DECONSTRUCTED: THE CANNABIS PRO-FORMA MODEL
The pro-forma financial model remains a staple of any capital markets transaction and it is the rare investor that disregards it. The logic underlying a corporate model highlights management’s investment process and is thus informative to the investor’s capital allocation decision. A sound investment process identifies and tracks performance indicators, extracts implicit assumptions, subjects these to testing and then articulates the results into investment decisions based on established value.
While projections consistently lack the inevitable realities of recession impact, cash-flow shortfalls, cost overruns and intense price corrections, companies with operating history have the advantage of historical data and investors can thus base decision-making on accomplishments in addition to projections. Management savvy, peer comparisons, market traction and incentive structures are all revealed from historical data and are useful indicators as to how management might perform in the future as allocators of your investment capital.
Components of a robust pro-forma financial model include:
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