Cannabis cultivation is not for the weak of heart. It’s also not for fly-by-the-seat-of-your pants kind of people.
When Marianne Cursetjee co-founded Alibi Cannabis in Oregon, they had to finance it all themselves: the land, the construction, the equipment. Luckily, she was disciplined enough to run the numbers, start small, and create high-quality, high-value cannabis that now regularly sells out before the four-month journey from seed to product. Hear a bit about her journey below.
With a background in finance, she sat down and modeled scenarios around wholesale prices: “Our most likely scenario at the time was $2,000 a pound,” she says. “We modeled it higher. We modeled it lower, but I thought, ‘Based on what we’re seeing in the market, this is where we are at.’”
They used that model to guide their decision-making, but price compression hit hard: “More people got licensed, the green rush was on, and people were like, ‘Oh, we’re going to invest in the cannabis business and get rich.’”
That couldn’t have been further from the truth: Prices plummeted to $1,000.
But Alibi Cannabis persevered and today holds its place as a leader in Oregon’s competitive flower market.
Considering the obstacles Alibi has overcome, I wanted to get her best advice for running a profitable cannabis business.
Here’s what we discussed.
Know Your Competencies
The benefits of vertical integration are highly debated in cannabis. While some states require it, others prohibit it. When the choice is up to the operator, it can be tempting to try to do it all, but vertical integration presents huge challenges. As Willie McKenzie of Left Coast Holdings points out, “You have to have a ton of money and a really robust, experienced team to not only operate one business but multiple businesses and then make them play together harmoniously.”
Alibi Cannabis decided to avoid the potential pitfalls of vertical integration and instead focus on indoor cultivation. For Marianne, that’s been an essential part of their ability to survive the ups and downs of the Oregon market:
“We have found our core competency, created structure and a business around it, and really leaned into that. It’s easy to get distracted with all of these bright, shiny objects – ‘Oh, I want to try this! Oh, I want to try that! Oh, what about this?’ Certainly, I want to have an open mind and I’m happy to try things. But we have to stay focused on what we’re good at, and what we know we can make money at.”
Model It Out
There are a number of business models that industry experts believe can work in cannabis. Regardless of which approach you take, Marianne recommends modeling them out to avoid costly distractions.
“Ninety percent of our sales are straight flower. That’s good for us because we figured out how to be competitive in the flower market. We also have pre-rolls, and we have done some collaborations on gummies and syrups. But the market in Oregon is so competitive that if it’s not your core focus, it’s really hard to make money. There was so much work, trying to come up with a really cool collaboration with awesome flavors and great effects. But if there’s no money, why do you do all this work and all this brand building and all the product development just to make five cents each at the end of the day? It just doesn’t pencil out financially.”
As a virtual CFO, this is the kind of calculation I do with my clients, helping them model out a range of scenarios for their potential ventures – taking a fairly conservative approach and exploring worst cases, in light of all the instability in the industry.
Start Small – and Track Your Metrics as You Go
Once you’re up and running, you have an opportunity to continue your experiment while managing risk. Needing to provide their own financing, Alibi Cannabis started off small: “We only built out approximately a quarter of the building at first, because we were like, ‘Okay, I want to prove out these numbers, I want to prove out our processes, prove out exactly how this is going to run.”
This approach meant they took pauses between their phases of construction, saving money in between and testing the results of their efforts. “That’s how we were able to afford it and stay nimble.”
A key part of this testing is keeping a careful eye on key metrics, to see how you’re tracking compared to where you planned – and updating your forecast accordingly.
As a cultivator, Marianne tracks metrics like sales velocity – how fast her product is getting bought up by stores: “We’re not in the cannabis storage business, we want to grow it and sell it, not grow it and store it.” But a retailer will want to keep an eye on metrics like average basket size and number of daily transactions, to see if they are getting enough customers out the door with enough product to stay profitable.
Do the Grunt Work
To turn a profit in cannabis, overhead expenses need to be kept to a minimum – especially for retailers who can’t deduct or finance most traditional business expenses. One of the benefits of staying focused on a single area of expertise means you avoid stretching your capital and saving your pennies.
“Our way that we’ve been successful is by staying lean. We don’t have a lot of extra fat. We all chip in and do the grunt work. If something needs to get done, you show up and you do it. That’s just the way we run our business.”
When wholesale prices plummeted, this lean, focused approach allowed them to keep moving forward: they concentrated on their flower sales, offering the highest quality product without charging the highest price.
“Imagine you look at your forecasted budget for the year and what you have projected for income, and you cut that in half,” Marianne says. “So, we were fortunate because we’re very lean.”
The Name of the Game Is ‘Pivot’
Even as the industry matures, cannabis is still a tough space to operate in. A recent study by Whitney Economics pointed to $3.8 billion in uncollectible receivables in the cannabis industry, largely impacting cultivators.
When the reschedule happens and the heavy tax burden of 280E is lifted, there’s hope that will free up some cash to help retailers pay their bills – but Marianne doesn’t expect that to be the magic bullet.
“We have to remember, we are at the very beginning of this industry. Nobody has ever done what we are doing. Of course, there are going to be mistakes. Of course, there are going to be learning opportunities, but the name of the game is pivot, and you try things. You’ve got to be willing to be flexible and to understand the market and to be able to pivot when things change. I am really excited because there’s a need for plant medicine in society today, and that’s why we grow with the highest quality that we possibly can.”
Final thoughts from Marianne?
“I think we can heal the nation with cannabis. I know it sounds a little trite, but let’s find a way to work together and make that happen.”
To discover how we help our clients become more profitable, check out our virtual CFO services for cannabis businesses. You can also book a free virtual CFO consultation to discuss strategies for improving your profitability.
Learn more about our virtual CFO services for cannabis businesses or sign up for a free consultation below.
