Cannabis Valuations Plummet: West Coast Dispensaries See Major Drops

The cannabis industry, once characterized by sky-high valuations and rapid expansion, is now facing a harsh reality: dispensaries that were worth millions just a year ago are now struggling to find buyers at a fraction of that price. As Debra Borchardt noted in Green Market Report, according to Drew Mathews, CEO of Green Life Business, a leading cannabis business brokerage, the West Coast market has seen a dramatic decline in valuations, with some dispensaries losing up to 75% of their value.

“One store I'm selling would have sold for $2 million last year, but now it's listed for only $500,000,” Mathews revealed. This stark drop in value is indicative of a broader trend affecting cannabis businesses across California and beyond. The shift in market dynamics has been so severe that even dispensaries generating significant revenue are not immune. Mathews recently facilitated the sale of a business that, despite pulling in $10 million annually, sold for less than $4 million.

A Shift In Valuation Metrics

The primary driver behind this decline is a fundamental change in how cannabis businesses are being valued. “The California market is shifting away from basing valuations on top-line revenue to EBITDA (earnings before interest, taxes, depreciation and amortization) and net income,” Mathews explained to the GMR. This shift means that potential buyers are now more focused on a dispensary’s profitability rather than its gross sales.

Mathews noted that 40-50% of his buyers no longer even ask about the top-line revenue of a store. This change in priorities is pushing down valuations, especially for businesses that may have impressive sales figures but struggle with profitability. “I personally believe a dispensary in California that does a million dollars in sales is going to be worthless next year,” Mathews said. With operational costs often exceeding revenue, even a store generating $2 million in sales could be barely breaking even or operating at a loss.

Looking ahead, Mathews predicted that if the 280E tax provision is repealed—a change many in the industry are anticipating—valuations could drop even further. “That same store doing $2 million might go for a couple hundred grand,” he speculated.

Emerging Trends In Buyer Behavior

Despite these challenges, the market isn’t devoid of activity. In fact, the deep discounts are attracting a new wave of first-time buyers. Mathews observed that, despite the fire sale prices, “first-time cannabis buyers are still jumping in.” The allure of entering the market at rock-bottom prices is proving too tempting to resist for some investors.

Mathews shared an anecdote about a recent deal that highlights this trend. “We just sold a cultivation to these Chinese billionaires where this was their very first cannabis grow—in Desert Hot Springs of all places. $4 million, all cash,” he recounted. Such all-cash deals were more common during the industry’s boom years from 2018 to 2020, but they are making a comeback as valuations plummet.

What's Driving These New Buyers?

According to Mathews, it's the opportunity to capitalize on chaos. “Some of the best fortunes are made during chaos,” he remarked. These investors are banking on the belief that the market will eventually stabilize, and they're willing to take risks to secure a foothold in the industry.

Mathews revealed that his brokerage currently has 50 deals in escrow, with 10-12 of them involving first-time cannabis business buyers. “We've never seen that in history,” he emphasized, noting the unprecedented nature of this trend.