Whether you’re looking to serve Cannabis startups as a world class CFO or are a Cannabis CEO in the making, knowing what it takes to properly position the company for success is imperative.
Now, we don’t say all of this to scare anyone away or to be gatekeepers in any form or fashion. We say this so that all parties can know what is needed in order to do well in this niche. We want this niche to thrive, and not die on the vine because the blind are leading the blind into dangerous territory.
There are a lot of opportunities in this industry. More than enough for everyone, as long as all parties are aware of the rules, their respective responsibilities, and the unique aspects of the Cannabis industry, so that folks can steer clear of trouble and grow thriving businesses that serve the community well.
Cannabis business owners be warned: being a good Cannabis/CBD/Hemp CFO is not easy, so make sure the Chief Financial Officer you work with knows Cannabis accounting.
Current and future CFOs: the 5 keys you need to be a world class Cannabis/CBD/Hemp CFO are vital for being able to steer the course from startup to funded, gain market share, and achieve long term growth and profitability. While being a Cannabis CFO is not for everyone, for accounting professionals who welcome challenge and enjoy thinking out of the box, it can be fun, fulfilling, and financially rewarding.
There are a flood of Cannabis startups out there. Many of them have charisma, know what customers want, and stand a good chance of getting funded—if they’ve got the right CFO on their team.
There’s a dearth of Cannabis CFOs who can correctly guide them through the process of raising capital. While many startups may have a brand story, few have solid pitch decks, correct financial models, and little to nothing on corporate governance and how they will implement internal controls. Nevertheless, all of those are crucial keys that Cannabis startups who want to secure funding need to have in place.
While “internal controls” may sound a little like a rarefied corporate term, having the proper controls in place from the top down is very important. Think and even act through the controls as you’re setting them in place. Doing so will help you establish controls that work and mitigate losses due to theft, mismanagement, errors, and irregularities.
A great deal of energy is poured into trying to circumvent 280E. Look for the real life cautionary tales and you’ll find them!
Cannabis CBD/Hemp CFOs: it’s 99.9% certain that you will encounter founders and owners who are looking for ways to mitigate 280E, to “beat it” or somehow game the system. Your adherence to it, and your ability to properly accord with 280E and 471 are what will set you apart. Nevertheless, strict adherence to 280E can, and should, be your key differentiator and SOP (Standard Operating Procedure). What differentiates you as a Cannabis CFO is your industry knowledge, tools, and ability to correctly do GAAP and cost accounting. Is it easy? No. Doing it right takes know-how, time, and effort, especially during the setup stage. That hard work is how you can provide unquestionable value. It’s also how you keep the company compliant and audit ready, month after month.
Cannabis company founders: do not waste your time and energy trying to get around IRCs 280E and 471. The IRS has become highly skilled at spotting such efforts and the penalties for creative and inappropriate accounting and business practices can be dire. Know this—with the right CFO you can abide by 280E and 471 while minimizing your tax burden. What’s the secret sauce? It’s know-how, getting your accounting and business systems aligned correctly from the start, and creating a permanent audit trail from day one.
Know thy vertical! Gaining a detailed understanding of the different verticals in the Cannabis industry and how to account for each of them requires solid knowhow and the right resources. If circumnavigating the hard work (and the math) is how you or your accounting professional operates, the Cannabis space is not for you. Whether working with one Cannabis industry business or several, getting a solid look at their processes is what makes it possible to answer questions like: How much does it cost for this specific cultivator to grow one pound of this specific strain of Cannabis? A solid Cannabis CFO and/or accountant needs to be able to figure out the cultivator’s estimated yield, percent complete, and grow time, etcetera. Bear in mind: there are definite variations in grow time and percent yields by strain, and they vary by grower and growing practice; there is no one-size-fits-all solution.
CFOs: Know this well and you will be invaluable. As the Chief Financial Officer of a Cannabis company you help to set the tone at the top and help establish effective internal controls to minimize theft, protect key assets (expensive inventory, large amounts of cash, proprietary processes, etc.), and mitigate risk. Doing so requires a willingness or propensity for being the parent in the room. When everyone else on the team is riding high over a successful funding round, you are making sure the controls can withstand stress tests and are covering for the unknowns (market losses, crop damage, pesticides, natural disasters, etc.). Work and production practices, including the handling of cash, handling of plants, and conveyance of product (and all related goods which are used in the maintenance and cultivation of that product), need to be scrutinized regularly.
CFOs: The Cannabis industry is very unique and very niche, so is proper Cannabis accounting expertise. It follows then that being a world class Cannabis CFO requires more than being a CFO for a conventional corporation. In the legal Cannabis industry, you will find many CEOs, including social equity applicants, who have little to no experience running companies. That does not mean you should not work with them. Rather, know from the outset that you are going to need to tactfully educate, inform, and call out things which might go otherwise unnoticed.
To serve in this space, you need to be ready and willing to commit to helping the CEO and the rest of the team navigate the industry. Remember, this is relatively new terrain so it’s imperative that you embrace the challenge and expect to have a hand in everything, from software selection and setup, to licensing and renewals, to compliance, to operations and marketing, and beyond.
As mentioned before, there can be pressure to bend the rules or violate laws, therefore adhering to your ethics as SOP is paramount, even if it means firing clients and terminating relationships.
In an industry that’s poised to hit $72 billion by 2030, being a world class Cannabis/CBD/Hemp CFO to companies who need expertise, guidance, and leadership can be a fun and fulfilling career. Transitioning into the industry is straightforward when you’re equipped with the knowledge, tools, and resources DOPE CFO provides. With more than 100+ workpapers, templates, calendars, and systems, you can account for any vertical, handle any cleanup, and provide valuable accounting expertise to Cannabis businesses across the nation.
Cannabis startups and CEOs: Thanks for getting informed on what it takes for Cannabis CFOs to properly meet the needs of today, and tomorrow’s Cannabis industry businesses. Afterall, you don’t know what you don’t know, and staying informed and knowledgeable is essential to all who want to succeed in the licensed Cannabis space. When looking for your next CFO, consider whether or not they have expertise in Cannabis accounting. Make sure they have the tools and resources they need to properly manage cash flow. Assess the level of commitment they are willing to make to help ensure the company is set up correctly from the start.
Click here to watch our webinar for more info on the 5 Keys to Being a World Class Cannabis CFO and to find out more about DOPE CFO!