What's My Cannabis Business Worth?
The amount of money that you can borrow with a cannabis loan could partially depend on the value of your business. A business with a high value will likely have more assets and cash that it can use to offset the lender’s risk.
Determining what your cannabis business is worth, though, isn’t an easy task.
Use the following steps to reach an estimated value for your cannabis business. That way, you can include the amount in your business loan application. You might find that the business helps you qualify for a higher amount or lower interest rate.
Know the Value of Your Property, Merchandise, and Other Assets
Your business already has a lot of assets that add to its value. You need to consider the value of your property, merchandise, equipment, and other assets.
It’s not always easy to determine how much these assets are worth. You can start by comparing your real estate to other green zone properties for sale in your area. You can also hire an appraiser with experience working with other cannabis and hemp businesses.
Some of the equipment your business owns could add hundreds of thousands of dollars to its value. A large closed-loop extraction system will add significant value to your business’s worth. Companies spend hundreds of thousands of dollars on extraction systems designed to meet their unique needs.
Don’t forget that the merchandise on your shelves has significant value. Look at your inventory to determine the retail and wholesale price of your products. Their business value is probably somewhere between those numbers.
Other assets your company might own include:
- Security systems
- Irrigation systems
- LED lights
- Cloning trays
- Solar panels
- HVAC systems
Anything that has value increases your business’s worth.
Understand the Value of Your Team
Your business’s worth relies on more than physical assets. You also have a team of professionals that make your company valuable. Finding a master cultivator, apprentice, and other reliable employees takes a lot of time. Don’t forget that you probably spent time and money training many of your team members. Your investment in them adds value to your business.
The value of your team will likely differ depending on the type of cannabis business you own. Unfortunately, employees working on farmland rarely earn as much as those working in warehouse grow operations. That means your farmhands do not add as much to your business.
Retail stores and dispensaries, however, often have cannabis experts with extensive knowledge about the products they sell. Many of them also have excellent communication skills that help them connect consumers to the perfect product. The strain that one person loves might not meet another consumer’s expectations. Don’t discredit these employees as “retail workers.” They have exceptional skills and a large knowledge base that puts them in high demand.
Examine Your Business Structure and Tax Burden
Your business structure and tax burden will impact the overall value of your business. If you operate a non-profit, you probably pay much lower taxes than someone running a limited liability corporation (LLC). Then again, you might not have as many opportunities to increase your profits and grow the business.
Your location will also play a critical role in your tax burden. Some states charge high tax rates than others. That’s not surprising, considering that many states legalize cannabis specifically so they can increase their tax revenues. They must walk a fine line, though. If they don’t charge enough, the state doesn’t earn much money. If they charge too much, consumers will continue using the black market.
Evaluate how much you pay in taxes. The amount will influence how much your business is worth.
Review Your Business’s Opportunities for Growth
Your business’s value isn’t completely based on its current state. You also need to consider your brand’s reputation and opportunities for growth.
If you have a high-profile brand known for delivering some of the best products, you can probably add some value to your business. Opportunities for opening new stores in your state – and others – can also influence your business’s worth.
For a more specific idea of how business opportunities for growth add to your company’s worth, perform a market analysis that shows you how quickly you can expand your business. Unless you have a background in business analysis, you might not have the skills to do this on your own. You can, however, hire a business consultant who can review your business and market to give you a report that identifies opportunities.
Do a Pro Forma Statement
As long as you have a good understanding of your business and math, you can probably do a pro forma statement. Pro forma statements do not follow traditional accounting practices. Instead, they let you exclude one-time and short-term costs that you don’t think accurately represent your business expenses.
Some elements of your pro forma statement will include:
- Pro forma forecasting that estimates a reasonable amount of revenue that your business will make over the next year.
- Financial liabilities and costs, including loans, payroll, taxes, licenses, utilities, and insurance.
- An estimate of your future income that you get by subtracting financial liabilities from your pro forma forecast.
If this sounds intimidating, reach out to an accountant with experience in the cannabis and hemp industry. They can help you evaluate your business’s income opportunities and financial liabilities.
Don’t Sell Your Cannabis Business Short – Values Change Over Time!
Real estate values can change quickly. If you have a storefront that receives a lot of foot traffic, you can expect the property’s value to increase over time. Don’t sell your cannabis business short by assuming the price you paid is the current value of the property. An appraisal could reveal that your real estate has gained significant value since you purchased it.