Michigan's cannabis industry is constantly evolving, and with a dynamic market, businesses must adapt and stay informed. With this in mind, Rehmann, a professional advisory firm, collaborated with A&K Research to release their 2023 Michigan Cannabis CFO Outlook Report. This report, offering a second-year perspective, sheds light on the financial challenges and opportunities that cannabis businesses encounter.
Chris Rosmarin, CPA and principal at Rehmann, remarked, "Our aim is to present pivotal data in an accessible and understandable format for cannabis business leaders. The 2023 edition not only offers a contemporary view of the financial landscape but also forecasts the trajectory of the industry."
But what does the Michigan marijuana landscape look like now compared to a year ago?
Stability in Ownership: 66% of the surveyed companies have no plans or are not in the process of selling their business. However, 17% are currently in the process, while the same percentage are contemplating the idea.
Capital Intentions: 42% of the businesses are considering raising capital in the upcoming year.
Business Valuation Range: Companies eyeing a sale predominantly (67%) fall within the $11 million to $100 million revenue bracket, and similarly, 67% of those actively selling also fall within the $26 million to $100 million revenue spectrum.
Tax Allocations under Section 280E: A diverse range was observed in inventory overhead allocation, with 23% of respondents allocating over 25%.
State and Local Tax Exemptions: Over half (53%) of the participating entities are not utilizing any state or local tax exemptions.
EBITDA Multiples in M&A: A shift from 2022's 44% expecting an EBITDA multiple of 4-5x in merger and acquisition deals to just 11% in 2023. Now, 50% anticipate a multiple range of 2-4x.
Interest Rates on Debt: 2023 witnesses a broader spectrum of interest rates. While 24% are subjected to rates of 16% or higher, another 24% are benefiting from pre-2023 rates of under 7%. Interestingly, 18% operate with zero debt.
Revenue Estimations: 47% of the surveyed individuals estimate that an average cannabis store in Michigan generates revenue between $1 million to $3 million annually.
Wholesale Operations: 42% believe that a significant portion (51-75%) of wholesalers are not profitable at the current pricing structures.
Regulatory Approval Ratings: Faith in the Cannabis Regulatory Agency seems to be growing, with 47% feeling they're doing an efficient job, marking a considerable increase from 25% in the previous year.
Erik Schumacher, CPA and principal at Rehmann, emphasized the report's significance by stating, "The burgeoning Michigan cannabis sector presents both growth and challenges. Our intent with this report is to arm businesses with the necessary information to navigate their journey and make informed decisions."
This report serves as a beacon for current and aspiring cannabis entrepreneurs in Michigan, ensuring they are well-equipped to face the challenges and seize the opportunities the market presents.
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