Social Justice and Civil Rights: 88% of the 7 million marijuana related arrests from 2001 to 2010 were for simple possession. Despite approximately 700,000 arrests a year, prices have dropped, potency has increased, cannabis is more accessible than ever and is consumed at higher rates every year.
Common Valuation Methodologies:
Comparable company analysis: This methodology is based on the premise that companies in the same industry that have similar characteristics are valued in a similar fashion. Common valuation measures include ROA, ROE, P/E, P/B, EV/Sales and EV/EBITDA.
Precedent transaction analysis: When the peer group available for comparison is limited, recent transaction in a similar sector can provide some basis. This technique has limitations, especially in industries that contain oligopolies or offer few precedent transactions.
Discounted Cash Flow analysis: This methodology is based on the assumption that over time a target company can be valued on the present value of its projected free cash flows (FCF). One must project the amount of operating FCF the company is likely to produce over a selected time-frame, and then discount these along with terminal value using the company’s weighted average cost of capital (WACC).
Pro-Forma analysis: Hypothetical financial statements assuming a consummated transaction are created to compare the cost savings and other financial benefits to a proposed combination. This method is known as recasting, and factors considered include headcount reductions, pricing power changes, facility closures, combined tax status, changes in WACC and revenue synergies.
Leveraged Buyout analysis: Since an LBO transaction generally alters the target company capital structure, this analysis includes pro-forma projections using post-acquisition assumptions. A DCF valuation is then conducted to determine if the proposed price and exit valuation contribute to an adequate return on invested capital.
Pre-revenue companies could also consider a variety of other valuation methodologies, including:
· Bill Payne method
· Berkus method
· Venture Capital method
· Risk Factor Summation method
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