EisnerAmper’s Tax Guide can help you identify opportunities to minimize tax exposure, accomplish your financial goals and preserve your family’s wealth.
This scale and age of the industry has created many questions for potential operators, investors and the general public.Despite the difference in legality state-by-state, and on the federal level, cannabis entities are businesses with revenue and growth that need, and can be, valued like any business, with some slight adjustments.There are three approaches to valuation; all can be used to value a cannabis business.
The asset approach for valuation reviews the net asset value of the entity by subtracting the fair market value of liabilities from the assets.
Due to this risk, it is difficult to properly determine the ability to raise necessary capital for start-ups and as companies try to keep up with demands and potential expansions.It is important to see where the MORE Act now goes legislatively as it awaits consideration in the U.S.
280E states that all costs except for those directly linked to production, processing and storage of cannabis must be considered non-deductible items when determining taxable income, cutting into what is otherwise a relatively straightforward and profitable business.
Rapid Industry ChangesThe cannabis industry for growers, processors, and retailers, continues to be in a constant state of change to the point of being considered volatile.
Additionally, many comparable companies are in the early stages of growth, resulting in inaccurate multiples due to the instability associated with young companies.
Dependence on ProjectionsWithout any market data or material years of historical data for the businesses at hand, valuations will need to rely heavily upon cash flow projections.
Now that the Federal Government is moving legislation through with the MORE Act of 2021 there is another layer of uncertainty in the near term affecting the industry.
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