Where there’s smoke, there’s fire. Business appraisers, along with accountants, attorneys, and investors, are all paying attention to legal marijuana, which has become serious business. It’s estimated that sales of legal marijuana in 2016 will grow to $7.1 billion, an increase of 26% over 2015. If the momentum toward legality includes all states by 2020, U.S. retail marijuana sales could reach $35 billion. This is according to a new guide, What It’s Worth: Value and Business Challenges in the Budding Cannabis Industry.
Risky biz: Because the industry is so new, there are very few reliable benchmarks or historical cash flow information, so it requires the application of a discounted cash flow analysis based on projected performance. For an established industry, an investor might be content with a 20%-to-25% return. But in the cannabis industry—with the regulatory oversight of federal, state, and municipal authorities and leasing, banking, cash, and security issues—the investor might be looking for a 40%-to-50% return.
News emerges every day about the changing laws and guidance from accrediting organizations and the government. The new guide’s contributors, Ron Seigneur (Seigneur Gustafson LLP) and Jim Marty (Bridge West CPAs and Consultants LLC), both of whom are practitioners based in Colorado, one of the first states to legalize adult recreational cannabis, covered these issues.
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