How to Plan for Unexpected Cannabis Business Expenses

unexpected cannabis business expenses

When setting up and running a business, some expenses are obvious. Space, supplies, and packaging are all necessary. Other expenses are not as obvious; here are some examples and how to plan for them may keep unexpected expenses for cannabis business from shuttering an entire operation.

Unexpected Expense: Employees

As business grows, it will become evident that extra workers are needed. Hiring personnel comes with wages, benefits, training costs, and taxes.

How to Plan: While avoiding employee expenses such as wages and benefits is unethical, the best way to save time and money is to be up on the latest info regarding hiring procedures, as well as standard salaries and benefit packages for the industry. Keeping employees happy will reduce rehiring and retraining costs.

Unexpected Expense: Business Growth

Unless your business is a pop-up, updating and upgrading are all part of growing a business. A second location, hiring specialized staff, or introducing new product are all potential plans. Rarely is business static, and growth is inevitable for many, as well as the costs which are associated with it.

How to Plan: Start saving money as soon as financially possible. Socking away even a small amount each month will assist with expectations and unexpected cannabis business expenses. Even if the entire project will need a bank loan or credit card assistance, having cash handy can only help.

Unexpected Expense: Insurance

Insurance protects against financial and legal troubles and, at the minimum, liability coverage is recommended in case of lawsuit. Business insurance is also required in some areas, including specific policies which must be in place.

How to Plan: Get quotes from multiple agents and compare what is included in each policy; do this annually. Ask questions regarding requirements to ensure all bases are covered, and include it as a budget item.

Unexpected Expense: Maintenance

Equipment does not run perfectly forever. Even protected, parts will wear out and require maintenance and eventual replacement. Similarly for buildings, weather and other forces will lead to necessary repairs. These must be completed, as safety and health standards are essential to healthy crops and employees.

How to Plan: While setting aside money for upcoming maintenance costs is annoying, it is far more cost effective to maintain equipment and buildings than to completely replace.

Unexpected Expense: Permits and licenses

License and permit fees are guaranteed in the cannabis industry. Each state has different price points for application, licensing, and permit costs. Often, the fees are due each year and can be expensive. In Pennsylvania, for example, the application fee is $200,000.

How to Plan: Stay in the know by researching your state and local laws several times each year. Ask for discounts for early renewal. Above all, ensure money is set aside for this expense. Without the applicable permits and licenses, you will not have a business.

Unexpected Expense: Shrinkage

Things go wrong sometimes: inventory is damaged, ingredients spoil, people make mistakes. Shrinkage is when inventory is lost between the supplier and the consumer. For example, if one fourth of a crop is damaged, then one fourth of the investment spent growing cannot be recouped.

How to Plan: Factor in shrinkage when setting up pricing and adjust if needed for particiularly large issues. Strive to maintain a safe work environment, with the right equipment to handle need, and train a staff that is well trusted. While not completely avoidable, attention to detail can reduce the likelihood of shrinkage.

Unexpected Expense: Taxes

Taxes are one of the two constants of life. Consider federal income tax, state and local taxes, and self-employment tax. Cannabis related businesses often have additional tax liabilities which can have differing deadlines throughout the year.

How to Plan: Take full advantage of all applicable deductions. Hiring a tax advisor or being diligent in reviewing federal and state laws could save you money, just as missing a deduction can unnecessarily cost money. Some examples of deductions are taking classes to improve job skills, donating money, goods, or services to charity, baggage fees and laundry on business trips, and payments for tax preparation software or services.

Unexpected Expense: Time

Time is valuable and there is always something to do when you own a business. Although there is not a direct monetary cost, spending too much time on tasks which do not generate revenue can cost a cannabis business.

How to Plan: Make task lists and review them regularly. Prioritizing a list can shed light on where time needs to be spent, as well as what tasks can be delegated to other staff members or professional service providers.

Forming connections with other industry professionals is the best way to discuss and plan for unexpected cannabis business expenses. Meet peers at CannaCon, the nation’s leading business-to-business cannabis conference where the focus is on educating cannabis business owners on all things related to cannabis and CBD.


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