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Lume CFO Michael Bobos Talks Strategy

October 19, 2023

You might assume the key to success for Lume Cannabis Co. lies in its vertical integration.  

Understandable, especially given its recently expanded outdoor grow farm; four tunnel greenhouses; thrice-expanded indoor cultivation facility; 38 retail locations; million-dollar R&D room; and its host of personally developed, reverse-engineered plant-nutrient solutions, all of which feed the company’s overarching goal: to craft the cleanest and highest quality cannabis products in the state.  

But Lume CFO, Michael Bobos, suggests a few other factors are at play every one a crucial practice for any Michigan-based cannabis company looking to thrive. 

No. 1: Understand your unit economics. “Each unit has an average unit selling price, average unit cost, average unit margin, and you just go and maximize those unit economics where it makes sense,” he says. How to know where it makes sense? 

No. 2: Study the data. “The state does a decent job providing some transparency, at least on what an ounce of flower costs,” he says. “We’re now in year four of generating all this adult-use and medical cannabis data, so you can utilize certain market data the CRA reports and how our unit economics move with them. You derive assumptions I call them elasticities so when the price of flower moves, there’s some expectation that your price may change.” 

No. 3.  Conduct consistent financial planning and analysis. “How the finance team is able to add a lot of value is by running a pretty tight FP&A team and really looking at Michigan’s market holistically, understanding our costs, and how they affect the units,” he says, “because you can have a product that looks amazing today, and then in six months something in the market changes, and you become out of bounds, so to speak. You either continue to make that product in-house or you don’t.”

No. 4: Despite this year’s apparent leveling out of prices, remember 2022 … and never stop planning for the worst.  “When you’re talking FP&A and analyzing your cost against the market, you’re just mitigating downside risk. So, we’ll go and run scenarios where the price just craters again — repeat last year or the year before, which was just as bad — and then try to figure out how to operate in that environment. And usually, it’s through some sort of product innovation, producing things that you can’t just get anywhere.” 

No. 5: Remember that a rising tide lifts all ships. “That’s what’s nice about Michigan’s unlimited-license structure. You can find operators that are good at what they do and carry their products. We carry quite a few third-party products, and it’s good for the whole industry. We have quite a bit of volume. I mean, 38 stores, we suck up a lot of product, and our customers, in turn, utilize that product. As we grow, usually our suppliers grow with us, and that’s been very nice.” 

No. 6: Don’t fear Michigan’s free market; relish it. The limited-license structures of other states might be good for some, but Michigan’s hyper-competitive environment – bolstered by the CRA’s increasing crackdowns on unlicensed cannabis businesses – is, says Bobos, “Way more fun. I mean, Lume as a culture, we’re pretty competitive. We enjoy it. I thoroughly enjoy the competitive nature of the market and taking what it gives you. It [requires] a lot of strategy. The competition’s nice. There’s a winner. You win [because] the customer chose you not because licensing made you the only supplier.” 

 

This business spotlight is featured in the 2023 Michigan Cannabis CFO Outlook. Access the report here.