Zach Huey, a cannabis business attorney at the Huey Law Firm, joins Guillermo as they discuss the impact of rescheduling on the industry, including effects on operators, investors, and state markets. Zach breaks down the dual market system in Missouri, which is aimed at protecting micro businesses from large operators, and the importance of vetting service providers for trust and transparency. He emphasizes the need for clear communication with investors, regulatory education, and understanding the nuances of the industry for long-term success now that the gold rush era is over, and we’ve entered the “sense” era.
“Because of rescheduling, we’re falling into pharmaceutical concerns now. Are we going to be doing new drug applications? How does this impact the state markets? Is it as simple as ‘280e no longer applies and away we go?’ Or are we looking at new additional federal regulatory burdens in order to gain some of those benefits? What kind of business models are we going to need to be pursuing?”—Zach Huey
The finer details of this episode:
Episode resources:
Timestamps:
Welcome to the Cannabis Success Show (00:00:00)
Introduction to the podcast and the purpose of the show.
Zach's Journey to Cannabis (00:01:10)
Zach Huey shares his background and how he transitioned from a non-profit and renewable energy to becoming a business attorney in the cannabis industry.
Roles of a Business Attorney (00:02:06)
Zach explains the role of a business attorney, including entity formation, commercial contracting, capital raising, and intellectual property.
Protecting Brands and Patents (00:10:14)
Discussion on how cannabis companies can protect their brands and patents, including the use of trademarks and the importance of intellectual property.
Considerations for Startups (00:15:37)
Advice on prioritizing business needs, regulatory compliance, and the importance of investing in legal protection for long-term success.
Contrasting Licensing Processes (00:17:34)
Comparison of the intense licensing process in Alabama with the more approachable process in Missouri, highlighting the differences in timing, requirements, and challenges.
Navigating the Application Process (00:22:26)
Insights into the journey and expectations for applicants, including the probability of obtaining a license, the cost, and the work involved in the application process.
Micro licenses in Alabama and Missouri (00:22:27)
Explanation of micro licenses in medical and recreational markets, qualifications, and market bifurcation.
Missouri's cannabis regulations (00:22:58)
Overview of resources, regulations, and licensing statuses in Missouri's cannabis market.
Challenges of microbusinesses in Missouri (00:25:26)
Discussion on the potential impact of market bifurcation on microbusinesses and existing operators in Missouri.
Market profitability and oversupply (00:26:34)
Comparison of market profitability and oversupply in Colorado and emerging markets like Missouri.
Licensing process in Maryland and Missouri (00:31:17)
Comparison of the licensing process in Maryland and Missouri, including social equity rounds and consultant experiences.
Advice for applicants in emerging markets (00:34:54)
Recommendations for applying for licenses in Missouri and Maryland, including the importance of networking and vetting service providers.
Vetting service providers (00:36:50)
Discussion on finding trustworthy business attorneys, accountants, and advisors, and the value of transparent subscription-based services.
Understanding the cannabis market (00:40:38)
Reflection on the shift in the cannabis market, the need for sound financial decisions, and the importance of a well-planned business approach.
Application process and business planning (00:44:22)
Importance of financial forecasts and understanding the market for successful business planning in the application process.
The Reschedule Outlook (00:44:45)
Discussion on the likelihood and potential impact of rescheduling cannabis at the federal level.
Federal Change Predictions (00:45:52)
The constant narrative of federal change, potential impact on operators' lives, and the impact of rescheduling compared to safer banking.
Impact on License Holders (00:50:29)
Immediate and potential future impacts of rescheduling on license value and cash flow, and communicating the value to investors.
Regulatory Education and Rescheduling (00:54:58)
The need for regulatory education on the differences in cannabinoids and the potential impact on understanding rescheduling.
Zach's Availability (00:57:58)
Zach's availability for contact and upcoming conference involvement in the cannabis industry.
Intro (00:00:00) - Welcome to the Cannabis Success Show. If you're a cannabis company owner or operator who's ready to scale your business, grow your profits, and plant the seeds to take your business to new heights. This show is for you. We'll share expert insights, industry trends, and actionable strategies to help you blaze a trail of success in the cannabis industry.
Guillermo (00:00:25) - Well, welcome to the Cannabis Success Show. Today we're joined by Zach Huey. He's a business attorney with the Huey Law firm. And I'm particularly excited about today's show because Zach's worked with applicants in different markets that are now up and running, but also some of the some of the emerging markets. So, it's exciting to see a lot of the new states coming online, and maybe some things that other states have done very well and some pitfalls and some markets like New York. So, we'd love to hear about that. But before we get started, Zach, it's good to see you again. I think we met about a year ago at a conference as people do, just kind of bumped into each other, during the one of the talks.
Guillermo (00:01:10) - And we've kept in touch since then. So thanks for being on the show. And it's good to see you again.
Zach (00:01:17) - Yeah. You as well. Definitely happy to happy to be here. And thanks for having me. It's fun to have these opportunities to talk to people in the industry and, you know, share some of the things we've learned along the way.
Guillermo (00:01:27) - Absolutely. And so just to kick us off, Zach, can you just tell us a little bit about yourself, you're a business attorney, maybe for listeners who aren't as familiar. What, a business attorney, what you do for your clients, but more interested to hear how you got into the cannabis space. And I'm sure that's not how you started many years back. So, kind of what led you into the space?
Zach (00:01:54) - Sure. So I'll start in reverse order. I'll start with the background, and then we can talk a little bit more about what business attorney means. So, my name is Zach Huey, Guillermo introduced me.
Zach (00:02:06) - I am from South Alabama. I went to school for college at the College of Charleston in South Carolina, and then following school, I worked for a nonprofit, an order of nuns on John's Island, South Carolina for two years as a volunteer manager and outcomes coordinator. Following two years of that work, it was time to get a degree, my undergrad degree in anthropology, which is a great degree to go to school for more time. So, it was time to go. And as between getting a master's in social work or going to law school and ended up choosing law school, and that led me out to Colorado, I went out there in 2015 for law school, graduated in 2018, and the goal for me in law school was, was always to get a job. You know, it was not the find yourself time of life. It is the make these investment you're making in yourself make sense. So, you know, to kind of talk about how I wound up in cannabis through law school, I started thinking I was going to be non-profit work due to various reasons that ended up not being the path my life took.
Zach (00:03:22) - Then I was thinking about doing renewable energy and actually got a certificate in Renewable and Sustainable Energy from the University of Colorado in a joint program with their Environmental Studies master's program. And from there I was speaking with the professor, and he said, look, get out of school, go get a job. You know, businesses, business is business. The subject matter is less important. So, I signed on with a boutique law firm in Denver, block 45 legal. And with them, my first clients were all in the cannabis space. You know, I cannabis has been a part of my life for a long time. I never thought I was going to be part of my legal profession, mainly because in Colorado at the time was coming out of school, the market was already pretty darn mature, so it sorts of felt like a missed the boat situation, felt like there wasn't a need for another person to be in the space. So that's what sort of drove me to pursue the renewable energy path and pursue some other paths, despite, you know, being very aware of this market and certainly being interested in being a part of it.
Zach (00:04:32) - But joined the law firm. Start working. Working with cannabis clients. Realize there's always room for one more good attorney. There's always room for one more good operator. The fact the market is saturated changes how you need to approach things. You need to be aware that there's going to be some additional difficulties and hardships. However, that doesn't mean you shouldn't try. And that was really the lesson for me, starting off and seeing that there is space in the industry for people who want to be involved and who it's important to them to stay involved. So that's what really led me into cannabis. You know, on an intellectual level, it's a really exciting area because it is so new. There's really a lot of opportunities for, small firms, medium size firms to really make a difference and make an impact, whether it's through regulations or whether it's through the things I do as a business attorney, so to speak, a little bit more about being a business attorney. That is a catch all term.
Zach (00:05:34) - I'm often a jack of all trades type person in a business. I would come in and I would help with entity formation. So, what is the arrangement between you and the people who are starting this business with, you know, what entity type should you do? How do you want to be taxed? What are your goals for the business can impact structuring questions of that nature. I also then handle commercial contracting, which is what is your contracts between your vendors, between your customers? What needs to be in those contracts? What liabilities are we trying to deal with? What logistics need to be covered to make sure you have a smooth business relationship, and everyone understands what's going on? In addition, I help with capital raising. So that involves I've done crowdfunding, I've done Reg D, which is private equity raising. I've worked with publicly traded OTC companies that report under the alternative Reporting standard on the OTC, and, you know, access to capital and of course, that debt instruments as well. So convertible notes, and then a unique equity thing called a safe, which is a simple agreement for future equity.
Zach (00:06:48) - All these securities and raising capital could be its own Hour-long podcast. So, I'll, I'll just go insofar as to say that, you know, it's an important part and in a very regulatory intensive part of a business, but is necessary, especially for startups. You know, oftentimes you're, know, the money's there, but it may take, you know, a number of years to reach those goals. And you need a little help along the way. and then lastly, I would say intellectual property and employment law are two areas that often get involved with. So, to me, in summation, a business attorney is your outside inside counsel. It's the first stop when you have a legal issue in any number of domains. And if the business attorney, if the generalist me can't help it, then the next step would be to go to a firm that has the resources and specialty to support whatever issue we're facing.
Guillermo (00:07:45) - No, thanks for that. So you when you went to order of nuns, I didn't think that was going to lead you to cannabis and anthropology, but I'm the same way I became a CPA because I needed to get a job and agree with you.
Guillermo (00:07:58) - I was like, I can always find myself later and after I make some money and I'll have more time for that. But go ahead.
Zach (00:08:07) - No. And I've had the opportunity since, you know, it's great. It's just an up in Colorado, this past Sunday, doing a pro bono clinic for social equity applicants and being able to support some of their business schools. So those opportunities are there. You know, you can still make a difference and still be involved. but yeah, it is, it was it definitely was a roundabout way to get there from where I started.
Guillermo (00:08:28) - Yeah, absolutely. So, you said you started in a, in a, in an established market, Colorado. And so, when you started working with clients that wasn't your, their every you know, there wasn't an additional round of applications. So, you were helping those clients. what kinds of types of things were you working with clients in a market like Colorado, where it was already established? It was just more of the contracts and the additional capital raises as the businesses were growing.
Zach (00:08:58) - Yes. And, I would say so represent a lot of ancillary service providers. So commercial contracts, I would say it was like my bread and butter. And then intellectual property actually is a big one. You know, by the time I was working with a lot of people, the nature of the boutique law firm is intellectual property was a large focus of that firm. So, what we were getting is these businesses that had gotten off the ground, you know, they're maybe just out of startup phase, and now they're saying, okay, we have this brand, we have this identity, we want to protect it. We want to find ways to monetize our intellectual property. And that then brings you through a law firm, because you need to work on getting your patents for any inventions you've made, which was the focus of the founder of the firm, Clement Hayes, is being a patent attorney. And then I would and then I'm not a patent attorney. So I was stepping in and helping with the trademark docket, helping protect, help identify and protect the brand in the cannabis market, which, again, the joy of cannabis is with federal legal, federal illegality is you have to become very creative, in ways that, you know, other industries don't really push you to be.
Zach (00:10:06) - So that was that was really where a lot of my work was in the mature market in Colorado was intellectual property and commercial contracts.
Guillermo (00:10:14) - So by the time you got involved, is there anything that that cannabis companies can do to, to protect their, their brands and their patents? before they get to the point where they need to work with, with the business attorney or there's some, some pitfalls or maybe some tips that that folks should be aware of as they're building, their cannabis company and their brands.
Zach (00:10:39) - Sure. Of course. So, let me start with trademarks. An easy thing you can do is with your brand or logo. So, things you use to identify your company, and that is as broad as it sounds. Companies have literally trademarked smells. So, it can be specific color palettes that you always use. It can be short phrases that you use. It can be, you know, a name that you use, a logo that you use, a picture that you use anything that if some if you know Johnny Sue sees it on the street, they should look at it and say, oh, that's XYZ cannabis.
Zach (00:11:21) - So anything that identifies your products in the mind of the consumer is your trademark. Or, if you're providing a service, your service mark trademark being the normal term to sort of be our umbrella term to cover this idea of something that is an indicia of source. So what you can do is you can put the little TM logo onto your mark. The little TM logo identifies that, yes, the thing you're looking at is a trademark. And what you're doing by putting that TM on there is you're sending notice out to the world that this is a common law trademark, right, that you're trying to create in your name. And the other mark you might see is a little R in a circle. And that means someone has gone through federal registration. And that mark is registered with the USPTO as a new business. Starting out throwing the little TM on, there is something you can do right now that starts telling the world that you have rights in this mark and doesn't require any further registration, so that would be something I would do.
Zach (00:12:28) - now before necessarily even talking to an attorney. Yeah.
Guillermo (00:12:31) - And those are, those are pretty simple, simple things to do that, that anybody can do. You mentioned working with social equity applicants. There may be folks that don't, don't, don't have the funds to pay for an attorney. Is that something that you advise with, with like your social equity applicants as well, that you kind of look out for some of these things?
Zach (00:12:53) - Yeah.
Zach (00:12:54) - You know, it's always good to be aware. So. It's hard because when you're starting a small business, there's a lot of demands on your time. There's a lot of risks out there, there's a lot of things you're trying to do, and you're going to find yourself being at the center of the storm. You suddenly are going to be an insurance agent. You're going to be a lawyer. You're going to be, you know, your operations manager. You're going to be your chief marketing strategist. You're going to wear every hat as you're starting out.
Zach (00:13:22) - So something I think about is having a successful business first. So, if we're talking about cannabis businesses, I do think your regulatory compliance is extremely important. You'll have gone through an application process where at some point the state is going to make you get your SOPs together, the state is going to make you really explain yourself and your business model, and you're going to have need a lot together on the front end, which is unique, maybe from other businesses where you can get away with, you know, building as you go and really only creating something as you need it, like really just in time business growth. So regulatory, you know, I think should be an emphasis. But as we talk about things like intellectual property, as we talk about, you know, having the perfect commercial contract. If you have the money. Of course, I believe you should invest in it because you're setting yourself up for success and you're preventing what is a small issue in the beginning, becoming a huge problem later because you're already doing things the right way.
Zach (00:14:25) - So if you have the resources in time, I certainly recommend getting good contracts, getting your protection together, you know, have it running a tight ship. However, in the real world where we all live, that is maybe not feasible. So, what I caution startup and entrepreneur, you know, startup people and entrepreneurs against is letting some of the stuff be a distraction. So, you know, we're talking about intellectual property. We're talking about protecting your brand. And if you spend, you know, $1,000 on getting your brand protected and you're obsessing over, you know, everything being just perfect with your brand, that's a whole bunch of time. You're not growing your business. So, I think there's something to be said for triaging your business needs and understanding what are the things that are generating revenue? What are the things I have to do for regulatory compliance? What are the things I have to do to be successful long term? And as you kind of put things in these buckets, then you can address these problems in turn, make things a little more bite size.
Zach (00:15:27) - And when the time is right and the finances are there, then yes, get on that phone with your attorney. Start making the right decisions to avoid bigger liability later.
Guillermo (00:15:37) - Yeah. You know, and I think that's one of the things that's, that's unique to the industry is that there's so much, so much burden, that that operators are kind of like they the focus isn't on the, on the profitability or the brand or the things that really grow because you kind of got to get up under this, out of this rock just to, just to start the business and even as, as you get going. And that's some of the things like as a, as a virtual CFO as well, like a lot of the conversations and things that I get asked are about taxes and 280, whereas a normal business wouldn't be spending all this time trying to navigate around that, we would cut the conversation to what really matters and what we could improve, which is profitability. Right. And how do we grow the business and how do we how do we get profitable.
Guillermo (00:16:23) - But yeah, to your point, it's like trying to, to kind of weed out some of that stuff and get to what's really where's the best value for your time. Right. For, for the operator. But I think that's a good segue into, into licensing. We've talked about all the different things that a business attorney does. But, you know, you started in Colorado and then you branched out into some, some of the, the newer markets, maybe medical and some that converted from medical, into rec. So, from your standpoint, I think we from an attorney standpoint, I mean, I think you're in the in the weeds, in and out, day and day in and day out trying to help clients throughout that application process. It's a million little details. But, can you talk about the kind of the journey and what to expect when an applicant goes in everything from, you know, the, the possibility, the probability of even getting licensed to the cost and the work, that it takes to get to get to the, to get to the end and as well as how to, how to navigate that process.
Guillermo (00:17:29) - I know that's probably like three questions in one, but you can start there.
Zach (00:17:34) - Yeah, sure. So yeah, I'll start I'll start meandering down the path and, you could jump in and make sure I'm staying on it. So, I want to take a step back. And first of all, acknowledge that the licensing process in each market is very, very different. So, what I'd like to do is talk about Alabama and Missouri as two contrasting markets and two contrasting license experiences. And most states are going to fall somewhere between the extremely intense process in Alabama and the extremely approachable process that Missouri has created for their micro license round. So, and really the biggest difference in terms of these regulatory compliance issues, you know, bringing a team together, raising capital at a breakneck speed, the difference between this license approach becomes timing. So, I'm going to start with Alabama because A is the first letter in the alphabet. and also, I that process is near and dear to me. I applied for a dispensary license in Alabama.
Zach (00:18:41) - And while at this point we've decided not to pursue the license further, it certainly was a great experience. Learned a lot. And, you know, I'm looking forward to being a part of the Alabama medical cannabis community moving forward. So, in Alabama, the licensing process required you to complete. And I'm going to talk about dispensary specifically. There was a dispensary category processor cultivator and integrated facility, which is all three of the other ones, secure transport. Water testing laboratory. So, in the dispensary, we needed to have 25 exhibits completed in addition to the application. And we basically had to build a business on paper within two months. So that was a very hectic two months. you know, it's kind of like, for any fraternity or sorority people out there is a, you know, as a pledge week, it was, you know, going through the hazing, the trial by fire, as it were so, in that process, all the SOPs need to be developed, the sources of capital needed to be acquired.
Zach (00:19:51) - We had leases signed on three properties. We had local permissions done. We literally built the entire business on paper within two months before we ever submitted anything. So that was very intense. It required a lot of partnerships, I think, but for my relationships in the industry and the fact I'm from here and grew up here and have a lot of family and friends who I could rely on and who could support, you know, me and our goals. I don't think I could have gotten it done. So, Alabama was a very, very intense process and really required a lot to be done on the front end. and required you to be rushing Russian, Russian, then Missouri, on the other hand, their micro license process, I think an acknowledgement of how intense a lot of the early non lottery, you know, competitive application process can be. Not to mention the litigation that comes with all of it. have gone to a lottery model. And then their application is about as simple as you can make an application.
Zach (00:20:56) - You know, they got to know who you are. They got to know you're not improperly involved with other licenses. They got to have a rough idea of what your space will look like. And that's it. You know, they're really asking the bare minimum. They just want to give you a chance, get your name in the lottery, and then all that fun stuff we did for Alabama and two months over in Missouri, you then have and correct me if I'm wrong here, Guillermo, but I believe it's 18 months, right? after you would be awarded a license in the lottery to get your SOPs together, secure your property, make sure local permissions are good to go. You know, get your employees together, raise your capital. So, then Missouri says, all right, we're going to get you this license right. Then you'll have the time space. Yeah. Right. Right. So, I think something as you go with different markets, there are these competitive non licensed markets like Alabama where you kind of have to have all your shit together from the word go which requires a lot of networking ideally a ton of money in a bank account and a lot of relationships.
Zach (00:22:06) - That can be very difficult. But then there's markets like Missouri that I think are more approachable and give you the space and time in theory, you still need to do all those things you did for Alabama. It's still hard. It's not like a cakewalk, but at least you know you have more time and more space and also, more certainty on whether or not you're even going to get a license at the time you're trying to build that business.
Guillermo (00:22:26) - Yeah.
Guillermo (00:22:27) - And so for those who aren't as familiar, can you explain what a what a micro licenses. And because in Alabama you're talking about the medical market. Right. And in Missouri you're talking about the medical market. And those applicants were then or those license holders were then able to apply for a recreational use, license. And that was the first round. And now we're what's called the micro license. So can you talk about what qualifies an applicant for a micro license and what that is.
Zach (00:22:58) - Yeah. Sure. Happy to talk about that a little bit.
Zach (00:23:00) - So first of all, I would direct anyone who's curious to go to the DHS web page, at Missouri. And from there you can go to so health gov. And from there you can navigate to the licensing regulations. And then you can go down to cannabis. And that will take you to the home page for cannabis. So, from there you're going to have access to FAQs. The latest news from the Division of Cannabis Regulation. information on licensing statuses, resources, rules, laws, everything you would need to understand, you know, kind of what's going on in the Missouri market. It's a resource I use as an attorney. You know, there isn't, there's no. And I think sometimes people think attorneys are like waving magic wands. We're not, we're just doing a ton of reading. Is the secret a ton of reading and a ton of connecting with people and being open to learning. so, on your own time, if I'm not covering something, you want to double check what I'm saying.
Zach (00:24:09) - I encourage you to. Access, good resources and a good resource for Missouri does start with the health. Gov web page. Yeah. So that out of the way, microbusinesses are two classes of license. There's the wholesale and dispensary license. Wholesale allows you to grow and it allows you to process, and then dispensary license allows you to sell. And what Missouri has done is they've created a dual market system in their adult use. So, there are the existing operators who are medical that converted to adult use and recreational. And now they're issuing this round of licenses, which is going to be three rounds, 48 licenses per round, six per congressional district for wholesale to dispensary per area. Yeah. And then, from there. So that'll build out this micro area. And then what's unique and why I say dual system is because the micro licenses actually cannot do business with the existing license category. So, we're going to have two markets in Missouri. We're going to have our micro people and we're going to have our existing, market.
Zach (00:25:26) - The noble intention there would be allowing this bifurcation of market will prevent the micro businesses from being unfairly bought out and snapped up by large multi-state operators, or MSOs, as they're known, publicly traded companies that are, you know, making their name and making their stake in cannabis. you know, the more, you know, dastardly interpretation is, it kind of suffocates the micro businesses because they're now dependent only on each other, and they don't have access to potentially cheaper wholesale prices or to support from the existing industry in a way that will allow them to be successful long term. So, I think we'll see that play out over time. You know, I'm going to be agnostic on this call. I don't I don't have a dog in that fight. So just sharing for interest for the common interest.
Guillermo (00:26:19) - in Missouri, a very healthy market right now. I mean, you started in Colorado. We've seen wholesale prices and retail prices, decline over, over the last couple of years and much tougher to get to profitability.
Guillermo (00:26:34) - Missouri and the emerging markets much healthier, much better profitability. But that's because there's a healthy supply and demand. Right. So, to your point, on micro licenses, the way a lot of the larger operators have been able stay in businesses through capital. And so, like you said, it's a noble cause, but the market will have to improve for the smaller players to be able to stay profitable. Right? They're going to have to be able to one is optimize at the retail level, but also, the markets have to have to hold up. Right. and so we'll, we'll see how, how that, how that plays out, you know, it'll take some time to, to your point. But yeah, this is a, is a, it's a noble cause of some of these, other players can enter the market.
Zach (00:27:26) - Yeah. Right. And, and had the opportunity to run a business, you know, and then another key thing when we're looking at profitability and seeing negative impacts on wholesale prices in cannabis markets, it's licensing issue.
Zach (00:27:36) - You know, if you get too many licenses in your market, then you're going to see oversaturation and you're going to see depression prices because supply is going to dwarf demand, you know, and over in the hemp space, I've worked with people where, you know, it's processing contracts. And when we first put in the contract to process CBD isolate, it was 2000, $2,000 for, you know, a liter. And then by the time we were arguing about it in court, it was $300 liter, because there was an oversupply of hemp for being processed into CBD. And the demand wasn't supporting the amount of production. So, you know, it's interesting and I've had the opportunity to hear some speakers at different, cannabis, continuing legal education events for attorneys. And, you know, one of the comments from a bank representative was, you know, they look at if whether it's a limited cap market and whether or not they're willing to give loans or to provide capital to businesses, because that capped market, these controlled markets like Missouri is trying to do, for example, keep wholesale prices up, which then supports the rest of the industry to make sure they're actually getting the necessary margins to, be profitable and not go under from, you know, the additional tax burdens.
Zach (00:28:54) - Like to add you're mentioning earlier as well as just, you know, simple, simple economics of competition, you know.
Guillermo (00:29:00) - Yeah. No, that's absolutely right. You know, that's one of the things that that we help our clients with is, is just banking relationships. Right. We step in there as an advisor to help, bridge that gap, help them with credit and some of the banks that that we walk that we've, you know, built relationships with, to your point, like, you know, they won't go into, Oklahoma or any states that, that, that have unlimited licenses because that's just, that's just part of their underwriting process. And they're not going to they're not going to take that, that, that risk and, you know, where there's higher price compression. But, yeah, the newer markets aren't facing that as much. And hopefully we've, you know, learned after all these years, you know, some of these things that regulators can do to, to keep healthy markets.
Guillermo (00:29:49) - I mean, it's in everyone's best interest to keep healthy markets and all these various states and like, outside of that, like Ohio being the, the very the latest market too. Here. I think it was this week or the week before. There's crazy things coming out, like, THC caps on concentrates and things when, where, you know, it's just things that make it harder. Right. that are going to further lead to, you know, the consumer being impacted and, and pricing being impacted. And so, the same thing with, with the sales tax and excise tax at the, at the local levels that are increasing the price of the consumer. So, you know, hopefully over, over time, we can just work through all this and, and, and create, you know, healthier markets because, like, you know, to what you mentioned earlier, there's a lot more consolidation that's happening in the industry is just so hard to hard to stay to stay profitable.
Guillermo (00:30:57) - And so you mentioned the two markets. So, Maryland is, another new market. Can you talk a little bit about, there's a second round in Missouri. Where is Maryland right now? Kind of in the licensing, process.
Zach (00:31:17) - It's very, very similar to where Missouri is. So. Maryland. Sorry, everyone. We're, I guess seven days late now, but Maryland's. And I'm joking because, Maryland's just closed at the beginning of this month. Their application round and their first round was for social equity applicants only, which is determined by whether or not you lived in certain zip codes or attended certain schools or certain institutions of higher education. Maryland. So, kind of interesting, you know, and like, what's so exciting about our 50 experiments in the United States is every market has their own stories and the own things that have happened to them that have sort of helped shape them along the way. And in Maryland and their first round, they had a lot of never do well consultants who were doing inflated fees.
Zach (00:32:07) - They were charging people too much, they're promising too much, and they're leading to a lot of people getting hurt by thinking, well, I'm going to get in the gold rush. You know, let me get with this guy and this person's going to, you know, they're promising me the world. And I believe them as most things in life. It sounds too good to be true. It probably is. Some people were burned. Some people spent more money. Money. Maybe they didn't even have. And now we fast forward to Maryland doing this adult use. They have this social equity round and Maryland is a state is been very vocally hostile to consultants and the support industry and the license process because of these experiences they've had. you know, we can kind of talk about, you know, maybe the pendulum swung a little too far. You know, it is good to have support. It is good to find people you can trust in the industry who've been there before and can be a member of your team to help you, you know, especially as you're new here.
Zach (00:33:02) - But you also need to vet these people. You know, you shouldn't just go with the first person you meet and just take their word as gospel. You know, there is there is something to be said for doing due diligence and you should have a partner. But Maryland kind of went from this process of, you know, consultants are okay, but then they screw much people over. So now they're like, there's no such thing as a good consultant. which isn't true. You know, there are there are people who mean well and can support you in your, in your journey. but it just means that they're this application round, really was designed to be done without any support from any third parties. And you know what? The groups I worked with, we kind of responded to that. You know, we, you know, some of my clients and the consulting partners, you know, ended up offering some, you know, low cost templates and said, you know, if you showed up for the Maryland information sessions, you should have been able to get it.
Zach (00:33:52) - but they're having a new round in spring. Missouri is having a new round around the same time. And both of these markets are very similar in that their lottery, both of them are similar in that the hard work really starts after you get the license. So, if I was an entrepreneur or I was someone in the cannabis space and I really wanted a license to become an operator, and, you know, Missouri and Maryland, I think are both really attractive markets is sort of, you know, buy your lottery ticket. you know, Missouri is actually a really great market because it's surrounded by so many anti or non-cannabis states, right. That cross border sales have a big impact. And you look at the you know Missouri's major population centers in Kansas City and Saint Louis or border their border cities. So, Missouri I particularly like even more. But Maryland is good too in that you know, if you got. Five grand, burning a hole in your pocket. You know, you can put in a really even two because.
Zach (00:34:54) - Missouri Maryland has a ton of license categories, and I won't get into all of them right now, but suffice to say they have their micro categories, which are $1,000 an application. Then they have their standards, which are $5,000 in applications. So, in theory, if you got two grand in your pocket, you know, write your name, show up for the Maryland license, informational sessions, put in those applications and you're at least giving yourself a chance. And Missouri, similarly, you know, read the application, maybe pick up a consultant, just to help with the basic block and tackle X's and O's. and then, yeah, submit for the lottery and then the hard work starts after that, and then that's when you really need to be. And then what I would do is I would put into the lottery and then in anticipation of getting it, start having some phone calls, start reaching out, start vetting who the people you want to work with. So, when you get you know, when you get it, you already sort of have this network of people and providers you're looking to help support your growth.
Guillermo (00:35:53) - Yeah. And I think that's something that would be, you know, really a value is, recommendations on how somebody can find a provider or what are the things they need to be looking out to vet, a business attorney or an accountant or virtual CFO, an advisor, that kind of thing. Because I've found the same way as I've been in cannabis over the last few years is, there's a bit of a. from operators just like they, they don't want to get get burned. And there's people out there that have, have, have not been trustworthy. One of the ways, or there's higher fees, from another industry, right. Like it's cannabis. So we're going to charge a higher fee. One of the ways that, you know, things that I always point out is, you know, our services, our are subscription based. You know, I think that provides a lot of, transparency. Right. going into it, knowing what the cost is going to be and what the deliverables are going to be in the service.
Guillermo (00:36:50) - And, so that's something that that I've found to be to be helpful and that I, that I put out there as I talk to folks because building trust in an industry is, can be tough. I know some people have had better experiences, but what would you say someone needs to look out for as they're, you know, finding a, a business attorney or any other kind of adviser, once their license is awarded.
Zach (00:37:15) - Easy. You go to summit CFO by Anders, and then you go to law firm and then you're done. No.
Guillermo (00:37:21) - Exactly. That's what I was thinking. But I was thinking if you had any other ideas.
Zach (00:37:25) - Yeah. No joke. Jokes aside, you know, talk to more than one person, I think is a very easy thing you can do. you know, if someone's good at what they do, you know, as my father always said, con men are nice guys. You can't be a con man for long if you're a jerk.
Zach (00:37:40) - So if someone's talking to you, they're going to be convincing because that's how they're making their livelihood. So, I think it's valuable to talk to more than one person, when you're considering a service and just having different perspectives to bounce off of and see who you resonate with. You know, there's something to be said for that kind of gut feeling. You get exactly. You know, and yeah, I mean, I'm continue to be shocked by how often my gut feeling ends up being the correct feeling after being vetted. And the facts play out and the story plays out. So, talking to multiple people is a very easy thing you can do that doesn't require a lot of additional experience. do a little bit of your own homework. You know, for example, talking about Missouri, I wanted to direct to the state website. Like those resources are there. There is no crystal ball here. It's just doing your homework and doing an stein or reading. And the nice thing about partners is, you know, you bring in the right partners, they're helping you with these deep, complicated issues, and then you can focus on the things you need to focus on to grow your business.
Zach (00:38:37) - So I do recommend working with people to because of your time value of money, your time is going to be more valuable elsewhere. But initially, as you're starting out and vetting people, just doing some cursory review, you know, for example, working with a partner the other day and they're talking about Missouri and they said, oh, six licenses were awarded and it's like no. 48 were awarded, six in each congressional district. So that's a partner that wasn't really demonstrating their understanding of what the market situation was in Missouri. And you can know that if you just took a little time and hit the DHS web page and at least understand the 30,000 foot view of the market you're entering.
Guillermo (00:39:13) - Yeah, yeah, not only the big picture, but that specific market. And I would say even down to the local level, which varies across the state. Right. What's the local. And that's something that we, we talk about, you know, Niching. Right. We have different verticals that we're in.
Guillermo (00:39:30) - I think that is the value is that, you know, you get a call from someone in California, you get a really understand the market in California versus the market and a new market like Missouri. And you can get that in a conversation. But like you, I, I also have looked back on where service provider didn't work out or something didn't. And that feeling was there from the get go. It was like a little bit uneasy. So, trusting in that is a great, a great tip and finding the, the right, the right person. But, you one thing I wanted to circle back to is, you know how the market has been shifting. You know, you talked about capital raise, but have you, noticed, you know, over the past year, it seems like there's been a sobering, you know, we a lot of capital dollars were coming in betting on a federal reform or other changes, or maybe not really understanding how regulators weren't really managing the market and the price compression happened or the saturation.
Guillermo (00:40:38) - As you're kind of talking to, to investors out there, do you see that the, the money that's, that's flowing in is a lot. Well, it's a lot less now, but is there more of a deeper understanding now with what it takes to be profitable and make a cannabis business grow in this current environment versus kind of what you were seeing in your early, Colorado days, and when people are actually kind of saying, okay, we're going to make a go with this.
Zach (00:41:07) - Yeah, there's definitely a change. I mean, for me. So, it's kind of interesting, right? Because I really was entering the market as a market participant versus just being like, you know, average consumer guy, you know, interested in personal ways and but entering as like a member of the business industry, you know, in 2018 was already kind of seeing it. There's already not a ton of it definitely was easier than now, but it already felt mature to me. So, my market entry was such that I was already seeing cannabis as a normal business.
Zach (00:41:44) - And that's kind of the secret for a while. There's such a gold rush industry, you know, where people are coming in, getting licenses and flipping them for like five x ten x value within a month. You know, or, you know, consumers were like flowing, streaming in the door and people were just shoveling money away. And you know, the story in Denver for a long time was real estate prices were being inflated because people who are operating cannabis businesses couldn't access traditional banking. So, they're buying a ton of real estate in the area because they had to put their money somewhere. So, you know, there was this kind of, you know, more money than cents for a while. And what's happened now is we've entered the sense area, which is for almost every other market has already been existing. And so, what it comes down to is, and, you know, legal representation, understanding the regulations, making sure you're minimizing your liabilities. But really, I look at the financial side, you know, I look at, you know, what you're doing, Guillermo.
Zach (00:42:45) - And I think it's really important that people understand their cashflow. They understand their tax liabilities, that they're making sound, principled business decisions. This is not going to be this isn't you get the license and open your door and you're a millionaire. No, this is like, think more like opening a restaurant. Think more, like opening a corner store where you're going to have thin margins. You know, hopefully they'll get better. But what's going to make you succeed is you're going to have. Principled financial underpinnings to your business decisions. You're going to have active engagement with the market to differentiate yourself from other people. You're going to have good, solid regulatory compliance and good supply lines to making sure you're getting stuff at the lowest cost and selling it at the high, you know, the highest you can. And, you know, just business. And like I think for a while there are people didn't have to be good at business to be good at cannabis. And now you have to be good at business too.
Guillermo (00:43:40) - Yeah. Because pricing was good and competition was at a healthy point and the demand was high. Is something you mentioned earlier is that the application process almost forces you is as you said, businesses have to do that anyway. But the application process forces you to come up with that business plan. And most states I know, Alabama does and requires a financial forecast of how you're going to get there. And one of the things, the themes that keeps coming up is like when we talk about retail profitability is understanding the market. And that's part of building that forecast. And the application process, right, is.
Guillermo (00:44:22) - You got to have some right assumptions. You got to at least know what the market's going to be in your area. And thinking long term to what you what you mentioned about Missouri, there's going to be changes to and that that needs to be worked into as you know, you mentioned the surrounding states and that provides a bigger market for Missouri, but you also have changes like in Oregon.
Guillermo (00:44:45) - They experienced some of that. But when Nevada legalized that, that shrunk that market. So, all these different things there, you know, keep, keep moving around that, that need to be factored into your, to your business plan and in your, in your outlook. but so, this is a year that we're, I don't know, I mean, nine out of ten people that I talked to believe that the reschedule is probable, next year as, as we're talking kind of overall market things. I mean, my advice is always build your plan to operate in the existing market, you know, be successful without safer banking. You need to be successful without, the reschedule. As tough as it is to get profitability with 280. But, from your perspective, what is your outlook for 24 in terms of the reschedule? likelihood.
Zach (00:45:52) - Yeah well, similar to you, I, you know, derisively joke that, you know, we were gonna see federal legalization. We've been saying we're going to see federalization next year for the past five years.
Zach (00:46:05) - You know, I feel like there's constantly this sort of drumbeat which I think keeps markets positive, keeps investors engaged to say that, oh, the federal change is just around the corner, you know, whether it's safer banking or the reschedule or what other, you know, bill may come up. You know, it's a constant narrative that I think, you know, you can be aware of and play on to access capital and competitive ways. But I don't count on it either. You know, I, I sort of assume something's going to happen that's going to make it not happen. Now, granted, you know, like you said, nine out of ten people see the rescheduling happen. And it does seem to be, you know, people whose opinions I respect. I'm hearing the same thing, too, right? That reschedule is very, very likely to happen. And, you know, I think rescheduling will actually make a bigger impact on operators lives than safer banking because we're looking at potentially not having to add apply anymore.
Zach (00:47:08) - Which I think is pretty huge. So, I am I'm personally really excited about, rescheduling. I think there is a very valid and interesting conversation about reschedule de schedule or new schedule, you know, regarding where should cannabis fall, you know, because of her rescheduling. You know, we're falling into pharmaceutical concerns now, you know, are we going to be doing new drug applications. You know, how does this actually impact the state markets, that are currently operating. You know, is it as simple as to add no longer applies in a way we go? Or are we looking at new additional federal regulatory burdens in order to gain some of those benefits? You know, what kind of business models are we going to need to be pursuing? again, I'm full of bad jokes. So, another one is, you know, like, well, I'm okay. Good, good. Yeah. So, you'll forgive me? but, it's like time to become friends with pharmacists. You know, if, if we reschedule, you know, having a good Rolodex of people who understand the pharmaceutical industry, and understand what it's like to be on controlled substances, Is probably not a bad idea.
Zach (00:48:16) - So, you know, I think my first thought is I'll believe it when I see it. My second thought seems likely. My third thought is, I hope it really just means no law, no further applicability of to aid. But the reality is, like, are you going to be understanding some new regulatory frameworks within which we're going to need to operate?
Guillermo (00:48:39) - Yeah. To your point, it's clear in the law that 280 wouldn't apply to a schedule to schedule three. Right. But what is going to be written in there or we, we don't know then to get that benefit. What's it's not as automatic as we think it is. Although the paragraph is pretty clear in the tax code. But we'll see how it really plays out even if the reschedule does happen, you know, the various states and you may know more about this and do know more about this, but, you know, they'll still it is just like the hemp bill, right? Each state will continue to have their own program.
Guillermo (00:49:21) - But I think, I keep saying this is what the reschedule could do is potentially move some states that could be really big markets into the conversation of potentially passing a, a broader medical program or putting a rec program in place like Texas, you know, and so I think if Texas, if there's a reschedule at the federal level and, in Texas and, you know, their states that are behind the federal, I think it's more likely to push things forward in those states that are especially big markets like Texas. So, it could have that effect as well from, from my perspective. And I hope that it does. But do you see any immediate impact to the license holders, in terms of license value, anything like that to look out for if, if the reschedule goes into effect? Or do you see it as I agree with you on the reschedule is the biggest thing from a dollar standpoint compared to safer banking. but do you see anything because it is immediate? I mean, it goes into effect that year.
Guillermo (00:50:29) - So cash flow is it's a it's a complete game changer. But in terms of value license, any of that thing, do you see any immediate impact in the current year or in the years, thereafter from a potential reschedule?
Zach (00:50:47) - Yeah, I do, you know, and I think, though, because we're more mature markets, investors are a little wiser to the game. People aren't expecting it to be, you know, gold rush. I then I think it becomes really important to make sure you have a solid pitch deck, make sure you have a good proforma for your financials when you're going to investors. And then I think it's kind of incumbent on you as the entrepreneur to understand your audience and be able to communicate these additional values to the people who are looking to see capital from, because the value is there. but you can't, you know, assume people are going to understand it. You can't assume people are going to see the difference. But if you can show compelling case like, look at we're throwing off way more cash now, which means we can service a debt.
Zach (00:51:29) - You know, that maybe we couldn't under 200 because that money was going to our tax liabilities. You know. Now you can see how you know Miss Investor y giving us additional capital in y we can pay you back and why. This is a principled investment decision. So, I think it comes to you communicating it clearly to the investors. But I do see it as a clear value add. If there's more money available for investors, then that's at the end of the day. That's kind of the goal. You know, being very brass tacks about it. In the business world, it's how much money are you making for your shareholders and investors.
Guillermo (00:52:02) - So yeah, because it's been many, many years of operating under 280, a lot of heavy balance sheets. And so, you know. I think of Benzinga, we're talking about very little capital. But seeing this additional this lower tax burden as a kind of an inflow of capital into the market, is going to be huge. And what's also exciting is the new applicants that will start operations without ever having been under the 280 burden.
Guillermo (00:52:32) - And so it's an exciting time. Like you said, we don't want to get too excited. we've seen things happen, but it seems like it'll be a promising year, you know, in an election year. So we'll see.
Zach (00:52:46) - Yeah. Right.
Zach (00:52:46) - And I think what's also interesting to something you said earlier, Guillermo, regarding, the fact that the law itself is very clear that 280 doesn't apply to a schedule three substance compared to schedule one. That's really good to keep in mind because, you know, I saw that in the hemp space with the farm bill where they passed a farm bill, and it says if it's less than 0.3% delta nine THC, that's him. That's legal. And I think it's still taking people a long time to understand how expensive that actually is. May not be aware, but if you're doing point 3% delta nine THC by weight volume, that means you can still put, like I want to say like 50 to 75mg of THC into a product and still be less than 2.3% by weight.
Zach (00:53:30) - So the hemp industry is actually extremely huge, and the law is very clear that all these products are legal. And we're seeing court decisions continue to side with the hemp industry. So, I bring this up to then look at rescheduling and like, yeah, it is that easy. You know, like unless we see the regulations immediately follow and tamp down, you know, what can be done, or we see additional regulatory hoops put up. So, for example, in the farm bill CBD is an active drug ingredient as an active drug ingredient. So, you can't add CBD to food because it's a drug ingredient. Just like you wouldn't be able to put aspirin in a sandwich. So, it's the same sort of philosophy. So, CBD gets regulated, Delta nine, THC gets regulated to less than 0.3 percent THC. But every other cannabinoid is fair game, of which there's hundreds. So...
Guillermo (00:54:24) - Anybody ever understood that, or at least regulators certainly didn't understand that when the farm bill is passed. Right?
Zach (00:54:30) - Right. So, I think the same thing as we look at rescheduling, you know, if the law says two AD doesn't apply, it doesn't apply.
Zach (00:54:37) - You know, we don't need to find additional barriers. And so that's my analogy to the hemp is, you know, I think the industry self-impose a lot of barriers on what hemp could be. because they weren't realizing just, you know, like, no, it is if it says it's legal, it's legal. You know, let the let the legislature come in and add additional statutes and laws, which they've done in some states to further limit the market if they want to limit it.
Guillermo (00:54:58) - Yeah, yeah. And all the states been had different nuances like, like Missouri, has brought on or they had recall for some of the hemp derived products. And where as some states it's, it's completely legal and, and so, yeah, I think the hemp space is another conversation. But to your, to your point, I would think that, you know, when the hemp bill was passed, it was less education from, with, you know, for regulators or they weren't as educated.
Guillermo (00:55:34) - You would think by now, you know, the effort is educating, regulators that sometimes don't even know the difference between the different cannabinoids. and so hopefully that will have some impact on the understanding of what it means to, to, to reschedule. Right. Whereas the farm bill, I think there was very little understanding of, of the plant. And so, we'll see. But I think there's still a long way to go in terms of education at the regulatory level.
Zach (00:56:03) - Yeah.
Zach (00:56:04) - I agree with the last thing you said because my experience in Alabama is that was definitely a wakeup call to realize, like, you know, when you get immersed in the industry, you kind of start assuming a certain level of knowledge and that's it's not really fair. You know, there's definitely a lot of people and a lot of people who are holding the pen, on these laws and rules who still don't, don't really understand by no fault of their own. Not that they're not smart people.
Zach (00:56:29) - They just got a lot on their plate. And this is a very intricate, detailed area. And if you're not immersed in it, it can be, you know, a little daunting.
Guillermo (00:56:36) - So. Oh yeah.
Guillermo (00:56:38) - Yeah. Well exciting year and more to come. But I think that's a great place. to wrap up, Zach. And I appreciate you coming on. I mean, you gave some great insights and a lot of things that people can take back, as information to help them on, on the journey. We, we like to look at this as, education. And, and I appreciate you bringing your perspective to the show. lastly, to wrap up, is there, are you going to be at any upcoming conferences where we can we can. Find you again.
Zach (00:57:14) - So schedule is looking a little open right now. I had to present to the Alabama medical Cannabis Commission during BlizzCon, which was definitely a bummer. my actual next conference is going to be the, Wine and Spirits Wholesaler Association, where I will be working with hemp derived beverages, to enter the beverage space.
Zach (00:57:34) - So that's actually the next thing I have on my calendar.
Guillermo (00:57:37) - All right. Well, we'll have to we'll have to circle back on that because that's a big, a growing category and a lot to talk about there, but and Zach, where, where can we where can we find you if, you know, we'll put your, your information in the show notes, but what's the best place to find you if people want to want to reach out to you and get in touch with you?
Zach (00:57:57) - Yeah.
Zach (00:57:58) - I'd say give me a call, shoot me an email. You know, I've been fortunate with my partners where, you know, I'm pretty enmeshed and just working in the industry. So, you know, I'm a little of a little, maybe under the radar at times, but I'm always happy to talk. I'm always available. You know, phone or email is always going to be best.
Guillermo (00:58:18) - Sounds good. All right. Zach. Well, thanks. Thanks for being on the show and appreciate your carving out some time out of your day.
Guillermo (00:58:25) - And, we'll talk to you soon.
Zach (00:58:29) - Sounds like a plan until then.
Guillermo (00:58:30) - All right.
Intro (00:58:31) - Enjoy this podcast. Visit our website Anderscpa.com/virtual-cfo/cannabis to get more tips and strategy for achieving business success in the cannabis industry.