Is Your Cannabis Financial Model Accurate? How to Check

Four Tips For Cannabis Financial Success

One of the earliest and most essential aspects towards a cannabis business’s licensing and long-term profitability is financial modeling. But is your cannabis financial model measuring the right figures? Is it considering all the statewide and national trends to gather the most accurate information? And are you being realistic in your methodology? While many people “go it alone” with business financial modeling, we highlight why it may be best to trust the professionals.

 

1) Understand Statewide Modeling Requirements

More often than not, we see regional cannabis programs requiring some form of financial modeling or planning from state regulators. This makes it extremely important that the financial model figures are accurate and what a state expects to see. Each state is different in their cannabis business requirements and it’s important to make sure your own modeling captures all the regulatory and licensing body is interested in.

Kentucky’s Financial Requirements for Medical Cannabis Businesses

For example, Kentucky’s cannabis program will be requiring prospective medical cannabis applicants to include a full financial plan that provides an overview of the proposed cannabis business’s current financial situation and projections for growth. This plan will include, at a minimum, information such as:

• Anticipated Business Income
• Expenses 
• Cash Flow 
• Budget(s)
• Debt Management Plan

Delaware & Maryland’s Cannabis Business/Financial Plans

Meanwhile, Delaware’s Office of the Marijuana Commissioner will be requiring adult-use cannabis business applicants to submit a comprehensive business plan, which includes an annual budget and pro forma financial statements. And Maryland, in its most recent social equity lottery, required applicants to submit a business plan which included a financial workbook, asking applicants for: 

• Startup Costs Physical Location Buildout
• Permit Fees
• Utility Costs
• Employee Salaries and Wages
• Equipment Costs 
• Track-and-Trace 
• Point of Sale 
• Testing and Technological Costs
• Anticipated First-Year Operational Revenue
• Pre-Tax Profits

State Financial Expertise Pays Dividends

Making sure you know what the state requires for financial model purposes is essential so that you don’t miss a crucial data point in the application review process and receive a demerit, or worse, a disqualification. This is just part of the reason why developing financial modeling with the help of cannabis industry experts is often essential to ensuring state compliance.

 

2) Know The True Costs For Running A Cannabis Business

One of the most common questions we get asked by prospective cannabis operators is “How much is this going to cost?” Of course, for every business, the costs are going to vary. This is why we like working 1:1 with clients to assess their client specific needs and seeing how much the costs of goods, services, build out, furniture, fixtures, and equipment align with what a client will need. 

The costs can also vary wildly based on the business type. A cultivator will simply have different operating costs and equipment requirements than a dispensary, or a processor, or even a vertically integrated microbusiness. The frustrating side with this is, sometimes costs are impossible to adequately assess without either an “in” or without reaching deals with certain lighting vendors, extraction suppliers, or architects.

With the costs of labor, goods and equipment overall increasing, finding the right vendors, contractors, and third-party suppliers for your business is paramount to having a clearer idea of what the costs may be and importantly, what are some of the surprise costs that you, on your own, may be under-representing or not even including.

 

3) Assess Your Sales and Profits With Actual Data

Most everyone we know wants to get into the cannabis industry because it can be a lucrative endeavor. However, the reason not everyone succeeds in this industry and why not everyone is in cannabis is because, like every other business out there, it comes with inherent risks and pitfalls. The path to profitability and achieving a consistent cash flow positive position is not an easy one and requires due diligence, practical business planning, realistic sales forecasts, and comparative analysis. 

All of these factors should be included within a financial model and highlight the realistic expectations for the business. When we work with clients to create financial modeling, we often have to do our best guess with the information we have. But, our best guess involves research and compiling the most up to date data from multiple states, factoring in industry trends, assessing the maturity of the market, whether or not a state is a medical or adult-use state, and product breakdowns that we see for dispensaries along with wholesale costs and margins estimated for all different business types.

 

4) Leverage Invaluable Insights from Canna Advisors

There’s a myriad of factors which can and should go into accurate financial modeling and this is why, in our estimation, its best to work with someone who knows the industry inside and out to establish how you can reach that point of profit. With Canna Advisors’ decades of experience implementing cannabis financial models and business plans, you will have an interactive model to submit with your cannabis license application and vital industry insights to run a successful cannabis business.

Reach out to our experts or book an hourly consultation to get started on your financial model and access our extensive cannabis knowledge and industry insight to ensure success in your cannabis business.