Despite the challenges in the Michigan market, cannabis operators are preparing to expand.
The 2023 Michigan Cannabis CFO Outlook found that a quarter of cannabis companies in the state were actively seeking capital for expansion at this time, while nearly half said they plan to look for capital within the next 12 months.
The data, analyzed by A&K Research for use by Rehman Business Consulting, represented cannabis companies with revenue ranging from $5 million to more than $100 million. Nearly half – 47% – of the participants said they were vertically integrated.
The companies surveyed also said they believe that the average annual revenue per cannabis store in Michigan is between $1 million and $3 million.
Not for Sale
The report also noted that the heady days of mergers may be over, as only 22% said they were likely to close on an acquisition in the next year. Companies that said they would not or were not likely to close an acquisition in the next 12 months accounts for 61% of the respondents.
Nearly one-third of CFOs surveyed – 66% – said they had no intention of selling their business. Only 17% said they were in the process of getting out and another 17% said they were thinking of selling.
Those considering selling also lowered their expectations of the ticket price for a company. Back in 2022, 44% of respondents thought they could get between 4x-5x EBITDA. Fast forward to 2023, and more than 50% have dropped that number to 2X-4x.
While 280E gets bounced around Washington D.C., Michigan cannabis operators say that they are paying an effective tax rate of 41% or more in 2023. What seemed unusual about those surveyed is that 53% said they weren’t using any state or local tax exemptions.
Interest rates for cannabis companies ranged from good to bad. A lucky 18% reported having no debt, and 24% said their interest rate on debt was less than 7%. However, 18% reported rates of 10-12% and 24% are getting dinged with rates of 16% or more.
Owners also have no desire to share the wealth with their employees. A majority of the companies (71%) are not rewarding employees with equity grants.
Less than half cover at least half of the health care costs for their employees.
These Michiganders are a positive bunch. Almost half of this group expects prices to stabilize in the next one to three years. However, 32% threw in the towel and said they have no idea when prices will stabilize.