Marijuana Business Magazine October 2019

Marijuana Business Magazine | October 2019 72 ‘Live in Your Numbers’ To figure out where a business can “flex,” Matelich recommends benchmarking every aspect of your business—from payroll to electricity bills—and monitoring those numbers closely. “The real key to surviving is living in your numbers and making decisions on where you can generate the largest net dollar return,” he said. To Matelich, labor costs are one of the main areas a business owner can evaluate to ensure workers are providing the most value. Haupt also pinpointed labor costs as a key focus. “View your entire payroll to make sure that your labor isn’t inflated,” he said. To determine that, compare the salaries and wages of your employees to market averages in mainstream compa- nies outside cannabis. Then, measure performance based on the internal goals, such as grams per square foot or pounds per light, which can be set higher than the competition’s mark. Haupt suggests striving to pay a wage consistent with the market average while employing workers who achieve the company’s goals. A cannabis company’s labor costs should run around 18%-20% of its over- all business expenses, he said. Once you find those workers who can perform well at a reasonable cost to your business, do what you can to hold on to them, said Jesse Peters, a Portland, Oregon-based cannabis veteran and CEO of Mantis Growth Investments, which produces both cannabis and hemp-de- rived products. “Turnover is expensive,” Peters said. “Finding people who are skilled and loyal and dedicated in this space, they’re a real commodity.” If the market nosedives and the com- pany is struggling to make ends meet, Peters advises that senior management temporarily forgo their salaries rather than make the lower-salaried workers go on furlough. “Being able to bring your bottom line down and not lose your humans is really important,” he added. Diversify Your Customers One way to protect against a major disruption such as a tanking market is to develop a list of smaller buyers instead of just one or two main clients. “If you just have one big client, you’re giving them all the power of negotiation in the world,” Peters said. “They know you’re paying the bills with their money.” If you have multiple clients and you lose a customer or one goes out of busi- ness, you won’t suffer as much financial strain. Not only does having more clients pro- vide insurance against a buyer drying up or disappearing, it gives companies more leverage in negotiating crop price. Peters gave this example: Say your sales representative tries to offload 10 pounds of marijuana for $2,000, and a buyer says, “I’ll give you $1,600.” Your rep can say: “I have four stops after this, and they’ll all take it for $2,000.” In short, more clients equal more negotiating power. Matelich agreed. If a customer owns more than 10% of your profit and loss, then they have a lot of control over you, he said. Marijuana growers looking for ways to ride out an oversupplied market don’t have the same options as traditional farmers. A cannabis cultivator can’t just store product in a silo until the market recovers, as crop quality can deteriorate over time. But growers can employ other strategies, such as the following: • Pay close attention to operating revenue and expenses such as payroll and electricity and making careful decisions based on those numbers. • Maintain a diverse client base so if one buyer goes out of business, there will be others to purchase your cannabis. • Cultivate smaller customers instead of relying on a couple of big clients. As a rule of thumb, avoid allowing any one customer to account for more than 5% of your business. • Lock in a buyer via a futures contract to ensure you’ll get a fair price despite market fluctuations. Most of these businesses have very weak balance sheets, and one bad harvest can put them under. Knowing where you can flex is key to surviving.” —Wes Matelich, CEO of RX Green Technologies Glut a Riding Out