We here at DOPE CFO have been speaking at national conferences and to the press, CEOs, and accountants for quite sometime about how to do things correctly in cannabis accounting. But, we’ve been getting questions from investors, as well: from the billionaires (yes plural) who call us asking how to “fix” a bad investment with poor or no corporate governance, to the local millionaire wondering why he’s getting hit with a big cannabis tax bill, but no distribution from the company, to the average “Joe” on the street who wants to know how to win big in cannabis. We’re here to help. Here are some quick thoughts if you are dead-set on investing in this new industry.
First of all, I get it that right now you can make good money…even on the companies with horrible operations (ie without dropping names like “Med Men”). I also get it that you can make insane money on better run companies, even though they are spending (and losing) money faster than you can print it (ie Tillray, which at least doesn’t have employees, former CFO, and investors all suing them, not to mention the mass exodus of key executives).
Tillray MedMen Apple
2018 Revenues $48 Million $40 Million $261 Billion
Net (Loss)/Income ($67) Million ($66) Million $59 Billion
EBITDA ($33) Million ($56) Million $79 Billion
Market CAP App $5 Billion App $2 Billion $967 Billion
Revenue Multiple 100x 50x 3x
Notes: Med Men is involved in non-stop drama, litigation, disputes, and claims of almost every kind and is still valued at very high multiples. Med Men year ends 6/30. I have not examined Tillray or Med Men financials in depth but I expect we will learn more about their accounting, taxes, etc. over the upcoming years and will be surprised if their “books” don’t have major issues as well.
So what does this tell us?
Basically that regardless of astounding losses, poor governance, accounting, tax, banking, software, and legalization issues, investors big and small are still pouring money into these companies (public and private).
Whether you are just buying a few shares on a public exchange, investing a few hundred thousand in your best friends “grow,” or making a private equity investment of $10 Million or more, these are some things to look for regarding cannabis businesses:
In the old days we would work as accountants “inside” the company with the CEO as our boss. In the cannabis world, we like to think of the best structure to set up being similar to the “three branches of government” concept. The CEO and management team run the company, the Board and investors oversee and monitor the company, and the CFO/Cannabis accountant acts as an intermediary and reports both to the CEO and Board/Investors as an equal third party to ensure accuracy, compliance, transparency, and solid controls.