You can’t always do it on your own if you’re looking to make big moves in your cannabis business. Having a business partner can make things a lot easier, but it can also be your undoing if you do it wrong. There are a number of reasons why business partners work out and there are millions of reasons why people have bad relationships with business partners. How do you determine who a good business partner is and what they’re going to bring to the table? Tony Frischknecht tackles this in this last installment of his conversation with Locomotion Cannabis owner, Flavia Hungaro.
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Massive Social Equity Opportunities In Massachusetts Part 8 Of 8 With Flavia Hungaro
Do You Need A Business Partner?
This is our eighth episode in an eight-part series with Flavia Hungaro. Flavia has been building her start and she’s been working on this for a couple of years now. This is how it works in cannabis. You start at a point and you’re like, “I want to get my store open.” There’s a lot of work to do before you can even start. I’ve got Flavia Hungaro and we are talking about business partners. She has a couple of them and she is looking for others. Flavia, how are you doing?
I’m doing great.
Thanks for being on with us. This is a big part of understanding how you can make big moves on your own and you can’t always do that on your own. There’s a number of reasons why business partners work out and there are millions of reasons why people have bad relationships with business partners. What do you use to determine who a good business partner is and what they’re going to bring to the table?
There are different ways of looking at this to answer this question. One of the things to look for in a business partner is they should be financially stable. They could benefit you that way. Some people might not have the funding, but they might have experience working in the industry. That could be another thing. In terms of licensing applications, you might have to look for a business partner that fits the profile. For example, if you want to apply for a license in Boston, you might have to partner up with somebody who is a Boston resident or has lived in a disproportional area impacted by the war on drugs. Those are a few things that you have to look into and see for you to choose the right partnership.
I’m going to go to the first one. Most of us out there are thinking, “I don’t have the money. I’ve got some of the expertise. I’ve got to know how. I need a money partner.” For one, how do you find that person? How would you look for a money partner?
You have to look at the scope of your project and see how much money you need to raise to reach your goals. That’s one of the things that I did, or having somebody. For example, a family member who took on this journey with me, who has some funding available and we’re doing our best not to use all of our resources, if possible. Add another partner if necessary, but if we can just keep it as a family business, that would be the best we can do. That’s the main goal.
I’ve been through a few scenarios when looking for money and what to watch out for. Are money guys approaching you? Are you approaching them? How does that work most of the time?
I’ve had both situations happening. To be honest, I thought that I was going to get a lot more interest than I got. Everybody said, “Once you have a provisional license, a lot of people are going to stop following you because they see your name on the list.” They’re trying to figure out who you are and what your goals are so that you can get a chance. In my case specifically, I got the provisional license and then COVID happened. A lot of things stopped from happening how they used to happen. Maybe I didn’t get as many phone calls as I was expecting because the economy changed. That’s one of the things that was different in my case.
Because I wasn’t getting as many phone calls, I’m reaching out to different hard money loans on the internet and trying to see other companies that are doing good and see if they would be interested in partnerships. I was also looking for cultivation, so I started looking for people with experience in the industry because you don’t want to partner up with somebody that just has the money. Maybe you want somebody who has the whole package and has experience as well because even though you might have to give up a higher percentage of ownership or give a higher interest rate back, that might be worth it.
You, as a social equity applicant, there are certain things and guidelines that you have to follow when it comes to ownership. What are some of those things that you have to make sure of?
In Massachusetts, they have two different programs. One of them is social equity in which I’m a participant. The other one is called the economic compartment. Depending on which program you’re part of, then there are different ownership rules percentages that you have to follow. In my case, they’ve changed the regulations as time went by. You have to keep a small percentage of ownership. At least 9.9% or 10% if you are social equity.
Before, it was considered 51%. That was the original requirement, but things change. Now, they did keep something like that for the economic compartment participants. Depending on where you apply, for example, if you go for a retail license in Boston, they do require that the majority ownership, the 51%. It belongs to a Boston social equity participant. That’s why I also decided to partner up with somebody who qualified for that.
As a social equity partner, that 51% not only gives you the majority leverage in making decisions in your company and the direction ahead, but it also gives you leverage in your negotiation. What are some things that you’ve done or some things that you’re thinking about doing to make sure that there’s a fair deal with your partnership? How have you structured deals?
Specifically for the Boston project, it’s not just myself and two people in the partnership. There are more people involved and that spreads. I got some people more experienced than others, and then they came up with 51% ownership. It’s not just one person. It’s more than one person. They balance out how the decisions are made and it’s fair that way.
You’ve met some of these people in the program. Is that correct?
How did you start talking? Was it through the program or you just hit it off? What were some of the things that led to your partnership?
For this specific case, I was already part of the first cohort for social equity. There was a meeting that we got together and we were asking for changes in the regulations for social activities and economic compartments in Cambridge, Massachusetts. That was one of the meetings where you get to know people because we were discussing how you can make certain regulations better, trying to get things together and present that to the counselors. That’s one of my first interactions with my partners. It was a great experience because when you go to class, you meet a lot of people. Sometimes, you don’t have the time to chat or get to know them.When looking for a business partner, it's important to look for somebody who has goals that involve making the community better. Click To Tweet
Going through the regulations and meeting different groups throughout this process, it was people with the same goals as well trying to change something that could benefit a bigger portion of the population, so that was interesting. Because of that, we kept in touch. We didn’t even know we’re going to be partners. We just kept going in. One of them is a younger man and he’s going to be part of this project in Boston, which might be one of the most important ones that I have so far. Having a retail store in Boston is going to be huge. The location is perfect and I’m having the right team. He’s going to be one of the youngest ones owning a retail cannabis shop.
It sounds like it happened naturally with this guy in particular.
His mom is involved in a lot of movements to help minorities and she’s done so much for the community as well. Not just for the cannabis community, but in general. It’s important to partner up with somebody who has goals that involve making the community better. One of the plans that we have is to provide an excellent plan. What better person could have chosen to be partners with, to have somebody who’s already doing so much for the community?
You seem like you’re passionate about doing stuff for the community. That’s part of what your plan is, but also being social equity. It seems like you want to get back.
That’s the key.
Some people have different focuses. They get into it for that reason and they don’t always end up following through. One thing that you mentioned that I’d like to talk about is goals. When you talk about your goals as a partnership, are they much similar? Are they different? How does that look?
I have a lot of different projects going on, so I can’t expect everybody to have the same extents and ideals. With this guy, in particular, this is going to be his first retail project. By the time we hopefully are going to be able to get the license in Boston and be open, my idea is to bring him on board so he can start training in one of my stores as well because he does not have much experience. Probably by then, I’ll have one store open. By the time we have our store opened in Boston, he’ll be able to take full control as well because he’s going to have the experience. That’s going to be important.
How is he as a communicator?
He’s great. I’m not a good communicator, but he does a better job than I do.
Partners are supposed to complement each other in different ways. If it’s a communication side, that’s huge too. Especially if you have him dealing with your patients and customers coming in, it can be a big deal. I know that once you start getting into running these stores and how busy these people will be, a big part of this too, is being able to communicate with your partners. I made a lot of mistakes doing this. I was used to working by myself a lot. Now I know this, but at the time, sometimes I would communicate that I was making a decision and sometimes I didn’t.
I tend to find that slowing down a little bit, for me, it was better because I like to get stuff done like any business owner. It’s like, “Once you’re working through this, we’ve got to get this motion going. We want to get the doors open. We want to get customers in. We’ve got to start selling.” All this stuff happens, so I ended up making some of these choices where it was like, “What are they going to care? It doesn’t matter,” but they affected our relationship on a business level. I saw that when I went through the process of more of a discussion on these decisions, I had to deal with the fact that not everybody was going to be okay with them. Sometimes, I just had to bury it.
It’s funny because in any relationship, and I know you’ve got a husband and kids, but arguments do come up. What happens is how do you deal with those when those arguments come up? It changes the way your relationship is now and for the future. Having that knowledge now and being able to understand that it could make or break our relationship was something that I wasn’t thinking about as much as I should have. Following these people that I can communicate with and also make sure that I trust them and have their back. There are a lot of these little things that you have to work through as partners. I’ve said in the past that you’re married to them.
I’ve realized this by now. It’s a big commitment. The other partner that we have is very involved in the industry. She does not have a store open yet, but she’s about to. She has a legal background, so that’s another good thing because I’m learning as I’m going and she has a good experience. By the time we open, she’s going to have hopefully at least one of her stores open. She’s going to bring a lot to the table. That’s going to be important. We do well together. Before this project, she has helped me in all the circumstances that I’ve felt comfortable working with her. It’s going to be a good relationship with all of us working together on that project.
What’s great is if you find an awesome attorney, accountant or CPA, not only does it eliminate a lot of the overhead cost of paying for an attorney or CPA, but you have somebody that understands when it comes to attorneys and CPAs in particular, what you have at the end of the day. Attorneys are going to be helping out with a lot of the contracts that are going to come up and reviewing. If you don’t have those in place, as you know, it can cause a lot of problems for business, and being profitable and successful. Secondly, a CPA, with all the tax things that go along with this business, it’s the place where you can skimp.
You cannot find a good CPA and you cannot pay a good CPA. You try to do your best as you move forward. You build some relationships with these guys where normally are much further than the business relationships because they’re going to be through you with the hard times, especially in licensing. I’m not sure if this partner is involved in a lot of the licensing on your side too, but I’m guessing she’s familiar with what’s been happening to you in Taunton and understands the struggles you’re going through there. You are able to relate on a personal level and not just business. That’s when you form a bond and you find somebody like that that has your back.
I’ve been working with other attorneys and I’ve been fortunate I found a good team. It’s like a family. That’s how I feel. They might not even know that, but sometimes, I’m like, “I’m just going to call because email is so personal.” They’ve been helping me in many ways, not just the licensing. For example, I have another attorney that I worked with. I’d be stressed out and he doesn’t even know this. I get to the point when it’s right before the meeting, he’s like, “Flavia, give a few tips.” That’s all I need to hear. Sometimes, I might hear the same thing from my husband. Let’s say, myself is completely different, but then when it comes from him, he puts me at ease. He’s like, “Flav, that’s it,” and I’m like, “Great.” That’s what you need. You need to be with the right team, and that makes such a big difference if you don’t feel like you have the right person next to you and if you have no experience in the industry.
You’re going to be experiencing a tremendous amount of struggles as you grow your business. The trust that you have to give to these people that you may have only met 6 months ago or 1 year ago is big. When it comes down to the amount of cash and valuable items you’re dealing with, it’s millions of dollars a year. You’re not keeping all that, but that’s what’s turning through the system. If you can’t trust these people or turn to these people in some of those times of anxiety and stress, that’s when relationships can start breaking down.
Everybody has an effed-up moment where they screw up. “Sorry, I went that way,” but I’ve experienced some tough times where there’s an impasse and people start suing each other. Understanding that, especially when you start dealing with the money partners and what they’re capable of, is extremely important. I don’t know how many people do this in the cannabis industry. Some of the stuff that I do when I’m dealing with money guys is I do background checks on them. I see if there are lawsuits that they have pending and I look at their assets.
If I’ve got a guy for each of them, it might take me half an hour of my time. It can save me from spending gobs amount of wasting my time because you’re going to get people that want to be your partners and want to give you money, but they’re going to continually waste your time. If anything that I can share with you, doing your due diligence upfront with some of these guys that you’re dealing with will eliminate most of them. Stuff like, “I need to do a background check on you. Can you send me your Social Security?” Everybody can get your Social Security online as it is right now. It’s not this big secret. There are plenty of people. If they’re scared to give you their Social Security because they’re worried that you’re going to do something to your credit, it’s straight up bullshit.
It’s interesting you said that because there was somebody else that I was going to be partners with and you have to get documentation to finish the application. The amount of hard time I was getting just to get a birth certificate or Social Security number. I’m like, “We haven’t even started anything yet. If it’s already like this, if you can’t even trust me for this, then give it to the attorney. Don’t give it to me. This is not the right partner you need.” There are many decisions that you have to make. You can be waiting for three days to get an answer like that.
It’s frustrating but it’s well worth it. If it’s somebody that’s valuable to you, you see building a relationship, and they’re giving you all this information you like, “I don’t see anything wrong with trusting these people at this point.” There are some people out there that unfortunately, our business draws a lot of people to it. It’s simply because the amount of cash that the states and the local governments say that’s bringing in, even though you and I as business owners know the majority of that cash is going right out the front door paying all the bills, it’s paying everything.
People don’t see that. They see, “He’s got $500,000 in a safe that he can’t put in a bank account.” Your trust has to be huge for knowing that your partner is not going to just rip you off and walk with $500,000, and you lose your business because it happens. I’ve had grower situations where I’ve had to fire growers and they will go in and put pests and insects in your flower room. I’ve heard of people going through, taking male and pollinating flower rooms with male plants, and leaving it. That comes in the trust factor of, can you trust that this isn’t a vindictive person?
These are little things that you learn but I hope that I can shed a little light on this for you in the future and for the readers. These are little red flags that you should look for as you find these business partners and you learn to trust. The old saying, “Trust but verify.” You need to take it to heart. A great way to end this is if you’re looking for scenarios, you’re not looking to make sure that this person is a bad person. You’re just making sure that they are who they say they are, and that’s okay. The thicker skin you get in business, the further you learn this because you get burned a few times. When you hear that old saying, “Business is business.” This is what it is.
How do you create a good operating agreement? You have to think about that as well. If you have any tips on that, I’ll take it.
There are good ones, but what I’ve noticed is that even if you have somebody who can write a good operating agreement, if the person is not going to follow it because they’re straight-up dirty, it doesn’t matter how good you write it. Most of the time, they’ll have enough money and they’ll fight it anyway. A contract is solid and I totally agree with it, but it comes down to if you have to take it to court and you have to do all these things. That costs thousands of dollars and it doesn’t matter if you’re dealing with a person that is nefarious and shady. I’d be more than happy to discuss the operating agreement more with you, look through some of my stuff, and be able to give you some info on that.
That would be awesome. Thank you.
Flavia, I want to thank you again for walking us, the reader and me, through what you’re doing in business because you are definitely going in the right direction. This is how it is. You are working through some amazing challenges that are teaching you how to be successful in cannabis and it’s also giving you some good lessons on what not to do. Thanks for allowing us to know a little piece of what’s going on in your business. I appreciate it.
Thank you. I hope I can inspire other people. If anybody wants to reach out and ask questions, I’ll be available as well. Good luck to anybody who’s trying to get into the business.
Thank you for reading. We will be back next episode. I’m working on some new stuff and I can’t wait to share it with you. Leave me any questions at PlantProblem.com and of course, you can reach out to me on my social media. Thanks, and have a great day.
- Flavia Hungaro – LinkedIn