Getting the products you need to satisfy customer demands hinges on building strong, long-term relationships with cultivators. Building those relationships can be difficult, especially if each group isn’t meeting the other halfway. Cannabis Dispensary reached out to growers from across the country for insights on what they want and need from retailers to help you get the products you need, when you need them. 

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Tips from Daniel Wacks

CEO, State Flower, San Francisco and Las Vegas

State Flower operates 20,000 square feet of cultivation space at its San Francisco facility and 40,000 square feet at its Las Vegas facility (at full capacity). Founded in 2015, the company offers flower-centric product offerings, including prepackaged grams and eighths and various pre-roll sizes.

1. Pay on time. Wacks has worked on all sides of the cannabis supply chain—cultivation, manufacturing, distribution and retail—and although each has its own unique challenges, cash flow is an issue in all areas of the industry, he says, especially because many cannabis businesses are experiencing rapid growth.

“It’s very rare that people have many months of cash on hand,” he says, and the cultivation process—from actual cultivation to harvest and post-harvest processing—takes four to eight weeks to complete. If payment terms are net 30, for example, a cultivator would need up to three months of operating capital on hand to take them from initial cultivation stages through harvest and delivery.

“And that’s assuming they’re able to sell out of products consistently as soon as [they’re] ready, which is not always the case for everyone,” Wacks adds.

Therefore, retailers should respect payment terms and pay on time to help eliminate further financial stress on their cultivation partners.

2. Understand the cultivation process—and timelines. Most cultivators are willing to alter the quantities of certain cultivars—or grow new ones altogether—to accommodate a retailer’s request, but changes take time, Wacks says. If a retailer wants a cultivator to produce a new variety, for example, that variety may not be ready for delivery for six months or more, depending on the grower.

“I think there have been occasions, especially in the early phases in Nevada, where a lot of retailers weren’t very familiar with the cultivation process, and we’d get these requests: ‘I want you to grow more of this, and I’m expecting it 10 weeks later,’ which just isn’t realistic,” Wacks says. “We can make small changes to our process—grow a little more of this or a little more of that, or reserve more for a certain retailer, but ultimately, a minimum of 17 weeks are going to pass from the time we have a request to the time we can actually deliver upon that request.”

3. Don’t be afraid to showcase multiple brands in one display. Having your brand alongside different vendors in the same display might seem like unfriendly competition, but Wacks has a different perspective.

“We love to see State Flower on shelves with other top brands that we really admire,” he says. “I think some people might think that might seem like more competition, but ultimately, we want to be listed amongst those brands that we really respect.”

Tips from Thomas Schultz

President, Connecticut Pharmaceutical Solutions, Portland, Conn., and Co-Owner/Co-Operator of Willow Brook Wellness, Meriden, Conn.

Connecticut Pharmaceutical Solutions is one of four licensed producers in Connecticut, and Willow Brook Wellness is a licensed dispensary.

4. Share data to solve shared problems. The cannabis industry faces several major issues stemming from federal prohibition—including section 280E of the IRS tax code, the lack of basic banking services and insufficient research—that hinder its ability to overcome many market challenges.

Partners in the cannabis supply chain can improve their competitive position by improving their data-sharing capabilities, Schultz says. For retailers, that could mean regularly sharing sales breakdowns and insight into what’s selling and what isn’t. “The dispensaries work directly with patients, and the more data the producers get, the more they will make products that satisfy the dispensaries’ consumers,” Schultz says.

He likens the scenario to a candy manufacturer, such as Hershey’s, using retail data on consumer buying trends to determine whether certain ingredients are more appealing to different types of customers. “If I have a problem with millennials, I can work on solving it,” he says. “Maybe they really want nuts in there, or maybe they really want toffee. I’ll work on it, but I need the information in order to work on it.”

Similarly, this type of information sharing can provide mutual benefits for growers and retailers, he says. “What’s really important here is to understand how beneficial it is for all of us to work together, to be connected to one another, to understand each other’s problems,” he adds.

“What’s really important here is to understand how beneficial it is for all of us to work together, to be connected to one another, to understand each other’s problems.” Thomas Schultz, president, Connecticut Pharmaceutical Solutions

5. Collaborate to improve processes. All cannabis businesses have myriad regulations to follow, and they should work together to help guide the regulatory direction and structure to their advantage, Schultz says. Otherwise, both ends of the supply chain suffer.

“Regulations that are either impractical or impossible don’t help anything,” he says.

Cultivators and retailers can also help each other streamline compliance processes, Schultz adds. For example, a retailer could ask cultivators to provide certain batch information to help that retailer prove to a regulator it is properly handling inventory.

Retailers and cultivators can also work together to develop industry standards, Schultz says, particularly when it comes to pesticides and testing. For example, if pesticides are allowed on a soybean crop near a cannabis grow, the chemicals could make their way to the cannabis plants, which would affect both sides of the supply chain when the cultivator’s products fail testing.

“We all have a similar interest to make sure regulators are aware that behavior that they allow elsewhere in America affects us,” he says.

Tips from Laura Day,

Director of Operations, Yerba Buena Farms, Hillsboro, Ore.

Yerba Buena cultivates 7,000 square feet of canopy in a 15,000-square-foot warehouse. Founded in 2015, the company keeps 30 cultivars in rotation with a library of more than 100 genetics.

6. Know what sells. If a dispensary has a system to track which products are selling versus which ones aren’t, then the retailer can more efficiently plan the menu and order accordingly.

“I think many retailers have room to improve their menu planning,” Day says. “Understanding sell-through rates on different SKUs and product categories can help with forecasting orders, which in turn helps purveyors to plan ahead for what the client will need. It’s crucial to watch market data and trends.”

7. Collaborate with cultivators on marketing efforts. When it comes to marketing, it should be a collaborative effort from both sides to reap the most benefit, Day says.

“We try to promote the stores that carry our product, but it should go both ways,” she says. “Doing social media posts and promoting the farms and products that you’re working with is not only going to bring customers who are seeking their product through your door, but will help drive traffic in general, building loyal clientele, which is good for everyone. Cross promotion is important, and not all stores are doing a great job with this.”

8. Keep fresh product on the shelves. Stale product not only reflects poorly on the cultivator who produced it, but also on the dispensary, Day says.

Retailers should store product properly—in a cool, dark environment—and the storage space should have environmental controls, even if it’s just a thermostat, Day says. This keeps the flower from getting too warm and being exposed to light that will rapidly degrade the product.

“That’s one of my biggest frustrations, to walk into a store and see the wall of weed,” she says. “You’ve got a wall of flower and light shining directly on it, and it hurts my heart, because I know that’s just degrading the flower. The best shops that we work with keep their display flower out in smaller quantities and the flower that they’re selling from is behind their counter or … kept somewhere to preserve it. It’s really simple. You want the longest shelf life on your products, right? Take care of them, and they last longer.

“Not all farms will do this, but our farm will replace products if they’re getting old or not looking their best,” she adds. “That way, the flower that has our brand on it represents what we’ve done in the grow.”

9. Let cultivators help train your budtenders. Every grower has his or her own unique approach to cultivation, and it’s important for budtenders to know how the cannabis was grown in order to discuss it with customers.

“Particularly in cannabis, everybody grows a bit differently and uses different mediums and IPM [integrated pest management] practices, and it’s important to know what those are,” Day says.

Most growers will provide training for budtenders, Day says. She suggests dispensaries take advantage of the opportunity to increase their staff’s knowledge. “If the budtenders know particular tidbits about how a cultivar was grown or how they hunted that pheno or whatever it is about that particular strain, then it’s going to be much easier to sell,” she says. “The same goes for other products. Extraction methods, infusion methods, where the material was sourced, the quality of ingredients—all of this needs to be translated to the budtenders. Customers are looking for information. It’s your job to be able to give it to them.”

10. Stop selling based on numbers. Retailers should communicate to their customers what the experience of a particular variety of cannabis will be like, not just what the THC content is, Day says.

“It’s frustrating when a client says, ‘Oh, if it doesn’t reach 25 percent THC, we’re not going to buy it or we won’t pay as high of a price,’” Day says. “That thinking is becoming obsolete. Educating themselves and the customers on the importance of all of the different compounds in cannabis, not just THC, [is important]. We are not here to sell numbers. When was the last time you went to a bar and asked for the beer with the highest alcohol content? It’s time to level up, and it all starts with retail.”

Tips from Jade Stefano,

Owner/Operator, Puffin Farm, Ellensburg, Wash.

Launched in 2014, Puffin Farm operates 30,000 square feet of cultivation space, including two greenhouses and a large field. It produces flower, CO2 oil, bubble hash, pre-rolls, infused pre-rolls and rosin.

11. Take advantage of grow tours. Grow tours allow retailers to get a behind-the-scenes look at cannabis cultivation, which helps them better understand not only the overall process, but also the particular brand.

“We love giving grow tours to retailers,” Stefano says. “Grow tours are a really good way for retailers to learn about the inside operations … and see that we are a clean operation and that everything is well taken care of and that we love our plants, and how healthy they are.”

“Grow tours are a really good way for retailers to learn about the inside operations.” Jade Stefano, owner/operator, Puffin Farm

12. Be aware of regulations—and be compliant. Washington has particularly strict regulations, Stefano says, especially when it comes to cultivators offering price discounts to retailers. If a retailer approaches Puffin with aggressive negotiating after viewing the farm’s price list, Stefano walks away.

“Even though discounts are illegal, they are commonplace in the Washington industry,” she says. “There are aggressive retailers out there who are known to be aggressive and pushing producers and processors into noncompliant deals, [having them give] special deals and discounts and kickbacks and that type of thing. Any time any retailer might suggest something like that or appear to be asking something like that, we don’t engage in business with those retailers.”

Instead, Puffin works with retailers that are not only compliant, but that also believe in quality. “We really try to work with people who are following the regulations and who want our product because they believe in it.”

13. Offer fair prices. Retailers should be focused on quality and reputable brands that they can stand behind and build long-term relationships with, Stefano says—not just getting the cheapest cannabis possible.

“For retailers to … buy really cheap product on an ongoing basis means that they’re never going to have long-term relationships with brands or establish an industry based on a sustainable economic model,” Stefano says. “I really like retailers that are looking for good quality or good brands and want to maintain good long-term relationships and aren’t in it just for the cheap, quick turnover and easy profit with diminishing returns.”

Tips from Paul Henderson

CEO, Grupo Flor, Salinas, Calif.

Grupo Flor is a vertically integrated cannabis operation with more than 2 million square feet of cultivation space.

14. Share customer feedback. Cultivators crave customer feedback on their products, and retailers are on the front lines, seeing the shifts in consumer preferences that can help growers decide which cultivars to produce.

“The cultivators tend to just grow what they grow and what strains they have in their genetic bank and what they do well,” Henderson says. “That doesn’t necessarily mean they’re growing for what the customers want to buy at that time.”

15. Filter out the cultivators that don’t take regulations seriously. California has particularly stringent testing regulations for pesticides and heavy metals, Henderson says, and retailers should be choosy about which cultivators they work with, ensuring that all product on their shelves passes testing standards and no good player is displayed with a less-than-scrupulous one.

“You can start to weed out … the groups that don’t take it seriously,” he says. “You want to align yourself with the groups that are really spending the time on the compliance, licensing, all of that.”

Editor’s note: For more in-depth insights into navigating 280E, check out Cannabis Dispensary’s free webinar at bit.ly/CD_280E

Cocaine dealers can’t claim deductions on their year-end tax forms—that should be a no-brainer.

Unfortunately, the same holds true for cannabis companies. Section 280E of the Internal Revenue Code, enacted by Congress in 1982, states that deductions and credits are not allowed for any expenses paid during the tax year for business activities that involve the sale of controlled substances, which includes cannabis.

Until the federal government removes cannabis from the list of Schedule I substances, cultivators will need to find other ways to reduce their tax burdens. Below is a recap of some key points addressed by Rachel Gillette, partner and chair of Greenspoon Marder’s Cannabis Law Practice, and Dean Guske, CPA, Dean Guske & Co. Inc., during a panel discussion at the 2019 Cannabis Conference.

1. Keep a good accounting system.

“If you don’t have a good accounting system, you’re not going to be successful in trying to ... maximize your deductions,” Guske says. 280E has less of an impact on growers than it does on retailers, he says. “The vast majority of your expenditures incurred that go into that product are direct expenses, and they go right into the cost of goods sold, [which are allowable deductions under 280E]. Compare that to a retailer ... the vast majority of their expenditures are selling expenses, and selling expenses are not qualified to go into cost of goods sold.”

2. Understand how 280E impacts your business.

[Cannabis business owners] “need to know in real time what is going to be a disallowed expense that they are potentially going to have to pay tax on, because one of the worst things that can happen to a cannabis business is come Tax Day, April 15, they do not have their correct amount of estimated taxes that have been paid or they do not have enough money set aside to pay their tax bill,” Gillette says. “That happens very, very often, and oftentimes, it happens as a result of cannabis business owners not knowing what their disallowed expenses are or the dollar amount of their disallowed expenses, and therefore, the taxes due based on disallowed expenses at the end of the tax year. So, it becomes a big surprise, and they haven’t planned accordingly. That is the biggest problem that I see that faces especially smaller businesses in this industry.”

3. Be honest.

Cultivators should track all inventory and be mindful of potential penalties. “If you fail to report your income by 20% or more, you’re going to get a substantial understatement penalty,” Gillette says. “It is a huge penalty. So … you need to make sure you’re reporting all your income correctly.”

4. Hire a bookkeeper.

“I need to be able to see [the expenses] to prepare a tax return,” Guske says. “If the inputs are terrible, ... I’m going to give you a call [and say] what’s this? What went in here? All those sorts of things that I need to be able to file an accurate tax return. So get yourself a bookkeeper. Pay for it; it’s worth it.”

5. Understand corporate business structures.

S corporation, C corporation or LLC? That’s a question many cannabis companies must answer for themselves to minimize their tax burden. It’s a complex decision that may require outside consultation to make the best decision. For instance, there are situations where a company would not want to be an S corp vs. an LLC. A cultivator with multiple partners who are operating different parts of the business, such as accounting, sales and cultivation, may not want to be an S corp because all three owners would be required to pay themselves a reasonable salary, Guske says. The salesperson and administrator/accounting salaries are non-deductible to the S corp; the employee-owners, however, must claim the salaries as income and pay taxes on it, so the owners are paying taxes twice on the same dollars. “If you just elected to be an LLC, there’s not a requirement for us to pay ourselves a salary at all,” Guske says.

Jonathan Katz is managing editor of Cannabis Dispensary.

Every Tuesday morning, ONE Cannabis has a cross-functional team meeting called “coffee collaboration” to help employees understand what’s happening throughout the organization, says Michael Weinberger, chief operating officer of ONE Cannabis, the vertically integrated parent company of Unity Rd. retail stores and the Green Man Cannabis brand. The meeting includes people from the home office in Denver as well as team managers from the company’s stores and cultivation facility. It’s just one of the ways ONE Cannabis demonstrates to employees that they’re valued members of the organization.

Teamwork comes in many forms at ONE Cannabis, which also includes 420 happy hours and kickball games. The happy hours occur every Thursday, during which employees take turns making cocktails, providing food and presenting on topics such as compliance or new products. Technology also plays a key role in collaboration and team building. The company uses Microsoft Teams for its Tuesday meeting to share updates and allow remote workers to attend the meeting.

“We have our office staff, our retail staff and our cultivation staff, and we’re not always in the same space,” Weinberger says. “With kickball, [for example], you get all the different departments together. It’s important, as a team, to have that culture intact because if you don’t have culture, you have nothing.”

ONE Cannabis further defines its culture through six brand behaviors, such as “excellence is our hustle” to emphasize that its commitment to high standards is fueled by a passion to succeed as a team, and “we’re fucking awesome,” which means team members should take themselves lightly and their work seriously, and that “being awesome requires everyone,” says Weinberger.

“We like to have some fun and appreciate each other as people,” Weinberger says. To keep this culture strong, ONE Cannabis devotes a lot of time to hiring employees who match its brand behaviors. “We are very long to hire,” Weinberger says. “Everyone in the office meets anyone who’s going to be part of our team. We hire by committee because we want to make sure it’s a good fit across the board.”

For instance, when the company conducts interviews, candidates meet with people from various teams throughout the organization to make sure they’re a cultural fit, Weinberger says. Interview questions often reflect the light-hearted atmosphere. Sample questions may include “What Disney character best describes your personality?” and “What’s your ideal three-artist lineup for a concert—dead or alive?” Weinberger says.

ONE Cannabis also provides opportunities for entrepreneurship. As a franchisor, the company helps eager operators enter the complex industry by offering its partners the knowledge, resources and ongoing support needed to compliantly and profitably operate a dispensary. The company also supports minority franchise owners through its Social Equity and Economic Development program, which offers financial support to qualified applicants. “We spend a lot of time in franchise training, teaching people how to treat employees right,” Weinberger says. “We want to make sure that our brand pillars and company integrity show up in each one of our franchise locations.”

Jushi Holdings Inc., a multistate owner and operator of cannabis cultivation, processing and retail licenses based in Boca Raton, Fla., has opened six dispensaries, with plans for more, and grown to about 250 employees in the past two years. How has the company managed such fast growth during a short time frame?

Founder and CEO Jim Cacioppo says the start-up emphasizes “building strong, high-performing, capable teams” that work together to ensure the company’s success. “When you are working hard to build something that matters to everyone, it is important that your employees feel like everyone is equally in this together,” Cacioppo says. “As CEO, I’m always asking about how others are working together and what I can do to remove any obstacles in their way.”

Jushi owns and operates several brands, including Beyond/Hello, the company’s group of dispensaries in Pennsylvania; The Lab, the company’s extraction and manufacturing arm; and The Bank, Jushi’s cultivation and genetics arm. Though disparate, employees work and serve as consultants across brands, and multiple departments are involved in every decision, including product input, says Nichole Upshaw, Jushi’s vice president of human resources. “In other industries, people operate in silos, but in the cannabis industry, everything is so complicated,” Upshaw says. “Every single person had a full-on career doing something totally different before they came here, and there’s this other bank of knowledge and information we can tap into.

“At a start-up, everybody’s plate is full, but people here are willing to take on extra to help out the organization, no matter what department they’re in,” she says, citing examples like employees pulling all-nighters to make a license application deadline or staff staying an hour past close to make sure patients have good experiences and get the products they need.

Part of that dedication comes from actively recruiting people passionate about cannabis. Some former Beyond/Hello patients are now on staff and serve as natural brand ambassadors, who are able to “bring their whole selves to work,” Upshaw says. Many of the people working at Beyond/Hello can empathize with patients with post-traumatic stress disorder, who are cancer survivors or struggle with depression and anxiety. “We care about building a community where people feel welcome,” Cacioppo says.

Cacioppo says managers spend a lot of time and effort assessing job candidates but aren’t afraid to let them go if it’s not a good fit. Most employees are paid a minimum of $15 per hour, and if employees have a medical prescription, they can earn discounts at Beyond/Hello dispensaries, among other perks and benefits.

The company welcomes employee feedback and takes it seriously, trying to find solutions to problems that come up, like supply shortages. “If this openness is encouraged from the top, it permeates throughout the organization,” Cacioppo says. “Our senior leaders do not sit still. We are in our dispensaries, cultivation facilities and visiting our future operating sites.”

Overall, he believes employees stay with the company because it’s a purpose-driven business. “I believe people want to be a part of not just a winning team, but a team that believes in why they are playing,” he says.