we’re going to cover is stats for all cannabis businesses. And this next set of statistics are the ones that we watch and suggest for our CFO clients to help them better understand their cannabis businesses. Health first is going to be the quick ratio and you may have heard this stat and an accounting class back in high school and college. So let’s dive a little bit deeper. You know, being able to actually stay financially. Liquid is incredibly important when running and operating a cannabis business, but it’s also important for every other business, but really for cannabis because it’s so cash intense.
Now the quick ratio is an indicator of your cannabis companies, short term liquidity position, and measures your company’s ability to actually meet its short term obligations with its most liquid assets. Basically the quick ratio indicates your ability to pay your current liabilities without needing to sell your inventory or get additional financing. And the higher the ratios result, the better accompanies liquidity in financial health. It means that you have more liquid assets on hand than liabilities that are due in the lower the ratio. The more likely a company will struggle in paying its debts. It’s that simple now with so much upfront investment in cannabis and constant monthly bills, and just needing to keep up with whatever cash needs that the business has. You need to watch this number and make sure that you can keep the lights on for the next month or for the next quarter, because running out of cash or liquid assets that you can quickly sell off to pay for your bills will stop your cannabis business right in its tracks.
So you need to pay attention because also cannabis businesses can not file for bankruptcy. The only next option is receivership. So you don’t want to get into an illiquid spot and then lose the entire business because you weren’t managing your liabilities and your cash position. And this ties into the second stat that we track, which is weekly cashflow. So again, pairing with that quick ratio, every cannabis business should watch their weekly cashflow because cash is the oxygen of your cannabis business. No cash means no business and weekly cash forecasts are used to project a cannabis company’s liquidity over the medium term, estimating the timing Mount of cash inflows and cash outflows of your cannabis business and breaking down the business weekly helps you capture the more granular movements that can be overlooked. If you’re using a monthly cashflow, quarterly cashflow, or even an annual forecast, it’s for your cash flow and a weekly cashflow forecast forces discipline through the Cash is King mentality because cash is King and cannabis.
It also helps you enhance your understanding of your customers and your suppliers. You’re going to have to pay attention to the frequency of your customers. Visit the terms from your suppliers. In many other aspects of those two relationships. It also helps businesses understand the cost of growth. When you take on capital to grow your business, you have to really make sure that you’re in a good position to be able to pay off either that debt service or build a valuable business because you’re taking on equity investments. And lastly, a weekly cashflow forecast, yes, will help you to increase the communication between all the other departments. You’re going to need to understand where the money’s going, who needs what every week and that communication can help create better synergy within your business. The third stat that every cannabis business should track is inventory aging. Now old inventory is simply not as valuable, or at least it’s not as highly desirable as new, fresh inventory.
So you’re going to need to create an inventory aging report and an inventory aging report is a list of the items on hand grouped by the length of time that they’ve been in inventory, it’s used to identify slow moving inventory, plus the additional costs to store and maintain these products until they’re sold. Now, the inventory aging report provides cannabis businesses with insights, such as again, being able to identify slow moving items, highlighting the non-moving items, understanding the length of time, your product, sit in the inventory, as well as quantifying the cost of maintaining inventory for long periods of time. Having access to this kind of information allows you to be able to make informed decisions when it comes to what and how many products to purchase for your cannabis business, especially for the retailers, because in cannabis, very few cannabis retailers base their inventory repurchases on real data, mostly it’s a gut feeling.
Now this is not a blanket statement for everybody, but the newer groups, yes, they’re pretty much making things on a gut instinct or a gut feeling for two reasons, either they don’t have the time to track the data or they don’t have the data at all. You know, one thing that you see common is that customers will ask for something three or four times and the buyer just goes and buys it because Hey, people are asking for it, but it’s not always the best way to choose your inventory purchasing. So again, use your data to understand what needs to be purchased for your business. So you don’t sit on old inventory and you may be asking what is a good inventory age. It’s different for all businesses and requires to understand what their tolerance is for this, but 30 days is a good inventory age.
So if you get terms for your purchases, such as net 30 or net 14, which means that you have 30 days to pay with no interest added onto that, make sure that you can get rid of your inventory as quickly as those payments become due. So if you have net 30 terms, make sure your inventory doesn’t age over 30 days, because if you don’t stick with this suggestion, then as you start scaling up your business, it will be incredibly difficult because you always be low on cash to pay your bills. So again, make sure that your inventory age matches up with the terms of your purchases. If you get terms on your purchases, that’s not very, very common, but enough people have terms on their purchases from the distributor that we should bring that up here. Also, you may want to consider that if part of your inventory is hitting 30 days or 60 days old, offer a discount to move it faster.
This can help you avoid fully dead inventory, and it can help you recoup your initial capital outlay on that inventory and not lose out on all of your money. And the last stat that all cannabis businesses should measure and keep an eye on is customer satisfaction or client satisfaction. Now it’s amazing to hear someone sing the praises of your business and how you’re the best and how they love you. But the only way to level up is by getting that critical feedback from clients in some of the best improvements are the ones that are non-obvious to the operators, but are in plain sight to the customers, whether that’s from B2B or B2C, and you can use some robust, long survey, or you can just use a simple one question survey to rate their experience today in your shop or with the transaction. And you can ask that on the exit from your facility, if you’re a retailer or via text message, if you’re a manufacturer or distributor or cultivator, just understand that the less friction that you have for the user to take that survey, the more responses that you’re going to get, and don’t forget, you can change that single one question.
If you’d like, maybe it could be based on the check in process after you’ve made some improvements or it could be on the quality of the product or how the bud tender involvement was, it’s totally up to you. But one thing is that you want to personally follow up with everyone who rated you below average, because sometimes people will have just a one off bad experience. And that’s good to know that it was just an isolated experience, but those followups could help you unearth those improvement areas, especially if it’s a consistent trend in responses that you’re seeing. So make sure to follow up and get some more color and context to why people rated you low if they did. And lastly, try not to offer anything in return for a response. You don’t want to sway people’s behavior or the responses or the results of the survey, because you’ll be pressuring them or giving them kind of this.
Yeah. Again, pressure to give you a positive response because they don’t know what the reward may be. They may get a coupon if they rate you high. So don’t offer anything in return for the response to your survey. So hopefully this webinar has helped you and brought you some value on understanding the importance of data, the benefits of data and what statistics you should track for your cannabis business. Now, if you need help with data analysis for your cannabis business, then please reach out to us via our website GreenGrowthCPAs.com or give us a call at (800) 674-9050. As we said earlier, we are the CFO for many cannabis businesses throughout the country, helping them get a grip on their numbers, analyzing their data and help them build thoughtful assumptions about their business, which can then drive strategic decisions about the business to increase its value. Now, again, if you need help with data analysis or a CFO for your cannabis business, then please reach out to us via our website GreenGrowthCPAs.com or give us a call at (800) 674-9050. Thank you for watching.