Michelle and Dan are joined by Monique Swansen, accounting professional who has specialized in the Cannabis industry since 2014.
QB Power Hour is a free, biweekly webinar series for accountants, ProAdvisors, CPAs, bookkeepers and QuickBooks consultants presented by Michelle Long, CPA and Dan DeLong who are very passionate about the industry, QuickBooks and apps that integrate with QuickBooks.
Watch or listen to all of the QB Power Hours at https://www.qbpowerhour.com/blog
Register for upcoming webinars at https://www.qbpowerhour.com/
Michelle and Dan are joined by Monique Swansen, accounting professional who has specialized in the Cannabis industry since 2014.
QB Power Hour is a free, biweekly webinar series for accountants, ProAdvisors, CPAs, bookkeepers and QuickBooks consultants presented by Michelle Long, CPA and Dan DeLong who are very passionate about the industry, QuickBooks and apps that integrate with QuickBooks.
Watch or listen to all of the QB Power Hours at https://www.qbpowerhour.com/blog
Register for upcoming webinars at https://www.qbpowerhour.com/
Welcome, everybody. And thank you for joining us for another QB Power Hour. Today's topic on our niche nuances is the cannabis industry. And our special guest is Monique Swansen. So we're very glad to have you all joining us today. My name is Michelle Long. I'm the owner of Long for Success, a trainer for Intuit for a long time, author of five different books. You can check them on out, check them out on. Amazon, if you're interested, and there are the links to the Facebook group. We'd love to have you join us out there and continue the conversation. That's enough about me, Dan.
Dan DeLong:My name's Dan DeLong, owner at Danwidth. Worked at Intuit for nearly 18 years, which is how I got to know Michelle and Monique, probably talking to you several times on the phone. But doing the co-hosting today as well as over at school of Bookkeeping where we do workshop Wednesdays and just wrapped up the eighth edition tech editing the Q B O for Dummies series and been top pro top 10 pro advisor and top 100 since 2018. Monique, you're new to the show. So let's go ahead and introduce yourself.
Monique Swansen:I'm so excited to be here. Thanks for having me. I am the CEO and founder of two CAS accounting firms, automated accounting services and accounting for green, my cannabis specific firm. I was a top 100 pro advisor 2019 to 2022. I did not make the cut last year. So working on that this year, I was fortunate enough to serve on Intuit's council accountants council in the 2020, 2021 era, which unfortunately was mostly virtual. I've been an advanced QuickBooks pro advisor for a long time, and I have some featured blogs in Firm of the Future and CPA practice advisor. And again, so excited to be here with you today.
Dan DeLong:We appreciate you joining us today and And talking about this now we do have the this is like a recurring series every once in a while that we have a niche nuance or niche nuance, depending on, whether you're tomato or tomato how you pronounce the word niche or niche but what we've, what we really appreciate and thank you for joining us is that we there's so many niches and as you'll talk about there's sub niches in this industry that we can, that people can specialize in and Michelle that's been the the, when you look at, starting a practice, you can be a generalist or a specialist and and what do you find? As being the being the admin, the greatest advantage of being a specialist in a certain industry when it comes to, accounting and bookkeeping professionals, Michelle,
Michelle Long:one of the best things is once you get into a niche or a nation. Specialized then, the industry language and the, all the jargon and all that. But not only that, then you can get into a tech stack and you can use the same apps and all that. And it really helps you to be more efficient and effective to where, you've got the same types of clients and everything, so it makes you more. It just helps you to do the same things for the same clients and everything. And it helps you to command higher billing rates and higher prices with your clients as well. So it just really helps to specialize in a particular niche or niche. So finding one that you like and you're interested in, it just makes it a lot easier all the way around.
Dan DeLong:And sometimes when you start out as a generalist you can find that, that, that niche. kind of presents itself. Monique, would you say that is been the your story as, as far as this particular niche or were you like waiting for something to happen as I am going to get into this niche? What would you say your Genesis story in in specializing in this industry? So
Monique Swansen:I do definitely agree that being a generalist, you'd find ways to niche. Whether it's a vertical or something else or a service offering. So I totally agree with that. But this particular niche I decided upon and really waited for it to be a possibility in my state and the states around me. So it was something I had pre decided that I wanted to get involved in and learn about. And I did have. A good runway to learn a lot of things before I really tried to practice with my clients. As so I was well prepared by the time I launched the second firm and was ready to start this niche, but I don't think it's always that way. I do feel like niches will find you or niches will find you. And even sub niches within those niches will, you'll decide you really either can add special value or you really enjoy it. Or something to that effect.
Michelle Long:Now, do you want to say something about why you started a second firm for this? Do you want to comment on that?
Monique Swansen:Sure. I started accounting for green in 2016 and at that time. Even now, it's become much more mainstream since then, but at that time, I was unsure how much it was going to affect other people that I was doing business with so that my clients that I was already working with and automated accounting services and also my app partners. And other people that may not agree or want to be part of the cannabis niche. So I wanted to keep those firms separated to create some separation and protection for people that I was working with already.
Michelle Long:And I think that was a smart idea for you, just to have that separation there. I think that was smart.
Dan DeLong:So let's let's talk a little bit about the, some housekeeping and some details about the Kube Power Hour webinars. It's every other Tuesday at noon Eastern time. You can always check the website kubepowerhour. com for upcoming events. We also have other events that aren't in our series. And and this is just one of those other subtopics that we continue to have on the QB power. Sometimes we'll have, the QBO updates or things like some hot topics from the, from our Facebook group, where we can talk about those types of things. And and with the various other niches that we've talked about retail and e commerce and legal you can find those all on the QB power hour. We, we do save those replays. If you want, if you're shopping for a niche you can take a look at some of those things that we talked about because all of these. Niches will have some kind of speciality or industry specific type of thing that that you'll really want to gravitate around. And we'll talk about that with money today. So if you have specific questions about things that Michelle Monique and I are talking about today, please put them in the Q and a because especially since we only have an hour to talk about this and. We will probably find that we will fill that up pretty quickly and hope, hopefully get to everything that we want to talk about today. And we may need to have money come back to talk about some of these sub niches and other special specialties that, that that this industry talks about but if you have a specific question, please put it in the Q and a, because that allows us to follow up much, much easier. If you just have a general comment, maybe you're in Florida and you're bearing down for the storm that's coming, definitely put those put that in the chat. Our thoughts are with you. If you are, thank you for joining for 1 thing, but hopefully the Internet doesn't go out on you while we're in the middle of the power, but if you need handouts or anything like that, we have the links there and we'll post the links for today's specific webinar in the chat as well. So here's our agenda. We'll be talking about the opportunity because this is grown within the last a few years the legal state status of cannabis by state, some of the challenges, licensing, inventory tracking, cash management, moving money, then in the tools that are involved with with this specific niche and what we'd like to do, especially today, because there's a lot of information on the slides themselves, and it can get very wordy, I guess is the best way to describe it is we just want to have a discussion with Monique. And so I'll bring up the slide. We'll talk a little bit about the slide, but then also turn off the slide so that we can just have a general discussion about that. And we'll post the link specifically for the handouts as well. So if you want to review that later. Print it out if you want, or save it as a PDF, you certainly can. But let's first launch our first poll, which is, do you currently have a niche?
Michelle Long:And while we're doing that poll Michelle had a question here. Michelle was 1L. So Monique, do you think you still need that separation with the two entities? So if you were going to start this today, would you still start with a separate business entity? Would you still do that today if you were starting it? Do you think that's still necessary to have two? Business entity.
Monique Swansen:I don't think it's probably necessary. I think that you should make sure that you're clear to with, like I said, what app partners you're exposing to the cannabis clients, et cetera, et cetera. But it certainly helps with branding and marketing. So just some things to think
Dan DeLong:about. As a dad, I appreciate the pun in accounting for green. Thumbs up there.
Michelle Long:Yeah, one of the things that surprised me, I was reading somewhere, that the people who are actually like using cannabis and going to cannabis for recreational purposes, like the demographics the most, are the boomers. It's not the young people or anything. It's the old people There's a lot of old people that are actually going in and buying the edibles and everything so that was surprising to me that in the recreational area. It's the old people that they're seeing a lot Of old people buying it. So that was
Dan DeLong:our children of the sixties.
Michelle Long:Came with a warning actually that said that the stuff that you buy in the stores is not like the stuff you did when you were younger to be careful. It's a lot stronger than what you had when you were younger. So it did come with a warning.
Dan DeLong:And then that warning wasn't stay off the tower. Right.
Michelle Long:Oh, goodness.
Dan DeLong:Yeah, we'll have a little bit of fun here today talking about some of these things. So talk a little bit about the industry itself and the opportunity money.
Monique Swansen:So the opportunity is that last year it was over 13 billion dollar industry, and it's the fastest growing industry in the US currently, which means there's plenty of opportunity to find a niche. If you want to service this industry, it certainly is not the easiest industry to serve, but I'm going to, I'm going to say that probably anybody that's niching into something will tell you that it's a little more complex to be a specialist.
Dan DeLong:Yeah, that's 1 of the things that I think in our discussions, prior to coming up here, there's a lot of surprises in this particular niche than any others. And we'll unpack some of those things. But how far back does it go? There's some states that have had. This as far as medic medicinal that this is this has gone back early part of 2000, right?
Monique Swansen:Yeah actually there was, which was deemed illegal after a while, but there was a 1992, there was a membership club in San Francisco that supported cannabis. And so similar to, the types of clubs, you might think of as wine clubs or things like that. They broke out and we're using cannabis as part of this club. Now, that particular use got shut down, but that's probably the 1st organized. Cannabis sales of any sort that there were was 1992.
Dan DeLong:And you created or you put as part of the slides a listing of every state that that either has it legalized for recreational use or or medicinal and what year that actually occurred. So I appreciate you. Doing that.
Monique Swansen:California 1996 was when we had medical, right?
Dan DeLong:Yeah, even Alaska prior to Y2K.
Michelle Long:Wow. And then I think Colorado, I think, was the first to do it for recreational, I think, in 2012 because I remember we were out there the year it became legal for recreational and it was crazy because the lines of people, it was just nuts that people were lined up and it was just absolutely crazy.
Monique Swansen:Washington state was also in 2012.
Michelle Long:Okay. Okay. But I think
it
Monique Swansen:was after colorado in that year. I think it was the second state
Dan DeLong:And then the brilliant marketing of the Girl Scouts to set up their booth right outside the dispensaries was even better.
Michelle Long:I know. Think of the girls that did that. That was just genius. Those girls were genius. That was smart.
Dan DeLong:What about your impulse impulse purchase going in or coming out? So talk a little bit about some of the challenges, because I think the biggest thing is the whole legality. Legality issue, but this tax code talk a little bit about that money,
Monique Swansen:right? Cannabis is still a schedule 1 illegal drug. So it means that even though it may be legal in certain states, it's definitely still federally illegal. And so the federal government came up with IRC 280E. As an offset, probably its intent was to make sure that cannabis sales could never be profitable in any way. And those businesses would go out of business. It didn't work out quite that way, but it was still beneficial for the IRS because the IRS does not allow any normal and ordinary. Expense deductions. So cannabis companies literally pay tax on their gross profits.
Dan DeLong:That is going to make, there's no other industry that does that. Is that correct? That is correct.
Michelle Long:So that would be the easiest tax return ever, right? How much money did you make? Send it in, tax it and send it in.
Monique Swansen:Because, accounting professionals and tax professionals are trying to help Our clients, cannabis companies. We do a lot of leveraging of cost of inventories for those who we can help with that. So cultivation facilities and manufacturing facilities. It's less able to be. Anything for dispensary is because they can only really deduct the cost of the product. So we leverage cost of goods sold in the best way possible and huge amount of compliance and documentation that is needs to be done so that it is we'll pass an audit,
Dan DeLong:It has to find you find that it's more scrutinized. Because of that, that there could potentially be a lot of people putting in their cost of goods things that aren't cost of goods, right? So they, do they have a lot more scrutiny around them?
Monique Swansen:We, as a profession, as accountants, definitely do because I'm not signing any tax returns, but I know the ones my tax preparers that do sign those tax returns are very careful about that because they're willing to represent those companies. If they need to. And yes, there's a lot of auditing that goes on. And we feel like there will be more again now that we've come out of the pandemics because I feel like auditing in general was quiet over the last couple of years. But we're prepared for an uptick in that. Yeah, I think as accounting professionals, we're really interested in making sure that the documentation is good and that the compliance rules are good. Probably do it yourself clients might be less interested in that and probably are trying to leverage that in a better way. I think it's important for these, these cannabis licensees to have the right people in their corners. So that you know if and when, and we always say when they are reviewed and audited, they have the documentation and the people they need to back them up. Monique,
Dan DeLong:oh, go
Michelle Long:ahead. So Monique, we talked about how. There's challenges with these clients. And we were just talking about the inventory tracking and everything. And when we were talking, you explained how there's actually different types of cannabis clients. There's and you might want to put up the licenses slide, that there's like a farming type of client, like a And manufacturing type of client, and then there's also a retail type of client. Do you want to talk a little bit about different types of cannabis clients? That there's not all
Monique Swansen:just one type. There is not and there's so many different licenses and the licenses are different in each state and there's tears within those license groups. But here in front of you are the 3 probably most popular and yes, cultivation is farming and manufacturing is manufacturing and it's for the most part, food manufacturing or process manufacturing and retail is very retail. If you already specialize in a retail niche and you love POS systems and, you love merchandise tracking, then that might be your sub niche right there. So all
Michelle Long:of these are dealing with inventory and inventory tracking in this industry is really huge, isn't it? That's critical on them tracking their watch and everything and the distribution and all that. That's always a big piece of this, isn't it? The inventory
Monique Swansen:tracking. It is. And not only is it critical, but it's tracked in state tracking systems. So again, it depends on the state, but on average, once a plant grown from seed or clone reaches about 2. 5 inches tall, it's digitally marked with a tag and that tag and package numbers follow it through its whole life cycle until it's sold to a customer. These state tracking systems are no joke and they track everything. So they even track when product goes out for testing. It knows what the testing results are and everything else in that batch or a lot that came from that grow group is matched with that tracking. And anything that's wasted like anything that's tested is wasted or anything that's wasted is tracked completely. So the inventory tracking is no joke and building in those costs of inventories is really important so that we are leveraging the right amount of costs for those clients to make them as profitable and pay the least amount of tax as possible.
Dan DeLong:Now now there's another substance that, that, that is legal CBD. And how does that how does that play into, these sorts of industries do, how do they have to set up separate entities if they're doing one and the other, because, in order to assist with some of the. ordinary expenses that couldn't have been, or is it, does it, is it just across the board you pay on gross profit regardless of if you touch the cannabis industry, then you're paying on gross profit.
Monique Swansen:That would probably be true. So I'm not a lawyer. So the entity choice on cannabis is very complex, but usually the different licenses are separate entities, not always there are definitely some vertically integrated cannabis companies that do cultivation straight through to retail and they have multiple licenses in the same Overall entity, but hemp farming or legal hemp farming for CBD has to be certified. And so there are people that grow CBD that are not certified. And those that are so only the certified product can cross state lines and is actually legal and all. And that's another sub niche right within this is working with CBD sales, but lots of cannabis companies, especially cannabis dispensaries by CBD products a lot of times they don't grow them themselves, but they buy CBD products manufacturers also buy CBD products to do blended products. Ingredients so that they can give those correct cannabinoids and yeah there's always some overlap and those things
Dan DeLong:and talk a little bit about the, because it is a schedule one substance it cannot there's nothing that allows that to cross state lines. How does that play into into this industry? Yes,
Monique Swansen:interstate commerce is strictly forbidden and that goes for product and money. So if you find some branded product in a dispensary, and there are a number of actually, that's 1 of the big ways to make money in the cannabis industry now is to get a brand and sell rights to that brand without actually having product related to it, but say there's a brand out there and a cannabis brand. company wants to sell that brand or grow that brand, then they have to get the strains correctly. And there are some ways to sell seeds and clones, I believe, because the THC content of those things is so low that it passes some legal standards, although there'll be people that Say that's not okay, either. But that's how they get those strains. And all those strains have to be grown in that state if they're going to be sold in that state. So nothing is made out of the state and nothing is grown out of the state. Everything is a complete state. Economy within each state. Okay.
Michelle Long:So not saying that I would know this, but so like when I see the one of gummies or the the fireball gummies or whatever in Colorado and in Missouri, somebody is those, that brand, somebody has to grow them and all that. So somebody's buying the rights to that brand in each state, but they're growing it and making it. Yes, okay. Okay. So each 1 is grown and made separately in each individual
Monique Swansen:day. That's correct. Okay.
Michelle Long:Okay. That's interesting. I didn't realize that. Now, talk about some of the other challenges because I watched some. Documentary way back when it was first going on the whole thing, and it was talking about how this tour that was one of the first ones in Breckenridge, Colorado, and they were talking about how they had to pay the employees every payday in cash. They were counting out pennies, nickels and dimes and putting them in envelopes to pay employees in cash. They talked about needing an armored truck and security guards to go pay 30, 40, 000 in sales tax at this. The state, to go pay their sales taxes and stuff because they couldn't have a bank account. Can you talk some about cash and how, how do they handle all this stuff? Because at that time, this was years ago, at that time, they couldn't have bank accounts and stuff. Can you talk about some of those challenges and doing payroll? And somebody had the question of, can you use QBO? With this, and you and I were talking about challenges and doing payroll and stuff. Can you talk about some of those challenges of doing their banking, handling cash and payments and all that? Can you talk about some of that
Monique Swansen:for us? I can. Banking is a huge challenge. It's a huge issue. There are, have been several banking acts. That have been in front of the Senate and Congress, and there are a few still out there and we're hoping someday that banking will be more available to all the states. So the banking that's used now is generally a credit union or a state chartered bank within the states that are legal. And usually has a compliance group within that bank and outside insurance above FDIC insurance for the banking insured. But before there was banking, all of those cannabis companies did business only in cash because they had no place to put their cash. They could only put it in safes. They couldn't deposit it into banks. They could not get bank accounts. If they opened bank accounts, they were often closed and all the funds were held and they didn't get their money back. So then they didn't trust banking. It's been a slow evolution with banking. And as far as payroll there are payroll companies that offer. Compliance bank payroll for cannabis companies. It's always a good idea to be up front when you set up any of these services. If you're looking for banking, you want to go into the bank and say, I'm going to open an account for a cannabis business. If you're getting payroll, you want to say to your payroll provider, I'm opening an account to pay employees. Under a licensed cannabis operation, because if you don't the chances of that solution not working for you are high. So ADP is not going to run your payroll. Paychecks is not going to run your payroll. And I would not have Intuit run your payroll either. a QBO or QB desktop file. That you should use the accounting GL as a standalone. Only without any connected services that are on any payment rails. Because otherwise likely there's going to be an issue. Being up front about what you're doing and when you're doing it and using solutions that know what they're getting themselves into is my best advice. So now there is payroll. There is some banking, but there is still a number of issues with sending and receiving payments. Some taxing authorities will only take money orders or treasury checks. They won't accept anything else. So a lot of times, say renewing a license in a state. Maybe that's a 10, 000 fee. You see how the states make a lot of money on this. So you might have to get a treasury check from your bank and take that into a state office to get that license for you. You might not be able to just send them a regular check. Every state's a little different. But the way that you move money can really only be on ACH, in a compliant bank, or buyer, or by check. So you're not using any payment services here. And if you are, you're subject to having that shut down, for sure.
Michelle Long:So along with that goes security issues. They have to have been security. If they have to go to the bank and get cash, and when they're taking cash, they have to have huge security surrounding these places and everything, because they're dealing in so much cash and everything.
Monique Swansen:They do, and lots of states have requirements around money movement, so they're required to have outside money movers. They cannot bring their own cash to the banks and that's expensive. And so there's, there's a real risk and reward sort of thing. Like, how much cash do I want to keep on site? Because how many times do I want to pay for a cash transport company to come to my facility? And there are some other things, that you can use. There's some smart safes and there's cash recyclers. So
Dan DeLong:talk about the smart safe, because when you were talking about that yesterday, that was a neat way I think for people to, or, people in this industry to help with the potential risks of having so much cash. What is a smart safe?
Monique Swansen:So a smart safe is an internet connected safe. That's sanctioned by the bank and it has the ability to count money and accounts it by serial number. So it actually knows what you've put in for money and it keeps track of what money you've put in there. And because it's connected to your bank into your bank account, as long as you put the money into your smart safe. You have no way of opening that smart safe. You have no way of getting the money out. They can automatically deposit that into your account. And then they either have their own money transport people, depending on the bank, or that they have a transport partners that they agree with that will go and get that money on a schedule and bring it into
Dan DeLong:the bank. So you, I think you called it a reverse ATM, like it's the
Monique Swansen:other thing that dispensaries can use that is like a reverse ATM is a cash recycler, which is actually what banks use to count their money. And so similarly the bank doesn't. Record those as deposits. But if you're using cash recyclers in your dispensary, then you're not closing out your drawers every day. You're not having people in, the dispensary or managers counting everything and using those cash counting machines because all of the cash received and paid out comes out of these cash recyclers and it's already pre counted and your cat and the cassettes that hold the cash are sealed and there's cameras. On them. And so when your cash transport company comes in, they pull out the cassettes and then they're responsible to bringing that money to the bank. And it's a, it's the ROI is huge, but the individual units are very expensive. So it's a big undertaking, but overall, I'm going to tell you the amount of labor and. Mistakes that it saves is huge. So anybody who's thinking about opening a dispensary, definitely look into cash recyclers. I've done a blog on them and I'll do some more talking about them. I think that they're great.
Dan DeLong:And does that, that also helps with with the theft potential or the risk of, somebody coming into the store? Do convenience stores, do they also use these things? Or is that, is it something completely different just for this industry? Convenience
Monique Swansen:stores use ATMs and most dispensaries also have ATMs in them. And, we find that often cannabis operators will own their ATMs, or at least their ATMs in a separate entity, because there's some revenue sharing on the ATM fees, and then those wouldn't be subject to 280E if it was a separate business. But I've never seen a convenience store with a cash recycler in it. Usually it's banks. Or other really high cash industries that would
Dan DeLong:use it. Casinos, those types of things. The
Monique Swansen:barrier to entry for, how expensive they are is decent. So when it comes
Michelle Long:to the accounting side of things how do you get the data from them and stuff? And how are you getting it into QuickBooks and stuff and doing the integrations and stuff? You have apps that are integrating with QuickBooks I haven't seen a lot of apps for this industry that integrate, how are you
Monique Swansen:doing that? You're right, Michelle. It's a challenge. There is bookkeep for one integrates with some cannabis specific POS systems. Some of those integrations are better than others, but it is a crutch. So it is one way to set up some of that. Just like other retail situations, you're going to want a daily sales. Receipt or daily sales posted, and you're also going to want to track your, your discounts, your loyalty card credits, and there's a whole, all of the things that are retail are also built in here. So there is definitely loyalty programs. There's gift cards. There's all of that built in and having a way to, to get that posted to QuickBooks. Or zero or whatever G. L. You're using on a daily basis is super helpful. We don't always get it. Sometimes we have to set up a manual daily sales receipt and we have to post it that way when we're doing retail, but just like other retail solutions. Your best bet is to have the sales posted daily. There are some E. R. P. systems that we use for manufacturing and cultivation and tracking inventory. And tracking movement that are connected to the state reporting. Industry, inventory requirements, but not a lot of connection to GL systems yet. And I feel like that will get better as as the industry gets a little older and, those they get a little bit more investment money into those software apps and they can build out their, runway into the things that they want to add in. I don't feel that they understand quite yet that targeting. Accountants is a good way to get their apps better known. So I would like to create some awareness there. If anybody's working with any of those app partner, those app partners for cannabis, you can speak with them and tell them, partnering with me is a great idea because I'm going to get your app installed and help you work with those clients.
Dan DeLong:So we had we had bookkeep come on and you had mentioned them last when we were talking, but bookkeep one of the things that we really like about them is they don't shy away from a challenge, right? So if there is. An accounting integration or report that you can get out of the software that you are using, typically you can send that to them and they'll help create the integration, but they would need someone like you, Monique, to really massage the data and make sure that it's posting in the right place that you know, for this particular.
Monique Swansen:Yeah. And I have helped them on a few. Yeah. I have integrations
Dan DeLong:there. Yeah. Lori's watching actually from book
Michelle Long:Yeah. Lori's in the chat saying, I would love to help here. So she's giving you her email and everything. So Monique, I have a question. So to get into this industry we were talking the other day about how people have to have millions of dollars to get into this industry, that it's, it costs a lot to get into this industry and start a business, for the companies, not necessarily for us accounting professionals, but for them to start a business. To get the license and to get approved, how it takes a number of years to start a business and to get a license and all that. So one would think that these are people who are, business savvy and that they know what they're doing and that, they're, they're good business people, let's say, and good entrepreneurs and everything and that they're good. Because they can raise, 10 million or whatever they need to get the funding to start a business and everything that they would have an appreciation and the need for a good accountant. Are they better clients? Then the other clients we see what could you say as far as them appreciating the need for a good accountant and stuff, how would you characterize them from that perspective for clients
Monique Swansen:for us? So I would say anybody that has started this process and seen it through to full licensing is a hearty person. Usually they are passion driven individuals and not necessarily business. Individuals what drives them in this industry is not the same drivers that we see in a lot of other industries. It's hard to say because they have to go through so many challenges and there's so many expenses and there's so many people that are trying to get them to buy into something along the way that they're a little guarded. And I would have to say, overall, you really have to, understand that they'd be a little guarded and really try to make them understand the value that you can bring to the engagement up front and. Really work with them on what's important to them and get them to understand what you bring to the table and why it's important to work with not only an accounting professional, which is really important for everybody, pretty much, but somebody that knows a little bit about their industry and has worked with other people in their industry and can bring some levity to some of the. Risk and reward situations that they're going to encounter.
Dan DeLong:Is there an ideal time to, to reach out and engage or, to work with a client like this?
Monique Swansen:I like to get in before they're fully licensed so that we can make sure that their balance sheets really tight before they start business. And typically, typically, once they start it, it's 1 of those situations where they're waiting. All of a sudden, the start gun goes off and. They're hitting the ground running. So with any luck, they're, they're getting started right away. And they're hiring people and they're bringing people in and, everything starts to go crazy for them. So getting in a little bit before that craziness hits and making sure that their books are already solid, that we've got some processes set up, that we know how we're going to handle. The situation of bringing in a lot of employees at one time, and we know how we're going to, make sure that anything they purchased is in the right place and that whip is all good. And so I would say as early as you can afford to do it is probably the best thing we do offer some pre licensing pricing to build a relationship so that when they are fully licensed, and we look at the engagement based on what it's actually going to be. We've built some goodwill, hopefully there,
Dan DeLong:I think that's a great strategy to be able to it's not like a, it's not like freemium, it's a, it's like somewhere in between it straddles both the sides. So that, both parties in this case can test the waters of each other get to know each other. And then, okay before like I am. I understand that you're guarded. I understand that you're doing, trying to do the best that you can and there's a happy medium in between,
Michelle Long:right? And that's a good one for any business pre opening, to work with them when they're opening and stuff like that. So that's a good one here. Somebody had a question here. What are some of the obstacles on outsourcing the labor to a separate entity that would handle the hiring, firing, and payroll to contract the labor to work in the industry? That way, the CE just pays the bulk fees to the labor entity, even if both entities are owned by the same owner.
Monique Swansen:Again, there's a lot of controversy around that. That's a great question, and we do see a lot of management entities in cannabis. And that is really to keep management and non plant touching personnel out of The cannabis touching entity and only the labor or, direct costs are in that entity. But, the IRS would definitely say that if they're related and that they're most of your time is spent working in that entity, then you really work for that entity. It's a slippery slide. Overall, but if the management is doing something, but also doing other things and working on, branding, they're working on other things, marketing and other things related to other entities within the umbrella, then I've seen that work. Okay, now, it would
Michelle Long:seem that, a cannabis business, at the retail level. I'm not talking about the other two but it would seem that it's an all cash business and it would, it would seem like they just are made to be profitable from the get go. But is that true? Or do they have some of the same struggles and some of the same problems that other businesses do? Did they fail? Just like other businesses do. Do they need some of the same cash flow management and do they face some of the same problems that some of the others do? Can they grow too fast just like others do? Did they have some of the same problems and issues that other clients face? And as well as some of the manufacturers and the growers, do they need some of the same? Same, issues. Do they face some of the same issues that other clients face? I guess
Monique Swansen:they certainly do. They and they do grow so fast. Some of them fail right off the bat. And a lot of reasons for that are unique in so much as that they get themselves 3 years before they can open in a lease that they can never afford because they needed to get a host community agreement to get their license. And smart operators usually have separate entities that own properties, but they can control in some way the expense that's going to happen overall. So that so that they have some control over the outside factors, but when they have no control over the outside factors, and they're in a lease that they can't afford because they're never going to have the traffic that they thought that they might have at that particular. Entity for whatever reason traffic, they had a study. That wasn't good. They just completely botched their forecasting. Or, they just didn't have a plan at all and their foot traffic isn't enough and their daily sales aren't enough to really support the things that they, have in place. And a lot of them are going for long term leases. Because, they have to get those community agreements in place. And so they rather know that they have a place and that they have something that is already, approved through their licensing. So they do fail and they do need tons of help with cash management. And having all that cash is not a great thing. It's actually really hard to manage. It's the thing that they day in and day out really need to manage as a business. And if they don't have support of a cash recycler or something else. They've got two or three people counting everything every day. Just the time and energy that takes they also have to count their inventory and prove that out. So there's a fair amount of work that's involved in being a cash, mostly business and. Dispensaries are one of the biggest cash only businesses in the U. S. because everywhere else you can take that plastic out and use
Michelle Long:it. There's a lot of labor involved when you deal with that much cash. It is, it's heavy
Monique Swansen:too, Michelle. Yes, yeah. And it requires all kinds of SOPs and security measures from moving it from one place to another, to getting it counted, to different spots in the safe, and what amount of cash is going to be on hand, and how often are we going to have the cash transporters in, and it just takes a lot of logistical planning to manage around that much cash, but if you plan to get 40, 000 a day, and you're getting 8, 000 a day, Then your forecast was way off. And you need somebody to help you figure out, what, how you can do better with what you've got, or why. You can, why it is that way. Can you change it? Can your pricing change? Can you buy things more in bulk, at least less expensively? Do you have, can you save up a certain amount to do that to carry more inventory? All the same things that we can help our clients with on the regular basis. You can apply here for sure.
Michelle Long:And I would imagine.
Dan DeLong:I was remembering in when I lived in Arizona and the the recreational referendum had just passed and in my community somebody wanted to put up a growing facility and that went through for first they had to put that part, just could we allow that in my backyard type of thing and all these people came out of the woodwork, went to, to be either for or against it. And a lot of the not in my backyard, people. We're uneducated and what it was actually doing was like, we were not going to have this, here in the backyard. So coming up, coming up against a lot of that stigma between, the, in this industry, I'm sure that's gotta be, one of the other. Unspoken challenges with this industry. Cause like you were saying, these people are passionate about doing this for other reasons, other than, they want to make money.
Monique Swansen:Nobody ever says no to making money. Usually the challenges are hard. So usually they have an additional passion to do it. Each state is a little different. They all have different amounts of licenses and the places where they will allow those licenses. I can tell you in Massachusetts our CCC cannabis control commission allowed in Okay. Individual towns and cities to opt in or opt out overall. And and then even with degrees in there, so some could opt into medical only some to recreational some to we only want it, in certain places in town or that kind of thing. A lot of, you'd be surprised where some of the cultivation facilities are. There are many places where you would never, ever know that there was a huge cultivation facility in an area because they're generally not on the main streets.
Dan DeLong:Yeah, and it doesn't have the same smell as a
Monique Swansen:distribution facility. They have huge requirements around there. There's special H, just fitting one of these. facilities out is incredibly difficult because they have to have built in generators, they have to have special HVAC systems and air handlers and cultivation facilities that do extraction services have to have bomb proof booths to do the extraction in. So it's no joke building out these facilities and the requirements are huge. For them, and again, varies greatly from state to state, but overall, it's pretty complex.
Dan DeLong:I one of the, I put up, you we're running to the close, top of the hour, so I wanted to make sure we got our poll questions thrown in there. So is there any aspects, so this is a question. Are there any aspects of this niche that gives you cause for pause and This is a multi-select, so you can you can select as many as you want here, but I can see the. They're coming in and there's all the rules and regulations. So you've definitely scared some folks with all the rules.
Michelle Long:And that's important because if you're an accountant that doesn't like, inventory, like me, this would not be a hit for you. You know what I mean? Because that is a big thing, and all those rules and regulations and stuff are key. One of the things though that I have noticed is that when you're in an industry like this, it's discretionary spending. It's like I had a client that had a specialty sporting goods store and they sold things like hunting and fishing gear, but they also sold guns and things like that, part of the hunting and stuff. And when a casino opened up, it hurt them because that's also discretionary spending. You know the cannabis for recreational is discretionary spending, you know So when the economy and inflation is going up and people are hurting that's going to hurt discretionary spending and that's going to I think affect sales and I been watching we've got some nearby And i've been watching just the cars in the parking lot and things like that and I have noticed That when they first opened up, there were a lot of cars there all the time. And there's not as many cars there as there used to be. And I also see more and more sales. They have, edibles on sale on Monday and two, two for Tuesdays and, they're running sales and promos just like other stores do and things like that. So I think they affect that the economy affects. them just like it does other businesses and stuff. So I think they face some of the same challenges. Now, Kim is saying people purchase pot before food, but the problem is when they eat cannabis, then they need food too. So they go together,
Dan DeLong:go hand in hand.
Michelle Long:Those two things go together, a lot of times though, these businesses, they do face a lot of the same challenges and stuff. So we need to remember that, I think a lot of times people think this industry is going to succeed no matter what, and that's not the case. They face a lot of the same challenges that other industries do. Monique, would you, do you agree or disagree or what are your thoughts? I
Monique Swansen:definitely agree. And usually what happens and you'll see this, we can use California and Colorado as examples in the beginning. Of it becoming legalized in a state, there's a big boom and and there's a lag for a number of cannabis operators to get fully licensed and open. So it takes a while for all that to happen. And when that 1st happens the cultivators, their product is needed every place. The cost of. The product for the, for the dispensaries or other distribution is high and then it tends to go as, as the market matures, it goes down because now there's plenty of product on the market and the same thing with the dispensaries when they first open people go there and then they buy enough stuff to last them for a while and they don't need to go shopping again for a while unless it's Thanksgiving or something. So I was going to say there are a number of big cannabis holidays and Thanksgiving, the Wednesday before and the Friday after are huge cannabis sales days. So something about the food and the family drive a lot of cannabis sales. But there are others. that are pretty big cannabis holidays. But there are specials and those and the dispensaries that do well know how to market their own product. They know what makes them special just like we as accountants know what make us and our firm special and where our value is. The dispensaries need to find that as well and be marketing to those people and that's how they do well. Monique, do you have any
Michelle Long:idea from your clients, what's the breakdown on medicinal versus rec,
Monique Swansen:recreational? I have worked with clients that sold both, and I've worked with clients that were medical only and received adult use licenses and merged into it. The big difference between that I've seen, and again, No, not a bud tender or a cannabis specialist, but the big difference I've seen between the things that are offered for sale for medical patients versus adult use, recreational are the amount of T H C that's in the individual things that you can purchase overall, you're still limited to whatever you can purchase in that state in total. And sometimes there's less. Strains available to medical. Sometimes there's the service offering sometimes isn't quite as large, but it's a huge market. There's plenty of medical patients out there that need product and oftentimes they pay less in taxes as well. So it depends on the state again, but a lot of times the sales tax or, additional don't use taxes that are involved and so that they can buy it. More cheap
Michelle Long:for the dispensaries that sell both. What's the split? Is it like 50 50 medicinal and rec, or do they sell like 75% medicinal and 25% recreational, or do you have a
Monique Swansen:feel for that? I believe that they have to be sold in separate areas within the dispensary, even. I
Michelle Long:know, but when you look at their revenue, what percentage is coming from medicinal sales versus recreational sales, do you have any
Monique Swansen:feel for that? It's feeding out medicinal sales at this point, for sure.
Michelle Long:That's what I was curious about. I know there's a huge need for recreational. A lot of people need it and use it and everything. I just was curious. And Donna's saying in Florida, it's all medicinal. And a lot of states are still just medicinal. And, okay, and Stacy's saying 75 to 95 recreational.
Dan DeLong:I'm going to launch the last poll and while that's being answered the what we have up on the screen is you have a cannabis conversation, so you can continue this conversation. Talk a little bit about yeah, I'm
Monique Swansen:doing a webinar in September and it's for accounting people as well, but this is really for people who are in the licensing process. So we can go through what the expectations are now. They have very strict instructions from their regulating bodies about what they need to do. To submit for their license and to get fully licensed, but where we can augment that and help them with some of the related to accounting functions and how we can get them into an accounting file and, set them up for success. From the beginning, like making sure they get banking soon. A lot of times what we'll see is people will spend their own money and not track it really well in the beginning stages of their licensing process. And that's always been a challenge to try and get the documentation around that. They don't understand that they have to have every piece of documentation and that they have to have full clarity around. how and when that money was spent. So that's a little bit about what that conversation's about, but I would love it if anybody who's interested here that we're talking to that's in the accounting industry wants to join us, that would be great.
Dan DeLong:And you can just if you're watching this on YouTube or watching it live, you can just take out your phone, take a picture of the QR code, and that'll take you to the, take you to the right place to sign up, right?
Monique Swansen:That's right. And the link is also on there if you want to just type it into a browser.
Dan DeLong:Exactly. Monique, thank you again for joining us and leading us in this conversation because we certainly could have gotten into the weeds, no pun intended, with this. It was
Michelle Long:very enlightening.
Monique Swansen:It's been great. I thank you both for having me. This has been fun. Yes.
Michelle Long:Thank you, Monique. It was very
Dan DeLong:good. Thank you very much. All right. And everybody who joined us today, appreciate you joining us. Those of you in Florida hunker down, I think is the is the term of the day.
Michelle Long:Yeah. Everywhere that you might be affected.
Monique Swansen:I know. My prayers are out there for everybody. Hopefully we come out mostly unscathed.
Michelle Long:Yep. Stay safe, everybody. Thank you,
Monique Swansen:Jan. Thanks, Monique.
Dan DeLong:We will see you next time on the QB power hour and y'all have a great day.