Marijuana Business Magazine March 2019

March 2019 | mjbizdaily.com 47 secure protection against losses from natural disasters and other woes. • Banks and lenders now have Uncle Sam’s assurance that hemp is legal, no matter how it is grown or processed. • Hemp businesses are not subject to the burdensome 280E tax restric- tions, which wreak havoc on mari- juana companies’ finances. For Joseph Hickey of Kentucky, the signing brings him full circle from the days his grandfather grew hemp in the 1940s, before the feds made cultivation il- legal in 1971. Today, Hickey leads business development for one of Kentucky’s largest hemp producers, Atalo Holdings, which grew 2,716 acres of hemp in 2018 and plans to expand to 10,000 acres this year. Hickey’s post-Farm Bill prediction: “You’re going to have farmers all over the country now starting to produce a CBD hemp crop. It’s going to be a flood.” Following are tips for how hemp entre- preneurs can capitalize on the Farm Bill’s passage—though it’s worth noting the groundbreaking law is still being parsed, and questions remain about CBD’s future. RETAIL: Five Tips for Landing Distribution Deals The passage of the Farm Bill has hemp-derived product manufacturers exploring distribution deals that will move their merchandise beyond local head shops and into mainstream retail outlets. Suddenly, widespread national distribution of hemp products to convenience stores, natural food and wellness shops and big-box retailers is possible. But how do you navigate those deals and get your hempseeds, lotions, CBD tinctures and other products onto store shelves? And, more important, are you ready? Kevin Wachs, the president and founder of Los Angeles-based Earthly Body—a holding company that has four hemp beauty and body products brands—has been in the sector for more than 20 years. He offered the following tips for hemp product manufacturers who want to capitalize on the Farm Bill and ink lucrative distribution deals: Work with a group of professional brokers. Most distribution deals aren’t closed by in-house sales reps or at trade show booths. Instead, they’re often stitched together by groups of professional brokers. Many of these brokers have domestic operations as well as overseas offices staffed with multilingual distribution reps who can leverage their global networks. That means, for example, they can line up domestic and international distribution deals for your line of hempseed hair-care products or hemp-derived topicals. If you thoroughly educate brokers about your brand and manufacturing processes, they can be effective in attracting large distribution deals for your products. Ask questions and read the fine print. Distribution deals are complex, so it’s important to dissect the details. If there’s an advertising allowance—a deduction a distributor takes to advertise your products—you should ask how that money will be spent. If there’s a chargeback allowance—a deduction taken for products that are returned or defective—you should question whether it’s a fair percent- age. Those details can be negotiable, but only if you know to ask. Know the limits to both your bank account and production capacity. Sure, there are heaps of money to be made off distribution deals with mass-market retailers. But if you don’t have the financial wherewith- al, those big deals can become big mistakes. Mass-market retailers want manufacturers who play by their rules, and if you can’t, there’s another brand in line that will try. Consider this: A retailer might place an initial order for $500,000 in prod- uct. Your contract could put you on the hook for product that doesn’t sell, say, $250,000 in product. In that case, the product could go back to you—with zero payment for the unsold goods. Can you take that hit? On the flip side, if your product sells well, a subsequent order could top $1 million. Are you prepared to meet that kind of demand? And, in a take ’em or leave ’em deal— what you usually get with larger retailers—your “net-60” agreement could become a net-90 or net-120, meaning you won’t get paid for up to 60 additional days. Do you have the cash flow to keep going? Ask yourself those tough questions and more be- fore you ink bigger distribution deals. Get to know the staffers working for your distributor. When working with a distributor, ask for contacts in their accounts pay- able, marketing, sales, shipping and other departments. If your product isn’t selling or you have a question about an unpaid invoice, you want answers and solutions. Don’t get lost in an automated phone system. In- stead, forge connections with people throughout your distributor’s office. Once you’ve made those contacts, be sure to document everything in writing. That’s where follow-up emails come in handy. Document your conversations and confirm your understandings in emails. Spread your bets. Don’t count on one or several big accounts to sustain your business. That’s risky. You can build a big business on small accounts. Earthly Body built its brand with small wholesale and retail accounts. Now, larger distribution deals make up most of its revenue, but Earthly Body still works with small accounts the company has had for 20 years. There are challenges to working with hundreds of smaller accounts, but there’s less risk if you lose one. — Joey Peña