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In the latest episode of the Cannacurio Podcast from Cannabiz Media, I speak with Ryan Fleming, account executive, and Paul Clifford, senior solution consultant, at Sage Intacct, a cloud accounting and financial management solution for the cannabis industry.
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Ed Keating: This is a Cannacurio Podcast by Cannabiz Media, your source for cannabis and hemp license news, right from the data vault. Welcome to the podcast. I'm your host, Ed Keating, and on today's show, I'm joined by Ryan Fleming and Paul Clifford of Sage Intacct. So gentlemen, could you introduce yourself for our listeners?
Ryan Fleming: Yeah, I'll start. My name is Ryan Fleming. I'm an account executive here at Sage Intacct. My background is really as a career accountant. I'm a CPA. After doing some time in public accounting, I actually was a Sage Intacct customer myself, so really, just got to understand and learn the solution and came over here about two and a half years ago to really help other companies take advantage of something I really like using in my own personal experience.
Ed Keating: Awesome, awesome.
Paul Clifford: And pleasure talking to you today, Ed. This is Paul Clifford from Sage Intacct, based out of Austin, Texas. Have a little different background from Ryan Fleming here. Initially started off in manufacturing and supply chain, and then moved over to accounting, working for the likes of folks like NetSuite and using SAP in the past. And now have a specific verticalized specialty here in the cannabis market here at Sage Intacct, so happy to talk with you.
Ed Keating: Oh, excellent. Well, I'm also in that narrow vertical that I like to describe as the most heavily regulated agricultural vertical in the United States. So, I wanted to learn a little bit more about Sage Intacct because you guys cover a lot of industries, and we see this sometimes when we meet with companies that are in the space. Occasionally, they may have sort of sibling divisions that have nothing to do with cannabis. So, tell us a little bit more about Sage and how the cannabis piece fits in.
Ryan Fleming: Yeah, I can take that. So you're absolutely right. We've got a lot of different industries utilizing Sage Intacct. We're actually kind of verticalized here, whether it's nonprofits or a SaaS company or a financial services company.
Where Paul and I fit is into the general business space. We get everything that hasn't been completely verticalized here, but as part of our initiative over the past, as things are legalizing and we're seeing more legalization in the past six months, legalized in my home state of New Jersey, we actually carved out the cannabis vertical here.
And the reason being is we see a lot of the same challenges that other companies are facing. In the cannabis space, you look at a seed to sale organization that is everything from cultivation, manufacturing, all the way to the end user at the dispensary, and being able to house all that under one roof. That's why we saw this opportunity to carve out the cannabis vertical and help out cannabis companies all over North America.
Ed Keating: So how do you guys fit in with the rest of the company? I know in some cases, when a company adds cannabis, they're looked at oddly by their colleagues in the more traditional industries. Other times, they're welcomed. And then third cases, they just create a separate subsidiary, whole different brand name, and they shunt it off to the side. How do you guys fit into the corporate org chart there, if you will?
Ryan Fleming: Yeah. So, I mean, it's been a little bit of a struggle getting started here, because historically, cannabis is a little bit of a place that companies like to stay away from. It's not completely federally legal now, but as it becomes more legalized in the United States, our company has become a little bit more open to us exploring the cannabis space. So we do see that this is going to be a big initiative for the company, especially in 2021 as more and more states become legalized and on board.
Ed Keating: Yeah. I mean, our experience was, I guess, somewhat similar. When we started the company about six years ago, the first thing back then, when it was still more of a nascent industry, people would tell a joke, because they thought it was funny because it was cannabis. And then they'd think about it and then they'd be like, "Oh, wait a minute. That's a great idea."
And I think so much of it is because how much growth there is in the industry. If it wasn't cannabis, if you had a... Any industry with a CAGR that we have, of course, you'd want to be part of it, so it just totally makes sense. You know, do the math, follow the numbers, it's a good industry to be in.
Now, in terms of your customers... Moving from Sage Intacct to your customers, I was curious how your customers are profiled. Because as we look at the industry from a license standpoint, we know that there's a lot of companies that just are solo shops. They run a dispensary. Maybe they have a grower out in California or something like that.
But we also see that some are way more complex, where they might have multiple operations in a state or multiple operations across the country, like an MSO. So how would you characterize your customer set? Are they just small companies, medium, everything in between?
Ryan Fleming: Small, medium, and everything in between. We talk to companies that are really just getting up and going. They might be just cultivators or just manufacturers. You know, from everything from there to a full seed to sale company, go all the way from the farm to the retail dispensary side of things.
The nice thing about Intacct is that we're able to house all these separate entities, if you will, under one roof and be able to give that company the visibility that they need into the full operations of their company, as well as segment and silo it into each of those individual arms, as well as each of those individual jurisdictions.
Ed Keating: And as you look across the value chain, and every state's different, but on the whole there are the three big areas. There's cultivation, there's manufacturing, and then retail dispensing seed to sale, if you will. How do those groups differ for you as you're onboarding somebody?
Like, if somebody is just to say a cultivator versus manufacturing versus retail, I imagine there's a different sort of onboarding protocol or just things that you have to worry about. How does that look?
Paul Clifford: So from my perspective is, each of those companies at their foundation will have to have an accounting system, but this is also one of the things that's really exciting about the cannabis industry in general, is the complexity of different companies and what their needs are.
So Ryan and I have partnered with multiple different companies to identify what an extractor needs versus someone who's just doing retail. So we partner with folks where Sage Intacct might not have all the solutions to make sure that they have a pointed solution that's able to address that specific market.
Ed Keating: That makes sense, that makes sense. And of those three, have you found any to be more challenging than the others? Like manufacturing is really tough, or because of your background in manufacturing, maybe it's an easy one because you're like, "This is just like pharma, or this is just like whatever." But did any of those three present any challenges that are more challenging than the other two?
Paul Clifford: In my opinion, once you become vertically integrated and you're really a part of the entire value chain, that adds complexity, and that's going to be across the board with any industry, not just in cannabis. So when you have completely aligned value chains that have every type of license, that's where many points of solutions come together.
And the idea with Sage Intacct is we're built on an open API, so we can connect into all these different solutions to collect information from it so it gets back to your financial record, which then goes into a whole other topic of audit and making sure you have the right records in your financial system in case Uncle Sam comes knocking on the door.
Ed Keating: Which he will. So one of the pieces of research that we've been gathering over the last couple years is what type of accounting software do license holders use? And to nobody's surprise, I think from a small business standpoint, it's a lot of QuickBooks. I always joke, I wonder who the product manager is over at Inuit, and does he or she know that they've got thousands of installs in the cannabis industry?
But I'm just curious, from your perspective, what's the point of differentiation and who do you target as you look across this industry that has like 50,000 active licenses across cannabis and hemp, and maybe let's say 30,000 businesses that may have multiple licenses? How do you pick and choose and segment your market?
Ryan Fleming: Yeah, so you're absolutely correct that these companies do have multiple licenses. Many times, we'll see these licenses, each individual license is actually set up as a separate entity, which means with QuickBooks, you're setting up a separate QuickBooks file every single time.
Ed Keating: Ooo.
Ryan Fleming: Yeah, so you can understand or think about a vertically integrated company that has say eight arms, three or four dispensaries, cultivation and manufacturing arm, very well could become 20 to 30 separate legal entities, and that means 30 to 40 separate QuickBooks files.
And maybe these companies are also transacting with each other, so maybe the manufacturer's selling to the packager who's selling to the dispensary, and now you've got these intercompany transactions, so you have to have a separate QuickBooks file open up for each of these entities and you're booking that transaction on both ends.
So what we've found is the same challenge really across the board with these cannabis companies that are looking to aggregate all of their business arms under one umbrella and be able to really roll that up at their fingertips.
Ed Keating: It's interesting, because some of the themes I've heard from you both today is cannabis business is like any other business. It needs to have an accounting system, and a lot of these challenges you're facing in other industries as well. So I imagine when you're meeting with CFOs and controllers, there's probably a lot of head nodding, like, "Yeah, we have six QuickBooks integrations," or, "Were you in our last staff meeting last week? We didn't see you there." Yeah, that's great, though, because you can feel their pain and show them how it works from other places.
Now, one company that we had talked about previously was your work with Kiva Confections, and I was curious if you could tell us about what their experience was like. It's fun to talk about them because they're a brand that I think a lot of people know, and multi-state, et cetera. So what was that success story like for Sage Intacct?
Ryan Fleming: Yeah, so I actually, I sat down with Elliot Woo, who's the senior director of accounting, last month over at Kiva. So I'm sure many of your listeners here are familiar with Kiva, one of the premiere brands in California, specializing specifically in edibles from gummies to mints, and when I think of Kiva, I think of chocolate.
So when they came to us, they were facing a lot of those similar problems and challenges that we see in the cannabis space. First and foremost, one thing that we've been talking about is the multi-entity challenges. Kiva does operate in multiple jurisdictions. They've got a couple of different legs, and for tax purposes, they do have a separate entity for manufacturing, a separate entity for distribution, a separate entity for their shared services, so you can imagine the nightmare of aggregating all that data and trying to report and get those business insights.
And by automating that close for them and the consolidation, we were actually able to cut their month end close in half. So that's half the time back, and their folks can now spend looking forward rather than in the rear view mirror to make those quick and timely business decisions.
Ed Keating: That's impressive. Those numbers are hard to argue with. Many years ago, I worked on software that helped companies file their SEC filings, and we had similar metrics. Your point about being able to look forward instead of back I think is very powerful.
Now, one trend that we've been seeing a lot of, especially this year but over the last six to nine months, is mergers and acquisitions. So we've got the multi-state operators, and then we also have these single state operators that are getting multiple licenses in a state.
And I'm curious, building on what you said before, how do you help tame that chaos? Because in that case, there might not be a bunch of QuickBooks files laying around. They may already be, perhaps, more sophisticated. And I know one research firm pointedly asks companies in this space, "Have you normalized your software yet?" Like, "Do you have one point of sale system or eight?"
How does that work for you all as you're working with an MSO or an SSO that is starting to build, where they're already a complex organization?
Ryan Fleming: Yeah, so it's funny, because it also depends. As more states come on board, a lot of states, as we've actually talked about in the past and you know, they offer unlimited licenses, so it's a lot of those big guys going out and acquiring those licenses. And many of those big guys are already leveraging Sage Intacct.
It's pretty simple, because we do have a shared chart of accounts. We share vendors, customers, all these things across entities, so that when they do roll out a new entity in another state or within their state, it's really just as simple as duplicating your previous instance, and you can be up and running on that entity within moments, within minutes, rather than months.
Ed Keating: I imagine that's got to be a great source of comfort for these people - that the onboarding process is, hopefully, pretty straightforward for them. And if those other entities are not in the Sage Intacct ecosystem yet, is it easy to bring them in? I mean, I'm sure that lots of companies have to do this where they're switching systems, but what is that process like? Because I imagine there's a little bit of arms and legs work to make that go smoothly.
Paul Clifford: That's the beauty of Sage Intacct, because once you have your initial environment or company set up, adding additional entities is as simple as Ryan alluded to. It can take minutes, because you are sharing a chart of accounts, you are sharing customers.
So for the folks that are acquiring new businesses that maybe have historical history in the past, it's as simple as getting your trial balances from those prior year's, data dumping it into the environments that you have historical record of what you've done in the past.
And then now you're just going to start moving forward and start using the system so that all the complications about consolidations, scalability, it really isn't a problem within inside of Sage Intacct.
Ed Keating: That's great, that's great. So looking out of the industry broadly and dialing back a little bit from Sage, we've alluded to this already, that we have new states coming on board, whether it be med, rec, or in some cases of both. For us, it means there's going to be new license information that we hope to gather and if the state's going to make it available.
But as somebody who used to work in tax publishing many years ago, if a new state comes on or new municipal tax codes, there's some complexity there, so how do you onboard that information? Like all right, there's a new state. What does it mean for Sage Intacct? And what do you have to do to make sure that you're up and running, and your clients are up and running too, because now New Jersey is a thing.
Ryan Fleming: Yeah. So, the thing with each of these states is a lot of the regulations are all around inventory tracking. You've got to connect to a system like a BioTrack or a Metrc. And those are things that we have partners who we rely on, these other seed to sales supply chain management solutions that will integrate with solutions like Metrc. So we're not going to be the folks who are integrating directly to those state compliance solutions.
So really for us, we can tap into any state, really any country, with very little work on our end to prepare in order to do that. We're going to be ready to roll that out and go. We [inaudible 00:17:55], because you've got to remember, we have companies that are running in every state already that are not [inaudible 00:18:02].
Ed Keating: Yeah, yeah. Well, and that's got to be of comfort as you bring on new customers to say, "Yeah, we're already in this state and we've been doing it for other related industries in healthcare, biotech, or other HIPAA compliant industries," et cetera, et cetera, so interesting.
Now, before, we were talking about audits, and I think while I was learning more about Sage Intacct, somebody on your team had the point in the cannabis world, it's not a question of if you'll be audited, but when. So could you tell us about that? Is the prevalence way higher? Is your division having to deal with more audits than let's say your colleagues in pharma or some other more traditional industry?
Paul Clifford: I think so. And when you talk to folks that are on the ground floor at these different cannabis companies, folks will come to their different facilities and just ask for your different financial works. So it's much more highly regulated than a normal company that's just say wholesale distributor buying, selling things. There's something about the cannabis space that Uncle Sam just really wants to have a tight grip on, at least for the time being.
Ed Keating: Yeah, yeah. Interesting. And I wonder too, with the issues of these local taxes - like in Massachusetts, they're famous for having these payments to local towns, the host agreements - how those factor in. There really isn't a tax or something else, because they're rather unique and they're particular to each and every license. So I think those are on the wane, but it may be an issue that comes into play.
Now, the other thing that I wanted to ask is how can you help these businesses plan? Like in terms of if they move more things to the cost of goods sold, is that a good thing or a bad thing? Where do they need to make sure that they're really being careful?
Because from what I understand, certain labor you can actually write off if it's the right kind of labor. But I don't want to expound on that, I'll let the experts talk about that. But I understand that there are differentiations that are really critical so that you're keeping accurate time and count of your employees.
Paul Clifford: Yeah. So I think that's a great segue to start talking about what 280E is, how Sage Intacct can help with regulating 280E within inside of your accounting and financial system. So for folks that aren't familiar with 280E, it's a really unfair law that does not permit cannabis or flower touching companies to deduct normal operational expenses. So those things could be employee salaries. Those things could be health insurance premiums. A normal company can go ahead and deduct those, which makes their effective taxable income lower.
So at the end of the day, these cannabis companies are paying more in tax just because they're a cannabis company. So what Sage Intacct does is we track. We can get information into the system about how many hours of a salaried employee have gone into making the product, which can then roll into your cost of goods sold. Cost of goods sold can be deducted, so what that inevitably does is reduce your taxable income. And Uncle Sam's going to always get his money, but in this case, we're going to reduce that so that we're paying him the right amount based off of true metrics.
Ed Keating: Excellent, excellent. And doing it in such a way to avoid those audits we talked about earlier, hopefully.
Paul Clifford: And the beauty of it is when we do those different transactions, there's going to be a full trail of the number how we got the cost of goods sold, so that if you do have an intensive audit and they want to get to the minute detail of how you got those costs of goods sold, maybe even per week, per month, we can file all those transactions and show you exactly how it happened.
Ed Keating: Excellent. Excellent. Well, speaking of software, I wanted to also ask questions of how your team uses Cannabiz Media, because you're our clients, and we always are happy to hear how we can assist you all in meeting your goals. So could you tell us how you use the Cannabiz Media database?
Ryan Fleming: Yeah, so it was actually back in, I guess, October that I reached out to you guys initially, and we officially launched Cannabiz after going through the whole procurement process back in January. So we've got our own internal tools here that we use, things like CRM and various outreach tools, we're using Cannabiz as a way to generate leads and spit out these lists that are directed at the parameters, with the parameters that we're looking to go after.
We're taking those lists and using our own internal tools to come up with that contact information, put together messaging, and go after these cannabis companies that could really benefit from Sage Intacct and use our help.
So that's getting underway right now. We're preparing for it. And aside from that, I just love using Cannabiz to log in every morning, look at the news feed, and see what's going on out there.
Ed Keating: Excellent, excellent. That's always great to hear. Now, in terms of Sage Intacct, we talk a lot about looking forward. Let's look forward for you all. Any new modules or enhancements you'll be rolling out that our listeners would want to know about?
Ryan Fleming: The thing with Sage Intacct is it really is this living, breathing machine. So a lot of these older solutions out there, and what differentiates Intacct from those, is that Intacct really is a true cloud-based solution pounded and born in the cloud. And that's different than these on-premise solutions, that the day that you install, it really is the day that that solution starts to die and fade away.
With Intacct, our entire customer base is always on the same version of the solution, and we do something like four releases. We do a release each quarter with about 15 enhancements each release, so there's always things that we're improving on to make the lives of accountants simpler.
And one of the specific directions that we're going in today is more AI-powered tools. We just launched our Sage Intelligent Time that's going to help folks as they're doing work and whatever it is. We can identify those projects that they're working on and recommend the amount of time they're spending on it, versus them keep keeping it on the side or writing everything down and losing it.
And now, we're launching, actually, the Sage Intelligent GL, where we'll actually go through and find different anomalies that have been booked into say your marketing expenses 100K or 10% more than the prior month for salaries, like why is that? And we can pinpoint those so that you could get ahead of problems, get in front of them, rather than waiting until the end of the month and figuring out that something went wrong.
Ed Keating: Oh, that's excellent.
Paul Clifford: And then from my perspective, two things that we're starting to see with customers... These are through active conversations with folks that are looking for new accounting or just different systems in general, is folks are looking for a subscription model.
So the cannabis space, we traditionally think about going into a store or even getting it delivered to our house with the different products. Folks are trying to get into the subscription model, where you get a package every month, and now people are going to be paying you recurring revenue.
So Sage Intacct does have functionality that's already been built in because we work with technology companies, and that's very prevalent in the technology space. And then with medical, we have a big healthcare presence. Folks want to have HIPAA compliant data, PHI, inside of the accounting system now, so they can see maybe the different diagnoses and actually see the services that they're providing for these different patients or patrons, and see the profitability of those different folks.
So it's being able to do things like that inside of your accounting system that gives you a different lens to see the profitability of your organization.
Ed Keating: Well, that is excellent, and it sounds like your customers have a lot to look forward to in the coming months. So thank you for joining us today, Ryan and Paul. It was a pleasure getting to know you and Sage Intacct.
And thanks so much for all our listeners for joining us on the podcast as well. I'm your host, Ed Keating. Stay tuned for more updates from the data vault.