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To Attract Investors, Cannabis Businesses Need Strong Processes and Controls

by Chris Lee
June 21, 2019

Cannabis businesses that are seeking funding need to show that they are equipped to navigate the industry's many challenges. Investors want to see that they have a strong operational framework and the right controls in place.

Recently, one of the country's largest vertically integrated cannabis businesses requested our Strategy and Transformation team's help with a review of their organization, internal operations and controls. The goal: to streamline and improve their processes. They were trying to confirm their next round of funding and needed to validate for investors that they have the right controls and are positioned to handle future complexity smoothly.

"We want to be as compliant as we can before we are ever asked," says their CEO.

Armanino jumped in to help the company write standard operating procedures (SOPs) and create diagrams for their core operations, from seed to sale (i.e., propagation, vegetation, flowering, harvesting, tracking plants, processing, quality control, packaging and labeling, sales operations and more).

We focused on a holistic view of the company's business strategy and processes. Using a five-step methodology (listen, assess, analyze, report and recommend), we developed core SOPs that helped address control risks and gaps in their current processes.

Plant tracking, for example, is a challenging area for cannabis businesses involved in cultivation because they have to trace every action in the process back to the "mother plant." Additionally, there is quality testing involved at various stages to make sure the plants are healthy and able to be consumed.

This was a big pain point for the company because their process was disorganized and had major gaps and risks. By documenting the process, we were able to address those gaps and risk areas; we also identified and made recommendations for future process improvements.

In the SOP for tracking plants, we focused on these key reporting areas: number of plants harvested; initial harvest (wet) weight; date of harvest; weight after separation into flower, by-product and waste; weight after trimming; staff identification (at each step); and physical location of the plant material at all times. These metrics need to be tracked through the client's seed-to-sale software (Trellis) and reported to METRC, the compliance system required in California.

We developed visual SOPs, which include screenshots of the exact locations of where to track certain items in the system and diagrams of the process. Visual SOPS are easier for employees to adopt because screenshots and visual diagrams enable them to follow along via their computer to see if they are in the right screen and updating correctly.

Along with reducing risk, the process improvements enabled the company to streamline operations. For example, we helped them utilize their seed-to-sale software in a more efficient way to eliminate manual processes being performed outside of the system.

We also touched on human resources practices, and one outcome was the creation of an employee operations manual. The company can use it to help with onboarding and as a baseline when updating their processes as the business grows.

The overall result of all these efforts? The company now has the controls and processes in place to attract investment and support continued growth.

If your company is experiencing the inflection points of a growing cannabis entity, Armanino can help. We offer a comprehensive range of services dedicated to the industry, from tax to compliance to advisory and systems. To learn more, contact our Cannabis team.

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Authors
Chris Lee - Sr. Consultant, Consutling - San Ramon CA | Armanino
Manager
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