Increased cost or diluted ownership?

When considering raising money through debt or equity financing, an aspiring cannabusiness entrepreneur should be aware of the largest drawbacks of each approach and their implications for future business operations.

Raising money through debt financing, or taking out a loan, will come with significant extra operating cost. While borrowing money will not dilute the founder’s ownership stake in the business, the loan must be repaid to the lender, including significant (sometimes usurious) interest and monthly payments. An important note: a lender is not an owner, but rather a creditor, of the business. This means that if the business goes belly up, the lender gets in the front of the line to take whatever value is left of the business, whereas the equity owners only get to split any leftover value.  Thus, debt financing is more secure for the investor, but the investor does not get the benefit of the potential upside.

On the other hand, equity financing does not need to be repaid the same way a loan would; the investor puts in its money for a share of the equity and has no right to be repaid. An equity investor buys shares in the company, which come with two primary rights: a share in the profits and some control over the business (or at least voting power). Equity investing is riskier than debt investing but comes with chance for a higher return and more say in how the business is operated.

The choice between debt and equity is not black and white, however, as many debt-equity hybrid investment vehicles have been developed over the years to seek the best of both worlds. The following is a brief overview of two common hybrid investment instruments.

Common Fundraising Instruments

Convertible Securities

• Traditionally (but not exclusively) used as a “bridge” to enable company to fund operations before larger equity fundraising.
• Permits parties to delay valuation of the company, which is necessary for an equity offering but takes time and money to assess and agree upon.
• Permits parties to delay negotiation of full set of investor rights, resulting in a faster and cheaper investment.
• Risk of early investment is rewarded with a conversion discount and or a valuation cap (operators should familiarize themselves with these terms when reaching out to potential investors).
• Convertible debt bears interest and has maturity date
  • Some convertible notes allow the lender to decide whether or not it wants the debt to convert to equity (better for the investor), whereas in others, the conversion is automatic (better for the operating business).
  • If the investor decides not to convert, it remains a creditor with a prioritized right to repayment.
• Convertible notes offer a way to comply with ownership restrictions for diversely owned businesses and social equity businesses while still honoring the business deal among the founders and their investors.

SAFEs

• SAFE = Simple Agreement for Future Equity
• No interest rate or maturity date
• More standardized, therefore even cheaper and faster than convertible notes – standard forms are available online.
• Created by institutional investors; rights slant towards investors (especially when it comes to founder equity dilution)

Common v. Preferred Equity

• Founders have “common” equity.
• Investors often require equity with certain rights and preferences that are superior to common equity, including
  • Payment priority and minimum rate of return
  • Special approval rights
• Gives investor some of the benefits of debt but with the upside of equity

Do Not Forget that Securities Laws Apply to Fundraising

Whether an investment instrument qualifies as a security, making it subject to state and federal securities laws, is the topic of an entire lecture series, but understand that the definition of securities is very broad, and securities laws are very strict.  Here are just a few basic points about security law compliance:

• Securities offering must be registered with the federal and state securities regulators or be exempt from registration (99.99% of start-up financings are done via exempt offerings)
• Speak to an attorney before publicly soliciting investment (do not ask for money or solicit investors via social media or another public platform!)
• Disclosure and transparency with investors is key, so if anyone has an interest in the business when an investor is considering cutting a check, make sure they have the full picture of the existing ownership and financing.

The post Cannabis Business Financing 101 appeared first on NJCBA.

Cashless transactions also offer impressive benefits to business visibility over cash-based systems. By enabling instant reporting, cannabis dispensaries can enjoy a more in-depth view of the state of their business at any moment in time. They can also make payments and significantly improve their cash conversion cycle. This allows retailers to invest business capital more intelligently and generate greater profits in the long run.

Three reasons to implement cashless payments at your New Jersey dispensary right now

Providing your customers with a modern retail experience is a crucial competitive advantage in the cannabis industry. Leveraging payment solutions that allow customers and dispensaries to escape the cash trap helps improve sales volume while reducing the risks associated with operating an all-cash business.

• Decreased customer wait times. Cashless solutions decrease wait times for customers. In the broader retail industry, the transition to cashless payment alternatives correlates with up to a 15% increase in the number of transactions processed per hour. 
• Reduced opportunities for theft. Some cannabis dispensaries have been the targets of a wave of robberies in recent months, inspiring a national call to reform the federal banking rules that make it difficult for dispensaries to accept virtual payments. Implementing a cashless payment solution will help ensure your state-legal, legitimate business operates like any other type of business.
• Increased revenue. One of the consequent results of this transition is an average increase in basket size per customer. Dispensaries that enable cashless transactions see an average increase of up to 25% in order value, leading to increased sales volume and revenue. Upselling and cross-selling techniques are much easier to implement in a cashless environment—as customers are far more likely to buy into upsells when they do not have to physically remove cash from their wallets. This drives ROI and ultimately increases the overall profitability of your dispensary.

Introducing Dutchie’s integrated payments solutions

As attitudes shift and the state of payments continues to evolve, Dutchie has been working to help prepare U.S. dispensaries to accept digital payments. ‍Our digital payments solution, Dutchie Pay, leads to faster checkouts, bigger basket sizes, more productive staff, and improved customer retention. Shoppers can also choose how they pay—with curbside, delivery, and pay ahead options. 

Many dispensaries prefer to offer consumers a variety of non-cash payment solutions, including in-store payment options. Retailers can implement a variety of cashless payments solutions via a third-party integration with Dutchie POS. Cashless payments create a sense of traditional shopping and can help build trust in the cannabis industry, and can utilize cards consumers may already have in their wallet. Empower your customers to start paying directly into your merchant account and reduce the complexity (and vulnerabilities) associated with running an all-cash business. 

The post Why Cashless Solutions Are Better For Your New Jersey Dispensary appeared first on NJCBA.

Like with any retail category, cannabis is a highly competitive business that gets more crowded with every license issued. To be successful you need to distinguish your dispensary with a unique brand, create a plan to reach valuable customers, and understand how to turn them into loyal fans.

The good news: there are ways to achieve this. Many dispensaries discover that it’s a good idea to get help from experienced marketers. In those cases, it pays to work with a team that understands the state-by-state rules and other challenges of cannabis marketing. But whatever direction you decide to take your marketing efforts, a good place to begin is by asking yourself these five questions:

Do I have a vibrant, coherent brand?

Sure, your dispensary has a name. But that’s not a brand – not until you infuse it with a specific set of characteristics that you want your business to stand for. To be effective, your brand should be authentic – something you truly believe in. Ideally, it should also be distinctive. This means learning all you can about your competition’s strengths and weaknesses, to find a niche or brand personality that you can own. But once you settle on your brand characteristics, it’s not enough to simply state them. You need a smart marketing effort to communicate the brand values in a consistent, coherent way.

There can be various aspects to your dispensary, of course, but which stand above the rest? Do you stand for wellness? The community? A good time? Social justice? Sustainability? Customer service? Product quality? There are many different types of brands that can be effective, but you have to choose one that is meaningful to you and live it every day.

Who are my best potential customers?

Part of a smart marketing plan is understanding your geographic market and identifying the segments that offer the best opportunity for you. It’s important to know your zip code demographics. Is your area young, old, wealthy, poor, conservative or progressive? The more you know, the better you can plan. In addition to demographics, it’s common to target two or three distinct audience segments. The target audience that you decide to pursue will influence your messaging, advertising, product mix, pricing, sales training — just about everything.

One target might be daily dosers who favor flower with high THC content and low prices. Another might be weekend dabblers who favor edibles and vape pens (and are less price sensitive). Another might be wellness seekers who experiment with topicals and tinctures. A good marketing plan identifies the targets that are right for your business, and comes up with effective ways to reach the audiences you want. You can’t engage with the entire community at once, and you shouldn’t try. Your marketing dollars are precious. Spend them only to reach your desired customers

How can I provide customers with a special brand experience both online and in-store?

Your brand should be consistent and clearly conveyed at every customer touchpoint – your website, social media accounts, advertising, and the in-store experience.

Consumers almost always start their shopping process online. Does your website make a good first impression? Does it embody your brand? Does it provide practical information to various levels of cannabis consumers?  Is it intuitive and easy-to-use? A good dispensary web site needs a content strategy. If you have a minimal, generic website that is primarily a link to your ecommerce partner, you’re missing the opportunity to convey your brand to a prospective customer. And, of course, whatever you do, it’s important optimize your site for search engine optimization (SEO) to help your target customers find you.

Social media can be challenging for cannabis companies because of its many restrictions. But an active social media presence does need to be part of how you engage with your audience and build your brand. Even more critical: your in-store shopping experience, which should be the ultimate embodiment of the brand. Each of your target customer types should feel welcome and comfortable in your store. If you’re targeting weekend dabblers, your environment and communications can’t be intimidating. If you’re going after cannabis veterans, the in-store messaging that you provide them shouldn’t be too elementary.

Is my business focused on customer loyalty and advocacy?

After you’ve done all the work to earn a new customer, it’s crucial to keep them coming back. The cost to attract a new customer is often more than the revenue earned from their first purchase. Your true target is the lifetime value of that customer, which can be substantial. Loyal customers lead to a profitable, enduring business.

Customer loyalty starts with a good shopping experience but is nurtured with timely, targeted ongoing communication via text or email.  A loyalty program is part of this, but it’s also important to provide messaging that is relevant to your customer. A cannabis connoisseur may want to know about a new strain or the effects of various terpenes, while a new cannabis user seeks more basic information. When possible, you should segment your customer lists and target your communication to their unique interests and needs.

Am I encouraging (and using) customer feedback?

Many consumers decide which brands or retailers to consider based on peer reviews. You need to actively encourage your customers to write online reviews on Google, Leafly, Weedmaps and elsewhere. Some dispensaries offer a discount to customers who leave an online review within 24 hours. It’s often worth it. Sharing positive customer reviews can be an effective advertising and promotional tool.

You also need to manage the sites where your online reviews appear. You’ll want to thank customers for good reviews and respond to those who may have negative feedback. The users of those sites will appreciate that you care about what your customers have to say. And being open to customer feedback can also lead you to make improvements to your business.

Inexperienced dispensary owners sometimes take a “Field of Dreams” approach to finding customers, guessing that “if you build it, they will come.” But in this highly competitive field, attracting and keeping an audience isn’t quite that simple. To establish a lasting, successful dispensary, you need to create a distinctive brand, target the right customers with the right messages, and pay attention to building customer loyalty. It’s smart marketing and smart business, and an essential part of making your dispensary dreams real.

The post The 5 Marketing Questions Every Dispensary Owner Should Ask appeared first on NJCBA.

Since January 2021, cannabis in New Jersey has been legal for medical and recreational use. In April 2022, licensed sales of recreational cannabis dispensaries officially began, enticing savvy business owners to wonder what the costs might be associated with opening a dispensary.

The sale of cannabis in the state is a lucrative business, as records showed that cannabis dispensaries generated $24 million in the first month following its legalization.

But what costs do dispensary owners and dispensaries have to consider before they open their doors? We’ll cover that and more here in this article.

So, how much does it cost to operate a dispensary in New Jersey?

The cost of opening a dispensary in New Jersey is likely between $250,000 to $2,000,000. The variance is due to several cost factors, including where your dispensary is located and the type of license you acquire. Opening a micro business dispensary costs less than the projected amount.

What are some cost factors to opening a dispensary in New Jersey?

Some costs you will need to consider when setting up your budget include:

• Licensing Fees
• Location Scouting
• Dispensary Technology Setup
• Tax
• Capital requirements
• Realtor leasing
• Staffing
• Marketing
• Banking
• Professional fees
• Security and surveillance systems
• Business equipment

How much is a dispensary license in New Jersey?

A dispensary license In NJ typically costs between $1,000 and $10,000. However, it depends on the type of business that wants to own and operate the dispensary. A standard business dispensary costs $10,000, while a microbusiness dispensary costs $1,000, according to the stipulations of the New Jersey Cannabis Regulatory Commission (NJCRC).

There is a concession for microbusiness owners looking to open a dispensary in the state, as they get to pay less than the standard business dispensaries. However, this concession affects the quantity of cannabis the microbusiness dispensary can sell.

How much is location scouting in New Jersey?

The cost incurred in location scouting in New Jersey depends on the individual or agency doing the scouting for you. You may have to pay between $500 and $800 to help scout an ideal location for your dispensary in New Jersey.

An ideal location is a vital part of answering the question, “how much does it cost to open a dispensary in New Jersey” because your site affects your bottom line and profit. Engaging a location scout helps to increase the possibility of getting a prime and profitable location for your dispensary.

What are the marketing and advertising costs associated with opening a dispensary?

When opening a dispensary, you may want to consider advertising and marketing costs for things like setting up your eCommerce store (website), a dispensary grand opening or launch, or cannabis-specific digital marketing agencies. These prices vary widely;  however, it would be wise to hire an expert in the industry as cannabis advertising and marketing regulations are unique to those of other sectors.

What are some tax costs to consider in New Jersey?

Dispensary taxes are also different than other retail or businesses as there are taxes based on the substance you are selling. One example is the 280E tax that does not apply to other retail stores. Before opening a dispensary in New Jersey, be sure to do your research on additional taxes you may need to pay before you open.

What are some staffing costs to consider in New Jersey?

Before you open a dispensary, you will need to hire a dispensary team to help you get your store off the ground. People you need to hire for your dispensary might include:

• A compliance officer
• A cannabis retail store manager
• An inventory manager
• Security
• Consultants
• Legal counsel
• Budtenders
• A CPA

Costs of staffing your store could run you around $250,000 a year, so be sure to plan wisely.

What are some operational costs to consider in New Jersey?

If you are running a brick-and-mortar store, you will need to consider your operational costs. These include rent, hydro, building maintenance, retail renovations, store licenses, technology, and more. Calculating all your possible costs in advance will help you succeed when opening a dispensary in New Jersey.

Is opening a dispensary profitable?

The profitability of a dispensary depends on how much a dispensary owner makes, which further boils down to the location of the dispensary, the quality of products, and the type of operational technology used in running the dispensary. It means that your investments in the dispensary determine your chances of profitability.

What technology should you use to open a dispensary in New Jersey?

A dispensary looking to be profitable needs reliable and fast hardware and software solutions. From hardware such as computers, barcode scanners, cash drawers, and the likes to software such as compliant POS systems explicitly created for cannabis stores and businesses.

Software that dispensaries will need before they open their doors include:

• Inventory management software
• Website, e-commerce store
• Product Menus
• A compliant point of sale (POS) solution
• An employee management system
• Dispensary payroll software
• Customer relationship management system
• Security system
• And a payment platform

Dispensary owners should also note that New Jersey operates using the Metrc track and trace system, so choosing a POS solution that integrates with Metrc is necessary.

Another critical software element to keep in mind is your payroll software’s compliance and automation abilities. Opt for a dispensary payroll solution that can automate tax and payroll calculations in New Jersey to save time and money while managing business operations.

The post How Much Does It Cost To Open A Dispensary In New Jersey? appeared first on NJCBA.

In a word? Loss.

To help you navigate the waters, here are 5 tips from Ingage Security.

1. Image always matters

Remember that image always matters, especially if this person will be representing your brand or that of your clients. During the interview, remember to assess the applicant’s overall demeanor. How was the handshake? What about punctuality and appearance? Are they likable?

2. Evaluate the candidate’s behavior during the interview

When you ask the applicant your questions, are they repeating them back to you? Are they being overly evasive? Are they displaying grooming behaviors, such as playing with their hair or touching their lips repeatedly? How is the eye contact? Do they seem distracted or non-present? Are they using many dead space fillers when they speak? Like many things, though, detecting a lie often comes down to one thing—trusting your instincts. By knowing what signs might accurately detect a lie and learning how to heed your own gut reactions, you may be able to become better at spotting falsehoods. If something seems off but you cannot put your finger on it, try asking them to recount a story they just told you in reverse. Remember the adage, when you’re being honest, you don’t need a great memory. Lying is more mentally taxing than telling the truth. If you add even more cognitive complexity, behavioral cues may become more apparent.

3. Conduct the right kind of background check

When running a background check, make sure it goes back at least seven years. Nothing is perfect as we know, and these are no exception. Part of the main problem is the background check mechanism itself. Example, a check will show criminal convictions for felonies. Depending on the platform or service used, they will show sex offender registry or domestic watch list registry along with professional licensing verification. But, you will not see arrests that led to plea deals. They won’t show a poor driving history or multiple citations for driving without current registration or insurance. The latter might seem trivial, but it also shows a pattern of disregard for the law. And you cannot allow that. Of course, we cannot and do not advocate for any one resource, but a quick web search will provide a number of platforms that provide ratings and reviews at no cost to the consumer. Feel free to check them out and choose whatever you feel works best for you.

4. Use the right kind of drug screening

If you require drug tests prior to employment, we recommend using Ten Panel Screening. If you choose to outsource, LabCorp and Quest will set up corporate accounts for you. If you decide to keep everything “in-house” (which is ABSOLUTELY your right), websites like https://12panelnow.com/ offer a wide range of affordable products. Both options have pros and cons. For example, in house provides faster result delivery, but because those results are not being reviewed by an objective Medical Review Officer (MRO), questions about impartiality can arise more easily than if performed in a state licensed 3rd party lab.

5. Run a credit check

If the applicant is being considered for a management position, we recommend running a credit check from all three reporting bureaus: Experian, Equifax, and Transunion. Granted, millions of Americans have less than stellar credit and that alone should never disqualify one from employment.

Also, bankruptcy is no longer the four-letter word it was even 20 years ago. Life happens to us all, after all. But what if it shows a lengthy derogatory history and/or numerous opened and subsequent closed lines of credit? Or massive credit card debt, defaulted mortgage, liens, or bank loans? Bankruptcy stands apart: Perhaps someone hit a rough patch with investments or a divorce or any one of a dozen things. Again, life happens. Or perhaps, it may reveal someone to be a less than ideal choice for positions involving cash handling. Look closely at the details to make a determination.

Trust your gut when evaluating applicants

Remember that it is very much OK to trust your gut on someone you really like or in whom you see potential. Assuming nothing comes back that raises the old red flag, you can use this as an opportunity to get to know the applicant beyond how they appear on paper.

The ideas expressed in this blog are solely those of the author and not of the New Jersey CannaBusiness Association.

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