Knowing your cannabis business’ valuations inside and out is an important part of being a business owner. However, most entrepreneurs in the industry have no idea what the true value of their business is.

Business valuation is the internal auditing process that helps owners understand what their business is worth on the open market. This process provides a baseline that indicates the strengths, weaknesses, and opportunities for future growth. For a budding industry like cannabis, knowing your business’ value of free cash flow and tangible assets is important for future acquisition. 

We sat down with Truman Mox President, Joe Marino, to discuss the importance of business valuations in the continuously growing cannabis industry. Truman Mox is a nationally recognized and leading third-party business firm for cannabis organization valuations. Additionally, they provide expertise in machinery and equipment appraisals, feasibility studies, and inventory audits. 

We’re excited to share the expert knowledge contained in this article, as well as answer some commonly asked questions regarding this topic. 

cannabis business valuations

What does a cannabis valuation business do?

Truman Mox, Inc. is a leader in the appraisal cannabis space for several years. 

We provide valuations based on free cash flow, in addition to analyzing a company’s tangible assets: leasehold Improvements, equipment, and furniture & fixtures, and inventory. Many of our clients use our valuations for financing collateral, buy-sell arrangements, insurance purposes, and internal assurance.  

We analyze prior year financials and help coordinate future financial projections using several techniques. It’s important for us to fully understand how the business operates, what the consumer demand is like in their state, and how government regulation affects their business.  

What are some common misconceptions about cannabis business valuations?

Truthfully, the most common misconception we see is a client’s belief that their business is worth far more than it actually is based on future income projections. 

Until a client is able to demonstrate their ability to bring about a projected income, the value typically remains at or near startup costs. In addition, our process is not intrusive allowing for confidentiality so staff is unaware of what is occurring. 

What reservations do companies have about doing a professional valuation?

Ultimately, the biggest reservation we see is the cost

In sum, the cost of a valuation is in line with valuing any other non-cannabis-related business. We have the ability to break out the valuation to demonstrate value on free cash flow and value of tangible assets. These figures can in turn be used for insurance, banking/financing, and buy/sell arrangements. 

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Is it common for potential buyers of a company to request a valuation? 

Yes, buyers are typically spending a good amount of capital on a business acquisition. Any responsible buyer will want to cover all bases. They can use the figures determined in a valuation for insurance, potential financing, and cost accounting needs. 

Do companies have more success in being acquired or attracting new investors with third party valuations?

In my experience, yes. Cannabis business valuations show potential suitors that the company has done its research and can demonstrate value. Part of the appraiser’s job is to review historical and projected financials and provide their opinion based on market facts of the value of the company.  

What are some things that most increase or decrease a company’s value in the cannabis space? 

It’s important for a company to have good Standard Operating Procedures (SOP) in place. High-level SOP’s minimize downtime, ensure understanding of the employees’ role, and ensure consistency. Having these items in order results in better revenues and profit margins.  

Companies should also fine-tune their financial reporting mechanisms, whether small or large. Understanding your Cost of Goods, Supply Purchases, and Labor Trends on a weekly basis can add up to large dollar savings when annualized. 

Are there benefits to a third-party valuation if a company doesn’t plan to seek investment or acquisition?

Yes, having a valuation completed in a non-sell situation is important. A business should always know its current value and how it relates to future goals. 

An investment opportunity or acquisition can come at any time. Doing a valuation every 2 years allows the equity owners to know the value of their free cash flow along with the value of their tangible assets. 

CANN Strategy’s Partnership with Truman Mox

Looking for guidance or some experienced insight about what to do next with your cannabis business? Maybe you are looking to get into the cannabis industry or to get out of it? No matter your need, CANN Strategy is here to help. 

CANN Strategy is immensely fortunate to have the valuation experts at Truman Mox as partners for our clients. With industry leading partners like Truman Mox, you and your business are in the best hands possible. Let’s start the conversation. Contact us today.

Juliana Whitney