The Cannabis industry continues to attract growers, retailers and other entrepreneurs in large numbers. While sales have increased substantially over the last several years, it is becoming apparent that a focus on fundamentals is becoming more important to stay solvent or become an attractive acquisition target. We recently participated in a webinar where a group of industry specialists discussed current market activity, M&A trends, valuation, capital availability, and regulatory environment in cannabis. Here are some of the highlights:
- Cannabis companies with steady corporate governance, internal controls, processes, compliance, and strong focus on bottom line will be more attractive targets.
- Cannabis global market development is the next chapter for the industry. Legalization is growing outside of the United States and countries that are first to the global marketplace can create sustainable advantages.
- De-scheduling from Schedule I of the Controlled Substances Act will push multiples downwards. Multiples have already compressed substantially with revenue multiples averaging 6.3 times – 6.4 times for deals $1MM and up.
- CBD is being added to products across the retail spectrum from food to make-up, but with little legal oversight or requirements. While the industry has seen more investor and commercial lawsuits to date, consumer class action lawsuits could become more prevalent since CBD products can easily be mislabeled or ineffective.
- Best practices command quarterly or some other frequency valuations to support ROI analysis.
- Acquisitions are getting done via the Canadian stock exchange market. While some companies have been successful in that strategy, in the long-term that strategy is going to be viable for only a minority of companies.
If you’re a partner who participates in the cannabis industry and would like to learn more about The Cannabis Best Practices Group, contact Victoria Hall at firstname.lastname@example.org.