Ep 6: Inside Cannabis Finance — The Shift

with Alex Ceja · The Shift, a podcast by Headquarters

An inside look at how F&A Services Lead Alex Ceja helps Headquarters’ clients navigate finance and accounting while growing their businesses.

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Auto-generated from the episode audio and lightly edited for readability.

0:00 What categories are there in accounting and finance and what are the divisions uh of services teams in your department?

0:09 Okay, so this is a big one. Uh I will mainly group I think that we are doing a bunch of stuff in the team but I can group them into different categories. So the one is going to be more focused on specifically finance and accounting. So we call it controllership. So let's think about this. I've seen in the in the market like a lot of options as a part-time CFO, but no one is offering you like a part-time controllership. So, this specific service is including everything from finance that will allow you to operate. So, AR and AP money coming in, money going out, so you can know and you can still like collect those phones uh but also making sure that you're sending those payments so you can still run. And at the same time, uh well, you need to categorize all of these transactions. you need to book them also reconciling everything. So this is going to be what a a bookkeeper or an accountant will do and the controllership is like the glue. So he will be in charge of this team ensuring that everything is working smoothly. So you can go from let's say uh I would say that we start with a bank transaction.

1:15 So your bank is linked to your QuickBooks. So this whole team is going to be in charge of categorizing and linking and just putting the the right uh GL to every single transaction up to getting to the month-end close where they will continue doing the journal entries adjusting. So think about allocations or maybe uh acruals. So at the end you ensure that you have your financial statements call it uh balance sheet P&L and well if you have inter companies making sure that these allocations that you are transferring a specific uh charges to every single one of your entities so you are reflecting the right revenue uh the right profit or the right cost in the right entity that's the first one so controllership then if we move the other one is called at this moment it's a mix between FP&A or well the name uh financial analysis and insights and we rename it from FP&A to that one and the reason is because what we are mostly doing for our customers is to help them understand their numbers. So yeah you have a bunch of numbers uh in your POS in any kind of your software platforms that you're using uh sales platforms inventory platforms MRPs etc. And what we're doing is it is hard to read that information or sometimes it's it's too much. You have a bunch of uh details and maybe you don't want to to waste your time anal analyzing every single KPI or every single thing that is happening. So what we do is okay give us your focus.

2:47 So you want to focus on sales. Okay, let's do something about it. So we can work with a let's say platform. So we can tell you okay these are your top selling SQS these are your top markets these are your top customers these are your KPIs also we can tell you okay the performance so how well is performing Nabis like how much is it costing you to work with Nabis u just maybe doing a an analysis on how much you're paying for fees uh considering let's say the distro fee but also any other kind of extra fees that normally Nabis will charge you and how much you're getting like how many customers you're getting because at the end Nabis is a marketplace. So if you're working with Nabis, it's because of two reasons. The first one is because they will help you with the distribution. So you need to hire drivers, trucks, etc. But at the same time, it's a marketplace. So you're going there because in theory, it's supposed uh it's supposed to uh open you to new customers, new markets, new regions, etc. So we can give you this analysis so you can determine if it's a good business or not. But at the same time we can help you with the the KPIs of your sales team. So because well you know and while working in Nabis you can say okay this is my wholesale price.

4:02 This is my at the end how much I'm I'm selling this price um sorry this product. So you can you might give a discount but it can be uh a discount based on the top price or the lower price. So we'll we'll help you to calculate the real discount that each of the sales rep is really giving because it's maybe on paper it will look like okay from this price I give a 5% discount but if you analyze how much it is really costing you versus the price that you were trying to uh sell this specific product there might be a a difference so yeah I will say that or financials analytics and insights it's it's helping you to understand your numbers and just gathering the data from any kind of platform. Uh also we've identified that there's a bunch of let's say no uh that is not clean. So we need to focus on a little bit of data analysis where we need to clean the information. we need to parse it uh a bunch of times. It's names and conventions to just to making sure that we're analyzing the same uh names, the same let's say maybe brands, SKUs, strengths or whatever in order to give you a report. And just as a a brief description, if you hire one of these services, what you will get every single week is first of all, you will receive an email at some moment of time during the week. I'm saying this like randomly because it depends on when you want to receive this information. Normally it's between Monday, Tuesday or Wednesday and this will give you a quick analysis. So a quick snapshot. What we're trying to do here is focusing on two different targets. So one of them is let's say C-suite uh investments owners. So these people they just want to read something really fast. So what happened with my company in this specific area in less than five or 7 minutes. So I just want to read understand and that's okay. So something you can read even your phone.

5:57 So they will this will be an email that will adjust your phone so you can read it carefully. But then uh let's think about maybe a CFO or a controller that they want to dig into the numbers and just making sure that everything looks right or the calculations everything. So you will have access uh to the actual report through the link. So in the link you can see the spreadsheet you can see the calculations you can see where the information is coming from and if something looks off it will be issued to detect there and at the end you will have we are working uh as our BI tool we are using Data Studio which is a tool uh that is coming from Google. So uh with this you can play with information. So these are we designed them in a way that you can play with information. You can uh filter information, you can present information in different ways. So you can do your own analysis without needing to work through a spreadsheet. So every single time that you click on a slicer and you will select that a specific option, all the information is going to be updated based on that specific filter you would like to apply. So um you can play with it. It's it's fun.

7:06 Alex, you So I have two follow-up questions. you did mention uh QuickBooks and Google uh in in your speech about the services that you offer. Where's the familiarity of tools when it comes to the cannabis industry lie with you? Like how familiar you are with other tools and not just like the main popular ones?

7:28 I would say we're experts on QuickBooks because this is the main let's say ERP or accounting tool in the industry. So I would say from every I don't know 10 or 20 customers only one of them is not using QuickBooks but we can also use Sage, Acumatica uh the team has experience with SAP so a bunch of different tools and what I would say like

7:54 yeah we're able to to work with any one of them I would say QuickBooks is even though a lot of people complain about this tool I would say since it's the main one or the most common one, it is the one that it's easier to handle. So something that I would say it's pretty attractive from working with us is that we develop a tool called the QuickBooks gateway and it's just in summary or in a nutshell or the simplest way that I can describe it. We just have a connection uh something that will take us 5 minutes. So let's say if we want to connect your uh company or your QuickBooks entity with us, we can just schedule a quick sync maybe 5 minutes and even though you can do it on your own but well the link will expire based on uh the QuickBooks requirements. But what I'm trying to say is that with this connection we're able to extract information from QuickBooks. So sometimes working or analyzing the information in QuickBooks is kind of hard or maybe sometime it's even slow.

8:50 Why? Because you need to click a button to get to an specific report. So uh we are just avoiding to do all these five, seven, 10 different clicks and we're just extracting information directly from the API and put it in a Google spreadsheet. And with this spreadsheet we can get creative. So you can do a bunch of different things. So uh maybe a quick example. So uh some of our customers are asking us to hey I'm doing this exercise that it's I would say it's it's pretty common in cannabis on the big MSOs which is called debt swap. So what they're doing is they have customers and vendors that they have balances open with them and what they do is I'm not going to send you money but let's see how much you owe me and how much I owe you and let's just offset these balances. And yeah, before

9:39 us what they were doing is let's say maybe think about that they have 10 different entities. So they have presence in uh 10 different states. So they needed someone downloading the AR detail report the APD2 report one by one for every single entity. So we're talking about 20 different entities manually and then just copy pasting and then updating all the formulas. Now with the uh API that we have, we just click a button and in less than I I would say five 10 seconds you have the data information and if you would like to refresh you can do it just right away.

10:10 So we're saving a lot of time and everything is from the gateway where you know like okay this is attractive I have this balance hoping with this specific entity uh I would say I don't want to mention names but we have helped uh one of our customers to offset in the past I would say month around $1 million. So just think about it like all the efforts that you are um reducing of having someone to collect those those funds or maybe something that it's to age. I'm talking about balances that have open more than one year. So in theory well in cannabis what I've seen is that if someone owes you something and it has more than 90 days it is almost uncollectible. There's nothing that you can do about it. But now here you have some leverage. So okay I owe you money. You owe me money. Why?

10:59 like maybe you don't have funds but we can offset, it's going to be something that we just need to adjust in our balance sheet you will give me a credit memo I will apply it and I'm I'm going to do it the other way so now with this customer uh we realize that this is something that the market is really interested in uh we're trying to offer this exact same service to other customers and what I can say is that yesterday I did analysis and we can still help this customer to offset $2 million so it is something that let's say the work that we're doing it's paying for itself pretty easily and this is just one of the examples that we can do we can get creative and we can do a bunch more stuff uh with information that we can gather from uh the API we can just uh take the P&L the balance sheet or any kind of a specific report and we we can create a bunch of uh things I would say it's just a matter of uh trying to solve different pain points across our customers

11:57 yeah well you're saying right now is something that I've come across a lot in the industry when talking to a bunch of different people uh both MSOs and uh SSOs and what I've noticed is like there there definitely is this very big um problem in terms of trading partners versus non-trading partners. especially if we're talking trading partners and as you said like you owe us, we owe you and there's this open balance that sits down for like god knows how long. Let's just make sure we clear this out by either um going with uh credits or whatever it is.

12:35 Uh so I I feel like I understand how that can be beneficial. Um and then I wanted to revert back to the original uh conversation when you were talking about a reporting and this is something that like you know it it is a very crucial thing. A lot of people want to know exactly what type of reporting is available from from your standpoint. If I understood correctly, you go from like the executive level reporting very quick, very simple as you said, like you can look at it on your phone, but you also go in-depth if we're talking about specific departments that want more in detail analysis about specific topics and specific segments of the business.

13:15 Right.

13:16 Yes. I would say it's kind of the same. So uh what we do in the team is we are not try to get in a comfortable position like okay this is my reports this is my catalog and this is what I'm going to do and that's it. Now what we like to do is okay tell me what you're trying to uh solve like which is your pain point where you blocked and we are just going to brainstorm and look like okay you have this information that it's coming from QuickBooks or maybe you have this information that it's coming from let's say your uh seed-to-sale or your POS so let's just try to connect this data so something that I've uh realized is that maybe in some other industry there are true ERPs so call it SAP or maybe any kind of Oracle. So you can see everything everything is connected. So you can track uh maybe let's say in this industry from cultivation. So whenever you are growing a plant uh you can know up to the sale like which were my margins where my costs involved into specific batch. Everything is tracked and in theory can be this exist. So if you think about METRC, it is a blockchain. So the information is there.

14:28 You just need to uh be able to track it down. So uh whenever you have a a plant there's a METRC code and whenever this plant uh gets uh let's say extracted into something different like the all the vapes whatever you're going to have a bunch of different METRC codes and then uh when this is packed uh into different uh specific products like again call it vapes or pens you're going to get uh now different codes and then this will be sent to the retail store and then someone is going to purchase it. But if you track like that specific pen in theory with METRC you can track it down to the to the plant. I would say the the interesting thing here is again in other industries you have an ERP that will help you to do this process. But here in this industry you will have Quickbooks which is managing the accounting information. Then will you need probably an MRP that is help you with inventory and also the bill of materials and just calculate the cost.

15:19 And then you will have a POS that will tell you how are you selling your product like the finished product that you're selling to the end consumer. But there's no like true connection between these tools. There are different tools, different providers. Uh so it is kind of hard. So what we're doing is okay, let's just look for the connections. There's going to be a a path that we can follow.

15:39 So every single time that you're creating a batch, you are uh then uh doing a set of different uh products. So helping you to identify every single one of them and creating reports for you so you can know your margins, you can know which product is really performing as you are summing or the ones are maybe you thought like okay this is going to be a a strain that is going to kill it but at the end uh when it is in the shell it is not selling. So you can identify like okay this is something that either the market is not liking it we're not pushing it hard enough and also what we're trying to but some something pretty interesting to that we do is with inventory we help the retails the brands to know uh if their product is moving or not because sometimes it is just there like they have storage they have maybe I don't know 10 boxes 20 boxes 100 boxes of specific product and it is somewhere in the retail store, but they don't know that that product is about to expire. They don't know that maybe they they buy more like they they didn't know how to calculate the demand.

16:46 So, this is something that we can help them with. It is not that easy. Of course, uh every single strain, every single product uh has a different behavior, but at least we can try to uh give you like something closer to what is going to happen. So, let's say if a retail store hasn't uh sold uh let's say a thousand vapes during a a month, then it makes no sense to send them like 2,000 vapes unless it's going to be for training or an specific uh thing. But we can help you to make better decisions while we do this kind of reporting.

17:23 Yeah. And when I listen to what you're saying, I sort of feel like, you know, some people might be on the side saying I this literally, you know, one person might be able to do all of this as like a specific position. But one of the things that you showed me where um I was really impressed is the is the money saving scheme. Can you jump into that a little bit more for us? Cuz that was one part that I'm like, "Okay, I'm sold on this one. This this completely makes sense." and it will probably answer a lot of those questions about why not do in-house versus having Alex do all the work.

17:58 Okay, so let's I'm going to start this with thinking about uh maybe the easiest example that I always uh use is let's think that you hire an accountant. It's going to be a senior accountant, some someone that is going to help you to uh close your books, assist you with a month-end close up to creating financial statements. But let's think that maybe you are paying this accountant, I don't know, maybe $30 per hour, $40 per hour.

18:25 So you want this accountant to be as efficient as possible. But then when you're talking about accounting, there are a bunch of different tasks that you need to do to complete. So sometimes it's just categorizing transactions, which is something important, but at the same time, it's something that it's not really adding a lot of value. Or maybe let's think about, hey, I need to do the reconciliation. I need to reconcile this uh account statement or this vendor, this uh customer or maybe this specific GL account. So reconciling is something that is pretty time-consuming that you don't want to spend let's say $80 or 30 or $40 per hour uh to someone to do it please. So what we offer is think about u like u you're not hiring one person you're hiring a team to do this work and this team it's a combination of you'll get junior mid-level senior or maybe even a controller to do all this work. So it's going to be more holistic. So we're not going to charge you like hey you you will have you will need to pay me uh let's say $80 per hour because all my services are charged as a controller.

19:33 But it's more like we're going to make a package for you where we're going to get to a midpoint where instead of charging you like $80 per a controller, we're going to charge you $40, $50 depending on the volume and the complexity of your work. But we're going to be able to do everything. So from reconciliations from categories categories of transactions, AR and AP, call it invoicing cash application payment applications sending payments uh month-end close uh creating financial statements helping you with reporting.

20:03 So everything is going to be in a package. So let's think maybe maybe your your company is not that big. So yeah you need a a bookkeeper but this bookkeeper will be limited to to the position. So, uh

20:17 let's let's think about maybe a staff accountant. This uh person um will be able to to close the books, but sometimes like a uh yes, but this person doesn't know how to do reporting, but this person doesn't know how to talk to a customer. So, there are different profiles. So, what we are offering you is more like yeah again a holistic uh proposal for you. So, you can take everything. So let's just think uh as our service as finance and accounting in a package.

20:47 So you don't need to worry about a specific uh person. You'll get a full department to work uh for you and we're going to do every single task that you need to get from point A to point B.

21:02 Yeah, I I understand that. So instead of hiring three different positions for the work that you need and then leaving them halfway through with like four hours per day left of not really having anything to do, you go with Alex, you get a package that is literally tailored depending on the time needed to invest in order to achieve these specific tasks and that's how you pretty much save the money. I'm going to go back to the beginning of the conversation as well where you did mention like if we're offering a service to a specific client.

21:32 So there, you know, in some instances there might be a specific focus depending on what their business needs are at the moment. But from a business perspective, like obviously there is a difference if we're talking about cultivator versus retailer. What does that mean for you? What's the difference in the approach of finance and accounting when comparing license types in different uh businesses? Okay. So, normally with uh cultivation and processing, they're pretty similar. So, the main focus there, of course, I'm going to say that uh for every single uh license uh finance and accounting should be uh almost the same. So, you need to uh to sell to send the invoices to collect these uh funds to send uh payments etc to close books to the month-end close, creating financials specifically on retail. Well, you won't have AR. So your main focus is on AP and accounting and just the financials. But then it is more complex working with a cultivation facility or a processor.

22:32 Why? Because they would like to see uh they're more related to cost accounting. So being able to track down all every single specific cost uh in the cultivation process or the extraction, the packaging etc. So we need to capture every single one of these costs to be able to create uh reports for them. So I would say this is the main difference. Um but again in theory uh every single company from this industry or any other industry they need to go from uh receiving transactions categorize them or to creating financial statements.

23:07 Tell me about plugand play. What is plugand play? At this moment uh we have the first version of the plug and play uh which is the Nabis plug and play. In theory the plug and play the concept is we have something that is already uh created and the only thing that we're missing is just the key the API. So whenever you uh get us access to let's say the Nabis API we're just going to connect uh the information is going to be refreshed now with your own data and the report is ready to go. So that's why we call it plug and play. We are uh thinking of uh potential uh different approaches on how to use the same concept or theory of the plug and play.

23:48 Something that we've been thinking about is METRC. So just METRC has an API connection. So uh we can do a bunch of things with METRC. But going back to the Nabis plugand play. So this is something that we're trying to to promote and this is something that customers uh find attractive. So this is I would say pretty niche. So in order for you to use the Nabis plug and play of course uh you need to work with Nabis but what we're trying to do is to give you three different uh concepts from it.

24:14 So the first one is sales. So how are your sales uh performing? So where are you selling the most your top customers uh and just helping you to understand which product is working good with Nabis? Nabis works with two different um uh customers. So one is going to be the brands which is uh sending the product another one's going to be the retail source. Uh but at the moment we're focusing specifically on brands. So they would like to know their product which one is the one that is performing good because I' I've seen um there are I would say we can categorize brands into different uh sections. ones one of them is those brands that exclusively work with Nabis and also those brands would work with Nabis but sometimes they do the their own self-distro so what I've noticed is that maybe before working with Nabis some of their products uh they they used to have some top products but then uh while working Nabis it switch so we help them to identify which ones are the ones that they should keep sending to Nabis because they are really performing uh pretty But uh then we have another section that is just trying to help you with uh the performance. So the analytics on the marketplace if it's really working for you, the charges uh if you're getting uh because whenever you work with Nabis, you get your your contract and they tell you like, hey, yeah, you're going to I'm going to charge you a 10% distro fee. But then it comes the question of is this going to be from the wholesale value, the dent value? So all the calculations uh are not straightforward. So it doesn't mean that if you're selling $10, they're going to just take $1. There are a bunch of I wouldn't say hidden fees, but if you don't read the they call it the brand partner handbook, which is a set of rules that are going to describe every single thing that is going to happen with Nabis and it's just like let's say the bible of working with Nabis. So and there's an specific section that will talk about uh fees. So uh maybe a label fee, if you send your product but the labels that they you send were not good enough and they need to do the labeling they will charge you and they will going to charge you for every single unit uh that they are doing for you. So there are a bunch of of different things. Uh but yeah we're trying to to to help you to to determine if all these fees make sense according to how much you're selling there. And lastly it is the AR portion. So we help you to identify uh your top offenders. So the the the customers owe you the most and well just you know like which ones are performing good. So yeah maybe just try to give you some uh hints on these are good customers try to sell uh to them more and also giving you like more granular details like which is the average uh price order uh that every single customer is getting to you how many days it it takes them to to pay you back. So you can make your own decisions. And sometimes the volume doesn't meet profit. So if you're maybe selling to an specific customer, uh let's say one $1,000 one, well, it's just a a random number, but uh if this doesn't translate to collections and also if their margins are not good enough, this might not be your top customer. But even though uh just in a in a pretty quick analysis if you see a big number like we are selling this is our top customer because we're selling them uh million dollars per month normally it doesn't translate. So it is more

27:46 you need to do a more granular analysis.

27:48 So with the plugand play what I'm what I'm hearing is that we're with the plug-andplay you're going to know what sells the best where and why. you're going to know um where to improve the cash flow through the AR plug-and-play. And then lastly, you're going to know where to save the money through the specific fee handling. That can sometimes be a little bit tricky to handle, but given you're a professional in that you have a lot of experience, you know how to how to make sure you execute the best on it. Right.

28:19 Exactly. Uh I forgot to mention, but we also send you there's some specific tab at the beginning, which is called the executive summary. So, we're going to give you specific details on every single one of the categories that I described so you can take actions into it. So, hey, these are your top performers or maybe you need to let's say maybe thinking about collections. These are the the orders that you need to focus this week. Why? Because if you get closer to uh 60 days past due or 90 days past due, probably you're you're aren't going to be able to collect. So maybe put a little bit more pressure into those. Um and also yeah you will receive us uh all our reporting uh a weekly email so you can have it you can read it and is is the same logic. So we're focusing on if you're a CFO like or maybe just uh talk about C-suite so you can have something to read pretty fast understand what's going on with Nabis but also if you want to go deeper into details if you have more time there's full report for you.

29:20 Very good. Very good. I now know a lot more about accounting and finance than what I originally knew. So really do appreciate that and uh thank you very much, Alex. Thank you.

29:33 Sounds good.

29:34 Chat soon.

29:35 Thank you, Filip. Bye-bye.

29:36 Thanks, Alex. Bye.