How to Take Your Cannabis Business Public – Sabas Carillo
This interview is taken from an episode of the Spend Culture Stories podcast. In this episode, Sabas Carillo, the CEO of Adnant Consulting shares his insights with Aoife Kelly on KPIs to track and what to look out for when going public in cannabis, and how Spend Culture in cannabis will evolve.
About the podcast
Your company culture might attract talent, but your Spend Culture will make or break your company. Spend Culture Stories is a podcast that helps finance leaders learn the tactics, strategies, and processes to build a proactive Spend Culture. Learn how to pick the right tools, implement the most efficient processes, and how to develop the right people to transform the Spend Culture of your organization for the better.
Sabas D. Carrillo is the Founder and CEO of Adnant Consulting, a premium accounting and consulting firm widely recognized for its expertise in taking cannabis companies public and technical accounting. Sabas has provided strategic consulting to some of the largest cannabis companies in the industry, such as MedMen, Green Thumb Industries, Cookies, Cresco Labs, Verano Holdings, WeedMaps, Terra Tech (Blum Dispensaries), and Acreage Holdings.
Sabas has been at the forefront of the cannabis industry for nearly 10 years, taking several cannabis companies public on the OTC and CSE. He helped take the first medical marijuana dispensary public. He led the accounting and finance team of the first cannabis publicly traded accelerated filer that was compliant with Sarbanes-Oxley, and has also led or structured the acquisition of over 20 dispensaries. Also founded Alta Loma Group, a real estate holding company focused on renovating dilapidated homes in South Central Los Angeles.
In this episode, Sabas shares his insights with co-host Aoife Kelly on KPIs to track and what to look out for when going public in cannabis, and how Spend Culture in cannabis will evolve.
Speakers: Sabas Carillo, CEO, Adnant Consulting
Trends and how spend culture will change in cannabis
Peak vertical integration will occur in cannabis
[00:26:02] – Right now, we’re getting close to peak vertical integration in terms of the life cycle of the industry where we see really large companies trying to do everything. And these are the large MSOs that are doing extraction, manufacturing, processing. They’re growing, they have retail all over the US, they’re trying to do everything. They’re taking ownership and brands, they’re launching their own brands, just keep vertical integration.
And the type of analogy that I use is peak internet where Craigslist, for example, was an example of peak internet. I could go to Craigslist and I could buy a car, I could rent my room, I could go on a date, I could look for travel in other places. And so that was sort of an example of peak internet.
Hyper-specialization in certain segments of the industry
And now, all of those kinds of sub-sections that were in crisis have become major industries of themselves. We see Airbnb for renting a room, job listings has become a huge industry on its own, etc., etc. And I expect that to kind of be the next phase in the cannabis industry, as we start to see companies come in and hyper-specialize in certain segments of the industry.
Spend culture of cannabis varies by industry and life cycle
So, to really address the kind of spend culture, you have to kind of look at where the company is in their life cycle and what part of the industry cycle are they trying to compete in.
If you have a large MSO that is competing in many states and in different segments of the industry, you’re going to see the spend culture migrate from a democratic style, where people are agreeing on how they’re going to spend. There may be certain policies and maybe centralized spending and a lot of flexibility still, but they might move towards more of an administrative spend culture, with a heavy SOP, less flexibility around spending, more planning, more budgeting, that type of thing.
And at the smaller lightweight entrepreneurial to even mid-sized companies, I expected them to still move from unrestricted spend culture to agile, where they’re just focused on growth, they’re focused on land grabs and I see that moving very quickly as people are learning from some of the larger MSOs.
Legalization at the federal level will have a dramatic and immediate impact on the industry
[00:28:16] They’re saying, oh, we can pick and choose some of these tools that they’re using around spend. To kind of address a few specific things that will change and that will affect spend culture, legalization at the Federal level will have a dramatic and immediate impact on the industry.
It’s likely to get rid of 280E ,which means there’s going to be a lot more money left at these companies. And as we see, these companies are going to turn around and deploy it right back into the companies to expand the markets that they’re operating, to hire more people, to look at M&As, things of that nature.
Legalization will also make things cheaper for the industry. We’ve all heard about cannabis premium, which means that if I hire consultants, if I hire service providers, if I hire whatever, I’m typically paying a higher fee because I’m in cannabis industry.
I just can’t go and get a payroll provider, for example. Normally, I’m paying a pretty significant premium to maintain my payroll provider or if I have a bank account and it’s an MRB bank account, as they say, I’ll probably be paying higher fees because the bank has a lot extra compliance that it has to manage and, thus, higher cost for operating MRB accounts.
Legalization means more money to spend on growth, but be weary
[00:29:33] The company’s going to have a lot more money to spend on growth, a lot more money to spend on expanding operations, a lot more money to spend on hiring additional people. And it’s going to make the industry a little faster, I believe, it because it takes time and there’s a certain tenuous nature to operating a cannabis company.
And because of that, it tends to slow down these companies. We see that all the time where it’s full steam ahead and then boom, they lose a bank account and it’s a major disruption event. Boom for that company. Major changes in the regulatory environment, boom, major disruption event, so it slows down the company.
Biggest change in spend culture in cannabis industry
[00:30:15] Once that is swept away, we’re going to see companies operating, like I said, like rocket ships, full steam ahead and I expect that the pace in cannabis to increase. That’s probably going to be the biggest change to the spend culture of cannabis in the cannabis industry and I expect that to happen within the next twenty four months.
How Sabas ventured into cannabis
I joined the cannabis industry kind of as a fluke. It was late 2009 and a friend of mine who was an auditor called me and said, “Hey, there’s this little startup company in software that needs pre-audit and go public hell.” Are you interested? And I just deliver research, it was really exciting that the name of the company was Weedmaps. And I just thought it was really exciting and really interesting and obviously really risky at that time.
On what investors are looking for, and the things they most frequently ask all sorts of stuff. What’s your game plan for the next year. What are you seeing out there in terms of the market. You know are the acquisitions of small and mid-sized companies increasing slowing down and then all the way on the other side. That’s a big negative. If there’s any controversy at the company and as a tangent I’ll say the very first thing that a lot of executives of course find out is that the media loves sensational sensationalism.
If there’s some controversy at the executive level, analysts are going to ask you what happened. They’ll ask things like:
- What’s going on with that?
- What do you anticipate happening as an outcome those type of things?
You have to be prepared to answer in a concise and polished way. So the range of questions really are all over the place. Some analysts will also ask what they think of the industry. You know what the competitive landscape looks like for you. How do you address X or Y competitor company coming into your space? If you operate in this state, how has the regulatory environment change affected how you operate in that state?
The most important learnings in cannabis
[00:33:42] Yes. I got to tell you that just my personal perspective on this has been that I have learned a tremendous amount from the industry. Just as an entrepreneur myself, the very first thing that I learned was this resiliency, the sense that the entire world was after you, that you were not competing just with the market but with the entire world. Entire world is just constantly trying to crush your business and resiliency is I think a cultural norm in the industry.
So, I have really learned that and that has become part of my DNA, as part of our company here at Adnant that when we face obstacles, we’re just not going to be, oh, okay, well, I guess we can’t do that. The norm is, well, let’s try to figure this out, let’s continue to pound the wall until we dismantle later, figure a way to get over it. That’s the very first thing.
Unrelenting optimism and constant learning
[00:34:33] I’ve had the opportunity to work with a lot of amazing people and amazing entrepreneurs. They’re constantly learning, constantly seeing how they’re doing things and constantly proud of how they adapt. They keep up such unrelenting optimism towards the industry. They improve things and normalize the industry. This impacts how they do business and it’s really been a refreshing sense to how you do business.
Fearlessness: seeing opportunities and jumping in
The other thing that goes along with that is being fearless. This has to be a cultural trait within business, within yourself. It’s about seeing the opportunity, jumping in, and going for it. I’m seeing that again and again among the different companies that we work with. It’s refreshing and frankly just something that I admire from a lot of these entrepreneurs in the industry.
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