An Introduction to the Oregon Marijuana Industry

By: Eli Neal

Business Valuation – The Marijuana Chronicles #1

The legal marijuana industry is one of the fastest growing industries in the United States and the State of Oregon.

In mid-January 2017, the Portland Business Journal held a Business of Cannabis Panel which featured:

  • Sara Batterby, President & CEO, Hifi Farms;
  • Chris Masse, Partner, Miller Nash Graham and Dunn; and
  • Donald Morse, Chairman of the Oregon Cannabis Business Council.

All three panelists mentioned the need for business professionals such as accountants, lawyers, and valuation experts to embrace the expanding legal marijuana industry. Business Valuation Resources also recently hosted a webinar titled “Marijuana: Value Drivers and Valuation Issues to Know in 2017” to expose valuation professionals to the industry. Both Ed Keating of Cannabiz Media and Jim Marty of Jim Marty and Associates, LLC discussed the plentiful business opportunities within the marijuana industry.

According to a study recently published by Arcview Market Research, North American consumers spent $6.9 billion on legal cannabis products in 2016, an increase of more than 30% from $5.1 billion in 2015. On November 8, 2016, Californians voted to legalize recreational use of marijuana. Legalization within California has huge implications for increasing the legal spending on cannabis products in the next few years as the state is the most populous in the US.

Looking at the recreational, medical, and illicit market, consumer spending in North America amounted to an estimated $53.3 billion in 2016, of which 87% was spent outside legal channels according to Arcview Market Research. For comparison, in 2016, US craft beer sales were estimated to be $22.3 billion and US wine sales were estimated to be $38 billion. The marijuana industry is projected to be incredibly large.

Based on the size of the industry at stake, it is not surprising that states legalizing marijuana sales and consumption are witnessing huge capital injections from angel investors; the state of Oregon is among those states realizing the benefits. However, the sudden legality of both medical and recreational marijuana in Oregon has created a fragmented industry with many players.

The 2017 Marijuana Licensing Reference Guide compiled by Cannabiz Media reported the following licenses issued by Oregon:

Type of LicenseNumber of Licenses
Cultivators / Growers281
Dispensaries423
Wholesalers5
Testing Facilities5

 

We expect the fragmented market of cultivators/growers and dispensaries will likely consolidate over the coming years as market winners and losers are identified. Inevitably, the marijuana industry will likely go through a period of mergers and acquisitions which will necessitate business valuations as the basis for equitable transactions.  Business owners executing buy/sell clauses in their operating agreements will also depend on business valuations to complete a clean transition.

Throughout this blog series, we plan to walk you through the challenges and key concepts for the valuation of a marijuana business.

If you’d like to know more, give us a call at 503-467-7903 and we’d be happy to have a conversation with you.

Written by: Eli C. Neal, CPA

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Definitions:

Cultivators / Growers – A person or entity who grows marijuana. Also called a processor or a grower.

Dispensaries – A business that sells medical marijuana products directly to registered and/or qualifying patients. In states that have legalized medical and recreational marijuana, dispensaries and retailers could be the same.

Wholesaler – A business that purchases in bulk and sells to other licensees rather than directly to consumers.

Testing Facilities – An entity that tests marijuana in a lab environment based on rules established by the state.