Appraising Cannabis And Hemp Real Estate, Businesses, and Assets

Appraising Cannabis And Hemp Real Estate, Businesses, and Assets

Whether people want to purchase or sell an existing cannabis or hemp business, property, or asset, it makes sense to get an appraisal from someone who has ample experience in the industry.

Organizations That Provide Appraisal Services For Cannabis And Hemp Businesses

A few organizations already have experience appraising real estate, businesses, and assets within the cannabis and hemp industries. Even within these organizations, business owners and entrepreneurs have several things to consider.

Uniform Standards Of Professional Appraisal Practice (USPAP)

Managers, owners, and entrepreneurs in the cannabis and hemp sectors should not automatically assume that USPAP can help them. The organization focuses on appraisals for businesses that:

  • The business must follow all laws, such as keeping products within legal states instead of shipping them to states that do not allow cannabis products.
  • The business must have a profitable business model, so owners shouldn’t bother getting appraisals for small operations that add little value to the property.
  • The business must have a support system for selling products legally.

USPAP appraisers may offer their services even when a business doesn’t meet these requirements. Unfortunately, the owner will likely get an appraisal that severely undervalues items such as grow lights and infrastructure for growing cannabis plants.

Member Appraisal Institute (MAI)

The Member Appraisal Institute (MAI) takes an evolving approach to appraising cannabis and hemp businesses, including real estate and assets. During the organization’s 2019 conference, appraisers discussed topics like:

  • Problems related to the federal government’s refusal to accept legalization.
  • The difficulties that many banks encounter when working with cannabis and hemp companies (because of the federal government’s position).
  • The continually evolving legal landscape and chaos prevalent in many emerging markets that make it difficult to appraise.

MAI doesn’t say that it won’t conduct appraisal services for cannabis and hemp real estate, businesses, and assets. However, it does make it clear that some of its agents do not have the expertise needed to complete evaluation projects with precision.

Getting Reliable Appraisals Within The Cannabis And Hemp Industries

To some extend, businesses in the cannabis and hemp industries face difficulties getting reliable appraisals because appraisal companies don’t have much experience working with them. This situation will likely change as more states adopt medical and recreational cannabis laws. The federal government’s future decisions could also play a critical role in appraisal precision.

The disconnection between the government and the cannabis and hemp industries creates problems. Anyone involved in the industry, however, knows that businesses have exceptional value.

One group estimates that the legal cannabis market will reach $73.6 billion by 2027. With that much money involved, appraisers will step up to get involved. They cannot afford to ignore such a rapidly growing industry.

Factors To Consider When Appraising Cannabis And Hemp Companies

Many of the factors that appraisal companies need to consider when working with cannabis and hemp companies are the same as the factors considered when working with businesses in other industries. Unfortunately, appraisers may not fully understand the importance of land features, equipment, and business potential.

License Status

Cannabis & hemp license status, type, location, and rarity are some of the most influential factors in appraising an existing business or property.  

Outdoor Land For Growing Cannabis And Hemp

Cannabis and hemp have high values compared to most crops. However, growing these crops often means that farmers must invest significant amounts of money in outdoor infrastructure. One bad year could make it impossible to recoup their expenses, so farmers often build infrastructures that include:

  • Irrigation systems.
  • Coverings and buildings that protect crops from inclement weather.
  • Delivery methods for organic pesticides, herbicides, fungicides, and nutrients.

Outdoor growing also takes a lot of hard work, which means paying trained employees.

In return, some outdoor cultivators find that they can position their products to sell at higher prices than cannabis grown indoors. Therefore, the businesses may have higher appraisal values because they have the potential to earn more money.

Indoor Growing Facilities For Cannabis And Hemp

Starting a business that grows cannabis and hemp indoors requires a tremendous investment. The upfront costs include money used to buy:

  • Lighting that creates a light spectrum that encourages fast growth and budding.
  • Hydroponic systems that deliver nutrients and moisture to cannabis and hemp plants.
  • Commercial or industrial real estate that can replace the large amount of land needed to grow plants.
  • Security that prevents thieves from stealing crops and cash money kept on the premises.

Other Assets Cannabis And Hemp Businesses May Own

Developing new products within the hemp and cannabis industries often forces businesses to invest in new assets.

Iron Fist Extractors, for example, make it possible for cannabis and hemp companies to develop a wide range of products, including concentrates and oils. Even basic models like the Iron Fist Extractors EX-40 can cost thousands of dollars to purchase. Larger options like the Iron Fist Extractors EX-80 can process much more plant material, but the price goes up quickly.

Businesses that use these and other types of industry-specific assets must make sure that they get the full value of their equipment during appraisals.

Business Reputation And Connections (Goodwill)

A cannabis and hemp company that has been selling high-quality products to vendors for years should have an excellent business reputation that makes it more valuable than a new business struggling to develop relationships. 

Reviewing revenue and expense reports help reveal the business’s true value. The industry’s quasi-legal status, however, creates challenges. Appraisers may need to rely on unofficial documents and think about the long-term growth potential of a company that has already established relationships with most local vendors.

Questions to consider include:

  • How do vendors and consumers respond to the grower’s brand?
  • Does the company have much room to grow in the current industry?
  • How does the evolving legal landscape create opportunities for cannabis and hemp businesses?
  • Has the business expanded its range of products to include options like edibles, oils, concentrates, and flowers?

Benefits Of An Accurate Appraisal

Accurate appraisals can help businesses in several ways. For example, a cannabis and hemp company with a high appraisal may find that it’s easier to access funding. Owners that want to sell their businesses also need accurate appraisals to get fair prices for their brands, land, and assets.

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January 31, 2021Comments Off

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