Amid Rising Debt Rates, 82% Of Michigan Cannabis Businesses Bear Debt: Are Sales On The Horizon?

Rehmann, a professional advisory firm, published its 2023 Michigan Cannabis CFO Outlook Report Thursday in partnership with A&K Research. The report shares important insights into some of the challenges cannabis operators face and provides a comparison with last year’s survey results. 

“We are excited to make this important data accessible and comprehensible to cannabis business leaders for a second year in a row,” stated Chris Rosmarin, CPA and principal at Rehmann. “The 2023 report provides current and future cannabis entrepreneurs and finance professionals with a temperature check on the current state of the industry from a financial perspective as well as predictive snapshots of its future.”

So, what’s changed and what’s the same in the Michigan marijuana market? 

Key Takeaways 

The second annual award-winning report reveals the following:

• 66% of companies are not considering or in the process of selling their business, while 17% are in the process, and 17% are considering doing so.

• Almost half (42%) of participating businesses plan on seeking capital within the next 12 months.

• Two-thirds (67%) of the companies considering selling are in the $11 million to $100 million revenue range while 67% currently selling are in the $26 million to $100 million revenue range.

• The percentage of inventory overhead being allocated under Section 280E varied across the board, with nearly one in five participants (23%) allocating more than 25%.

• 53% of participating businesses are not using any state or local tax exemption.

• Unlike 2022, where 44% of those surveyed expected an EBITDA multiple of 4–5x from merger and acquisition deals, only 11% in 2023 expect those multiples. Half of executives surveyed in 2023 expect a multiple of 2–4x. 

• While in 2022, 41% was paying 10–12% interest rate on their debt in 2022 (compared to 18%

•  in 2023), the higher rate environment can be seen in 2023 as 24% are paying 16% or more. Another 24% are taking advantage of rates obtained prior to 2023 (less than 7% interest — similar to 2022). Nearly one in five (18%) have no debt.

• 47% surveyed believe the annual average revenue per cannabis store in Michigan is between $1 million and $3 million. 

• Nearly half (42%) of participating cannabis company executives think 51-75% of wholesalers are losing money at the current price points. 

• Almost half (47%) think that the Cannabis Regulatory Agency is doing a good job of regulating Michigan’s cannabis industry, compared to 25% last year. 

“As the Michigan cannabis industry continues to grow, many businesses do not have the proper guidance and thus struggle to manage their growth,” stated Erik Schumacher, CPA and principal at Rehmann. “We hope the report provides businesses with the clarity and information they need to make educated decisions and expand their businesses.”

See Also: Michigan Update: Tribal Cannabis Progress And Local Politicians Imprisoned For Corruption

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