The Association for Corporate Growth of Los Angeles hosted a panel on Trends & Transactions in Cannabis Middle Market M&A.
The panel addressed appropriate valuation methods for cannabis companies, with one speaker suggesting that a valuation based on a multiple of EBITDA alone would likely not be sufficient if that were the only method, given the outsized effect that the current tax laws have on cannabis companies. That speaker suggested that a DCF using a five-year projection could be more helpful, where the cash flows are projected on an after-tax basis. Of course, as we’ve posted before, a valuation of any cannabis asset is a highly fact-specific exercise that is not subject to any one-size-fits-all formula and depends on the facts and circumstances presented in each case.
As a practical matter, the panel also cautioned M&A buyers to go beyond the written financial statements and do a walk though of the facilities, a critical step for cannabis companies to ensure that half the plants aren’t dead, for instance.