Why the quality of earnings is critical in cannabis M&A

Since most businesses are purchased as a multiple of earnings (expressed as earnings before interest, taxes, depreciation and amortization, or EBITDA), the seller has substantial motivation to get those earnings as high as possible before putting the company up for sale.

This focus on earnings is a normal function of everyday operations for any successful business.

However, since every dollar added to EBITDA can bring back a substantial return in valuation through a sale – often 7X, 8X or higher – sellers are particularly eager to put dollars on the EBITDA line, especially in the trailing 12 months before a sale.

Read more at MJBizDaily’s Investor Intelligence.

2 comments on “Why the quality of earnings is critical in cannabis M&A
  1. William Fowler on

    If anybody or an investor, knows anything about multiples and earnings, one should know that a weighted multiple should be assigned the earnings streams, not just the twelve months preceding the sale. but at least five years prior. A smart investor would see the if twelve months previous earnings has some unique issue to address, ex. laying off employees, taking the wife off the payroll, any number of things that would push the earnings up and deceive the investor on the purchase.

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