How This Family-Owned Cannabis Business Stays Profitable, Self-Funded Despite Tough Regulatory Environment
Free Book Preview Cannabis Capital
The legalization of cannabis has created a multibillion-dollar market with a huge potential. In the rush to take advantage of this growth, thousands of investors are piling into dozens of public cannabis companies.
Luckily, there are plenty of companies to choose from, ranging from large producers like Canopy Growth Corp and Tilray Inc. to providers of ancillary services like KushCo Holdings Inc. and Innovative Industrial Properties Inc.
Some companies are trading on major exchanges, where they are subject to more scrutiny, but most companies opt for the over-the-counter market or the Canadian market, where it’s easier to list a stock.
Family Owned Businesses On The Sidelines
Beyond the headlines, there are dozens, if not hundreds, of small, family owned cannabis businesses.
For a better understanding about what it’s like to run a family owned cannabis business, Benzinga chatted with Autumn Shelton, the CFO and co-owner or Autumn Brands.
Autumn Brands is based in Carpinteria, California. They grow high-quality cannabis strains without the use of pesticides. The business is owned by family farmers with generations of experience, 50% of which are women.
The company’s line of products includes flower and pre-rolls, and they are also expanding into pre-filled oil cartridges and tinctures.
Similar Challenges To Big Growers
Even Though Autumn Brands is a family owned business and works on a smaller scale than multistate operators, they face the same challenges as all cannabis companies in the U.S.
They cannot access to banking services and are affected greatly by California tax code 280e, which does not allow them to write off expenses and insurance costs 10 times the normal rate.
"2019 brings an onerous land use permit and business license process with the county of Santa Barbara. Even though we have only changed the crop from cut flowers to cannabis, this process is being treated as if we are building the land from scratch," Shelton said.
"Things that didn’t require a permit before now require a permit, so our only option is demo or extend the process an additional six months to a year."
Slower Growth, Higher Profits
As a self-funded company, Autumn Brands does not raise any capital, making their growth slower than that of companies that take the venture capital route or list their stocks on an exchange.
"We knew the transition to the distributor model in 2018 could be a slow start, so we saved our money in anticipation for the lack of sales. And we continue to be very conscious of every dollar we spend and the enormous fees and taxes that come with being in the cannabis industry, especially in the beginning," Shelton said.
Despite higher costs and slower growth, Autumn Brands said it manages to stay profitable, setting it apart from many other cultivators and producers that are investing heavily in expansion and have yet to show a positive bottom line.
What helps Autumn Brands in this area is a careful approach to spending, Shelton said. The company focuses on being profitable and only invests in growth when it's confident it "can continue to be successful doing so."
This slow approach allows Autumn Brands to remain self-funded, and the company does not have any plans to raise capital.
Autumn Brands is interested in expansion into other states at some point in the future and might be open to opportunities to combine with another company or go public.
CFO: Now Is The Time For Women In Cannabis
As the CFO and co-owner of a 50% women-owned and led business, Shelton said there are many opportunities for women to get involved in the cannabis industry.
“Professional women can dominate this industry if they set their minds to it,” she said.
“This is the time to get involved and participate in this rapidly growing industry. However, I will say this takes someone with drive, the ability to adapt and change at a moment's notice and a great appreciation for the natural abilities of this plant.”