Cannabis Industry Update for May 2020

Cannabis Knowledge & Insights

Yesterday, Derek and Jim went live to discuss what our team is seeing develop over the past 30 days in the cannabis industry and answered many questions from the audience.

A link to each topic/question and answer is below.

If you need help with your cannabis business, then please reach out to us today or call 800-674-9050.

Full Transcript:

So again, thank you for joining the Green Growth CPAs webinar. We’re going to talk about kind of the industry and our outlook with it and then with all the ups and downs in the macro economy as well as with the cannabis industry. I just wanted to cover some topics we thought were relevant to help the cannabis business owners navigate through these certain matters. So again, 10 to 12 minutes of prepared material and then we’ll hop into Q and a. So if anything I talk about over the next 10 to 12 minutes, it brings up questions, drop those into the chat, we’ll get to that. Now you have any questions. If you’re watching the replay about business accounting, finance, MNA, or just general help with your cannabis business, then please reach out to us via our website at GreenGrowthCPAs.com or give us a call at (800) 674-9050 now, before we get started, I need to let you know that the information contained in this presentation is meant for guidance purposes only and that is 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 out of the way, let’s hop into the opening of the presentation here. So I want to focus on three main pillars that we’ve seen big developments in this past month. So there’s going to be licensing court cases and finance and M&A. So first with licensing, alright, Covid. It’s big. We’re seeing this happen, everyone’s being impacted with it. There’s a stay at home happening, which is causing a significant slowdown in spending and travel, which means that a second order consequence of that is that there’s less revenue for cities and for States, things like sales tax and all those kinds of things, right? Other types of taxes. So some cities and States are looking towards moving to solve this budget deficit by pivoting from exclusive licensing and having caps to unlimited licensing.

So you may have seen a few weeks ago we sent out an email. The Missouri house has approved a bill that we remove the cap on all medical cannabis business licenses throughout the state and essentially allow anybody that meets those business requirements to secure license. As long as they meet the minimum requirements. They said they did this because they didn’t want it to avoid monopolies, which I’m sure is a good reason and that is a great reason. But I’m sure they also did this to attract more businesses and more revenue into the state. It’s a very, very good thing. If you want to be a multi-state operator or an MSO, having a footprint in Missouri could be helpful. We also saw Riverside, California moved to unlimited retail licensing. I’m not sure when that specifically opens up, but there was an email that went out. So this is happening and I expect, and we expect this to be kind of a cascading effect throughout all of Cali, California, right?

It’s not, um, can’t run without tax revenue for only so long. So aside from that, what does this mean for the people that are trying to sell licenses or trying to make Bank off licenses? As we said before, licenses are only going to drop in their price and their value because the inventory of licenses if they can and they will increase. That’s gonna you know, drop the prices down. So what you need to focus on is, you know, and, and I and licenses are going to go up and uh, how do you say in the number of, and the inventory will increase because as you saw positive signal of this is that cannabis was given the essential status in most jurisdictions. And yes, there are outliers that you know, will say, okay, it’s not like that in this city or that city. But for the general, most part, cannabis is essential and more cities are warming up to it.

But don’t bank on making bank in selling a license. Businesses that are cash flowing, that are drawing in are the things that are drawing those high prices. So, you know, make sure you’re focusing on building a business. It’s not just, Oh, we built this facility that’s licensed and it has zero revenue. What’s the point? Real estate is also a good place to invest right now when it comes to cannabis. You know, if you’ve watched, you know anything with McDonald’s, right? If you don’t own the land, you don’t own the business type of thing. And these businesses and all businesses, cannabis businesses and anything else, they need to pay their rent or their mortgage before they take profits. So also deals that are paired with businesses and real estate, really good moves right now. Well the second thing I want to cover is court cases. So two things here.

Earlier this month you saw a new tax court ruling come out with the Richmond’s patient group versus the commissioner. Pretty much it was a dispensary in California, a pretty sophisticated operation or relatively sophisticated for the time 2009 to 2016 I’m not sure if they’re still open, but the case was addressing. At any rate, they pretty much were stuffing all their SG&A expenses in the cost of goods sold. This put off a big red flag. IRS came in. Now the major developments from this case and how it shook out is that the IRS and the tax courts have now taken a hard stance to what they consider dispensary is, are now resellers and not producers. If they only buy bulk product and break it down, like buy bulk flower, putting into smaller things or buying bulk cartridges and repackaging them. Now some dispensers have been using this light manufacturing method to, you know, use four 71 the tax code to allocate certain indirect costs into their cost of goods sold.

Now we’re not sure if this is really going to be allowed anymore and it’s not looking the greatest for that. So the IRS took this stance and the us tax courts took this stance because Richmond didn’t own the plants during cultivation. They didn’t own or control the grower provider and they’re under no obligation to actually buy anything that was offered for sales. So be thoughtful if you’re doing the strategy and if you need a new tax strategy to help mitigate some of these expenses, please reach out to us via our website or give us a call. Now, the second thing I want to talk about is the Weedmaps subpoena. You may have not seen this or heard of this, it’s been kind of, it came out during our last live stream and kind of didn’t have kind of digested before we went live and we didn’t really know the impact and they still don’t know the full impact.

But from rumblings in the industry and even outsiders, people looking in, it looks like the government may be building a Rico case against Weedmaps and it’s conspirators. Rico is the and corrupt organizations. Okay, so this is something big, right? The subpoenas wide ranging and it shows that the justice department is not gonna allow the cannabis industry to go and be on policed. Yes, it’s legal at the state, but the federal level, it’s still illegal. Now a hundred cannabis businesses and individuals were identified in this and the things they were looking for pretty much it’s a fishing expedition. They look for annual financial statements, tax returns, bank account information for Weedmaps, all communications with any person engage in commercial cannabis activity details on Weedmaps and how they facilitate the delivery services. Any transfer of value between Weedmaps and government officials, any and all documents related to the 40 companies in that subpoena in all communications with their investors and other prospective investors.

Now that’s just a small sample of the information, so, but it’s an indicator that any company or individual that’s done business with Weedmaps could be under the microscope of federal prosecutors. So keep an eye out and how this case progresses. It could go a million different ways, not sure how it’s going to shake out. Now, third, and the last aspect I want to start and kick off with here is Cannabust. Okay? Companies are going belly up right now. An article came out a few weeks ago when the Tilray CEO said, expect that dozen or more cannabis businesses to file for bankruptcy in Canada, not even two weeks later. Green growth brands with this, which is not us, they filed for bankruptcy, okay? They defaulted on a $45 million loan. That loan was at 15% interest rate, and that was earlier this month. So they had millions of dollars and couldn’t make it work.

Now, there’s probably a plethora of reasons why that didn’t work, but this is one good thing to understand that bigger is not always better. It’s one thing we hit on last time. So watch for other companies to drop. You’re already seeing a ton of cultivation sites go up for sale because the consumer demand wasn’t there. But the kind of let’s get ready. Everyone’s going to want to buy weed. That didn’t happen. So don’t put the cart before the horse. That’s a big lesson in this case here in the last part of this year is that MNA is heating up. Cresco just announced that they’re gonna buy four dispensary’s in Ohio. Cresco is a big, big multi-state operators. So watch out for that. Uh, the day after our last livestream, high times announced they’re buying 13 dispensaries from harvest. Uh, big things going on and there’s a lot of smaller deals happening as well.

So two things are driving this, okay. And be thoughtful. This, there’s a huge drop in the business valuations for cannabis businesses. They’re actually becoming rational, which means it’s okay to start buying. Now, the second thing driving that is that these are in industry consolidations, which means that the capital, the outside capital is drying up, but there’s a lot of capital sitting on the sideline inside the industry and people are now knowing where to place that capital in who’s worth buying. So it’s a perfect storm for great operators to snatch up competitors and join up forces with people here. So great JV deals happening. And that’s kind of the opening remarks I wanted to start off with here. So if you have any questions what we just chatted about. Again, just high level color and context, drop those into the chat and then we’ll get started here with some of the prepared questions as well. So Derek, do you want to jump into the one from Tuan here? His question is what is considered a cost of goods sold? Can I deduct rent, utilities? Labor is 1099MISC or MIS. So what is your thought on that?

Yeah, definitely. Um, and thanks for the intro, Jim. Uh, cost of goods sold is, is heavily related based on your, your, uh, business activity. So it depends on where you fall in. The supply chain will generally dictate what you can and cannot deduct. For example, electricity that powers of dispensary, you may be able to deduct a small portion that related that relates to the storage room, but largely it’s, it’s the electricity is powering the, uh, the showroom or you know, uh, the room that you sell the cannabis. So that’s oftentimes not considered tax deductible. Conversely, if you’re, if you’re, if you have a large grow house, then uh, you know, you’ll, you’ll be able to deduct a large, large percentage of your electricity bill, something you know, North of, uh, 90% oftentimes.

Good deal. Good deal. Cool. Now the second question that we got here is from Daniel. Now Daniel asks, if you could choose, would you go into delivery or brick and mortar retail? Now I want to add something to this deck you can add on later if you’ve got something. I think this is going to be a market specific even just within a certain state, right? When you think about a Venice beach, there is a high tourist area. There’s a lot of foot traffic walking through and you could probably get a good brick and mortar setup going through. They actually add on the delivery if it’s applicable in your jurisdiction. But other markets where they’re more spread out, I would choose delivery for a few reasons. Now, number one, usually it’s typically cheaper real estate. You can get off, you know, the main drag and don’t have to go to the larger, more pricey real estate options.

Uh, so that saves on prime costs. The second is you get a bigger service area, more customers, more revenue, and if you create a replicable model, uh, you can go in and kind of transplant this easier and cheaper into other jurisdictions. And lastly, delivery is convenient and convenience tops everything, right? You know, it’s easier to click a few buttons and then the cannabis shows up at your door while you’re cooking, right? Things like that is very, very important to the cannabis consumer in any other consumer. And it also allows these consumers to get the most valuable asset back for them, which is their time, time saving. Just like Uber, Uber sells transportation, but they also sell you the ability to get your time back, which is very, very important. So be thoughtful on, you know, what kind of licenses you’re looking for. Are you looking to open up in a specific, uh, tourist area, or is it a less densely populated, maybe neighborhood area? Or is it in the central business district where you have to, you know, potentially go out and do more deliveries on any other certain ways? So that’s our thoughts. Derek, what are your thoughts on, particularly on delivery or retail?

Yeah, it honestly comes down to supply and demand. Cities oftentimes hate retail, you know, the license for all other types, but they don’t want to expensing their city. So, um, you know, if you can, you know, if you’re one of six or one to five or one to four license holders for retail, that’s, um, it’s a solid monopoly ticket. But, um, uh, you know, beyond that, uh, delivery is a lot, lot cheaper to get up and running, uh, as opposed to to retail storefront. Uh, but again, you know, you have to look at population density, right? So, you know, if you’re in a small city, uh, and you have to drive really far between each delivery, it’s oftentimes going to be a lot more expensive to run and operate. So, you know, it just, it totally depends on, uh, as you said, Jim, the license, the licensing regimen, and then your, your population density.

Very good thoughts, thoughtful on that. I liked that. Um, so if you have any questions, drop those into the chat, anything, let’s just get it all out here. Let’s chat about certain things here. Uh, Derek, we kind of saw the stuff with Oklahoma developing with these auto state patient rec recommendations. What are your thoughts around that? What do you think that could do for the industry and kind of move things forward?

Yeah, I mean, they’re hopefully there unfortunately as of today, so May 27th, they, uh, the governor vetoed the bill, but they’re going to try to get it overturned. Um, but I mean that would be a great value prop for, uh, for instate operators because will just, it’ll continuously open up the amount of people that can, uh, purchase cannabis in their state. So, you know, if you do have out of state operators or, excuse me, out of state patients that are coming in and purchasing it, it’s gonna create a higher tax base.

Yeah. Higher tax base, more revenue. I wonder with the thoughts behind vetoing that bill, but we’ll see how that all comes together when more things come to light. I also saw that Oklahoma or Virginia legalized today, I think they pass their bill today. So it’s another state that’s kind of, you know, turning that corner of bringing legalization or decriminalization, not legalization, but decriminalizing cannabis, you know, then sets us up kind of the precedent going forward for any of those kinds of things. All right, cool. Let me check the YouTube, see what kind of questions, if there are any there. All right. Um, so Kelly asks, what category would I use to just be an investor in the weed business for an LLC? So I guess kinda what your line of business, you have any thoughts on that, Derek?

Um, yeah, so there’s a bunch of different considerations. You know, what state are you operating in? Are you investing personally, are you investing through like an investment vehicle? Um, you know, uh, how’s the LLC taxed? You know, LLCs can be taxed a C Corp S Corp partnerships. Um, oftentimes if you, if you were just to, you know, directly invest as an individual into a LLC, you, you’d oftentimes be considered one of the members. Uh, that’s obviously just a very blanket answer, you know, check with, um, you know, the attorney that you’re using the draft, the operating agreement and make sure that, um, you know, what you’re responsible for. And conversely, what are you also liable for? Because oftentimes people don’t remember that. Once you invest in the company, you become an owner. And if the company, you know, um, does, you know anything potentially illegal you, you may be on the hook for that.

Gotcha. Gotcha. That’s good. Good civilizations there. Then we got another one on YouTube here. Um, how much to just get a license to grow. Uh, he lives in California. This is for Alma. So cannabis grow operations can be very, very costly or they can very, very budget depending on the local city that you’re in and the scale that you want to get at. So yeah. And then you wrote a follow up comment here that your current town currently has five dispensary’s. Um, you know, they can buy cannabis from all throughout the entire state, at least in California. Distributors can go pretty much anywhere. So what you may want to look for is going out to a city that’s very, very open to cannabis businesses that is made more remote with cultivation operations. You can go into the more remote parts, cathedral, city, Riverside, things that have cheaper real estate costs, cheaper electricity costs.

You don’t want to grow cannabis in downtown LA. I know it’s cool and sexy to have LA cannabis, but you can pretty much claim that anywhere in Southern California. So, uh, again, back to the cost of that, you know, licensing costs are going to be anywhere from what, five to 25 K. And if they can have a 10 to 15 to prepare the application build out, you know, they’re a couple hundred thousand dollars on top of that. So we’re what, 300 K through two 50 and then operating capital. The big thing about what we’re seeing businesses right now in coven any businesses, is that they didn’t have an emergency fund, right? You need to have enough money for six to eight months with no revenue, especially when you’re starting out your business because you may not be able to turn in, especially with cultivation. You may have a very bad crop if you don’t know what you’re doing in your new space.

Maybe the AC goes off one night and or one day and it just kills the crop or it just damages the crop. You don’t get enough yield. So that’s the thing to be thoughtful of. So I would say maybe all in like 500 to $700,000, but it could go up significantly from there, depending on the lights that you use, the rent or the type of building that you get. Um, you could scale it to five, $10 million, so be very thoughtful on that. You’re in Woodlake. Okay. You know, smaller population, uh, depending on the licensing, it really comes down to that. And being able to lower your prime costs, prime costs, utilities and rent, everything else is pretty much in labor, right? But labor people will travel for that, so hopefully that can help out to reduce those costs. Cool. Uh, Stevie in here on the webinar jam channel is asking, are we’re the only state that has put a daily limit on consumers for cannabis seeds, for instance, in Colorado consumer’s daily limit, exhausted for the purchase of six feet. Do you know anything about that Derek? Kind of limited seed purchases.

It depends based on whether they’re their THC or their CBD. I don’t believe that there’s a cap on CBD related seeds, but, um, I, I would have to double check that one. And I mean, they’re, they’re each like purchasing caps is heavily dependent on the city and state. So, um, it, it just varies. It’s, you know, uh, how cannabis is largely regulated is each state can, how, or excuse me, each city can have their own regulation. So, so for example, when you ask like, what are the regulations in California, my answer would be check all 482 cities and see what they say. You know, some have bands, someone don’t, some say nothing. It’s, it’s, it’s largely variable.

Dig it, dig it. Alright, cool. Any other questions we’ve got here? Um, Isaac says, so what does the arrange at GreenGrowth CPAs look like or what’s your range look like at GreenGrowth CPAs for business owners that want to set up shop at your facility? So they’re going to talk more about the shop downtown?

Yeah. Yeah. So we have a, we have a partnership with one of our clients. They have a micro-business facility, um, and it allows for cultivation, manufacturing, distribution. Uh, they will also be bringing on retail delivery as well. So, um, if you’re looking for more information, just reach out to us afterwards. Um, the only prerequisite that we require is proof of funds of, uh, up to 250,000.

Good deal. Good deal. All right. Another question here from YouTube, uh, Nikisha asked, do you think Texas will pass medical cannabis? What is the new up-and-coming state to start a dispensary?

A really great question. Uh, many, many, many people are looking at, um, Texas as, as the last kind of golden frontier. Um, we hope within the next two years, but it’s, it’s, it’s almost near impossible to say, but Texas is pretty much the last great kind of open market, uh, at least in our eyes. But, but again, it also depends on how they license it. You know, if they’re only giving out 10 licenses from the entire state, then, uh, it’s largely going to be, um, you know, the wealth will be concentrated amongst very few companies and no one else will be able to participate in that.

Yeah, I think they had like an opening for licensing for like a couple days. It was very silent, soft opening in October last year. Few got in and that was it. But, um, one of the things, I read an article and I just pulled it back up and CBS, Austin that, um, you know, and this is with all States, all States are facing this crunch right now in revenues. So this is an unprecedented economic turndown right where we’re all staying at home and not spending money. So, you know, you might see people that actually are cities that are steady States and cities that were like, you know, we’re not really into this cannabis thing. Say, all right, well I heard there’s money in this. Can we kind of get some of that cannabis in here? Because if you don’t know this, two thirds of California is, most cities in California do not allow cannabis licenses. So you could start to see a turn either to unlimited licensing or at least opening up for some type of licensing for cannabis. And I think, again, as Derek said, echoing cannabis in Texas is like one of the last frontiers for that. Um, you know, there’s a lot, it’s cheap electricity, there’s a lot of people. Uh, there’s a lot of kind of cultural movements out there, which is great. So I think this could be an annex. Good wave.

All right. They’ve got the next one here. Uh, Stevie S w. Um, what about tax write offs for R and D facilities?

Yeah, so there’s something that you could do called an R and D tax credit and it’s a huge, huge tax benefit. Um, and it’s, there’s specific ways to fill out and there’s specific costs that apply under the R and D tax credits. But largely speaking, you know, if you have a research and and or development company, um, they can oftentimes write off and take advantage of the R and D tax credits. So, um, you know, uh, generally speaking, you want to have at least what we’d like to see is at least three to $400,000 in relevant expenses to, to, you know, get, you know, Chu benefits from the credit. So, you know, if that does apply to you, just, just let us know. Um, we’d be thrilled to help you with, with regards to that.

I just dropped the link to a video we made about R and D tax credits. I’ll put it in the YouTube as well and check that out. You know, it’s, you know, 280 E can be kind of a pester with that, right? The first line says no, you know, credits or deductions can be allowed and so you’ve got to do a good amount of accounting to get, make sure that this doesn’t impact your business in a negative way. So next question here is testing lab in caliph. The testing, sorry, is a cannabis testing lab in California a good investment? What are your thoughts around that? Derek, I got some thoughts but I want to hear what you think. Uh, you go first. I mean, I think that cannabis testing labs are one of the best investments right now because if cannabis wants to enter into the market, it has to be tested, which means they have to get paid before the cannabis is even sold.

And they might get tested multiple times, right? If it goes through remediation, it has to get tested again. And it’s kind of like a recurring revenue. You can build up a book of business. And one thing is that, and I think this is in most States, if not everywhere, you don’t necessarily take inventory or take the canvas on his inventory so you’re not held with 280E limiting your expenses. Derek, correct me if I’m wrong on that, but I believe at this is the one where it’s an amazing opportunity to be in that part. Plus you also get see and make relationships with other businesses. When you start to become cash rich and cash flush, you may able to buy up some of these businesses that are coming to you that may need some extra cash or may need to diversify who their owners are. So I think like testing labs are just cash cows right now. What do you think Derek?

Uh, yeah, I mean, I think testing labs, it’s, it’s like a necessary evil. You just, you have to get your product tested. And you know, many would argue that, uh, testing is not subject to any because they technically don’t, uh, purchase the inventory. You know, they, they just perform tests, um, for compliance to, to ensure that it has, um, what the reporting is, is being then packaged on the, on the labels.

For sure. For sure. I think other, you know, that’s kinda like the unsexy part who wants to be, you know, in a science lab doing things like that. But those are the kinds of, you know, these ancillary opportunities. You know, I talk about this I think one or two videos or two months ago, is it like, you know, who wants to be the gold owner, right? They want to go for the gold rush and have the goal, but the people that sold the shovels, the Levi jeans of the world, those are still around, right? The people that owned all the gold not necessarily built big businesses from that. You know, so things like what are the Levi’s and the pickaxes and the shovels of cannabis, you know, waste management, the testing, labs, packaging, things of those nature, you know, menu boards in a dispensary, a pop, right, doing different point of sale, uh, point of promotion type of products.

Those can be very, very helpful. Uh, P E O’s, uh, where you kind of help people place different, um, you know, HR things in the industry. Those things can be and grow a great amount of, uh, value and revenue and money so that when you can go without by a cannabis company that’s proven right when you go and invest in startups. Right? I’ve been in startups, Derek and I both been in this for like almost 10 years each. Um, it’s very, very risky business. You don’t know until it actually starts to get traction and a lot of these candidates up in these things, just because it’s cannabis, that’s their traction or one’s going to buy it cause it’s weed. Uh, it wouldn’t have failing companies if that was the case. You know, we’re seeing a fair amount of companies, um, you know, kind of wave the white flag like, alright, we’re surrendering here. So be thoughtful on the ancillary opportunities to build up revenue and then go and get something else. All right, next question here from uh, Nikisha on YouTube. He or she asks, should I start a CBD dispensary in Texas and prepare myself for when they legalize it to then move over to, uh, to medicinal or would you advise just going to Oklahoma with a two year residency law in a saturated market? What are your thoughts on that, Derek?

Yeah, I mean we see a lot of people doing that, that exact same thing, which is setting up CBD retail locations in States that are about to flip. And that way they’re able to set up the infrastructure. They have the location down and you know, that’s a really good strategy. Um, Oklahoma, there probably will be about 200 or so dispensaries that are actually able to make some significant income. Uh, the rest will probably either, um, you know, fall aside or you know, they, they won’t be able to sustain their costs. So, you know, um, it’s, I think both are, are, are plausible options and it’s, it’s only a matter of your execution and your timing to determine which one will actually succeed in the longterm.

Yeah. And I liked the idea of that opening up a CBD, but dispensary before the medicinal, uh, turns on in the state, you cause you get to build and become part of the community as well. People start to warm up to it. You know, cannabis, like some of the cannabis out there now is just really, really, really strong, you know, and it’s just like Imma knock your socks off and I don’t want to sound like an old timer, but man, like the, we’d get stronger every month when you start to warm people up to like these, you know, CBD joints, um, different gummies and things like that. And you’re opening up the door to cannabis to these very new consumers. So that when a more strong product, like a medicinal THC heavy product comes online, you’re able to have that trust with your consumer and they, they take your recommendation on what to buy and what not to buy.

So be thoughtful. Um, not just the, uh, cause Derek brought up a good point. The systems, right? It’s not just the wheat, it’s the systems that come along with it. You know, having good inventory management. One of the most popular blogs posts on our website is inventory management because that is very, very critical to the success of a cannabis business, right? It is a product with a short, relatively short shelf life. It’s not like a cheesy Cracker that can sit on the shelf for 18 months, right? It’s something that has to move in turn relatively quickly. So getting that down, getting your sales scripts down. Again, getting into the, uh, the community is very, very helpful when you start to think about opening up a business, right? You only live if the community supports you. So be thoughtful on that. All right, cool. Any more questions? Drop those into the chat, whether you’re on YouTube here or if you’re in the webinar jam live room here. We’ll take a few more questions. We’ve been going here about a half hour. Lots of good stuff coming up here.

Oh, is that a person here? JC is in Swazi land. We’re a Swazi land dad there. Where do you, where’s your, where is that? I’m going to Google that up. Is that in a, well, how about that? Nice. Nice. Yeah. I mean, one of the, again, I brought this up a little bit at the beginning here is that more and more international brands are, and people and consumers are looking up cannabis, right? We’re seeing an uptake in our traffic from international now, if you’re in now, if you’re outside the United States and watching the, it’s one of the big things is to, if you can’t place or start a cannabis business in your country, is to start a brand through white labeling in the States. Right? And work with a distributor to get your brand into a retail locations. You know, we’re realizing that, you know, you have some great ideas, even underground brands that are in other countries and you have good names stay.

I don’t know what those are, but there are some certain brands, whether they’re t-shirt brands or apparel brands or food brands that want to come to the States. Think about, you know, testing and coming to the battleground here, getting things moving. And then once it becomes legal into your country, now you have a game plan. You know, what products move, what ones don’t move, and we can help you throughout that process as well. We’re helping people start brands cheaper. We realized that the high cost of licensing is, you know, pretty painful and that everybody has 500 K or 750 K sitting on the sideline to invest in a cannabis business. So more white labeling options coming through that we’re working on. I only think you know, Derek and, and his, um, the people on the team have been talking more about this. I think there’s something to be said about helping people get into the industry cheaper, especially international, uh, consumers and clients that want to break into this U S market. All right, cool. Cool. I will be here for maybe like five, seven more minutes. Uh, if no more questions come in, we’ll, we’ll, we’ll cut it short, but just let us know. Um, alright. So Dave says margins are pretty tough on white label side. How can the, these companies compete at this time? Derek, you want to add any thoughts to that?

Yeah. So is the question on the white label manufacturer or the brand play? Um, if you’re talking about the, uh, the white label manufacturer margins have always been historically thin. Uh, you should probably target between 30 to 40%. Uh, gross gross profit margin. Um, that’s usually the, the rough estimates. And if you’re much lower than that, uh, you may want to consider a couple of things, uh, your operating capital. So what type of equipment, machinery and or people do you have? Um, and you know, you may also want to consider what, what, what verticals you’re, you’re operating in. Is it the vape is the edible. Um, you know, those all play a significant role, um, in, uh, in how much money you’re able to generate. If you’re talking about the brand, you know, as a brand, you’re not in, your margins are thin. That’s all.

Honestly, because there’s so many brands out there, like that’s just kind of the reality. Um, there’s this basic function of supply and demand. And for better or worse, you know, I think 20, maybe 20, 15, 2016 through now, everyone at a jump in the space. So there’s just a flood of brands, um, from Sergio, from a nursery perspective, can we deduct clones that don’t survive as lost? Um, it’s generally considered as your cost of goods sold. Um, usually it’s, yeah, I mean, oftentimes, you know, when you make cost of goods sold related investments that don’t pan out, uh, you can oftentimes take it, take it as a loss. There’s special rules in, um, in loss deductions. Um, but more oftentimes not you. You can oftentimes take the loss.

Great question. Yeah. The nursery businesses, I think one of the, one of the best ones to get, uh, to look at, it’s like, you know, not everybody looks at this one, they want to get that final product, but everybody needs clones. It needs their seeds. Uh, so think about that right there. I will do a few more minutes here. Um, we’ve got a fair amount of people on YouTube here, a lot of people in the seminar. Jim is great. It’s good to do this. Hope this is helpful. Let us know. Do you guys find these live streams helpful? Kind of the industry updates, things of that nature? Uh, we won’t do this if you don’t find it helpful, but you also want to kind of get out there and make sure you understand, you know, what are the big happenings every month. So if you find these helpful, let us know in the chat and if we’re going to get enough response, we’ll keep doing this.

cool. Cool. Do one more minute here and get your last question. Okay. JC says, how do I find my taxes as an independent consultant working internationally in cannabis when I lit, when I have an LLC in Delaware?

Yeah. So you want to file obviously all your LLC paperwork. Um, there are foreign resident requirements, so depending on how much time you spend in the us or in your foreign jurisdiction, you may be exempt. Also, some other things we’ll look at is, uh, whether you pay taxes in that foreign jurisdiction as well, because oftentimes you can apply those as a credit. But, um, just a quick reminder, anyone who’s a us citizen, you have to pay income tax. And even for those that aren’t us citizens, uh, you oftentimes if you’re generating, you know, revenues from your US-based activities, you’ll have to pay income tax on that. So, um, you know, uh, if you’re asking what’s forms you want to file specifically as an independent contractor, it oftentimes will go on your schedule C

good deal. Michael. John asks, is there any new developments regarding two 80?

Um, yeah. Uh, there hasn’t been any, any big changes or updates, uh, on our side it’s, it’s, you know, w with the exception of the tax court ruling that Jim had had referenced, that’s probably the latest updates that we have on our side.

Gosh, the, Kesha asked another question here. She’s got K saved up working as frontline RN and NYC. Thank you for what you do. We appreciate that, uh, other loans out there to get that are low interest rate for CBD businesses back home in Texas or are banks not touching the CBD loans? Derek, do you have any thoughts on that?

Um, I was actually talking to a banker this morning and they’re, they oftentimes are just really confused. They don’t understand the difference between cannabis and hemp. Um, hemp you should be okay. But again, it, it comes down to the bank that you’re trying to secure the SBA loan with and their level of sophistication. And even if they want to touch the space, some, some banks just don’t even want to touch it. So it really depends on, on who you have a banking relationship with and the terms loan that you want.

Yeah. They’re looking for the banks to, you know, reach out. If you’re in a credit union, I’m sure that the RNs have a credit union might be a part of, see if there’s something like that that you can reach out to. Usually credit unions do a little bit more to help out cause they’re all a kind of a collective to help their, their customers out. So check into that. If not, reach out to us. At least we’ll have your contact information. If anything comes across, we can potentially connect you with the right people and uh, you know, hopefully you can get that loan to start that CBD business. But, um, yeah, ADKs is a good front run in, in getting this started. I’m not sure in the whole build out of everything, but it’s a good chunk of change to start out with. Alright. Uh, last question here from Sergio. I’m considering to be a core or social equity host. What tax benefits might I expect, if any? Do you know what that is there? I know social equity is what does a host?

Um, I’m not quite, I’m not a hundred percent sure on, on the question, but um, there are no specific tax benefits of being social equity. It’s, it’s a licensing. Um, it’s like a jump to the front of the line in terms of licensing.

They usually get more points on your licensing application depending on the city. They weight the social equity a little bit differently. So check that out. Like States like Illinois, very high social equity points, LA, very high social equity points. You know, you go out to, I think it, I forget what I want it was, but only 10% of the points were coming from that. So that’s something you gotta be thoughtful of. You know what city is actually prioritizing those applications. All right, cool. Well, I don’t see any more questions coming in through YouTube or through our webinar jam channels, so we’re going to wrap it up here. Again, thank you very much for your time today. If you have any other questions, send us an email or reach out to us via our website GreenGrowthCPAs.com or give us a call at (800) 674-9050 it’s been our pleasure to kind of deliver a little bit of information here. Hopefully you found this valuable and we look forward to chatting with you in the future. Have a great day, and we’ll talk to you soon.

Podcast: Play in new window | Download