DankCan Dispensary: A Comprehensive Cannabis Retailer Turnaround in Michigan

Introduction: The Challenge

The market began to mature, after the first few years of operations, and they were unprepared for what was to come. Market prices for retail cannabis dropped due to competition as many new retail dispensaries opened in their area. Their local jurisdiction issued more licenses than was originally planned in the regulations and moratoriums were lifted. They were at a race to the bottom on their retail prices in an attempt to at least maintain their customer base and keep them from going to neighboring dispensaries.  But as their neighbors squeezed the competition with deeply discounted products, they found it hard to keep up.

With mounting federal tax liability due to Internal Revenue Code 280E and state and local taxes becoming increasingly difficult to pay timely as required, their liabilities and penalties were mounting. Supplier payables went unpaid and they found it difficult to honor payment arrangements. Investors were no longer receiving expected dividends and began to grumble. Owner operators were no longer able to pay themselves in attempt to meet other necessary obligations. DankCan Dispensary was spiraling and it seemed there was no way out. They began accepting usurious loans due to limited options for their industry in order to stay afloat.

Because DankCan was new to business markets and cycles in general, they failed to recognize that the market would regulate and the hey days were over. They were at a jumping off point-  to either turn their business over to receivership or to find a solution. That solution is both a mindset as well as a financial and operational turnaround.

In this case study, we’ll focus mainly on the initial financial turnaround and steps to effectuate change in order to stop the financial hemorrhage. After these crucial steps and damage control mode hurdles have been crossed, then a rebirth of the business can begin – including hiring proper management oversight and a general change in mindset and goal-setting.

Step 1: Identifying the Need for a Financial Turnaround

When John assumed his role as CEO, he recognized the critical need for expert financial guidance to confront DankCan’s mounting tax issues and the broader financial challenges facing the company. As is often the case with businesses in distress, a fundamental step was acknowledging the need for external assistance. This acknowledgment was a vital prerequisite for a successful turnaround.

Step 2: Partnering with the Right Financial Advisor

In pursuit of the right partner to navigate this intricate path, John explored several options and considered collaborating with a cannabis accounting firm, here we’ll call it 420CPA, a firm renowned for its extensive experience working with cannabis businesses and its track record in helping clients recover from setbacks. Notably, their expertise spanned back to 2009 and founded in California, an era and state that has supported clients throughout the evolving market changes within the industry.

In his decision-making process, John discovered that a substantial portion of 420 CPA’s client base that they were able to help become sustainable and even to thrive in tight market conditions. This finding underscored the importance of selecting a financial partner with specific turnaround expertise, given the complex challenges facing DankCan.

Step 3: Gaining Management Approval for CPA Engagement

Despite initial reluctance from the board, John’s determination to save the company prevailed, with the conviction that a reduction in the cash burn rate, primarily attributed to the looming liabilities, could lay the foundation for DankCan’s revival. Convincing the board of directors to hire 420 CPA was a pivotal step in the turnaround process.

About The Author

Abraham Finberg

Managing Partner

420 CPA AB FinWright

Abraham Finberg MBA, CPA, managing partner at AB FinWright, has been a leader in the cannabis sphere since 2009, counseling clients in all phases of business advisory and tax, from start-up through M&A and IPO.

About The Author

Rachel Wright

Managing Partner

420 CPA AB FinWright

Rachel Wright, MST, CPA, managing partner at AB FinWright, specializes in cannabis accounting and taxation for multi-state and multinational entities, advising clients on everything from internal controls to the bottom-line implications of mixed local, state, federal and international statutes of taxation.

For all your taxation challenges in cannabis, feel free to reach out to me or any of the other team members at 420CPA and share with us your business challenges. We have been helping cannabis companies since 2009.