Why cannabis retailers turn to accountants to jumpstart success

November 05, 2021

Cannabis retailers have no doubt heard this message before: the industry is maturing. Ever since recreational use was legalized in Canada, milestone after milestone has included a sidenote for retailers to make their operations more professional.

Yet this time things are different. While cannabis in Canada has yet to reach full maturity, two separate trends should spur cannabis retailers to sprinkle more business fundamentals into their disrupting ways.

First, consolidation is coming, so cannabis retailers need to be prepared to share their financials with new stakeholders. Second, Cannabis 3.0 will integrate both THC and CBD into mainstream products, such as beverages and health and beauty products. This will increase the number of non-traditional users visiting stores.

To respond, cannabis retailers need to take their processes and systems to the next level. Retailers often start with their financials, to support both internal benchmarking and external financing. What retailers often discover later is the wide applications of that fix—from the books to operations to go-to-market strategy. Let’s examine the ways financial and related data support cannabis retailers to jumpstart their success.

Scaling: repeat what works

The coming consolidation means many cannabis retailers will need to choose from two options: getting bought out by a larger retailer or betting on their own business by adding stores.

The critical first step is to hone those processes to as close to turnkey as possible. Retailers that choose to add stores can use their first store as a model and then scale up by duplicating their processes. If they haven’t introduced best practices to get their books in order, manage inventory, and maintain positive cash flow, they will struggle to find success—especially as the business grows and adds complexity.

A scalable system is one with the flexibility to add more resources and expand the business without changing its operational structure. The most agile retailers are able to capitalize on developing market opportunities quickly by having a structure in place that is optimized for scalability. Outsourcing the bookkeeping, accounting, or controller function helps owners in two ways. It lets them focus on areas that need the most attention, and it adds flexible bandwidth—or lowering it and the related costs when the need decreases.

Getting (and staying) ready for investors and buyers

Cannabis retailers that open new stores will most likely need financing, so it makes sense to always be ready for investors. Whether seeking traditional sources—such as banks, credit unions, and venture capital firms—or non-traditional ones, anyone providing capital wants to see professional accounting processes and operations. Not only do these fundamentals show the best face of the business; they help lenders and investors value the company.

It’s not just growing cannabis companies that need to keep outside stakeholders in mind. Companies looking to exit via a sale need to have their operations and financials organized and clear for buyers. This includes the choice of accounting standard to use, a decision that seems modest yet makes a surprising impact. With time often a deal-killer, any delay to make necessary changes can jeopardize a sale.

To survive and ultimately develop a competitive advantage, retailers need to maintain investor and buyer readiness. Those that are most organized—structurally, financially, and operationally, with well-defined tracking of key performance indicators to understand the business—will attract investment when opportunity knocks.

Beyond accounting: data throughout the business

When cannabis retailing giant Fire & Flower bought PotGuide and Wikileaf in September 2021, it did more than just expand its reach in the North American cannabis market. It championed the power of robust business intelligence.

PotGuide and Wikileaf are two of the largest digital properties in the industry. With these purchases, Fire & Flower sought to increase its digital presence in two ways: push online traffic to its bricks-and-mortar stores and build on its database of customer preferences. And what works for the industry’s largest retailers should work throughout the industry at a smaller scale.

The push on data connects with accounting services in surprising ways. Where accounting systems structure the financial data of an organization to be actionable in finances and operations, other business systems organize data to inform even more business decisions. Both uses reflect the type of sophistication that cannabis retailers are increasingly adopting to compete.

Cannabis retailers are interacting with an increasingly diverse customer base. More and more non-traditional users are venturing into the world of legal cannabis. Yet retailers are also catering to veteran consumers, whose interests and needs are different yet just as important. Moreover, cannabis retailers are trying to build loyalty with these varied groups despite strict federal limitations on marketing.

To deepen relationships with customers, retailers need to integrate data into their operations. They can use basic technologies such as customer relationship management systems or more advanced applications like artificial intelligence. In the future, they may even use blockchain data to communicate the value of legal cannabis. Whatever the use case, retailers can use the data to understand their customers, communicate with them, and provide a top-level customer experience.

How BDO can help

BDO’s cannabis accounting and consulting services represent the firm’s suite of business services developed specifically for cannabis industry owners.

Our accounting services often serve as the first point of contact in our advisory relationships with cannabis retailers. With BDO’s cannabis accounting services, cannabis retailers save time and money, receive top-tier financial advice on an as-needed basis, and streamline their operations to compete in today’s crowded cannabis space.

Many of our advisory relationships develop beyond the traditional areas of accounting into consulting engagements that support the entire retailing business. Using a comprehensive go-to-market strategy, we employ relevant market data to ask the right questions of cannabis retailers, help them better understand their market, address customers on their own terms, and chart a growth path customized to their business.

To learn more how BDO’s cannabis team can help your organization, reach out to us:

Gord Stephanson, Director of Business Development

Bryndon Kydd, Partner, National Cannabis Industry Leader

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