On October 31st, our Audit Partner Marko Glisic discussed his first-hand knowledge on how to develop a thoughtful valuation of cannabis Manufacturing, Distribution, and Ancillary businesses.

This was the third part of the cannabis business valuation series.  

If you want help with a valuation for your cannabis business, then please contact us to get started or call 800-674-9050.

You can watch the full webinar here:

Parts 1 & 2 from our cannabis business valuation series are below:

You can also listen to the full audio here:

You can download the slides here.

Full Webinar Transcript:

As far as the agenda for today, we’re going to do a quick recap of the previous Webinar. We’re going to revisit the discounted cash flow model because again, I think it’s a very, very important topic and then we’re going to dive more into cannabis manufacturing, distribution & ancillary business valuation.

And so, what I’m going to talk about when I say distro businesses really what I mean is businesses that are taking the product either from cultivators, manufacturers – they’re taking the flower, the trim, the biomass for further processing. Or they’re taking the product from manufacturers to retailers, right? They’re taking it to the dispensaries and delivery services. I’m really not talking about the delivery guys that kind of go to your house, right? And when you talk about manufacturing businesses, you know, some of the examples are the edibles company. Or the company the that makes chocolate infused THC, or CBD infused THC, or Gummy bears, a different type of concentrates, oils, tinctures, that type of stuff.

But first a little bit about us. So we started off as a tax preparation shop. We’ve completed over 500 annual tax returns for cannabis operators across all verticals. So cannabis dispensaries distribution, cultivation, manufacturing, delivery and testing. We have over 300 clients based in Colorado, California, Michigan, Oregon, and Washington. We have performed over a dozen audit related projects in the last year and we expect to hit seven digits in revenues in our second business year. We really have a thorough and deep understanding of tax compliance and insurance related matters for cannabis industry. I mean, we really do bring a deep bench of CPAs and CFAs.

First, let’s quickly kind of do a recap of the previous webinars.

So we covered the valuations for cannabis cultivation and retailers and we understood the key assumptions driving the business valuations, the importance of doing your due diligence by looking at point of sale systems, payroll systems, accounting software, and really by going there and visiting the operation. Seeing the buildings, seeing the cultivation, seeing how their dispensary operation works. Again, another important concept is that companies can be turned around and very often there’s some great gems sitting there and lastly, making sure that your potential target is compliant when it comes to taxes, licensing and other compliance matters.

All right guys, so let’s get started with the DCF model. I know we hit on it before but, and the reason I really, really want to stress it is because I really believe it’s very, very important. It really is the best way to value cannabis businesses and so when we start diving into business assumptions for cannabis manufacturing and distribution companies, I want you guys to see the big picture, you know, how it all fits together, right?

So if we look at our DCF model, you can really kind of break it out into two parts, right? We have our business assumptions and we our valuation assumptions, right? So everything in the top highlighted blue is our business assumptions and everything in the bottom highlighted pink, are our valuation assumptions. And valuation assumptions, it’s really kind of the stuff that comes from the finance theory and modeling, right? And it’s really just a matter of really having a deep understanding of finance. Things like how do you develop the discount rate, you know or, what’s the proper math and calculation for those and those things don’t really change the methodology and calculations doesn’t really change as you’re kind of moving from cultivation to retail to manufacturing to distribution.

Now as far as the business assumptions, that’s something that’s really, really unique. It’s really going to vary by different verticals. But again, it can be summarized by, “Hey, you know, what are the sales, what are the earnings. What is the EBITDA also known as earnings before income tax, depreciation, amortization. What are those amounts?”

Because those amounts really tell you what’s the cash flow? What’s the cash that stays with you, the investor and once you have that info, then you can really complete the financial model. And again, as we previously mentioned, the higher the cash flows, the more the value the business has. Now as far as the business assumptions from manufacturing, distro, and ancillary businesses, they’re going to be very similar because again, these are a similar type of businesses. Again, if you break it out, it’s really business to business kind of wholesale distribution model, salespeople, boots on the ground.

So again, those bits are going to be very similar, which is the reason why we’re putting them in one presentation. Obviously, there’s going to be some uniqueness, but for the most part is going to be very, very similar.

Alright, so let’s take a look how projections and business assumptions look for like manufacturing distro operation. At the top we have our revenues. With revenues it’s really just how much we have sold of a product for a certain time period. Whether it’s a day, a month or a year. From there then we’re backing out all the expenses. And the first expenses that come up are really the cost of production. Or also known as cost of goods sold or just more simply COGS. So things you tend to see there: it’s like the raw materials, the labor, the packaging.

And all these costs, they are what’s called variable costs. The more you produce the higher those costs are going to be. It’s going to scale with your revenues. If your revenues go from $2 million to $5 million, your raw materials, your labor, your packaging costs are going to go up. So they’re variable, and scale with revenues, higher revenues, higher costs. Once you subtract those costs of goods sold from revenues, what you get is your gross margin. And that’s a good indication of how healthy and operation is, how much it’s getting in top line profitability. From there we’re going into the other expenses which you call below the line. So we’re talking about selling, marketing, distribution, overhead. Some of these are going to be variable costs and some of these going to be fixed.

So, if we’re looking at selling expenses, if you want to go from $5 million revenues to $10 million, you’re probably going to need more salespeople. You’re probably going to have to spend more on marketing and that’s the reason why these costs are also variable costs. For fixed costs we’re talking about rent, utilities, accounting, legal costs – these are fixed. So whether you’re doing $5 or $10 million in revenues for the most part, they’re going to be pretty similar from month to month. And so as that revenue scales, those are staying the same. And once you back that out really what you’re getting is your operating income and EBITDA. And this is a really good indicator of what’s the cashflow. Kind of, “Hey, this is how much we have sold, this is the things we’ve spent our money on…so materials, labor, packaging, rent, salespeople, marketing people. And this is what the take home is, that we can then reinvest back into business or we can distribute to the owners.

And so then what I want you guys to see is then how does this EBITDA in all these business assumptions again feed back into that DCF model, right? So we’re going to revisit the DCF slide again for the 15th time, but again, it’s important, but I want you guys to see right here in the top we have those business assumptions and here’s our EBITDA, which is really kind of the main driver of the cashflows. So again, as long as those business assumptions and the projection shake out and they’re good, we can really get to a good indication of value in kind of, hey, how much I should pay for this business. And so again, I think that that’s really kind of what I want you guys to grasp. Now let’s tackle each financial statement, line items in those businesses assumptions, right? So let’s first start off with revenues, right?

With a top line. And so there’s really kind of two ways that they could look at it. One is from bottom up and the other way is from top down. Both are useful in a very important, right? So if we’re looking for bottom up pretty much we’re looking at is we’re kind of trying to get a sense of the capacity, right, of the machinery and equipment, this piece of equipment that this business has that I’m looking to invest, you know, how many units can really produce, right? If we’re running this machine and then maximum capacity which is banging out product day in, day out, just constant production runs and we can sell that product really like how many units can that produce, right? And now if I take those units produced times the price of selling them is going to give me an indication of the revenues, right?

So that number can be, hey, this machine can produce a million units a year and you know, if we multiply that by 30, we get $30 million, right? And why this is important is it kind of puts the break on the projections, right? So you know, if you’re looking at projections in the capacities, 30 million, but they’re projecting $60,000,000, that’s a big gap. Let’s, let’s look into this. What is going on, right? And then that’s going to also tell you, hey, do we need to invent some additional money to kind of keep scaling this business ride if they’re already at capacity, will get then really the only way we can scale this is more money needs to be invested in and again, in some cases buying this equipment and can be pretty expensive. So it’s good to know these things ahead of time.

Now as far as top down, we’re kind of really more looking at how many dispatchers is business projecting to sell to, you know, kind of what’s the average size of a dispensary purchase, you know, what’s the product mix and with product mix you can go in a lot of detail, right?

So how much of edibles are being sold versus concentrates, you know, how many of these are branded products, our own branded products versus white-labeled, you know, within that kind of what are the different packaging. And this is very, very important information because you really kind of breaks down the operation and gives you a full understanding. Right? So for example, let’s say branded versus white label, generally white label products have a lower margin, right? So you really want to know kind of how the distribution is taking place, right? And as far as kind of due diligence in getting comfortable with those projections, again go back to their actuals and we’re really, really going to look through and dig into is going to be their billing software, right? So every company needs to have a billing system, right where they generate an invoice for a dispensary that indicates, Hey, we’ve sold you this product at this price and that’s, that’s very important.

Number one, they need to have that from a compliance perspective. And then number two, it’s going to be a great source of data for you to really kind of understand their revenues and their top line far as a white label product. You have a lot of brands out there that, you know, they have a great brand. A lot of customers love them, but they don’t really want to do their own production. And so what they’ll do is they’ll partner up with a manufacturer and they’re going to tell him, hey, manufactured, your job is to produce our product, here’s the recipe, here’s how to do it, and your job is to produce an distributed or maybe just, hey, just producing, we’re going to take it and we’re going to distribute it. Versus a manufacturer might have their own brand, right where they own this brand, they market it and they kind of get the full benefit, kind of what you see with the, with the cost structure, right?

If you’re running with a white label product, you’re a manufacturer and you have a lot of white label products in addition to all those costs, ride the cost to produce, ride the raw materials, the labor, the packaging, right? On top of that, you’ll have to also pay somebody for the right to produce that product. Now from revenues, let’s dive down into expenses.

So first, again, let’s start off with variable expenses in number one, expense there’s cost of goods sold or a cost to produce. Now with cost of goods sold we really, really want to drill down into is what’s called unit economics and it’s a fancy word, but really what it means is how much does it cost to produce just one item of product, you know, and you can go into a lot of detail, there can be one product for a particular product type for one edible or for one concentrate.

So really what you’re looking for is you know, how much labor costs, how much raw materials you know, and how much packaging is necessary just for that one item. Now, once you know that cost, you can compare that to the selling price and that’s going to give you a gross margin by product. So now you have a pretty good sense of how well the businesses doing ride, you know, do they have 60, 50, 40 percent margin for a particular product? And again, you can go into lot of detail with that stuff. You can see, okay, for these brands, was the cost to produce him? Was the margin okay? For edibles in total was the cost to produce and what’s margin right for concentrates was the cost of produce and was the margin and kind of really, once you understand that gross margin and cost to produce, it’s a lot easier that to get comfortable with those projections.

So now revenues are going from 5 million to 10 million to 20 million. You can kind of get comfortable with kind of the projected costs because you really kind of understand what that unit cost is, you know, how much does it cost to produce one unit and so now you’re really just kind of multiplying it, but the number of products that are being produced now from there, let’s jump into the outer expenses. These are below the gross margin expenses and a lot of these are also variable in. So number one expense there that you see with a lot of manufacturing operations is the selling expense and really with the selling expense, you really want to understand the break out of it, how much it goes to the salaries of sales personnel. You know, how does the commission structure look, you know, how many salespeople they need and what their metrics look like.

You know like one salesperson, how many dispensaries can he visit per day, per month, per year, and once you really kind of understand those metrics and that cost structure, again it’s a lot easier than to get comfortable with the projections, right? Because now if their revenues are going from $5 million to 10 million. You’ll know exactly what that cost looks like, right? Because you know how many salespeople need to be hired and how much the business has to pay for them, right? And out of that payment, how much is it going to be kind of fixed salary and how much is it going to be commissioned as far as the distribution costs. Again, it’s also a variable cost is sales, increased distribution costs increases. These you want to understand what’s their approach for distribution, is it outsourced and where they find a distribution company that they pay certain percentage and those guys do all the distribution or is it done in house with distribution and always of want to look at it as, as a percentage of revenues and kind of get a sense here they’re spending eight percent, 10 percent, 12 percent, 15 percent, and again, you know, as revenue scale you’ll have a pretty good understanding how the distribution costs should behave.

Also because if it was 10 percent I had $5 million, you know, it’s probably going to be 10 percent at 10 million or 15 or 20. And then really the last variable expense that we have is the marketing expense. And this is an item that’s kind of very often overlooked, but it’s very important to understand the company’s marketing strategy and, you know, what are they using? Is it weedmaps, is Instagram ram as kind of door to doors and flyers. Within really understanding their marketing strategy and distribution, you also understand their marketing efficiency, right? So kind of what’s their return on investment for marketing and again it’s a fancy word, but really what it means. Right? And really what we’re trying to understand here is you know, for that company really just to get one more sale, you know, to get one more dispensary, how much money needs to spend in terms of those marketing expenditures and out of all those channels, what’s really the most efficient and cheapest ways to do it.

You know, hey, if we spend five thousand on weedmaps per month, you know, we’re going to get x number of customers coming in when projecting revenues, this number is going to help a lot because you understand now that relationship between marketing and revenues. So if revenues are going from 15 to $25 million, you know how much marketing costs go up by, you’ll know whether that company is kind of getting too pessimistic or optimistic with projections. And then after marketing expenses older we have is kind of more of the fixed costs of the usual stuff, ride the rent, utilities, salaries, security and we, those type of items. There’s kind of two important aspects to it. One is completeness is the company you’re acquiring to capturing all the costs in their projections and we see that all the time, you know, we’ll, we’ll walk through some of these due diligence deals or we’ll look at some of these projections and what we see.

There’s a lot of costs that they’re just one report, right? And so that complete, this part is very, very important. And then the second piece is really the accuracy, you know, are those amounts are accurate. And then also another important aspect here is just kind of also understanding how those fixed costs scale with revenues. Again, they’re fixed, which means kind of month to month for the most part it should be the same, you know, if you’re paying $5,000 for this facility to rent it out, you know it’s probably going to be $5,000 the next month, right? But at some point as an operation is trying to increase their revenues. If they’re at full capacity, that’s when their fixed costs have to rise to ride. So if out of this facility, we’re already operating 100 percent, you know, and we had, we get $50, million of revenues now to go from like 50 to 60 or 70 million, you know, we’ll probably need to open up a new facility.

Right? And that means that all those fixed costs will have to increase too. We’ll have to get a new facility we rent out, right. There’s going to be more utilities associated with that. There’s going to be more security costs associated with that. We’ll probably have to expand. Our accounting team will probably going to have to expand our compliance team. Right. So fixed costs, even though for the most part they’re fixed, it’s important. At what level do they kind of jump up to the, to the higher costs, right through the next level in as far as the due diligence for kind of all these operating costs, right? The selling, the marketing, the fixed costs, a good way to, to kind of find that information and where it gets captured. It will be in the company’s General Ledger and accounting software. Right? So, they’re QuickBooks, they’re Xero, Net Suite, whatever the software they’re using.

For marketing you also want to look at their platform analytics, right? So, they’re using Instagram, kind of the number of visits per page, things like that, right. For weed maps, kind of the analytics for weedmaps and as far as the due diligence for cost of goods sold, you know, all that information should be captioned the company’s inventory costing software, you know, where they kind of tracking the standard cause the variances, all that good stuff. But in some cases, you know when you walk into some of these companies they won’t necessarily have that system, which I guess when you acquired them you should definitely put it in place. But a good way to kind of work around that is you can take their total cost per ledger and then divided by the items sold. Right. And that’s going to give you also kind of your cost per product, but you’ll kind of won’t get the level of detail we talked about.

You won’t be able to really necessarily see granted margin and cost versus you know, white labeled. But at the same time, you’re, you’re going to get some sense of really kind of how, how well and really how, how efficiently they’re producing. And if they don’t have that type of system in place, that’s where you can kind of ask for discount on your purchase. You know, hey, you guys don’t really have strong controls and strong financial reporting. You know, you’re not tracking the information you need to run this business. If you want me to get in and set this things up, we require some sort of discount on this investment…work with us. Also some other stuff you want to look at is their balance sheet. Right? So how much cash they have on hand kind of was the amount and quality of their receivables.

You know, how much dispensaries owe them? Is it 50, is it 70, 100 k? And then you also understand the quality of those receivables. You know, are any of the dispensaries late on paying them those receivables, that’s indication of them having poor credit requirements for dispensary’s because you know, they might be making all these sales, and everything is great, right? But they’re just not collecting the money and again, that’s an indication of bad controls and around receivables, money collection, et cetera. And it’s going to give you that opening to really ask for a better price for a better deal on this investment. You also want to take a look at their inventory, you know, how much inventory they have on hand and how much that inventory’s age, you know, do they really have some items in there that they haven’t sold for 60, 90, 100 days?

And the question is, are they going to be able to sell that product? You’ll want to take a look at their equipment again is we’re kind of going back to the revenues. You want to get a sense of what’s the value of that equipment and how much you can produce, you know, what’s it’s capacity, right? Because then he’s going to tell you, hey, you know, we got to scale this now from 20 to 50 million, you know, how much money do we have to put into this operation?

And lastly you want to take a look at their liabilities, right? Like who they owe money to, is it the vendors are the up to date with their taxes, you know, the income tax, the payroll tax and a lot of this info, again, it’s going to be capturing their general ledger and accounting software, you know, balance sheet, somethings can be difficult to analyze, but if you kind of get the proper team that has strong accounting and finance background kind of combined with the cannabis expertise, you can get to the bottom of a lot of these things.

And lastly, we also want to take a look at their controls and financial reporting ride kind of was the strength of their controls are on cash, you know, was the strength of their controls are on inventory, right? You know, poor practices around these items are again, indication of a company that’s poorly run, you know, and if you’re going to walk into something like this, it can be still worth walking into it when you want to make sure you’re getting a deal for it, you know, and kind of these things are really going to give you the ammo to Ashford that deal. Some companies, they won’t really do any bank reconciliations, you know, or they’re going to wait for them for four months. Right. That’s a really poor cash control. Right? Or they’re doing their cash counts, you know, every once in a while, as opposed to doing them daily or weekly ride, you know, they have a big, big difference kind of between the cash on hand versus the actual cash that gets counted.

And so, all these items are really then indication of poor cash controls, you know, as far as inventory has access to an inventory, how often do they count the inventory? You know, how often does that inventory turnaround, you know, all these items again or indication of how good or how bad their controls are in that pretty much completes kind of the key business assumptions for manufacturing operations.

You know, let’s now dive a little bit of pure distribution companies, kind of above, we covered a little bit. Some of those different distribution models and that some stuff that goes into it, you know, you can either be outsourced or it can be done in house. You know, some companies, even though you don’t see it as much a just pure district companies, and again it’s really just a matter of fact when the same way they’re really a B2B business to business operation, right?

They kind of have boots in the ground, they have online marketing and you know when looking at them you kind of look at want to look at all those things we’ve covered, right? How many people they’re selling to, what’s their revenue model? How many clients do they have, you know, what kind of equipment did they have was the value of that equipment. What are the costs? Look like, you know, things like gas, software, leases, ran securities in a lot of ways. I mean those distros are, are fairly similar to manufacturing companies and same thing as cannabis. Ancillary businesses, you know, there’s a lot of different businesses, right? You have cultivation equipment sellers, you are going to have extraction equipment sellers, you know, you’re going to have dispensary displays, you’re going to have labels and packaging. There’s a lot of cannabis software companies out there like track and trace point of sale security software, right?

There’s a lot of professional services, right? Accounting, legal, marketing and kind of the stuff that we do. A lot of merchandising companies, a lot of accessory companies, right? Vape pens, bongs cannabis butter makers, you know, rolling paper diffusers. But again, all these companies, they are very similar in a sense that they’re B2B, right? They’re a business and they’re selling to another business, right? So it’s, it’s a wholesaling model and again, there’s some variation between them, but by and large, when you look at them and you analyze them, he’s going to be a similar approach, you know, what are they? Sales was the average selling price, how many people are they selling to was their costs for their service or their product, you know, how does that look at the scale, you know, what are they fixed cost, the rent, the utilities, and so we’re going to dive into, in a lot of detail in dose kind of referring to the above slides.

You kind of get a full picture of what those kind of look like to now. Also when I want to cover is kind of a couple of different distressed situations and synergies whenever you’re looking into an investment. A big part of that is just understanding the company’s competitive strengths and weaknesses, you know, so really kind of what really makes this company good at what they do, you know, was their strength and also what the, what are they poor at, you know, where do they lack, what are my strengths and why can I bring to the table and create a synergy, right? Kind of take my skills, my resources and their weaknesses and create something better and really increase the value of that company in a lot of that info can be glance from analyzing the actual results and key metrics, kind of the stuff we talked about, right?

So number of product produced sales by brand, you know, the cost to produce the gross margin. Really kind of looking at old those financial statement line items, understanding those key metrics. And what’s interesting in this industry is that there’s so many this trace distressed businesses and, and really what’s Kind of taking place here is that you have a new industry, right? And it’s composed of a bunch of different people. Right on, on one end, you know, you have a lot of this kind of cannabis fanatics, right? They’ve been in the industry for the longest time. They are very passionate about it. They kind of viewed in between like a hobby and a business. Right? And they’re great people, you know, they’re the ones that have said the foundation for that industry. But now as the industry’s going to the next level, this creates a lot of opportunity for really business, smart, savvy people that have great finance and business experience to jump in and really kind of turned things around and restructure it.

And so in some of these cases, you know, you might not actually need to have great cannabis experience or, or, or, or really, you know, a love and passion for it. But if you have a passion for numbers, running great businesses, I mean this is a great opportunity, you know, these things come one saw once in couple of decades, so, so this is the right time to jump in, look at the numbers, look at as businesses and really kind of solved that equation, you know, look at his metrics and see, hey, how can I turn these things around and take this business to the next level? So there’s kind of a couple of different scenarios with a, we put here together. Number one, you know, you can walk into a business, you kind of look at it and they have horrible margins, right? It’s a manufacturing company, but their margin is like 20, 25, 30 percent right.

And so number one is you want understand what’s driving that? Is it the selling price or is it the cost? Is the cost, you know, kind of let’s take a look at the breakout, you know, is it the labor or the raw materials is the packaging, this is their weakness and even though you kind of take a look at it, well gee, this looks terrible. Maybe there’s a way for you to exploit this and you’re going to tell them, hey, your margin is terrible. I want a deal on this investment, but you know, then on your end you’ll be able to solve it. It could be a variety of different ways you solve it, you know, maybe you really do have great production background or you know, somebody who can come in and restructured that. Right? Again, it could be a bunch of different reasons.

You know, maybe the equipment is bad and with that equipment and production setup, the extraction yields are just terrible. You know, it’s like yielding below 10 percent, you know, but if you bring in and purchase this type of equipment and you know, you have this chemists working here, you know it’s going to go up to like 13 percent. And the way I also want to want you to kind of look at this is kind of really looking at in terms of the dollars and the liquid, like very, very analytically, right? Got to go back to the numbers, hey, if we bring in this guy, we buy this equipment in our yields are going to go from again, let’s say nine to 14 percent and that’s going to increase our margin, but this percent, let’s say five percent, 10 percent. And now if we scaled revenues from 10 to $50 million, that’s going to mean our cash flows are a lot higher, right?

And so now if we go ahead and sell this business, we’re going to get a tremendous validation for it. And so really kind of taking that analytical approach is going to help in two ways. One, you know, what you’re kind of walking into, into down the road, you’ll kind of know, hey, we can by making these changes, you know, we can increase the valuation by this amount and when we sell it we’ll have a great ROI on our investment. And you know, some of the other reasons when the margins might be lowering the costs to produce my behind is just that the raw materials that businesses buying is too expensive. Right? And on your end you might already own a couple of businesses, rod, you might already know vendors and what you can do then is either, you know, you can buy a bulk and get a discount.

We just know vendors that they’ll sell your product that’s of the same quality and it will get you the same results, but for a smaller price. And again, you know, this might increase your margin by couple of percentage points, you know, and again that’s going to translate it better cash flows and better valuation down the road. You know, an another reason is that the production runs are set up very inefficiently, you know. So then kind of the cost to produce from one unit, they a lot of hours, right? A lot of labor. So in your end if you kind of come in and you restructure that production, bring your production manager to kind of really knows how to run those production runs and production team, you can cut down on that cost a lot, you know. And another thing you see what a lot is operation is that the spoilage is rampant.

You take a look at it and there’s a lot of raw materials that get wasted. And again, this is really making that cost to produce a lot high again in the same way you know, you really understand the productions and you can bring your, your production manager, you know, you guys can work through that ride. You can improve the production techniques and really reduce that spoilage to a small number. And again, I mean every operation should track this. And if you walk in corporation that’s not tracking this, that’s a reason for you to ask, ask for this kind of really right and get a get a better deal on this investment. Another situation you might run into is that the sales are low ride and there could be a variety of reasons for that, right? You know, they may have a great facility, right? The equipment is great, the capacities great.

And you know, they can run $58 million out of this facility, but they’re not, you know, their ability is to produce things that have a great margin, right? So kind of old ingredients are in place, but you kind of walk in and wow, the wire revenues show low. Really what it is, they just really lack market penetration. Right? And so, then there’s really different ways to tackle that and you really Kind of have to look at your strengths and your connection in the industry, right? So you might have a great distribution network, you know, you know, 300 dispensary’s and you know, you can tomorrow you can start getting their product into 300 dispensers, like right away. So that would be really great synergy. You know, you can buy this company the deal and within a year you can double their revenues or triple them or it might be okay.

So maybe you don’t have a great distribution now work, but you have great experience to running sales and marketing teams. Right? So, their problem is they’re really running those things inefficiently, right? If their sales commission is improperly structured, right? So their sales team isn’t, isn’t hustling enough. You know, maybe their sales maps in district are off, right. You know, one salesperson is only visiting a couple of dispensaries, whereas they should be visiting a lot more, right? Maybe they’re still script is just totally terrible and needs to be worked on. Right. You know, maybe their marketing strategy is just nonexistent or just very inefficient, right? They spend too much money at things that shouldn’t be spending off in spending too little money of the things they did they should spending on ride. So if you really kind of understand those things and you know how to do them, you can walk in and really kind of scale up those revenues.

What’s kind of fun with this valuations and the projects and acquisitions and investments is that it’s going to function of both things, right? On one hand you have the science, right? We look to that model, I mean that’s like a pure finance math, like it’s heavy, right? Like you changed this number and the value changes. Right? But that just one part of the equation, right? The other part, the bigger part is tough. We’re talking about now kind of the quality stuff, right? And that’s the art kind of understanding their strengths, understanding the weaknesses, you know, how can you jump in and change things around sometimes as far as kind of improving the low sales, you know, you might know a lot of great brands in the industry that are sick and tired of producing their own thing or maybe they’re just looking to find a manufacturer that can do it for them and there might be also out of state brands.

So kind of same thing, you know, you can, you know, if you acquire this company, you know, you’ll be able over the period of next year, bring all these brands onto their manufacturing facility ride and really kind of ramp up the sales. Another kind of opening you see in the market ride is that, you know, you have a lot of this, for example, Colorado companies that have a developed market there didn’t know their product works. They like, they know the demographics exactly right. Hey, we’re selling to men from 45 to like 56, right? Or Hey, we’re selling to women from 32 to 36. They have that data. They know it works, right? But the difficulty for them then is, hey, how do we get our product into California? We don’t have the license, right? Or, or to get the license. It’s very costly. And so there’s a huge market opportunity there that, you know, if you have a manufacturing license in California, you can bring a lot of these brands online, right?

Or if you’re looking to a company to buy a manufacturing company, that can be a quick and feasible way to really scale your revenues. Right? So you can say, hey, over the course of the next year, I’m going to bring all these brands right from Colorado, you know, from all these different states. I know they work now. Just got to take it to California and really take it to the next level and again, lead, just to kind of quickly wrap it up with a couple of takeaways. So one is, you know, evaluate these b2b cannabis operations along the same criteria, right? Because again, they’re very similar. They’re selling from their business and they’re selling to different business, you know, to take a look at their brand new kind of brand new versus white label. Take a look at their projections, the breakout of those projections, the costs, the margins focus a lot in distress businesses because again, there’s a lot of great opportunities there.

And lastly, a look at compliance licensing and taxes to make sure all those things are in order before you make that investment decision. And if you need help with any of these things, it’s important to really work with a strong team that has a deep accounting and finance expertise.

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