March 17, 2016
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What’s the value of a marijuana license? I’ve tackled that question on the Cannabiz Media blog before when I shared some of the top marijuana valuation factors, but as more states legalize marijuana for recreational use and laws continue to change, some unique factors arise that could significantly affect the value of a marijuana license in one state versus another.
For example, Alaska began accepting applications for retail marijuana businesses in February, and already some new license valuation factors have arisen. Let’s take a closer look:
As we all know, Alaska is a big state, and many people live in very remote towns. A remotely located marijuana retailer faces some challenges that can affect the value of its license. Specifically, consider the inability for marijuana-related businesses to get bank accounts. Yes, this causes a lot of financial issues that can affect the business’ profitability, but depending on the retailer’s location, the problem is exacerbated.
Here’s what’s happening. Since it’s very difficult for marijuana-related businesses to get bank accounts, they’re forced to pay their payroll and other taxes to the IRS in cash. The IRS only accepts cash payments at specific IRS offices. As Elizabeth Earl of Peninsula Clarion explains, marijuana business owners have to drive to Anchorage often to pay their taxes to the IRS.
It’s a security risk to drive long distances with a large amount of cash, but marijuana business owners are left with only two choices: make the frequent trek and hope all goes well or pay for an armored carrier to deliver the cash. Either way, the challenge eats into the business owner’s profits making the marijuana license less valuable than a comparable license in another state might be.
Marijuana cultivators are also hindered by location. Earl explains that in Alaska, all cultivators must have their products tested and approved by a state-licensed testing facility before those products can be sold. Cultivators in remote locations must transport their products long distances for testing, which causes extra expenses and negatively impacts profits and the value of the license.
Cash transportation issues are mentioned in #1 above, but there are more security problems that can negatively affect the value of a marijuana license in one state compared to other states. For example, in Alaska, all marijuana-related businesses must use high-definition security cameras and those cameras must run 24 hours per day, seven days per week, and 365 days per year. They’re also required to store all video footage for 40 days.
Not only do those requirements equate to expensive equipment, but the cost to store all of that video content can be problematic as well. In Alaska, internet connectivity can be limited. Marijuana-related businesses can’t rely on the cloud to upload and store large video files from multiple high-definition cameras. Instead, many have to purchase and maintain their own servers to meet the surveillance video storage requirements.
All of these security-related expenses add up quickly, and each one negatively affects the business’ profits. When considering the value of a marijuana license, it would seem that licenses in states with less expensive security requirements and fewer logistical problems would be more valuable than others.
Some states require more than a marijuana license to work in the marijuana industry. In Alaska, all marijuana business owners and employees must have marijuana handling licenses, but that’s not all. They must get a Marijuana Handler Certification from a teacher who has been accredited by the state, too.
Depending on where a business owner or employee lives, the distance to an accredited teacher could be very far. People are submitting applications to teach handler certification classes already, and it appears that the fees for the actual class could vary. This is yet another unique factor that can have an impact on profits and therefore, on license valuation.
The marijuana industry is changing and a lot of big players with deep pockets want to get involved. The value of marijuana licenses will become a hot topic in the near future, and with so many changing laws, valuation will certainly be a moving target.
Cannabiz Media is working to develop valuation criteria using the data in the Cannabiz Database. Subscribe to our newsletter so you’re among the first to get the details!
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