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.

“Today marks another progressive step in our efforts to make New Jersey’s medical and adult-use cannabis market the best in the country. Our congratulations to the over 100 conditional and annual license awardees.

“We applaud the CRC for its deliberate approach to developing New Jersey’s newest industry. We recognize there is still much to do, however, we are getting there one step at a time. The combined efforts of the public and private sectors to ensure diversity, responsibility, and eventually profitability for New Jersey–based businesses is within our reach.”

About The New Jersey CannaBusiness Association

The NJCBA’s mission is to promote jobs and growth in a sustainable and responsible cannabis industry. Starting with the pioneers in the medical cannabis market to the emerging players in the adult-use space, the NJCBA’s focus is to make certain that decision-makers and regulators understand and respect the needs of the CannaBusiness community and that our community remain responsible corporate citizens. 

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The post NJCBA STATEMENT ON CRC APPROVAL OF OVER 100 LICENSES TODAY appeared first on NJCBA.

“Each day brings more positive developments in the cannabis cause. Expanding and actually encouraging research into cannabis-derived medications is a commonsense measure that will better the lives of countless individuals. Moreover, it is a great step forward in the continued normalization of the growth and usage of cannabis.

“Hopefully this is a sign of more positive developments to come, including passage of the SAFE Banking Act and removing cannabis as a Schedule 1 substance. In the meantime, we look forward to President Biden signing this legislation.”

The post NJCBA Statement on Passage of Medical Marijuana & Cannabidol Research Expansion Act 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.

Name: Vanessa Williams

Company: Rutgers Law School

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Share your elevator pitch. In one sentence, what do you do in the cannabis industry?

As Assistant Dean of New Programs at Rutgers Law School, I’ve spent the last six months developing our new Certificate in Cannabis Law and Business, a six-month program aimed at supporting entrepreneurs and license holders in running fully compliant cannabis businesses.

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How did you get involved in the cannabis industry?

Rutgers Law School has had a class in ‘Marijuana Law’ since 2018. When I started here in January 2022, I quickly learned that the legalization of cannabis is big news for New Jersey – and as the state university, I was convinced we needed to be part of supporting our community via educational programming.

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Share a bit about your professional background. What, specifically, makes you well-equipped to serve clients in the cannabis industry?

The instructors involved in our Certificate in Cannabis Law and Business are all experts in their fields. We have faculty from Rutgers schools of law, business, environmental and biological sciences, and communication and information, who are closely collaborating with industry experts to design the curriculum. I’ve also spent the last few months building my network so that we can invite some terrific guest speakers to be part of the program, so that participants will really hear from people who are doing this on a daily basis.

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What do you feel is most promising about New Jersey’s cannabis industry?

As someone who has only been involved in the industry for the last few months, I’ve been overwhelmed by how much of a community and network the industry really is. Everyone seems so on-board and has been willing to introduce me to their contacts, who in turn introduce me to their contacts, and so on. I think that’s a really special thing, and one that speaks to the commitment of people involved with the industry in New Jersey.

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Why did you join NJCBA? How do you anticipate NJCBA helping your business?

NJCBA was one of the first organizations that I reached out to to learn more about what’s going on in New Jersey. Their help and connections, and great online and in-person events, showed me that they’re a vital part of New Jersey’s cannabis industry.

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Care to share a favorite NJCBA membership moment?

I don’t have one yet – I’ve only just joined! But even before I joined, I got to attend a couple of events, and was really struck by everyone’s friendliness and willingness to talk with me.

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Provide one piece of advice you’d give to someone who’s considering working in cannabis.

Join our certificate program! Haha, what a blatant plug. But seriously, figuring out what gaps there are in your knowledge, and then figuring out the best way for you to fill them – is it hiring someone else with that expertise? Is it finding an education program that’s going to specifically address those gaps? Is it talking to other people in your network who might have the information you need? From working on this certificate program with our subject matter experts, I know that the state and federal rules and regulations are complex, and if you don’t know something, you need to know how to find the answer.

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Tell us about your favorite Jersey spot. What would you do in the Garden State on your day off?

I spend most of my time working at Rutgers’ Camden campus, but I haven’t yet had a chance to visit Donkey’s Place. I definitely need to make it over there in one of my lunchbreaks!

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The post Vanessa Williams appeared first on NJCBA.

“First and foremost, we want to congratulate all of today’s license awardees. This is a momentous day for them and for the state as we move closer to the kind of thriving cannabis market New Jersey is capable of.

“Today’s events are even more special for us because several awardees were watching from our “Cannabis Connection 2022” event. To be with them as they received the good news was a great feeling. We were honored to, in essence, host the very first NJCRC watch party. Congratulations again to all of today’s awardees. We look forward to the next round of progress.”

About The New Jersey CannaBusiness Association

The NJCBA’s mission is to promote jobs and growth in a sustainable and responsible cannabis industry. Starting with the pioneers in the medical cannabis market to the emerging players in the adult-use space, the NJCBA’s focus is to make certain that decision-makers and regulators understand and respect the needs of the CannaBusiness community and that our community remain responsible corporate citizens. 

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The post NJCBA statement on CRC approval of nearly 300 licenses, Oct. 27th, 2022 appeared first on NJCBA.

TRENTON, NJ — The New Jersey CannaBusiness Association (NJCBA), the state’s premiere cannabis trade association, is hosting a unique forum for applicants to meet and establish cannabis business relationships. The event, “Cannabis Connection 2022,” will mix license holders with current applicants in both the traditional networking reception style but also in a round robin type format that will allow all participants equal time to get to know one another.

“We wanted to provide a setting where the conversations between attendees were structured in a way to add real value and not just about where you happened to take a seat,” said NJCBA President Edmund DeVeaux. “This will be an atmosphere unlike any other created in the cannabis space; a chance for everyone who attends to chat and learn with every individual.”

“Legalization is taking shape in New Jersey which means this event isn’t about advocacy, it’s about current and future license holders,” said NJCBA Founder Scott Rudder. “This will not be like other conferences where you sit all day and listen to speakers. ‘Cannabis Connection’ is about you and your business. It’s about your needs, your goals and meeting likeminded individuals within the industry.”

“Cannabis Connection 2022” will take place Thursday, October 27 from 1p.m. – 8 p.m. at Galloping Hill Golf Club, located at 3 Golf Drive in Kenilworth, New Jersey. “Making Cannabis Connections,” the round robin style meet and greet, will take place starting at 1pm with the main networking reception to begin at 6 p.m. Interested participants can register for the event at:

https://newjerseycannabusiness.com/events/cannabis-connection-2022

The post NJCBA to host “Cannabis Connection 2022” appeared first on NJCBA.

Name: Ryan Brandt

Company: Withum

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Share your elevator pitch. In one sentence, what do you do in the cannabis industry?

I am the Tax Team Leader of Withum’s Cannabis Services team, well-versed in strategic tax planning and compliance issues.

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How did you get involved in the cannabis industry?

I became deeply involved in the cannabis industry when talks of recreational use in New Jersey gained momentum. I was already involved with the medical cannabis market, working with some of the original six alternate treatment centers (ATCs), and I knew the market was about to explode once New Jersey opened their doors to adult use.

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Share a bit about your professional background. What, specifically, makes you well-equipped to serve clients in the cannabis industry?

Our team’s rich expertise in the cannabis industry spans over 10 years of providing Advisory, Tax and Audit services to both plan and non-plant touching segments of cannabis business enterprises. We are trusted business advisors with team members nationwide who are trained to specifically service the cannabis industry. We pride ourselves on helping our clients achieve their goals and navigate a highly regulated industry.

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What do you feel is most promising about New Jersey’s cannabis industry?

The fact that New Jersey is entering the cannabis market late in the game, we are fortunate enough to be able to learn from the mistakes and successes of various other states that have legalized. We are not going into this market wearing a blindfold. I believe our regulatory commission has strategically been working on placing this industry in a position of strength and success. I believe this industry is going to thrive right out of the gate.

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Provide one piece of advice you’d give to someone who’s considering working in cannabis.

The cannabis industry has a rapidly changing and complex tax landscape. It is very important to consider the tax implications on your business profits, so you can properly forecast cash flow and plan your budget accordingly.

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Care to share a favorite NJCBA membership moment?

Presenting with President Ed DeVeaux. We discussed the 280e Tax Code and general cannabis accounting guidelines. It was a great way to engage with and inform the local community.

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Tell us about your favorite Jersey spot. What would you do in the Garden State on your day off?

I would have to say my favorite spot is Mountain Creek in the winter. I love snowboarding and this place has the best slopes in Jersey!

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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.