Strategies for Saving the Farm

Dear California cannabis farmers,

Its a tough moment in California’s cannabis history. Most folks knew this was coming and, to those who are surprised, welcome to the ugly world of scorched earth capitalism. In the U.S., federal and state laws arguably mandate a race to the bottom. Consolidation happens and businesses fail. But with the pandemic, climate change and social/political unrest at the top of every government’s legislative agenda, the plight of the licensed cannabis farmer is not a high priority.

Perhaps rightly so, when we consider that statistics are proving the bulk of the cannabis cultivation licenses in our rural producing regions are owned by the same ol’ privileged few, some of whom are now calling for a cap on licenses, a fascinating development. Demanding to install artificial caps on the cannabis market begs the questions: why are so many folks in cannabis afraid of competing in a free market? No one is going to hand you an inflated market ever again. That was a once-in-a-lifetime opportunity, and if you let that money burn through your hands, trust that someone else saved their money to better withstand the lean times. That’s just business.

The sooner we recognize how privileged our lives were–in that NorCal’s cannabis economy was a direct result of prohibition–, the sooner we stop taking inflation for granted as a market norm. We must shift our thinking to realistic strategies for surviving and thriving in the cutthroat world of the free market. And it’s is cold out there in the “real world.” For example, your new business partner could torpedo a successful business that you built over the past decade without warning. A silent investor could become a shareholder lawsuit or a disgruntled employee could go after your personal assets.

Or, other more skilled or more sophisticated farms can, will and did make a play for a market which mid-grade farmers used to dominate, not because of their skill, but because of their privilege. If you’re not ready to make a real play at this tough new market that is no longer inflated by prohibition, then don’t play. And other farmers will thank you for making more room for them on the dispensary shelves. Cold, but true.

To those of us who are in this industry for life, my first piece of advice is to stop complaining on the internet. No one is picking on you. Its getting embarrassing guys. The threats of litigation against the government are a particularly bad look for farmers who are simultaneously asking those same government agencies for policy changes. If you or your group is going to sue, just shut up and do it instead of talking about it on Facebook. I’ll be interested when you file the complaint but I’ll hold my excitement until you actually win. Until then, please stop feeding the fear and division.

Secondly, invest in a realistic long term strategy. Here are some possible strategies for small businesses to stay afloat during the downtrend:

  • Resting/Fallowing the License: The trade groups in the legacy-producing regions are thankfully working to ensure that taking time off of cultivating is allowed, i.e. that farmers be allowed to “fallow” their licenses. While fallowing may not be an option for folks with balloon payments, those who can afford to rest can likely take it without significant repercussion. As cannabis politics took an ugly turn along with the market, the rejuvenation that comes from tuning out the insanity is becoming increasingly palatable to many long-haul farmers.
  • Diversification: Smart farmers will identify additional income streams, such as consulting, taking a part-time job in town, creating a farm stand or a mushroom-growing business, or turning a component of the farm into a tourist haven. I often suggest folks consider what makes their farm unique and look for other ways to create value out of that uniqueness. Diversification is exciting because it can force us to be innovative and innovation drives society forward.
  • Selling Assets/Downsizing: Before selling off an entire farm, folks can consider downsizing by leveraging their assets to cover gaps in cash flow. Assets that can lawfully be bought and sold include a farmers’ cannabis genetics, existing intellectual property, such as a farm brand with a popular Instagram feed (yes, you heard that right: an Instagram page has value that is separate from the farm. A farm with a popular page with copyrighted photos could legally sell that page and/or its photos to a chad for significant value.), tractors, greenhouses, vehicles, ATVs, equipment and so on. Look for the value and leverage it.
  • A Helping Hand/Sweat Equity: Farmers can also create no-or-low capital contribution agreements with folks who did not have access to the regulated market. We all know farmers who were shut out of the regulated market, but we also know farmers who don’t want to run their regulated farms anymore. That situation can be looked at as a two-farmer loss or as two-farmer opportunity if we focus on solutions instead of problems.
  • A Helping Hand/Farm Employees: Another way to lend a helping hand to someone who did not have access to the industry, at least for the owner/operator farmers who can afford a full time employee, is to hire a farm manager on a W2 (employee) basis to handle the backbreaking work. Those folks can make a low but fair salary during the season and then be given a piece-rate payment or a bonus at the end of the seasons. Incentives are key.
  • Farm Management Companies: Some farmers may also want to manage another’s farm through their own distinct businesses on a 1099 (contractor) basis. Those types of arrangements, if fully disclosed to the state, can be done lawfully but they can also be a tax nightmare. Any discussion of this type of arrangement must include a qualified CPA and the deal must be in writing in advance. Any farm management company that hires workers to perform the services may also need a special contractor’s license, depending on how the deal is structured.
  • Getting Lean and Mean: Some farms give off that “first year every year” vibe: i.e. their business plan is to cross their fingers in hopes a buyer miraculously appears at harvest, their key players change rapidly, they are always expanding beyond their means, etc. We all know and love those constantly-frenzied farmers, but that energy can also cause them to hemorrhage money, so they are prime examples of a farm that should finally run a profit/loss to tighten up expenditures before next season. A profit/loss statement is a helpful planning tool for every farm since, once a farmer know how much money they need to operate in the lean times, they can focus on reducing expenditures and/or they can raise cash, either via the business’ existing income streams, via the strategies described above, or via standard investment avenues such as venture capital or debt/loans.
  • Change the market: The cannabis market is subject to significant and ever-changing policy shifts. If you want to change those policies to benefit legacy farmers, then organize with your colleagues and trade representatives to do just that. If someone is not actively trying to change the system, then that person’s complaints are going to fall on deaf ears.

Pressure can drive folks to innovate where they might have otherwise settled for the grandiose title of “mid-grade weed farmer” for the remainder of their cannabis careers. But there are as many opportunities to survive as there are innovative and determined farmers, if we look for them.

Please, please, please join your local trade or policy organization to make sure you’re in the loop of all the innovation and policy-making that is happening right now. And don’t forget to take care of yourself and others. Keep moving forward.

Much respect during this crazy time. ~hb

Considering Selling Your Cannabis Farm? Read This First.
Heather L. Burke, P.C. is Expanding!

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