On Valuing “Illegal” Businesses – What Can You Sell A Cannabis Joint For?

by ExitAdvisor · 24th November 2016

What Can You Sell A Cannabis Joint For? OK, now that we’ve got the pun out of the way, how do you value a cannabis business selling a product that’s legal where the business is located, but illegal elsewhere?

This article looks at the valuation of these businesses and how you compensate (or discount) for the additional risk involved in the sale of the main product.

When considering risk in a cannabis business, never forget that the federal government considers selling cannabis illegal. You need to understand the Department of Justice memos and the IRS chief counsel’s memo, and consider how they affect your risk.

These memos certainly appear to reduce risk; the Department of Justice is saying, “If the dispensary owner stays compliant, you are actually doing what we want you to do.” In fact, the Cole memo basically quotes the Colorado regulatory system, and the guidance it provides is being practiced in Colorado and Washington.

Nevertheless, even if dispensaries are playing by the rules, the Department of Justice is watching. If cannabis businesses break any of the rules — for instance, if the cannabis is consumed or grown on public lands, if it gets into the hands of children or if it crosses state lines — then there is an issue. Valuing a business based on a product that is illegal to grow and sell under current federal law