How to Value a Pot Stock
While cannabis investors are distracted by seeds and crop yields, corporations with M&A in mind see a more lucrative future in brand-building and retail.
Definitely valuable, but difficult to quantify.
Photographer: Chris Roussakis/BloombergCannabis growers have hardly any revenue and their product is still illegal in their most desirable market, the U.S. That’s not stopping investors and corporate giants from spending billions of dollars to take stakes in these companies. They obviously see growth potential. And yet the question remains, how do you even value a pot business?
Altria Group Inc., the U.S. tobacco leader and maker of Marlboro cigarettes, announced in December that it was buying 45 percent of Cronos Group Inc., one of Canada’s growing number of cannabis producers and among the industry’s high-flying stocks. The $1.8 billion transaction left us wondering: How did Altria determine that price? After all, in the period before the deal, Cronos generated sales of less than $4 million – no, that’s not a typo – and certainly no profits. Recreational pot had only just become legal in Canada two months earlier. Altria, a $105 billion market-cap company that rarely does splashy deals, placed immense value on a barely existent business in a nascent market.