Cannabis Knowledge & Insights

Wildfires Impacting the Cannabis Industry

You’ve likely heard about and seen the pictures and videos documenting the destructive wildfires on the west coast.

It may seem easy to dismiss these as “California problems” or west coast issues, but that may not be the best outlook.

If you need help with preparing your cannabis business for the impact of fires or need help with anything financially related to your cannabis business, then please reach out to us today.

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In this video, we cover:

Video Transcript

Wildfires are impacting all of the cannabis businesses throughout the entire country. Now, as you may know, or you’ve heard, or you’ve seen the stories and the crazy pictures and videos, wildfires are devastating. The West coast, California, Oregon, everywhere, the smoke’s going all the way across the country. You can see it on satellite images. It’s pretty, pretty impactful. And this is going to be impacting cannabis businesses throughout the entire country. And this is a record-breaking year. It seems like we break records every year with wildfires in California, but we’re barely into the high season for the wildfires in California.

Now I want to stress. This is not just a West coast thing. This is not just a California thing or just an Oregon thing. This is going to impact all legal and illegal cannabis businesses. And we’ll talk about that in a moment. So again, let’s just cover what is actually happening. So in October, this is when a majority of your outdoor flower is going to be harvested. People are waiting all season, they put all their money into it. They dump a lot of resources into having a great crop-Tober October crops. Okay. Now what we’re seeing is a loss of crops, whether that’s being burned down by the fires or contaminated with heavy metals or other things from burning building materials, not from the forest fires in the trees potentially from that, but there are, there are building materials being burned and that Ash is falling down as well.

This could contaminate the flower. Now this could mean a huge loss of supply of flour for the entire industry. Hey, it may turn into an oil. Boom. If you can find a remediation process that can strip out those potential contaminants, but you know, that’s for another video. And we’ll talk about that and see how this really unfolds. And you can get some details about the impact of the Ash on the flower. Now, what should you do if this is your crop that’s burning or has been contained emanated? So what you can do is make sure that you document it. It sounds right basic, but when you’re gonna make an insurance claim potentially, or if you’re going to write off a loss, especially in cannabis, you want to have all of your financial records in order. So paperwork, receipts, different time cards, things to establish in re would you say reconstruct the records that this is how much money got put into this, his crop.

So make sure you have the paperworks to back all of that. Now make sure you take pictures, pictures at the beginning. Yeah. Right. You’re probably doing the video surveillance of your space, not the outdoor space all the way, but things that are going in and out, hopefully been documenting your crop throughout the year year for your grow journal. You can use that as reestablishing information and evidence of how much money and how big the crop is and potentially how is lost. Make sure that you’re taking pictures throughout the burning process. If that’s possible, if you’re still in the area, when you can get back to your area safely, make sure you document the loss before you have any kind of cleanup happen. All right. And then from there, make sure that you properly reflect the impact on your crop in metric. Now you may not know how to do this.

So Hey, at a minimum, you can take the impact of this loss, right? There’s an operating loss, you’ve lost some product and you can take that to offset any income from this year. Now it’s not the best scenario, but this is probably one of the best things that you can do is document the whole process. Now, if you need help with, you know, writing, doing the write off and having the establishing information and knowing the documents to reconstruct these financial records, reach out to us via our website at GreenGrowthCPAs.com, chat with our team, and we can help you with that. We can help you with the metric inputs, and then we’ll go from there. Now, the meat of this, or the really the big impact, how is this going to impact the cannabis industry as a whole? So a few things here where you can kind of guess we’re going to expect prices to jump in the legal market.

Okay. Less crop is going to pass. CEO’s pass the COA, which is certificate of analysis, which means that you’re not going to be, you know, to have heavy metal contamination or some other kinds of contaminants in them, or, you know, less props it’s going to be available. Cause it gets burned up. Now that product that doesn’t pass COA, what do you think is going to go? This is going to just get rid of it. Probably not. That’s going to go and divert into the illicit market. There are ways to do this. It’s not in the regulations obviously, but there will be ways that this product, a certain portion of it will make it to the illicit market. What that’s going to do is it potentially drops illicit market prices. This is crazy, right? They’re already dealing with cheaper prices. So what’s going to happen is that legal retailers.

We’re going to be, they’re going to be negatively affected and impacted the most, right? They’re going to have higher prices for their flour because there’s less supply, which means demand is for the demand, the same demand, less flour, higher prices. That’s how that breaks out. Now this is going to be higher prices for you and your consumer. If you’re going to keep your margins in tax. So if you double your price, every time they keep a 50% margin, your customers are going to feel the impact of this to now, how does that change consumer behavior? We have yet to see how that’s going to impact for this year’s movement. Cause we haven’t had any full month data for September, October. So won’t see this until it actually plays out. Now also it’s going to be harder for the legal cannabis dispensary’s or delivery services to compete with illicit shops because those of us at shops would likely not be able to, or have to pass on any additional cost to their consumer.

So, you know, maybe you can’t increase your prices. You’ve already, you know, out priced yourself against the legal market or the sorry, the illicit market. So if you’re a legal retailer, you keep adding prices on and your consumers are pilot. Hey, why is this? You know, $35, eighth costing me $55 out the door. You bring it up $5. You’re not just bringing up that five there’s taxes on that gross amount. So it gets really expensive really quickly. Now illicit shops. They’re going to be getting this cheaper flour. It’s going to be a literal fire sale. And this is the double whammy against the legal dispensary’s and the legal deliveries, because illegal shops there’ll be able to keep their prices steady, potentially even bring them down. Probably no one’s going to bring them down because it’s already a good sale for the consumer, but they don’t pay taxes either.

Now enforcement budgets getting cut here and there throughout California and other States who knows how that really shakes out. But this is going to be, you know, not so good for the illegal cannabis. Dispensary’s now, again, this is not a West coast, California, Oregon. Only matter, you may not know this and regulators may not want to acknowledge this, but a lot of cannabis, outdoor cannabis and indoor that, you know, makes its way to the Midwest markets or to the middle of the country. We won’t name any States particularly, but when they turn out this for example, and this is how we came to kind of prove this, someone legalizes cannabis, a state legalizes cannabis, and they opened up the doors three months later, how do they have so much flour? Maybe they are transitioning to some of that, some of that medical flower in there, but there’s no way that it can produce that much flour.

It gets shipped in on 52 foot trucks. It just happens. It makes its way in through some certain. Um, I would just say loopholes in the way that you can bring in market to the, those is our brain cannabis into the legal markets and some other States. But at any rate, what I want to stress is that this is not going to only impact California and Oregon. This is going to impact the entire country. So lots of that going at legal cannabis is going to be pushed or elicit cannabis that didn’t make it in California or Oregon. There may be lower requirements in other States where that market will absorb some of this, uh, unpassable legal flowers. So it could flood your market, make your prices lower, or Hey, it just causes a drought and all that cannabis that you thought was going to come on that 52 footer from California to feed your Midwest market is not going to happen.

This is going to expect and expect prices to rise for these types of things. Now, what can you do as a cannabis dispensary at cannabis delivery, a cannabis retailer first and foremost, start to buy stocks soon, right? You should have an intelligent way to know what your run rate is every month, how much you’re buying and selling. Okay. So secure as much product as financially responsible without running the risk of creating an incredible amount of dead inventory. 90 days later. Now this is incredibly tough to do. If you’re not tracking your inventory turnover and your throughput, and having a very sophisticated, not even a sophisticated, I don’t want to call it very sophisticated. Cause this is basic. A convenience store knows how much Coca Cola or Pepsi they need to buy. You should know every week we’re going to go through ABC amount of cannabis.

So be very thoughtful. Try stock up. If you can, if you get a good deal on some good product, maybe buy a little bit more than necessary, or then you’re usually typically buy because there will be some type of impact and drop in the supply of cannabis in the Northwest. And the potentially that again, floods over to the other States now for next year, how do we really bake in the impact of this and protect ourselves as retailers, as manufacturers, as distributors, what you can do is consider structuring deals and setting up forward contracts with your suppliers and what this does. It allows you to set a pre agreed upon price before the crop even goes into the ground. You could potentially prepay some of that and put a percentage down. That’s very, very risky because if the crop dies out or if the person doesn’t want to sell to you anymore, yeah, they’re legally breaking your contract.

You’re out of cash. You’re gonna have to go through some legal process for that, but probably not prepaying for that, but potentially entering into forward contracts with adjustable rates based on certain Oracles that will then say, Hey, this is the market price. We go market price plus 15, or set a price in lock in. Now this can help you flatten your curve of knowing, you know, what the cost of flowers going to be throughout the year, throughout those jumpy months. And then this can also give you a little bit more predictable way the financials are gonna play out. So this is kind of what we’re seeing with the fires. There’s massive devastation, personally, professionally for people, we hope the best for them. And if you are a cannabis business that’s been affected by the wildfires in the Northwest, whether you’re in the Northwest or anywhere throughout the country, and you need help with working on calculating this net loss, what’s it going to be?

How do we work on, you know, documented the entire process, documented the entire loss, or if you need help with anything else financially related to your cannabis business, then please reach out to us via our website at GreenGrowthCPAs.com or give us a call at (800) 674-9050. You can fill out the form on our website. Someone will contact you. You can even schedule a time to talk with us. That’s convenient for you. And then we’ll walk through, alright, this is all the documentation you need, and this is what you need to do. And we’ll see how we can help you out. Now. Wish everyone much success working through these problems. Again, if you need any help, reach out to us via our website at greengrowthCPAs.com or give us a call (800) 674-9050. All right, we’re going to see if there’s any questions here in the live stream.

Cool. All right. So we’ve got someone on YouTube here from Canada. Um, no question, but will this affect Canada? I’m not sure if it will affect you Canada. Cause they’ve kind of got their own supply chain and international cannabis trafficking is not really, anybody’s probably looking at it in a grand scale. They’ve got their own markets. They’ve got a lot of kids. I’m not sure if there’s fires up in Canada. I’m sure any kind of forest has some type of fire. I don’t know if it’s going parabolic the way that California is, but let’s just look at, you know, potentially if you’re seeing these impacts in the areas that, um, your market, Hey, reach out to us. We can help people in Canada too. We are, um, you know, certified in Canada as accountants as well. So let’s see we can help you out. But again, reach out to us via our website at greengrowthCPAs.com websites there on the video, click the, get started button in the top right corner, and we can see how we can help you out. All right. So again, thank you for joining the live stream today. Have a great day and we’ll talk to you soon.

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