I had the opportunity to sit down with Noah Mendelsohn, the Director of Business Development at Northstar Financial. Northstar Financial is a CFO, Accounting, and Tax Firm specializing in the cannabis, technology, and entertainment industries.
In this interview, we discuss Noah’s journey into the cannabis industry, the importance of your cannabis business’s finances, and standard operating procedures.
NM: As a So-Cal native, Cannabis is hardly taboo. I tried my first joint early in highschool, around the time most of my friends began experimenting with cannabis, and have been cultivating my love and respect for the plant ever since. In 2012, after earning my Master’s Degree in Organizational Behavior, I began exploring ways of supporting the Green Revolution as a legitimate career and expression of my deeper calling; to mend and tend to our precious spaceship earth.
NM: Northstar seeks to take the complexities of operating a highly taxed and regulated business off of the shoulders of cannabis operators, while simultaneously giving them instant access to unparalleled expertise in the finance and accounting space. Whether it’s cultivators managing their operating costs, manufacturers staying on top of their books and taxes, or distributors dialing down their margins and projections, Northstar gives cannabis operators the tools to scale and focus on what they do best.
NW: For one, limited cannabis banking opportunities have been problematic. Even though we’re expecting $3 billion in cannabis sales this year, it’s challenging to find banking services for cannabis operators because of Federal cannabis prohibition. This causes businesses to operate on a cash-basis, increasing their risks of being targeted by criminals.
Second, there are numerous licensing complications. Each state has its own set of regulations for licensing and the rules for compliance vary among medical and recreational cannabis businesses. All documentation must be compliant at the municipal and state levels, and some states require business licenses and retail licenses as well. Depending on the industry, an operator might need a dispensary or cultivation license. Regulations are quite demanding, and if the specific documents aren’t fulfilled, the infractions can be costly.
A third major challenge in our industry is Inventory management. We need seed-to-sale tracking for compliance purposes. In CA, if a business doesn’t report cannabis inventory, this results in a compliance infraction, penalizing already strained operators even further. This is where having a set of cannabis SOPs can come into play.
SOPs are crucial for cannabis operations. As a cannabis business operator, it’s essential to consider your business’s operations and how standardizing certain activities will benefit your business, your team, and your customers. But you’ll need to analyze your procedures to determine what you can effectively standardize.
We’re seeing cultivators, manufacturers, dispensaries, and others operating in the cannabis sector successfully incorporating SOPs. For more information, feel free to check out our write-up on cannabis SOPs here.
When hiring an in-house CFO, most, if not all, of your financial strategy and responsibilities are placed on one person. While this can be beneficial if this individual is a seasoned expert in their field, as your business hopefully grows, operations will require more work than they can handle alone. Consequently, in house teams require resources such as workspace, rent, insurance, HR, hiring costs, etc; obviously draining cash flow. While it can be beneficial to have your whole team in one suite, this expense can put the financial health of your developing business at risk.
Outsourced solutions provide direct access to teams of financial professionals without the burdens of in-house costs. However, finding an outsourced team with specific expertise in your field can be difficult. Not to mention, an individual or even a small team might have tremendous skills in some areas of your business, but it’s unlikely they specialize in all of the components required to operate successfully.
Ultimately, my mission and vision with Northstar is to provide the full suite of expert cannabis financial professionals to the companies that need them, without subjecting these companies to the costs of in-house operations, which are non-deductible if your company touches cannabis.
NM: I’d say they underestimate the importance of record-keeping and bookkeeping. Coming from a traditional market mindset, keeping records is the furthest consideration from many of today’s legacy operators. In my experience, these are some of the most crucial considerations that keep cannabis operators compliant and successful.
Once you’re gathering reliable and accurate data on an ongoing basis, It’s also possible to use this information to determine the best course of action to move the business forward. I like to think of tracking data to success as wind to a sail on a sailboat.
The sailboat is your business. When the sail is full of wind, it’s pushing forward. But you need to know which way to turn your sail to capture that wind and keep the course. This is where solid record-keeping comes in handy. Keeping concrete records is also a great way to prevent and catch fraud, something especially important in the cannabis industry.
NM: Tax Code 280E can severely impact a cannabis business’ total revenue. This federal statute was mandated by the IRS as a sin-tax in opposition of illegal businesses, forbidding these businesses from deducting their expenses from their gross income if it involves trafficking schedule I and/or II controlled substances. This also includes taking credits too.
Since cannabis is still federally classified as a Schedule I controlled substance, all cannabis business operations still fall into the category of drug trafficking. This forces cannabis operators to pay taxes on all business income as they’re not allowed to write off business expenses that would otherwise minimize their taxable income.
NM: Planning cash flow for potential 4th quarter estimates and 2020 tax liabilities is essential at this point. This is one of the most crucial things cannabis operators can do, especially if they’ve been impacted by Covid-19 or the wildfires. Making 2020 projections can help canna-companies possibly identify items that need to be adjusted to close out the year or at least give an indication of what to expect when tax time comes. We’re firm believers in the idea that it’s better to prepare now than to try figuring everything out at the last minute.
NM: I’m excited to see barriers of entry beginning to lessen. With investment and banking opening up, new money is getting invested into the global cannabis industry, with its heart in CA. Nationally, I’m excited to watch as more states vote for legalization and expand cannabis access to the public. Hopefully, we’ll even get to see decriminalization in our lifetimes.
NM: More than specific resources, I’d share the attitude of keeping a zealous growth mindset! We’re fortunate to have so many remarkable industry leaders and legacy pioneers across so many areas of our community. Finding the voices that speak to your interests and temperament, learning from their journeys, and fact-checking everything has been my go-to resource for navigating this industry.
In today’s clickbait culture, there’s so much information and misinformation across all of our feeds on a constant basis. I’m trying to stick to the attitude of “never letting my schooling interfere with my education.”