Metrics Every Cannabis Cultivator Needs to Measure & How to Measure Them.

Transcription

1 Metrics Every Cannabis Cultivator Needs to Measure & How to Measure Them. Net profit $ per Gram April '17 May '17 June '17 July '17 $/sq. ft. Net $ $ per gram $/sq. ft. $ per gram Net $

2 About me Married with two children. Managing Principal for BUDDHII Cooperative Los Angeles California Recent work includes Socal Coalition and Minority Cannabis Alliance on Measure M for City of Los Angeles Active transport license for cannabis (Licensed Entity to Licensed Entity) Consultant for MedEx Flowers and Bud Kings Weed Club Active participant in various regulatory committees Architect of California s first equity-ready cooperative.

3 Rethink the narrative.. Cost per gram and decreasing the cost per gram is a universal theme. Why are we here? To maximize profit per gram. We did not come to participate in a race to the bottom. We all want to race to the top.

4 The race is on..for all of us. What we all want to do.. Maximize production volumes Build the brand. Get licensed. Stay licensed. Scale the operation. Do more good.and survive in the marketplace to do more good. The end game is to extract more money from cannabis. Successfully compete within the constraints of the markets Regulated traditional advantages like first to market, location, lower capital expense due to maturity, or simply better product or pricing Unregulated( the black market ) presumably has lower operating costs (no taxes with no desire to demonstrate legal compliance)

5 Why KPI s? The success of your business depends on measurement. The tool every owner or manager should use for communicating this measurement is the Key Performance Indicator (KPI). A KPI is an indexical (indice); it s proper use depends on context and correct application. KPI s are the basis for a performance management strategy.

6 The truth about performance is. You cannot build performance on weaknesses. You can build only on strengths. Peter Drucker Regulations increase cost of operations!!!! - Pressures gross profit which pressures net profit - Creates need for greater data management - Can greatly affect corporate culture - Need for increasing level of discipline and expertise increases costs of human resources.

7 The benefits of adopting a performance management strategy What if a 1% performance improvement cost you 12 hours? Say that you have 10 employees in your business. Each year they work a total of about twenty thousand hours for your organization. For every effort that results in a 1% improvement in your staff performance, your company will gain the equivalent of two hundred hours of work as the result of the expenditure.

8 Tracking is key Measure, motivate and communicate.. Measure progress Maintain compliance Motivate staff Communicate with investors Communicate with regulators Communicate with the public

9 Comparison: The key to understanding. Fixed costs Variable costs Pro forma vs. actual Some of these costs see little change from year to year, and might be considered fixed costs. Some costs may see seasonal or annual variations significant enough that they should be tracked as well to see if there are any opportunities to be had. Generally better to convert variable cost of labor to fixed cost automation.

10 Baseline KPIs Operations focused Investor focused Opportunity discovery Problem discovery Problem solving Distribute your focus Align the data collection effort Improvement = Focus + Action

11 Building your dashboard NO VANITY METRICS! (3 keys test) Keep it simple. Track between 3 and 10 items. Automate data collection when you can. Integrate data collection into the process when you can. Try to keep things digital (but back the data up frequently). Capture what is important to you. Develop a tracking system that aligns with the 3 Keys.

12 KPI Best Practice Capture what is important to you. Make sure what is important to you is aligned to the business goals. More important that the KPI s reveal things that you may not immediately see than simply confirm what you already know. ] Develop a tracking system that aligns with the 3 Keys: 1. Make money. 2. Save money. 3. Regulatory compliance.

13 Basic Dashboard - Pro Forma Vs. Actual $ $140, $120, $100, $80, $60, $40, $20, $0.00 -$20, $40, Revenues - Pro Forma vs Actual JAN FEB MAR APR Pro Forma Actual Variance

14 Basic Dashboard - Pro Forma Vs. CY Actual vs. LY Actual $ $140, Revenues - Pro Forma vs Actual CY vs Actual LY $120, $100, $80, $60, $40, $20, $0.00 -$20, JAN FEB MAR APR -$40, Pro Forma Actual CY Variance Prior YR Act YoY Diff Current Year (CY) Last Year (LY)

15 Basic Dashboard - Pro Forma Vs. CY Actual vs. LY Actual $ $140, Revenues - Pro Forma vs Actual CY vs Actual LY $120, $100, $80, $60, $40, $20, $0.00 -$20, JAN FEB MAR APR -$40, Pro Forma Actual CY Variance Prior YR Act YoY Diff Linear (Actual) Current Year (CY) Last Year (LY)

16 More than charts for cultivators Some basic information helps: Cost per square foot per month. - take the annual total cost of operation, divide it by the total square footage of the operation and then divide that sum by twelve (12.) - startups use projections - this figure should not include: - non-essential items outside the cost of producing your product, including marketing expenses, ancillary transport expenses, or things that do not go directly into the cost of operations. - As a matter of best practice, marketing costs should be factored into the floor sale price of the product but should not be considered a production expense. From this KPI one can derive gross profit $/sq. ft., net profit $ per square foot, and a variety of other metrics. Note: Derive yield (in pounds or grams) per square foot. Derive nutrient cost per square foot.

17 KPI Best Practice Set up indicator reporting that tracks 13 months - the month you are projecting, or the current month, and the trailing twelve months prior.

18 Tracking Yield In this case no trend line required. Graphic may be helped by better detail of loss percentages. Peaks and valleys have a story. The KPI gives you some indications of the questions to ask yourself. Modeled for contract cure and trim cooperative.

19 Flower Yield After Cure & Trim - Trailing 12 Months PVO Recovered Lbs. Recovered Start Quantity /2 7/2 8/2 9/2 10/2 11/2 12/2 1/2 2/2 3/2 4/2 5/2 Copyright BUDDHII Cooperative Corporation

20 6/9 6/16 6/23 6/30 7/7 7/14 7/21 7/28 8/4 8/11 8/18 8/25 9/1 9/8 9/15 9/22 9/29 10/6 10/13 10/20 10/27 11/3 11/10 11/17 11/24 12/1 12/8 12/15 12/22 12/29 1/5 1/12 1/19 1/26 2/2 2/9 2/16 2/23 3/2 3/9 3/16 3/23 3/30 4/6 4/13 4/20 4/27 5/4 5/11 5/18 5/25 6/1 CURE RATE: Average Moisture of Feedstock - Trailing 12 Months 60.0% Average moisture prior to dry is 70 75% Target moisture after cure ranges from 10-15% 50.0% 40.0% 30.0% 20.0% 10.0% A v e r a g e M o i s t u r e 0.0% Copyright BUDDHII Cooperative Corporation

21 CapEx vs. Opex Capital expenditure - money spent by a business or organization on acquiring or maintaining fixed assets, such as land, buildings, and equipment. Operating expense is the ongoing cost for running a product, business, or system. Grow lighting fixtures are a capital expense. Light bulbs and electricity are operating expenses. Rule of thumb: Can you amortize it?

22 The Holy Grail of KPI s Equity growth over time For investors this is generally considered the most important financial KPI. In this context, equity growth over time is nearly synonymous with wealth generation. Wealth is generated by: - investing in productive assets - not paying too much for them - operating them efficiently - investing the resulting profits wisely - capital gain. This number can be compared with other investment opportunities to aid in assessing opportunity cost/benefit. Investor ideal is 15% compounding growth per annum, which is basically a doubling of the business equity value every five (5) years.

23 Frequency of data capture matters.. Lot Grams In Exp. Loss Date Processing Time PBMG /17/ :00 4:00 7:00 10:00 21 PBMG /19/ :00 12:00 10:00 4:00 7:30 10: PBMG /20/2016 2:00 12:00 4:00 8:00 16 PBMG /3/2016 5:00 12:00 8:00 8:00 19 PBMG /5/ :00 5:00 7:00 3:00 14 PBMG /15/2016 6:00 11:00 8:00 11:00 19 PBMG /18/2016 8:30 11: PBMG /19/ :00 11:00 9:00 12:00 15 PBMG /22/ :30 11:00 9:00 2: Varies by type of indicator.

24 Closing the compliance loop. OSHA Days without accidents CDFA Clone/Plant mortality rates (diversion) Cure yields Trim loss and yields (diversion) Weight variance (30, 60, 90 days) Average time to market (seed/clone to flower) by strain The favorite THC/CBD %

25 Questions? Thank you for listening; are there any questions? Todd can be reached at