PP 22 | Choosing Business Partners

 

A partnership can make or break your business. Today, Anthony Frischknecht talks about partnerships, how they work into your business, and how can they help you. He emphasizes the importance of choosing the right partners and planning an exit strategy in case the worst happens. Learn more from Tony as he shares to us what he knows about business partnerships.

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Picking The Right Business Partner

We’re going to talk about partnerships, how will they work into your business and how can they help you. First of all, I want everybody to understand that these are essentially professional marriages. I understood that when I started my first real big partnership. I would have thought about it much differently. Now, I’ve had much time to go over the situations. What led me to understand is a lot of the times why I brought in a partner was because there was something that I was lacking. A lot of that was income-wise and funding. If you don’t have any money, you don’t have anybody you can hire to work. Who ends up working? It’s going to be you. Unless you get a partnership where they can help on this end. They’re not getting paid either so we’re all in the same boat. That’s why I did it and so many will because of situations like that.

First Major Partnerships: Dispensary And A Grow

My first major partnership was in a dispensary and a grow. The regulations were changing on us. In Colorado, at the time, had what was called a vertical integration where you had to grow your product, sell 70% of it through your store and you could either wholesale that extra 30% or sell it all through your store, whatever the case may be. In the beginning, in 2010, we could easily sell everything we grew. It was not an issue. I have a silent partner at the time. We had a 5,000 square foot warehouse that we were growing out of, but we did not have a store. If anybody out there has started to grow or looked into starting one, you know how much how capital intensive they are. It’s much cheaper to go into dispensary business. Your licensing will be expensive, but it is on the growth side as well.

The other side of that is you can’t run out of business expenses as much as you can on the grow. There are a lot of pluses and minuses here. At the end of July 2010, we had to be vertically integrated with a dispensary. What were we going to do? We had sunk all our money into our grow and we were working for free. Where the heck were we going to find money to buy or start a dispensary? Not only that, the zoning was changing rapidly because they were trying to keep us away from schools and parks. If anybody’s dealt with any zoning, you know how quickly those spaces can lock you out of any type of real estate that’s available. If there’s nothing to rent, you look at buying something. If you don’t have any money, you’re not going to get a loan on a dispensary from any bank. You’re out of luck there. We had to find a partner and fast. We had to find somebody that had what we didn’t have, which was a dispensary.

Just like dating, partnership is learning how you get along with a partner. Click To Tweet

We found a couple and we had started working with them and they were building the store. My silent partner and I had the majority grow knowledge at the time, so we were running the grow. At that time, it seemed to be like, “This is perfect. They have this and we have that. We have our thing and they have their thing.” It was a simple partnership. Such as when you’re dating, you don’t truly know the person until after a few dates. Thank God I’m not dating anymore, but there are so many red flags that you see in the dating world that sometimes you’re blind to. Sometimes you pick a bad relationship. Everybody out there has at least one in their life. If not, congratulations.

We had met these partners in June. They only gave us about 60 days to put something together, signed paperwork and become partners. All that’s happening while we’re making sure our grow is still producing its first crop. I also have my part-time job. We’ve got all these things happening at once and two months’ worth of dating goes quickly. When you’re dating, you’re seeing how you get along with somebody. You’re also spending some social time together. Maybe you’re having dinner with them, you’re doing drinks and you’re also understanding what they can bring to the table. At the time, we didn’t have a whole lot of options. It was more of a handshake and a shotgun marriage.

A lot of those things that you usually have the time for, like seeing red flags and stuff, you tend to glaze over because the bigger picture is, where do I set with this partnership? Are they going to be as good as partners as they’re going to be? I don’t know. At that time, we didn’t know either. What we did know is that we would be out of business in 60 days unless we had a partnership. It’s the lesser of two evils. We’ll have to take this on. Fast forward to the end of July, we signed our papers and everybody’s like, “This partnership’s good.” We’ve got 30 days before we’re going to harvest our plants and we’ll be able to open our store in the next couple of months. We’ll have flowers there.

PP 22 | Choosing Business Partners

Choosing Business Partners: Partnerships are professional marriages.

 

Issues Within The Partnership

I hear those stories where people get married and all of a sudden everything changes. We got done the next day and we were dealing with issues in the grow because they thought we should be doing this and we knew we should be doing this. We didn’t spend any time to decide what people were doing. This is our space. We’ve got the grow and you have the dispensary. Looking back now, we didn’t have it. Our delegation was not there. I couldn’t blame them for thinking the relationship was going to go differently. Nobody’s said anything. We didn’t have the upfront and honest conversation about who’s doing what and why they’re doing it and so on.

Had we done that, we may have seen red flags and the way people dealt with situations. There was a little bickering back and forth there for the next 30 days. In my mind, at the time, all I had to do was think, “We’ve got to get her harvest going. Let’s get this done and then we can all move forward. We’ll be able to sell and everything will be hunky-dory and we’ll be happy.” In a perfect world, while we worked through the harvesting process, for anybody that are growers out there, you harvest, you hang, you lose between 70% to 80% water weight at the end of your product and then you are curing it. There are some variances when you’re harvesting. You don’t truly know.

You can estimate how much you’re going to harvest from your experience, but we didn’t have a lot of data at the time since we were growing so much more than we ever had been. My background was I started with six lights in a basement and moved to twenty lights and then I moved to 40 lights. I kept doubling each time. You can only estimate through that process until you get into a commercial growth setting where you have hundreds of lights. You can understand where your numbers are at and what you can quote. The scariest thing is grower quoting your yield before you actually see it. I’ve learned so much about counting your chickens before they’re hatched. That’s how I live my life now. Nothing’s for sure until you actually have it in hand. It’s been a great lesson for me. I use it all the time.

Pick your partners wisely because they are going to be with you for a long time. Click To Tweet

Our harvest happened, everybody was happy about it and the drying process has started. Depending on where you are in the US, it takes anywhere from 1 to 2 weeks and you’ve got 1 to 2 weeks, including the curing process. I won’t go too much in the detail of that, but it’s getting the flower towards a nice spongy feel and that’s not over dry and not wet. It doesn’t have tons of moisture in it. Through those two weeks, my business partners that were running the dispensary wanted us to weigh the product. It seemed like every other day we were weighing this product.

As we were weighing the product, each day it was dropping and I’m not sure if they didn’t have the experience or they didn’t know how much weight we were going to be losing. It was from 30 pounds to 25 pounds to 20 pounds which happens when you’re dropping 70% to 80% of your weight. By the time it’s ready to be consumed, you’re losing a lot of weight. We had so many arguments in that time period. A month prior, we’re hunky-dory and everybody was hugs and kisses. We got to the point where we were a couple of days from the product being cured and ready to sell that the partners from dispensary were accusing us of stealing the product. At the time, I didn’t know what I had gotten into. I’m like, “I’m not stealing anything. You guys do not understand the process.”

On their side, whether they were ignorant to it, everybody was upset and we were stressed out. I’m sure it was a multitude of different feelings that were happening but that was the start of my first month with my new partnership. All of a sudden, I’m married to these people and they were married to me. I’m sure they were as frustrated with me. They thought I was ripping them off. We even got to the point where they almost called the cops on me. It was so new at that time. We didn’t want the cops to call on us anyway because who knows, maybe they’ll take it all away. We have no idea.

PP 22 | Choosing Business Partners

Choosing Business Partners: The scariest thing about being a grower is, quoting your yield before you actually see it.

 

Choose Your Partners Wisely

It was such a ridiculous situation but on hindsight, had I looked into the situation, would it have changed my partnership? Potentially, it would have. I probably would have kept looking or at least found a few more people. I just didn’t have the time. It worked out well for me in the end, but it could have been a much better process with the right partnership. That’s what I’m trying to convey to you guys out there reading. Pick your partners wisely because they’re going to be with you for a long time, 3, 5, 10 years and divorces are as nasty in a professional marriage.

It doesn’t get any easier. I brought it up in my episode that when you’re thinking the distance and where you want your vision to be at and how far do you see this going, you need to have an exit strategy. A lot of times, if you have that exit strategy, you can push forward to a point that your partnerships know that, “I’m out of here in a year anyway. Let’s make it through this. Let’s work through this.” Whatever the situation you create for your exit strategy, it will at least give you a deadline to get out of that bad relationship because it becomes toxic and everybody’s to blame on it.

I definitely had my side of it but understanding who you’re looking at to be on your side and who you can trust is everything, especially when you’re growing so rapidly. You have to trust a lot of people with a lot of money. They can walk right out the door in no time with all your cash. I’ve heard partnerships going way worse than mine. People were stealing plants and thousands of dollars. You name it and it was happening. I know it’s happening across the US with all the new markets that have opened up. This is a cash-heavy industry. Greed takes on a new name when you start working with hundreds of thousands of dollars on a weekly basis.

I hope you took something from this podcast and use it to your advantage. Hopefully, you’re in a great partnership or you’re working on a great one. That’s what I’d love to see but keep your eyes open for those red flags. Nobody’s perfect, but what can you live with? Having somebody honest and that has your back is huge. One of the things that I do is I run background checks on people. There are a lot of nefarious characters in our industry. They’re slowly getting weeded out, but they’re out there. Protect yourself. Make sure your partnership also is weighed in your favor when you’re dealing with outside money. Outside money has a lot of strings attached to that. Be careful out there.

I hope that was helpful for you and I look forward to talking to you guys again. If you want more information, I wrote this in my book, From Black Market To the Man: 10 Steps to Being A Multimillionaire In The Legal Cannabis Industry. You can find that on Amazon or you can go to my website at tonyfrischknecht.com and check it out. I spent a lot of time putting this together and it’s a good read, especially for the guy that’s thinking, “What am I going to do in this industry? I’m trying to figure this out.” You guys have a great one and I look forward to talking to you again soon. Bye for now.

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