Cannabis Valuations 'More Mathematical, More Balance Sheet Driven' Than Before: Insights From Industry Experts

“At the start, we weren’t really valuing companies at all. It was based on market potential,” Aaron Grey of Alliance Global Partners highlighted during a deep-dive session on the evolution of cannabis company valuations at the Benzinga Cannabis Capital Conference in Hollywood, Florida.

The panel discussion featured industry experts like Tahira Rehmatullah from Highlands Venture Partners, who shared insights on how the focus has moved from growth at all costs to operational efficiency and profitability.

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“What we see now is a shift towards metrics that emphasize longevity in a company,” she explained, noting the industry’s move towards more financially sustainable practices.

Grey added: “Back in 2019, a lot of RTOs were occurring, and it was all about what states had exposure and potential for conversion to adult use. Now, we talk about balance sheets and cash flow first with investors.”

Meanwhile, Sander Zagzebski, co-chair of the cannabis industry practice group at Clark Hill, discussed the legal and regulatory challenges affecting valuations.

“You’re probably talking to the wrong lawyer if they’re advising on financial metrics,” he joked, before getting serious about how legal uncertainties influence financial evaluations. “Valuations have moved from a wishy-washy concept to something more mathematical, more balance sheet driven than we’ve seen in the past.”

Equity analyst Pablo Zuanic also chimed in on the need for industry-specific valuation metrics. “Cannabis isn’t yet at a point where it can be valued like a regular industry. We still use metrics like EBITDA, but it’s not ideal given the regulatory complexities,” he said.

The Impact Of Technology On Cannabis Valuation

Moderator Tim Seymour, from Seymour Asset Management, kicked off another interesting discussion by highlighting the dynamic changes in cannabis technology: “The cannabis sector is increasingly influenced by technology, which is starting to blur traditional boundaries within the industry.”

Rehmatullah elaborated on this point, providing concrete examples of how technological integration is playing a transformative role.

“Companies are leveraging technology to enhance their operational capabilities,” she stated. “For instance, data analytics and AI are being used not just for internal processes but are expanding into customer-facing applications, improving market reach and customer service.”

She also discussed the cross-over potential of cannabis tech into other sectors. “There are cannabis tech companies that are not just confined to this industry. They are branching out, applying their technologies in other markets where data and operational efficiency play critical roles,” Rehmatullah noted.

Furthermore, she highlighted how these technological advancements are vital for the industry's growth and are becoming increasingly central in valuation discussions.

“The use of technology in optimizing supply chains and improving compliance protocols has also become a critical factor in evaluating a cannabis company’s worth,” added Seymour, stressing the growing importance of tech in operational strategies.

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Photo: Quentin Dupree