EXCLUSIVE: How Cash Flow Management Can Boost Financial Stability And Working Capital for Cannabis Businesses

How can cannabis businesses optimize cash flow and achieve financial stability in a challenging industry with limited financing options?

Through turnaround management, financial guidance, and operational optimization, cannabis companies can overcome operational hurdles and achieve financial health by prioritizing cash flow management, credibility-building, and value maximization.

Consulting firms such as Emerald Peak Partners (EPP) — founded by industry veterans, Tom Lynch and Tim Bossidy — specializing in turnaround management in the cannabis, retail, and CPG sectors, can help cannabis businesses navigate these hurdles and achieve sustainable growth.

"Cannabis businesses face complex working capital cycles with limited financing options. Unlike mature industries with access to revolving lines of credit, this is not the case for all but the largest MSOs. Optimizing cash flow by understanding the impact of inventory levels, payment delays, and production efficiency can yield significant improvements," Bossidy told Benzinga in an exclusive interview.

Financial Health in Cannabis Businesses

Bossidy highlighted some of the key advantages of working with EPP, primarily its ability to develop detailed cash models tailored to the unique working capital cycles of cannabis businesses.

In an industry where access to financing is limited, Bossidy noted the importance of optimizing cash flow. By analyzing factors such as inventory levels, payment delays, and production efficiency, EPP helps clients identify areas for improvement and implement strategies that lead to significant enhancements in cash flow.

EPP's cash flow management strategies have already demonstrated their effectiveness.

"We had a client in cultivation and manufacturing where previous management solely focused on unit cost. By optimizing order size, re-order interval, and per unit cost, and increasing labor allocation for harvest and room turnover, we achieved a significant multi-million dollar positive impact," Bossidy explained.

Mitigating Risks, Maximizing Value

When it comes to proposing and reviewing reorganization plans, EPP takes into account the unique goals and projected cash flow of each firm.

"We prioritize areas within our control, such as cost management, leadership selection, and internal processes. While growing sales is important, we must address immediate cash bleed during the initial stage of a turnaround," Bossidy emphasized.

EPP's deep financial expertise and understanding of the restructuring process also prove invaluable for navigating potential disruptions and legal hurdles in the cannabis industry.

“We recently had a client in a mature market who had a strong brand and product. We felt in the long-term, their position was more defensible at the top of the market, so even though we went through our exercises of working capital management, efficiencies, automation, and cost, we also focused on continuing to improve quality and create new solventless SKUs that showcased quality. Sales climbed dramatically from where we started, and we believe this client is better positioned for a challenging future environment,” Bossidy said.

EPP's knowledge of the entire restructuring playbook, combined with competent legal counsel, helps businesses mitigate liabilities and maximize value in insolvency scenarios.

"Without access to Chapter 11, directors and officers must work with experts like us and competent lawyers who understand the entire restructuring playbook for cannabis companies. Neglecting proper processes, corporate governance, and value maximization in insolvency scenarios can result in significant liability," Bossidy added.

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This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Photo by Adam Nir on Unsplash.