MJBizMag September 2022 - 40

STRENGTH AT ANY SIZE
" When other people buy weed, they
buy it prepackaged, and that drivers
up the costs. We buy it in turkey bags,
handpick the nugs we want to sell and
package them in a jar, " Youngblood
said. " When you buy weed at 10 pounds
in bulk, then it's ultimately saving
money for us and saving time for the
cultivators because they don't have to
package it. "
Pioneer Valley Extracts' Cichocki also
has responded to rising supply prices
with bulk buying. Pioneer Valley feels
the biggest squeeze in packaging prices,
which Cichocki believes have increased
by about 20%.
Now, " if we were ordering 20,000
boxes, we go to 40,000 boxes " to " keep
the price down, " he said.
Another way to reduce supply costs is
to team up with other businesses to buy
larger amounts and create economies
of scale.
Christine De La Rosa, co-founder
of The People's Ecosystem, a
cannabis company based in Oakland,
California, created a " buyers club "
made up of several businesses that
work together to purchase flower in
larger amounts-say 50 pounds at a
time instead of 10 pounds.
Buying in bulk means companies
in the buyers club get lower costs per
pound as well as lower testing costs.
" There is a huge value in buying
collectively, " De La Rosa told the MJBiz
podcast " Seed to CEO. " " We needed to
combine all of the folks that we could
to buy together, sell together, share
salespeople, because we are not MSOs,
we are a smaller company. "
9
SALES TEAM WITH EARS
TO THE GROUND
Your sales force is meant to sell, not
interview. But because they are in
regular contact with budtenders and
inventory managers, wholesale sales
associates should get in the habit of
mining clients for information.
For example, the sales team at Love's
Oven heard from retailers that they
40 September 2022 | MJBizMagazine
Denver-based Love's Oven can develop
edibles quickly to meet customer
demand. Courtesy Photo
couldn't buy new products until they
had finished selling other companies'
inventory. When CEO Moore heard that,
she decided the solution was to buy
competitors' inventory to make room on
retail shelves for Love's Oven products.
" Our sales team has been
instrumental in having their ear to the
ground, hearing what retailers need or
are interested in, and then telling us
about it, " Moore said.
In January, budtenders at Winewood
Organics, a vertically integrated
microbusiness in Ann Arbor, Michigan,
noticed that customers were asking
for bubble hash. Surprised, Winewood
CEO Eric Parkhurst checked Weedmaps
and saw that none of the nearly 30
dispensaries in the area were offering
the product. Winewood moved
immediately to take advantage of the
opportunity and had bubble hash on
the shelves in about two weeks.
" All of the other shops were forced to
send people up here for bubble hash, "
Parkhurst recalled. " That helps a lot,
people just telling us what they want. "
10
CONTINGENCY
PLANNING
When Siren Cannabis' Walstatter
raises money to expand his cultivation
business in Oregon, he tells investors
he will need more than the original
cost projections. Why? Because
there are always delays, unexpected
problems and, now, inflation. The
latter is driving construction prices up
by 30% or more.
For example, Walstatter's precoronavirus
bid to expand Siren's
cultivation facility from 4,000 square
feet to 8,000 square feet went up by
roughly $100,000 after the project
started during the pandemic, which
drove up construction costs.
Luckily, Walstatter included
contingencies in the budget, which
ended up saving his business.
" Between the contingency money
that I raised as part of my fundraising
and then the savings that I had put
aside ... we didn't ever run out of
money, " he said, adding that further
construction delays could have
changed the outcome significantly.
How does Walstatter factor
contingency planning?
For starters, he adds 20%-25% to
what he believes a project is going
to cost, adding extra line items for
contingencies.
Another factor to consider during
build-outs are " carry costs, " because
the revenue from a build-out won't be
seen for around four months.
" Let's say you're done building,
but you're still six months from cash
flow. You have to grow the plants,
and the whole time you're paying
rent, power, labor. So, I estimate the
monthly carry costs of the additional
cultivation capacity. And I put that as a
line item in my pro forma, " Walstatter
explained. " I estimated how much
additional power, labor, fertilizer and
everything else I was going to need.
So, in addition to my construction
costs, my equipment costs, legal costs,
I've got a line item for carry costs,
which are all those monthly expenses,
roughly, until we start cash flowing. "
MJBizMag September 2022

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