March 1, 2022   //   Business Consulting Podcast   //   By PKF Mueller Solutions

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Join Taylor Schuck, Client Advisory Services Manager at PKF Mueller, and Eldon Brown, Chief Executive Officer at Broadleaf, for an in-depth interview on accounting in the cannabis industry and the Broadleaf solution. In this episode, Taylor and Eldon provide insights on the challenges faced and the benefits / value of utilizing Broadleaf as software.

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Taylor Schuck, CPA
Client Advisory Services Manager
Team-Lead Cannabis Accounting Group
tschuck@pkfmueller.com
+1 847 649 8814

Eldon Brown
Chief Executive Officer
Broadleaf
eldon@broadleafcannabis.com
+1 847 466 6022

Episode transcript:

[00:00:00] Ashley: Hi, I’m Ashley and you’re listening to the PKF Mueller podcast “Business Owner’s Guide: Tips, Trends, and Talks from a CPA.” Today we welcome Taylor Schuck from our Client Advisory Services department and Elden Brown from Broadleaf Software for discussion on the partnership between the two firms. But before we begin, let’s find out more about our guests.

[00:00:26] Ashley: Taylor Schuck is a Client Advisory Services Manager at PKF Mueller. He spearheads the Firm’s cannabis accounting team as part of our life sciences niche.

[00:00:41] Ashley: Elden Brown is the Chief Executive Officer at Broadleaf Software. He has over 20 years of experience driving IT transformation and operational improvement programs, leveraging industry, leading technology and business practices.

[00:00:56] Ashley: So, Taylor, can you start off by giving us a very brief overview of cannabis accounting?

[00:01:00] Taylor: Well, cannabis accounting, uh, specifically as a, as it relates to Broadleaf would, would be, uh, cost accounting. So, uh, accounting for inventory, uh, which is a big financial reporting item, uh, whether you’re a publicly traded cannabis company or whether you’re a small, uh, you know, small privately owned cannabis company.

[00:01:20] Taylor: Um, so when it comes to cost accounting in the cannabis, industry, Uh, you’re going to have to combine financial data with production data, uh, to be able to, uh, make meaningful, uh, relationships and, and understand, um, what the cost of production for each of your different, um, items that you produce is.

[00:01:38] Ashley: Elden. I know broadleaf is a modern software designed to assist companies in the cannabis industry. Can you expand on this a little bit more?

[00:01:46] Eldon: Sure. So Broadleaf is a platform for cultivators and what we do is help cultivators manage the life cycle of plants from cloning all the way through harvest and all the activities that happen in between.

[00:02:01] Eldon: So a part of it is staying compliant. So we make sure that cultivators are reporting all the proper information to the state, but also capturing all of that data along the way. So that cultivators have the information to analyze when they have a particularly good result or a not so good result and they can actually look back and see what happened with that particular set of plants in the rooms that they were in.

[00:02:30] Eldon: And it gives them data and analytics to improve their yields, increase their potency and, and grow more consistently.

[00:02:39] Ashley: How did you two connect and realize a partnership would form.

[00:02:42] Eldon: I think we were initially introduced through, uh, leadership on, on both sides, um, had prior relationships and they got to talking about what our two firms were doing and, um, and that brought us together. And then, and then we met and talked about where there was, you know, where there was synergy between what we were doing.

[00:03:05] Eldon: And when I think we quickly realized that. What we do goes hand-in-hand for, uh, you know, for an operator and, and that, that kind of started everything that we’ve been doing from there.

[00:03:16] Ashley: How do your two firms work together?

[00:03:19] Taylor: um, well, uh, Broadleaf is, is a platform that would give, uh, myself or any other, uh, accountant, uh, the data that they need.

[00:03:30] Taylor: Uh, in an accessible and legible manner so that they can combine it with their financial data in a more efficient manner, uh, to be able to produce cost accounting outputs.

[00:03:43] Ashley: What are some challenges you both have faced while working in the cannabis industry?

[00:03:47] Eldon: Yeah. So I, you know, for, for us, you know, our, our specialty is around operational efficiency and managing labor and tasking. And there, you know, the, the industry is, is young. So, and, and you have a really wide range of backgrounds when you look at leadership in cannabis operations. And so, you know, I think.

[00:04:11] Eldon: A lot of times you have people who have not managed, it’s really a manufacturing process. And so there’s a lack of reporting and the ability to see KPIs and some of that, that operational data that’s really necessary to run and grow the business. And so, um, you know, there’s a, I see a lot of, of cultivators that struggle to, how do I optimize, how do I continue to increase my production and reduce my costs?

[00:04:42] Eldon: And, um, some of that is just the maturity of the, maturity of the industry. And in some cases, the maturity of the, of the, the cultivator themselves.

[00:04:53] Taylor: Well, one of the things that I’ve noticed, uh, with some of the smaller operators is that as they grow and maybe want to bring on more capital, uh, they have to produce financial reports, uh, that, that are going to be read by external parties.

[00:05:08] Taylor: And so this is the first time that they maybe have even done cost accounting. Uh, and, and, and so maybe they come to us for. And they haven’t even done the analysis to properly book ending inventory. Uh, and it creates a situation where, uh, they’re almost not auditable. Uh, inventory is a huge item on a financial statement.

[00:05:30] Taylor: Uh, and then, and then from the other perspective, a lot of the smaller operators that come to. Uh, maybe even report kind of on a tax basis, uh, and don’t even really assess their inventory, right? Their profit and loss statement just kind of reports their revenues and all their expenses for the period. Um, but they really aren’t even doing this analysis.

[00:05:51] Taylor: And then there’s maybe periods of production, data that are just raw data. They have no way of really, uh, by themselves. Exporting and, and analyzing the data, manipulating the data, if you will, in a way that they can create, uh, these types of schedules and dashboards. So that’s definitely been, um, a major, uh, financial reporting, um, risk and, and, and, uh, issue in, in the industry.

[00:06:23] Ashley: If I were an emerging cannabis firm, what is the value in Broadleaf Software?

[00:06:27] Eldon: I think there’s a, there’s a couple of key benefits. So one is repeatability. Um, you know, being able to, uh, establish your methodology, capture all the steps that it takes and then making that repeatable. Uh, I mean, anytime you’re starting a business and, and certainly you want to scale as you go, you have to be able to, uh, produce consistent and, and repeatable results.

[00:06:57] Eldon: So with the Broadleaf platform, um, that’s, that’s what we really enable is that repeatability, the other pieces is compliance. You know, there’s not, there’s not a lot of value add for the cultivator in all of the compliance reporting that’s done, but it’s obviously critical if you’re not compliant and you run into problems with the state, then you won’t be a cultivator for very long.

[00:07:20] Eldon: So. Our goal is to make that process as seamless as possible. So that cultivators spend as little time as, as necessary on compliance so that they can focus their time and resources and energy on the things that will make them more money improve the quality of their product, um, and those things. So those are some of the key benefits.

[00:07:42] Eldon: And then as, as we’ve been talking about being able to produce those KPIs and metrics and we’re constantly adding capabilities, and in fact, we’ve got some, some pretty big plans for next year in rolling out even more capabilities in that, in that area.

[00:07:57] Taylor: Yeah. And I think, I think right along with that, um, one of the things with, with repeatability that goes along with what Eldon has been talking about is, is being able to benchmark right.

[00:08:08] Taylor: And looking at. If I make a change, how does this affect my costing? If I make a change to my business, how does this affect my KPIs? And I think a lot of operators will use tight, a form of standard costing or sampling costing. If you will, like, like doing a time study or looking at a throughput where, where a Broadleaf would give you actuals instead of a small sample.

[00:08:35] Taylor: Uh, of a time study or a production study. So, uh, the ability to make a change, uh, to buy a piece of equipment with a better throughput, uh, to produce a product A instead of product B and see the effect of that on your gross margin in almost real time, I think is going to be one of the best values for an early operator or an operator that has been, uh, has been operating maybe at capacity.

[00:09:04] Taylor: Uh, for, for a while. So,

[00:09:06] Ashley: As a follow up question to that? If I were an established cannabis firm, how does Broadleaf Software integrate into my current accounting system or process I have in place?

[00:09:16] Eldon: So, uh, part of it is, and a lot of cases, you know, we talk about the smaller operators and as they start to scale, they haven’t formalized a lot of their, a lot of their process, a lot of their, uh, financial accounting.

[00:09:31] Eldon: And so they’re at that point, they’re sort of forced to begin to formalize and capture those things. So that’s where, you know, Broadleaf helps and, and with our partnership with, PKF Mueller we’re continuing to enhance the data that Broadleaf provides so that, uh, as you’re trying to marry the operational data and the financial data that we’re able to, uh, present and then even integrate with an accounting system to push that data directly, as Taylor said earlier, in the form that it’s needed without having to do all the manipulation and, um, massaging of the data to get it into the right format.

[00:10:13] Eldon: Our goal really is to get to the point where everything is already exactly in the form that it’s needed, uh, so that it could be integrated directly.

[00:10:21] Taylor: Yeah, and I was going to mention pretty much the same thing is that this would be kind of a standard form and function for, for a business, uh, instead of them kind of having to come up with or design their own dashboards to come up with and design their own real, real methodology, frankly, uh, for doing cost accounting, because it’s going to give you all of the, uh, data points, right in a, in a, in a more formatted, summarized fashion than, than the raw data that’s in metric or bio track.

[00:10:49] Taylor: And, and, and buy a Broadleaf is, is going to integrate directly right now, like it does with metric, uh, with, you know, your operational data to be able to, to give you, um, these dashboards. And, and I would imagine, um, that eventually there will be an API in with, with accounting systems, uh, that will help, uh, entities marry the two like Eldon mentioned.

[00:11:17] Ashley: What has been the benefit to working with Broadleaf?

[00:11:19] Taylor: Yeah. Like I said, I think, you know, going back, it’s all about efficiency, right? Um, and I think the best service that I can provide to a client is, is also giving them accurate data as quickly as possible.

[00:11:32] Taylor: Um, and so broadly, uh, one of the biggest benefits to an accountant is, is that it gives you that data. It reports that data to you in a formatted, uh, summarized fashion. Um, I have clients that export reports out of BioTracker metric that have thousands of lines of, of data, pivot tables need to be utilized V lookups, uh, and, and other functions to be able to manipulate that data that takes hours of work, uh, and Broadleaf, uh, potentially reduces those hours to, to essentially real time reporting.

[00:12:11] Taylor: So I think that that’s one of the biggest benefits that I’ve seen to working with Broadleaf aside from all the operate, other operational things that Broadleaf is going to help a business. Um, but from, from an accounting and a, in a CPA’s perspective, whether you’re an external or whether you’re an internal accountant working with the organization, um, this is going to make your job more efficient.

[00:12:32] Ashley: Now Eldon, what is the benefit to working with a CPA?

[00:12:35] Eldon: Well, our, our expertise. In the, on the Broadleaf side is certainly in data analytics and in operational efficiency and task management and all the things that go into successful cultivation, um, by partnering with, uh, uh, a CPA. We’re able to make sure that the data that we’re collecting and the way that we collected is useful, not just for the operational side, but also for the financial side.

[00:13:04] Eldon: So I think, you know, the benefits are, are reciprocal. Um, we know that we’re capturing data that no other system contains, uh, that they don’t have any other way of capturing. And so, you know, working with, uh, a firm allows us to make sure that we are maximizing the value of the data that we have, because it’s one thing to have the raw data in, in our platform.

[00:13:31] Eldon: But it’s another, to be able to turn that into useful information and to format it properly. And so working together that gives us guidance and expertise that we don’t have in house to make sure. As we, even as we build new functionality, we can now take into consideration what the finance side, uh, the data that they need, the, the format that they need it in.

[00:13:57] Eldon: And, and that actually informs some of our, our design, um, activities as we build as we build new functionality.

[00:14:07] Eldon: So being able to value inventory, calculate cost of goods sold. Those are things that we have data points that support that, but we’re not necessarily the experts in how that data is used and how it should be calculated. And so by partnering, we’re making sure that. We’re able to provide the data that’s needed to the finance team, to a CFO, to make sure that they can get to the answers that they’re looking for.

[00:14:34] Ashley: What are some other important things worth noting to cannabis, business owners or entrepreneurs looking to launch their own cannabis startup?

[00:14:41] Eldon: So I think something that, that we found through implementing Broadleaf and helping cultivators is the one of the most important things as an owner or an investor.

[00:14:55] Eldon: Or an operator is making sure that you capture your IP and for a cannabis cultivator, your IP is your methodology for how you grow and how you treat different strains and the way that you successfully grow and harvest, uh, all of your plants and a mistake that a lot of owners make is they’ll hire a very talented head grower, uh, who has a lot of experience, but that person keeps all of that methodology in their head.

[00:15:34] Eldon: And so the risk for a cultivator is if that person suddenly leaves, then you’ve lost all of that IP. And there will be bits and pieces of that, of course, that, that your team, you know, we’ll have, but without a platform like Broadleaf, if you don’t have that methodology captured to that detail.

[00:15:57] Eldon: And in fact, we recently had a customer that lost a couple of their key cultivation, uh, leaders well, we just met with them this past week, and they said if they had not been using Broadleaf if they don’t know how they could have continued their operation seamlessly, they would have figured it out. But because they had Broadleaf, they really didn’t miss a beat because everything that they had, all of their lessons learned and their entire methodology was actually inside of Broadleaf.

[00:16:26] Eldon: So I think that’s a key lesson learned is it’s easy to. Uh, your faith and your trust into someone who’s, who’s talented and forget about the risk that, that introduces to the company.

[00:16:38] Ashley: Great. Well, thank you for your time today. I think this was really great discussion on the partnership between PKF Mueller and Broadleaf Software. If you are an emerging or established cannabis related firm, Taylor and Elden would be happy to speak with you and answer any software or county questions you may have.

[00:16:55] Ashley: Taylor and Elden would you mind sharing your contact information?

[00:16:57] Taylor: Sure. You can reach me at tschuck@pkfmueller.com or give me a call at (847) 649-8814.

[00:17:06] Eldon: And my email address is Elden, which is eldon@broadleafcannabis.com Or you can call me anytime at (847) 466-6022.

[00:17:19] Ashley: And thank you to our listeners. Don’t forget to visit us at www.pkfmueller.com to learn more about our firm’s services. You can also follow us on social media for updates, insights, and upcoming events.