CFOs with experience in the cannabis industry play a crucial role in providing accurate and reliable financial forecasts in this sector, navigating the complexities of the market, maintaining compliance, and making informed decisions to drive growth and profitability. The CFO conducts a comprehensive analysis of the cannabis market, considering factors like consumer demand, competition, regulatory changes, and industry trends.

Here are some of the areas of forecasting in the cannabis industry:

  • Revenue forecasting; sales volume projections, pricing strategy; cash flow and expense projections – all typical to a business’ accounting – need to be created in a volatile landscape:
  • Consideration of factors such as product pricing, product mix, and seasonality.
  • Estimating the quantity of products expected to be sold, considering variations in demand for different strains or product categories.
  • Cost of Goods Sold (COGS) analysis, especially for businesses reporting under 280E, including costs related to cultivation, processing, manufacturing, testing, distribution, and retail.
  • Licensing and regulatory expenses; capital expenses, and tax projections, including excise taxes and sales taxes, to ensure compliance.
  • Scenario Analysis to assess how various factors, such as regulatory changes or shifts in market demand, may impact revenue and expenses.
  • Sensitivity Analysis to key variables, such as pricing, production costs, or regulatory changes.
  • Cash Reserve Planning to manage unforeseen challenges, such as changes in regulations or unexpected expenses.

BTA – By Example: Retail

In the cannabis industry, forecasting is a constant, iterative process as the market conditions are ever-changing.

In a startup dispensary, we developed a forecast of sales at quarterly intervals. The first year was forecast at breakeven for operations, with each quarter being about ten percent better in sales than the previous. We calculated the expected product costs with taxes. We then added the fixed expenses.

This became the framework for their forecasting model. In the start-up phase, not all products can be afforded, so each quarter the offerings were increased while maintaining the top sellers.

The forecasting process had two significant factors that required special attention each quarter: proper staffing and inventory budgeting. From the POS reports, they were able to analyze staffing issues and adjust budtenders’ shifts to meet peak selling times. The managers then worked to ensure all budtenders had stand-by work if the customer traffic was light.

Inventory management was constantly an issue. The inventory manager would say that they needed to have more products with a wider selection to increase sales. These needs had to be balanced with the budget and available cash flow. Inventory was forecast monthly, so it tied into the sales forecasts but then was managed weekly. Every week, inventory was analyzed from the POS system: what was selling and what was not. This was done by category and then by the SKUs within each category. Company policies were set for when products could be discounted to move.

The result was that the dispensary had labor costs that were better than other shops in their area and the inventory turned over quicker with a lower monthly inventory investment.

This is just one use case of many to demonstrate how having a CFO On Call can bring high value to your operation.

If you need the expertise of a CFO, let’s talk. I can be reached at Bruce@CannabisCPA.Tax or 818-225-8022.

CFO Services

Why BTA Cannabis CPA Tax?

  • Subject Matter Expert sought nationwide
  • 30+ Years of CPA Experience
  • Cannabis-specific experience since 2018
  • Multi-state service area: 20 of the 24 legalized states (plus Washington, D.C.) as of 4/24/24

Tap the image to enlarge.

The striped overlay shows the 19 states (plus Washington D.C.) that BTA serves as of 11/12/23.

Map source: DISA’s Marijuana Legality by State showing legalization, medical use, and recreational use as of 10/31/23. https://disa.com/marijuana-legality-by-state