Cannabis operators continue to face a unique set of challenges — including navigating shifting regulations, maintaining compliance, aligning with consumer preferences, and staying competitive in a market with notoriously tight profit margins. This means securing end-of-year (EOY) financials is not just a best practice; it’s a critical step in securing long-term success and operational stability.
The Importance of EOY Financials for Cannabis Operators
Accurate EOY financials provide a clear picture of your business’s health. This makes it possible to identify opportunities for cost savings and organization-wide improvements, and then proactively lay the groundwork for informed decision-making in the year ahead. In the cutthroat cannabis industry, having this competitive advantage of data-backed decision-making can be the difference between thriving or just surviving.
While EOY financials are crucial, how can you confirm you’re looking for the right data points — then applying them effectively?
Welcome to Our Series With ACT LAB Chief Revenue Officer, Austin Stevenson
Welcome to our three-part blog series, where we’ll be picking our CRO’s brain about using EOY financials, data-backed decision-making, and partnerships with your testing lab to increase profitability and drive revenue throughout the year. In this first installment, we’re focusing on how to lay a strong foundation for financial growth throughout the next year.
Austin Stevenson has 15+ years of impactful, diverse leadership experience in venture growth, private equity, and Fortune 500 companies across multiple sectors: biotechnology, consumer goods, enterprise software, and finance. He’s an entrepreneurial executive leader who leads by example, with a trademark for identifying, creating, and transforming organizations quickly. Austin was named to the FORBES Magazine 42.0 list and is a San Francisco Business Times “40 Under 40” award recipient.
Austin came to ACT LAB as our Chief Revenue Officer in 2024, and is passionate about “three things: people, products, and performance.” He says, “I’m inspired by people who share that same drive to achieve, who are constantly pushing the boundaries in this industry. At ACT LAB, we focus on delivering products and solutions that enable our clients to perform at the highest level, helping them grow, innovate, and succeed in an evolving cannabis market.”
Let’s see what he has to say about securing EOY financials ahead of the new year and beginning to apply those insights to drive additional profitability — a topic we’ll dive deeper into later in this series!
ACT LAB CRO Austin Stevenson, pictured with Amber Middlebrook, ACT LAB Regional Director of Business Development, on-site with our client Noohra Labs
Q&A: Securing your Financials Ahead Of the New Year
Gathering EOY Financial Data
Q: What key financial metrics should cannabis operators focus on at the year’s end?
A: At the end of the year, cannabis operators should zero in on a few critical financial metrics. Revenue growth is essential, but it’s just the starting point. Gross margin is vital because it shows how efficiently you produce and sell your products.
Cash flow is another big one—given the banking challenges in our industry, keeping cash flow healthy is crucial. Also, pay attention to inventory turnover rates; they can tell you a lot about your product demand and supply chain efficiency. Lastly, don’t forget about compliance costs. In our highly regulated market, they can significantly impact your profitability.
Q: What other qualitative data points do you recommend looking at during this time?
A: In addition to the standard financial metrics, operators should consider the cost-effectiveness of their partnerships, including their testing lab partnerships. There are two main things I recommend looking at here:
You’ll want to consider Lab Testing Costs vs. Value Received. This means analyzing whether the fees paid to your current lab are yielding the best return on investment. Not switching to a more agile lab like ACT LAB could mean higher costs for slower or less reliable services. Also, look at your Lab Testing Costs vs. Impact on Operational Efficiency — or assess how your lab’s turnaround times (TAT) affect your inventory turnover and cash flow. An inefficient lab can slow down your entire operation, increasing holding costs and reducing profitability.
Q: What are some common financial pitfalls for cannabis operators during the EOY review?
A: A common pitfall is failing to reassess partnerships with service providers, including testing labs. Sticking with a lab that isn’t meeting your needs can result in hidden costs. This includes overlooking lab inefficiencies, or not switching from a lab that has slow turnaround times. Inconsistent results can also lead to production delays and compliance risks — which are costly.
It also includes the cost of ignoring market options. The cost of not exploring more agile and efficient labs like ACT LAB can add up over time, affecting your profitability and operational efficiency.
Applying Insights From EOY Financial Data
Q: How can cannabis operators apply insights from those metrics to set realistic goals for the coming year?
A: By analyzing these metrics, operators can identify what’s working and what’s not. For instance, if your gross margins are lower than you’d like, you might explore ways to streamline operations or reduce production costs. If inventory turnover is slow, maybe it’s time to rethink your product mix or marketing strategies. Setting realistic goals means using this data to make informed decisions—like improving operational efficiency, adjusting pricing, or reallocating resources to areas with the best growth potential.
Q: What are some specific ways to leverage data analytics for better decision-making and increased profitability?
A: Data analytics can be a game-changer for cannabis businesses. Here are some sharp and crisp ways to leverage it:
1. Optimize Product Quality: Use ACT LAB’s Customer Insights Portal to analyze potency trends over time and receive real-time alerts on contaminants. This helps you adjust cultivation practices for maximum yield and consistent product quality.
2. Enhance Product Development: Use strain performance data to analyze which strains perform best under specific conditions. Focus cultivation efforts on high-performing strains to meet market demand effectively. Make product formulation improvements by using lab results to refine product formulations, enhancing effects, flavor profiles, and shelf life.
3. Strengthen Supply Chain Management: Evaluate the purity of input materials through our advanced testing services to hold suppliers accountable. This ensures high-quality inputs for your products and can reduce costs by preventing issues down the line.
In essence, leveraging data analytics empowers you to make informed decisions that drive efficiency and profitability, rather than relying on guesswork.
Q: What role does inventory management play in year-end financial health, and how can cannabis companies handle that excess inventory?
A: Inventory management is a significant piece of the financial puzzle. Excess inventory ties up capital and can lead to increased storage costs or even losses if products expire or become obsolete. To handle excess inventory, companies can run promotions, offer discounts, or bundle products to move stock more quickly. Implementing better inventory forecasting and just-in-time ordering can help prevent excess in the first place. It’s all about finding the right balance between meeting demand and not overstocking.
Gain Data-Backed Insights By Partnering With ACT LAB!
ACT LAB provides the most comprehensive testing solutions for cannabis and hemp operators in markets nationwide. From full-scope profile testing to R&D development, our testing services provide you with reliable data and consistent results that make it possible to identify and develop valuable competitive advantages. Plus, with unparalleled customer support, we help you make actionable decisions based on your testing lab results.
Find ACT LAB in your state to learn more, or request testing now to get started!