This CFO found opportunity in cannabis

Mack Hueber is the CFO of Beak and Skiff, a beverage company and apple orchard in upstate New York that has, in recent years, expanded into CBD- and cannabis-infused products. In 2022, as the state moved to legalize and regulate the sale of cannabis, Beak and Skiff launched Ayrloom, an entire line of CBD- and cannabis-infused products including balms, gummies, and sparkling waters. CFO Brew recently spoke with Hueber about entering the cannabis market and how it has impacted his role as a CFO.

This interview has been lightly edited and condensed for clarity.

How did you become CFO of an apple orchard that eventually expanded into the cannabis space?

My background before my current company today was working for an investment bank down in New York City doing equity research covering internet stocks, and then I made the… transition to my new company, which at the time was really just an apple orchard. [Our parent company] is Beak & Skiff…and we have really evolved over the seven years that I've been there. We have a whole alcohol division whose brand is 1911 Established. Back in 2017 or 2018, we saw the CBD craze really ramping up…We wanted to get into producing CBD-infused beverages and that led us to getting a hemp grow and hemp processing license through New York State and eventually, when New York State finally legalized, we were already in good standing and were able to get a cannabis grow and cannabis processing license.

What are some strategies that you’re taking in the face of recessionary pressure?

Our strategy with our brand, Ayrloom, was to really focus on the value-added products, so not just flower or pre-rolls, but extracting the THC from a flower and using that to make those value-add products such as our gummies, beverages, and vapes. That's just a way to prevent or minimize the effect of the flower-price compression, which is inevitable in every cannabis market.

Are there any cash-management strategies that you have implemented to better manage this transition?

In terms of cash management in cannabis, cash is king. In previous roles, when I was covering internet stocks, obviously it’s top-line revenue and EBITDA (earnings before interest, taxes, depreciation and amortization). In cannabis, the 280 E [ed. note: an IRS tax code that prevents cannabis companies from taking deductions and credits for running a business that sells a federally controlled substance], it’s all about maintaining free cash flow and trying to hit that year one. That’s our top goal right now…[and to] do it sustainably where we can actually have positive cash flow year one and cover all the 280 E expenses.

What are some financial tools that you find yourself using frequently?

For me, I’m an Excel nerd constantly doing different market scenarios, modeling out different retail scenarios—when we hit 20 stores, 50 stores, 200 stores—and anticipating, again, quicker price compression than we all hope. What hurts a lot of cannabis companies is that we model out for the best-case scenarios to continue for a while. If you can model out and be sustainable with price compression that we know is coming in the next three years, but have that model today and you can be profitable—that’s a huge win. So, for us, it’s about [being] extremely conservative with topline pricing and overall overhead.

What’s been the most difficult part of this expansion into cannabis for your role as a CFO?

The greatest challenge is, especially in New York, is that it’s a brand new market. Being able to accurately forecast [or] project cash flow six months—let alone a month from now—is always going to be a challenge. We’re seeing a slow retail rollout in New York, well below the speed that everyone had anticipated.

Also, from a regulatory standpoint, we’re also operating under conditional regulations, meaning they can change on the fly whenever a state agency wants to change them. If you’re operating under what you think are compliant regs today, that could change tomorrow. It’s just being flexible, nimble, or versatile.

Those are the biggest things versus any other industry, especially in CPG (consumer packaged goods), that separates cannabis from anything else…just the unknown of what a year from now looks like.—LR