Let’s give the example that someone has had a marijuana business for a few years and decides they are ready to sell. The immediate response should at that point be, how much is the company worth? This has been a large issue in the marijunana market as mergers and acquisitions are on the rise.
Valuations can fluctuate rapidly given location, cash flow, local/state regulations, and how well the company has maintained business records.
There are many factors that need to be taken into account to assess proper value which means that each situation is undeniably different. The three main tools that have been longstanding financial estimators are seen as the: companies assets, income and market values of similar businesses. Those three factors are usually combined along with a standard valuation formula called Earnings before Interest, Taxes, Deduction and Amortization (EBITDA).
The difficulty with cannabis businesses however lies in the fact that there are such a high number of variables. Therefore it has to be a combination of many methods to determine the value of a business as opposed to the traditional business that could use just one.
One rule of thumb with marijuana businesses states that the valuation of MJ companies can be often worth around six to eight times their EBITDA. But once again, that method should not be utilized solely as there are so many changing variables.
In the state of California, San Diego-based Greenlife Business assists MJ company owners who are looking to sell. The CEO of Greenlife, Andrew Matthews states that in California because there is still no state regulatory system, the largest value is in companies that have already been awarded local permits. Matthews stated “I’ve never seen a city-licensed dispensary (in California) sell for under $1 million, regardless of the numbers. It could be losing money every day, and people will buy it for millions.”
When evaluating a company for its purchase, buyers and sellers need to consider all the factors involved before making an educated offer.
MAPH Enterprises, LLC | (305) 414-0128 | 1501 Venera Ave, Coral Gables, FL 33146 | new@marijuanastocks.com
