When you’re ready to sell your cannabis business, one of the first questions you’ll have to answer is: How much do you want?
In an industry that has so much potential for growth, it’s easy to key in on those pie-in-the-sky future revenues and profits, but buyers will want proof that your valuation is realistic, according to John Wagner, managing director of Colorado-headquartered 1stWest Mergers & Acquisitions.
If you’re thinking your projected EBITDA for 2023 should garner the same multiple as companies with that same level of profitability today, you’re ignoring a key piece of the calculation: the gamble.
This industry can be a roller coaster. It saw steep declines in 2019 but huge sales increases in 2020 amid the COVID-19 pandemic. Most markets are still growing, but who’s to say that will continue? And at what pace?
One of the predictions that MJBiz CEO Chris Walsh made at MJBizCon in October was that 2022 might be the first year that we actually see sales decline in mature markets.
If you’re profitable today, great. Use that as your basis. If you’re struggling today, be prepared to fight an uphill battle to get your fantasy valuation, because investors will want to hedge against future risks.