Retailers who strike long-term deals with distributors and cultivators/manufacturers usually can provide more consistent products to their customers at lower costs. It turns out that Company ABC owns both delivery and distribution licenses. This gives the opportunity to source the product directly from the cultivators and bring it into their distribution portion of their business, then sell that same product to their delivery business. This allows Company ABC to self-distribute and white-label their product which provides additional product consistence and less costs. Savings tend to be greater than 20% when a company self-distributes. More importantly than cost, although cost is extremely important, is to keep and maintain an excellent relationship withtheir customers as the customer acquisition costs of an existing customer are far less than the costs to acquire a brand-new customer.
Outrageous Taxes
Every which way they turn, they are constantly hit up by taxes. As a retailer in California, they are responsible for excise taxes paid on all of their products, sales taxes paid to the State of California and additional sometimes additional city and county taxes owed separately. For each cannabis item they purchase, they pay nearly 27.5% excise taxes which is remitted to the State of California by the Distributor who sold them the product. For the products that are delivered to their customers, they are required to pay the California Department Tax & Fee Administration (“CDTFA”) anywhere from 7.25% -10.00% of all monies collected by them from their customers. In addition, some cities and counties that they delivery to require an additional 6% tax to be paid to those government agencies. 280e taxes at the end of the year is another tax, that simply, most cannabis owners do not fully understand...nor are they inclined to understand. Delivery companies do not change the molecular nature of the product they purchase and sell and therefore, only have the ability to reduce their income by the sales taxes and products costs. This becomes outrageously expensive for them as many are operating at losses and then have hefty, unexpected tax bills at the end of the year. Below is an example of the financial problems all of our cannabis delivery companies realize:
The 17% above does not cover the operational expenses of these cannabis delivery companies. Operational expenses include, but are not limited to, drivers, gas, rent, utilities, vehicles, supplies, dispatchers, cashless atm fees, general and administrative fees and hefty license renewals etc. Cannabis delivery companies are unable to operate profitability and create have significant cash flow challenges.