PP 71 | Massachusetts Social Equity Opportunities

 

Going into business with a family member or friend adds a different dynamic to it. You have to be very mindful of your decisions because at the end of the day, they’re giving you some financial backing from their own pockets. In part 4 of 8 episodes, Tony Frischknecht and Flavia Hungaro, the owner of the new company called Locomotion Cannabis, talk about the role your friends and family play in setting up your business. Costs are expensive and everything’s going up, but with people who care for you on your side, everything is possible.

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Massive Social Equity Opportunities In Massachusetts Part 4 of 8 With Flavia Hungaro

How Do Friends And Family Play A Part In Your Success

This episode is going to be the fourth in an eight-part series. We’ve been digging in deep into some great topics from Flavia Hungaro. We’re going to continue our discussion and what role success plays being able to lean on family and friends when you’re building a business. Without further ado, here’s the show.

These partnerships at least a year, what are they bringing to the table in Boston? 

To qualify in the Boston Social Equity Program, they require that they have at least 51% ownership of the store. Most of the time, when I look for a partner, I see their potential. Honestly, I would rather look for somebody who might not have more knowledge of the industry but has the same potential as I do, so we can grow together. That was my goal. This is what I’m looking for in a partner because some people might have the money, but they don’t want to put effort. Money is a lot. I’m not taking that away from them. In my case, there was somebody also from the Social Equity Program that I met. There was a friend of mine as well. We will be working together on this partnership.

You’ve got a local Boston person. What are they bringing to the table specifically for Boston? 

They live around the same neighborhood, so they know a lot of people around. They are part of the community. That’s the important thing.

Are they going to run the store? 

Yes, that’s the plan. We are going to be there. It’s not going to be people from outside of the town. There was a company that I’ll be working with on my first project that they’re going to be helping me. They’re going to be giving me guidance since they have the experience to run the store. By the time I open in Boston or Cambridge if I have that opportunity there, I will have enough understanding of the whole retail industry.

The good thing is if you’ve been around hospitality and retail, you can pick this stuff up. You’ll have to build systems and put them in place, but you’ll be able to do that stuff. It takes some time to get good at it and to understand your numbers but it’s not rocket science. I’m going to jump around a little bit and I’m going to ask you some questions about each location like what I did with Boston. You don’t have a partnership in Taunton, do you? 

No. My company is myself and I have a partner. I don’t have a partnership with the owner.

Is it okay if I share that you have a partnership with your mother-in-law?

Yes.

It adds a different dynamic when you’re going into business with family. 

I’ve got to give her a lot of credit too because she’s the one backing me up.

It’s different with family though. You have to be mindful of your decisions because at the end of the day, from what I gathered from you, she’s given you some financial backing that’s from her retirement. 

It’s a very sensitive topic too especially it’s her retirement. Everything takes longer than you expect. I thought that we were going to have one of the stores open by now and it was not there yet, but we are close. She’s been one of the biggest supporters. If it wasn’t for her, I wouldn’t be able to be here pursuing this license.

PP 71 | Massachusetts Social Equity Opportunities

Massachusetts Social Equity Opportunities: Anytime you’re opening stores up at the same time and you’ve never opened one before, the learning curve is steep.

 

You’re no different than most people. I borrowed money from friends and family. I had about $15,000 of my own. I was able to borrow another $15,000 from my girlfriend at that time. I borrowed another $22,000 from a friend of mine. It’s friends and family that get these things going especially with no financing. What you’re doing is fairly normal. It’s hard for people to understand, “How am I going to get my family involved to help me out?” You’ve got to get family or friends because nobody is going to give you money out there, and that’s the way it works. Out of all these locations, have you started building on any of them? Is there any construction happening? 

In Taunton, the agreement we had is it was a piece of land. He builds out the shell and I had to do the inside.

There’s a new building that’s already up and constructed. The tenant finishes on the inside and he’s waiting for you to start that. 

We’re pulling out the permits, so we’ll be able to start.

Do you have the finances to build that? 

I do. It will be on my partner’s side. She has properties that she could borrow money so we can finish the project, which is a very sensitive topic. As we were talking about, it’s her retirement and it’s property she inherited. The best way would be to get hard money. Even though we’ll pay more for interest, it seems like it will be easier so we wouldn’t have to touch any of the properties that she had. I’m trying to find ways so we don’t have to go that route. I was very fortunate that I’m Brazilian and the subcontractors doing the construction in Taunton are also Brazilian. As I was going to the site to see how the job was coming out, I start talking to them and explain my situation. I didn’t know this was ever going to happen. They’re going to help me doing the construction and letting me pay them after the store is open. That’s not something that you see happening all the time.

That’s very creative. That’s a great idea. 

That would reduce my costs a lot. Some of them would let me do that and pay after, or they are requiring the money for the materials and then I’ll pay for the labor afterwards.

I like that idea. That’s a new one that I’ve heard. I hope people take that one and use that to their advantage. It sounds like you’re able to use your nationality as collateral. They trust you. 

Some of them are familiar because they know people who got involved in this industry. They have an idea of how much money these stores are making. They know it’s a fact that I’ll be able to pay them back after. The point is having enough money so you can start and finish the build-out so you can be open for business.

How much is the build-out budget? 

I’ve heard different numbers. Depending on how nice you want to look inside and the materials that you’re going to use, but the cost I got from my store is $300,000, $320,000, $380,000.

It’s between $300,000 and $400,000? 

Yes, I also heard some other people that are willing to work with me that it could be as low as between $50,000 and $75,000 if I give money for the materials. They give me a break on the labor cost. As long as I have Home Depot cards and I can put stuff.

Whatever you can use. 

The goal is to have one store open. If you can do that, then you’ll be able to fund your other projects. Click To Tweet

I can minimize my costs as well. My goal is to have one store open and if I can get the help, I was able to manage with the Brazilian crew, if I can do that with them and be able to open the first store, then I’ll be able to fund my other projects. That way, I don’t have to go deep into borrowing money from properties that my mother-in-law would have.

Taunton is going to be the first to build. 

It could be Berkley or Taunton. If I had the funding, I could probably open both of them around the same time, but I’m trying to play smart as well. At this point, I’m not sure which one is going to be the first one.

Let’s talk about that because I was trying to get to where you were going to start. What’s tying you up about deciding whether it’s going to be Berkley or Taunton? 

There’s one more hearing that I’m going to have in Taunton. It was supposed to be scheduled and hasn’t been scheduled yet. They changed the dates a few times now. That’s what is putting me a little bit behind the schedule, but I’m planning to keep moving forward. My goal was to be open by December 2020. People are spending a lot of money around Christmas. My goal was to get some of the timing there and have one of the stores open. Besides my wishes to finish the construction because on one hand, they are all helping me to have this project build-out, I also depend on them on their time because they’re doing me a favor as well to have everything done in a certain amount of time. That’s what I’m waiting for. I’m pulling up the inside build-out permits. That’s what I’ve been waiting as well. I might have the build-out permits for both stores. It’s going to be a strategic game of which one will make more sense.

That’s what I’m trying to understand too because it seems like Taunton got quite a few more people in it. Are you paying on the lease in Berkley now? 

In Berkley, I’m not. The owner has been helpful. I was lucky to find property owners who were willing to work with me most of the time, and that saved me some money as well. For Berkley, I haven’t spent much money on the property side of it. I didn’t have to spend money with traffic studies, engineers and so forth. For Taunton, the owner was helpful in the beginning where I only have to pay a small amount of money for him to hold a property. Once we started doing construction, we had a deal where I had to give him some money. Now, I am paying the full rent there.

Berkley is not costing you anything, but Taunton started to cost you money because he’s built-out the whole building. 

Now that I am doing the construction, I do have to give a deposit for the Berkley location, but they are still willing to work with me and let me pay for the deposit. I’ll pay them monthly after the store is open because we’re going to be putting a lot of money into the build-out as well. The owner sees this as a benefit for his property as the amount of money that I’ll be investing there.

One thing that I’m noticing especially I’m thinking back to my experiences in cannabis is if you’re going to be putting $300,000 to $400,000 into a build-out, that’s extremely high. I know costs are expensive and everything is going up. However, being such a new industry in Boston particularly, people want to be able to buy. Since we had to build from the inside, we put money into our store, we put what we could and we kept changing things. For a little advice, think about, “What can I do to get this open?” You’ve got the lease option on Taunton, which is good, but you’re going to experience different changes throughout your growth of a business and you might change your layout. You might do all this stuff that you’re like, “Had I not spent $50,000 on this silly countertop that we did here that we’re not even using.”

If there’s a way you can preserve some of your cash in the build-out there from the beginning, it might be good looking into because $100,000, $115,000 max to start, and then get that money flowing in so that you can reinvest in your business. That will keep you guys a lot less cash strapped as you’re trying to build this out. I noticed we changed entry points, we were allowed to do medical and recreational. I’m not sure how the system works there, but we split our store in half at a point and we put entrances in different ways. We had to change this as we were going through. Had we gone in some of these big, nice stores that I’ve seen like MedMen out in California. They could spend $1 million on the interior of this place. 

It’s nice and everything but it’s not necessary in the beginning because people want to be able to buy flower. It’s going to sell because there are not many people selling it. That’s the beauty of it. The market will grow and you can grow with it. You can grow your retail, your customer service and your customer-centric focus as the market matures. It’s like, “We’ve got this extra $50,000 that we have set aside for building. Let’s do some remodeling in the store. Let’s do some changes here.” It will help you out a lot in the long run from wasting money because it’s easy to go in here. 

I love putting and making nice buildings, nice stores and stuff. However, it’s not necessary all the time. If you’re in a community that’s like, “This girl is putting everything she can into it,” people will see that and they’ll come to your store to support you. That will speak volumes to the area you’re in. That’s one thing I want to point out. For people that are looking in like, “How much money am I going to have to spend?” If you’re able to negotiate the labor with these guys, don’t focus so much on the material itself. Look at it as what’s good enough that people will be like, “She did a nice job but it’s not too extravagant, the interior work?” If this guy has built a store for you, it looks beautiful on the outside. 

Yes, I’ve got to send you a picture of it.

You’ll have to do some good communication to the owner to explain this, but if you look at the long-term and he sees your vision of wanting to buy the store, and you can lay that out for him, he will think you are a smarter business person for making these hard decisions because you want to own the store. Ultimately as the owner, his end goal is selling you that store at a nice profit. It’s going to take some mental discipline on your side. This is entirely up to you if you choose to use a strategy like this because I’ve seen a lot of people go down this road and I’ve done it myself. To try to save you from some of the mistakes and some of the wasted money is what I’m here for. That’s what I’m trying to do. I want to point that out because it looks like you’ve got a little leeway on Berkley. He’s going to want a deadline at some point for when he’s going to start collecting a lease. 

PP 71 | Massachusetts Social Equity Opportunities

 

The agreement that we have is he’s requiring a deposit, which will be worth a month’s rent. With that, he’s going to allow me to start the build-out. He’s going to let me open first before I start making monthly payments.

Have you given him any deadlines for opening yet? 

I’ve planned to open by January 2021. That’s the deadline.

Do you have a contingency if you don’t open in January 2021?

No.

I’m going to suggest something else. Since you are on this path now, I don’t want to divert you from what you’re doing. However, I think Taunton should be your priority. Berkley is coming but you’re a little aggressive on opening both stores that are very close to each other. You’re going to have to get up to speed yourself with running the store. You’re going to have to train people. I’m not sure if your mother-in-law is going to be involved in any of the training or running into the daily business, but that’s going to take a lot of effort. 

What happens is if you open both these stores at the same time, you’re going to have mass confusion because you’re not going to have systems in place that are running these stores. You’re going to have little things like, “This is what we do with the cash at the end of the night, but we have these staff. I’ve got to watch security cameras.” There are multiple things that are happening in that retail environment that if you’re not paying attention, you can get stolen right out from underneath you because you don’t have these safety systems in place. I’m sure you’re going to figure that out. However, if you’re able to figure out with Taunton over a 4 to 6-month period some of the glitches that are in your system, you can iron those out, and you can take and mimic that in Berkley, they’re not going to be exactly the same because a few things are going to be different. It’s going to save you a lot of time in Berkley because you don’t have to work through those problems again. That will help iron those issues out. All of a sudden, you’re up and running more like a machine in Berkley and you’re making more money because you’re not magnifying your problems. 

From my personal experience, we opened a store and grow at the same time. Fortunately enough, we had enough business partners that were involved but it was pandemonium. Anytime you’re opening these up at the same time and you’ve never opened one before, the learning curve is steep. If you’re able to take and learn from Taunton and transfer over to Berkley, my suggestion would be to talk to the landlord and say, “We know we want to open in January 2021, but our focus needs to be in Taunton so that we can put our focus in Berkley next.” How about we talk about a small lease payment to keep them satisfied at least to buy yourself a little bit of time. Managing the project with the build-out is going to be sometime. 

I’m assuming, you’re going to be on-site like, “What do we need to get done?” I’m not sure if you have any construction background, but there’s going to be a lot of information that these builder guys are going to want answers for it. They may have a head contractor but he’s going to be talking to you. That’s going to pull a lot of your time away from focusing on Berkley. You don’t stack too much on your plate and overwhelm yourself, give yourself a little bit of room. I said this to you, we tend to want to run as fast as possible. This cannabis game is a marathon. If you’re only looking at 70 retail stores over the entire state, you’ve got plenty of time. 

What you’re going to find is that there are a lot of these companies that are out there that are well more funded than you. They’ve got millions of dollars, so they can hire a lot of these people to do the management side to bring in and do the retail. You as a startup and you’re working on a tight budget, you’re going to have to do a lot of this stuff yourself in the beginning. That’s going to pull you away from these other operations that you’re trying to get up and running. My fear is that if you don’t get Taunton happening for you, you might never realize the rest of these. I know that’s straight into the point, but if you get one store running and you get management in place, that allows you to go, “Let’s take this next step and we’re not in a rush.” 

Please come join us in the continuing series. We are going to find out next episode the issue that Flavia is struggling with in Taunton, Mass, and what she’s doing to prepare to overcome some of these hurdles. Thank you for reading.

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