When the news broke in mid-January that Washington’s top two revenue generators in the retail marijuana market were looking to sell their stores, it sent ripples of surprise through the state’s cannabis industry. But to some, the bigger shock was the asking price for the six shops and licenses: $50 million.
Since the market opened in 2014, no two stores have produced more revenue than Ramsey Hamide’s Main Street Marijuana in Vancouver and Ian Eisenberg’s Uncle Ike’s Pot Shop in Seattle. Together, by the end of 2016, the two flagship stores had generated a total of more than $64 million in sales.
But is that enough to justify the asking price of $50 million?
The Big Ticket
Eisenberg and Hamide are friends who get together from time to time to talk business. Over dinner one evening, the two marijuana moguls began discussing the value of their shops. Both had been approached in the past about selling their businesses and are willing to listen to offers.
“Everything’s for sale at the right price,” Eisenberg said.
Recognizing that together, their businesses represent a massive chunk of Washington state’s recreational cannabis market, it made sense to join forces. Uncle Ike’s and Main Street are the top-grossing marijuana retail stores in the two largest markets in the Pacific Northwest — the Seattle metropolitan area has nearly 4 million residents, while the greater Portland region has more than 2 million.
“We just kind of both kicked the can around to try and come up with a valuation of our businesses,” Hamide said.
The final asking price of $50 million includes six stores and licenses, all intellectual property associated with the Main Street and Uncle Ike’s brands and all customer data.
“We both built pretty good brands,” agreed Eisenberg.
Because Eisenberg owns the Union Street property on which his primary store is located, he would retain ownership of the property, but lease it to the buyer.
Both said they felt the eight-figure price tag was not only fair, but actually a value for a buyer looking to get into the marijuana game in Washington, considering that the amount of revenue generated through the stores easily surpasses the asking price.
“This is about as cheap of a valuation as you’re going to get,” Hamide said.
According to Hamide, the price-earnings ratio, or P/E, is about five times the asking price, adding to the overall value of the sale. Because of that, the pair is only listening to “really legitimate inquires” but are still generating what Hamide called a “tremendous amount of interest.”
Main Street Marijuana’s flagship location has generated more revenue than any retailer in the state, earning about $34.4 million in total cannabis sales since becoming one of the first eight stores to open in Washington’s rec market. Hamide’s store regularly finishes at the top of monthly revenue lists as well, earning $1.4 million in December 2016 — about $200,000 more than the number two retailer, Clear Choice Cannabis in Tacoma.
According to Top Shelf Data, Main Street’s December year-over-year sales were up 6.9%.
The numbers at Hamide’s other two stores are not as impressive, though neither has been open nearly as long as the main shop. The second Main Street Marijuana in Vancouver generated $553,000 in sales in December for a running total of more than $3 million since opening. The third store, located in Longview, collected $269,724 in revenue in December for a total of $2 million.
Meanwhile, Uncle Ike’s primary store has earned more than $30 million in revenue since it opened and is also routinely among the top revenue generators each month, finishing third in December with $977,000 in cannabis sales. According to Top Shelf Data, that number is down 30.5% year over year, presumably due to increased competition, as well as street construction that Eisenberg said has had a short-term impact on business.
Eisenberg has two other Seattle stores — Capitol Hill and White Center — that have made about $1 million combined since opening in the fall of 2016.
Hamide and Eisenberg both expect the businesses to continue growing in 2017, with Eisenberg projecting a 25% growth in revenue this year and Hamide aiming higher at more than 30%.
But is it worth the money?
Ron Seigneur, a managing partner at Seigneur Gustafson LLP, a CPA firm in Denver that works in the cannabis space, said the overall valuation of these businesses depends on the landscape in the state’s regulatory and license environment, as well as how big and profitable they are.
Traditional valuations aside, investors have been throwing around “silly money” at marijuana-related companies, Seigneur said.
While $50 million may seem like a lot, it may actually end up being a value to gain “more than a foothold” in an urban market like Seattle, particularly given the top-line revenues the businesses are generating.
“From a valuation perspective, it defies logic,” Seigneur said of the asking price. “But there are so many people who want to be in this business.”
Dani Espinda of Rhodes & Associates, PLLC, a CPA firm based outside Seattle, says she has a handful of clients also looking to get out of the business who are offering their licenses and properties for sale.
Espinda says valuations for cannabis businesses are particularly difficult because there is no history in the industry from which to draw.
“All the normal counters we use to value businesses aren’t there,” she says. “It’s such a new industry.”
Espinda says in her experience, the prices of marijuana businesses rely heavily on supply and demand, with sellers setting prices they think the market will bear, usually with coaching from attorneys. She said she does not advise clients on prices and does not do valuations on their businesses.
Seigneur likened the burgeoning marijuana market to a similar run on California vineyards in previous years, when investors were trying to find the next big thing and bought up grape-growing land just to get into the business.
Throw in a brand like Uncle Ike’s, which he said he knew even in Colorado, with an “iconic presence and a great location” and investors may be willing to pull the trigger on the sale. Seigneur said he views the value of these businesses from an investment perspective instead of a “fair market value,” since the industry is still growing in leaps and bounds.
Without knowing specific details of each store, Seigneur said a $50 million asking price is “not unreasonable” and could wind up being an excellent investment based on the two main stores’ $64 million in sales.
However, the Trump Administration represents an “amazing wild card” for anyone considering a major investment in the marijuana business.
While President Obama allowed individual states to proceed with marijuana legalization, President Trump’s selection of staunch prohibitionist Senator Jeff Sessions as attorney general has cast an uneasy light over the fastest growing industry in America.
“Who knows what the future holds?” Seigneur asked.
Hamide and Eisenberg said the new administration did not influence their decision at all and they both believe in the future of the cannabis industry. Neither is particularly eager to get out of the business, but see opportunities to sell while the market is hot.
They’re also looking at new possibilities within the industry.
Hamide, for example, said he is looking at national opportunities with a particular interest in tribal cannabis. He is working with the Paiute tribe outside Las Vegas on a new 20,000-square-foot retail store. Having created about 100 jobs with Main Street Marijuana in Washington, he’s setting his sights on an even bigger impact, particularly among Native American populations.
“I want to create 100,000 jobs nationwide,” he said.
Eisenberg said he is concerned that rule changes being considered in Olympia would open Washington to out-of-state money that could change the marketplace from one of smaller, mom-and-pop operations to larger, corporate entities — a change he sees as ending “a part of the system I like.”
On the Market
While Uncle Ike’s and Main Street are clearly the two marquee brands for sale in Washington’s cannabis industry, they’re not the only businesses that can be bought for the right price.
Espinda said disillusionment is one of the reasons some of her clients are looking to sell. She’s seen three general reasons people are looking to get out of the business: a partnership is not working out; the business is more work than expected; or the return on investment is not what was expected.
Espinda also said there is a significant investment required to start a cannabis business, especially for producers and processors, and many startups have had their capital buckle under the pressure.
“I think a lot of them were undercapitalized,” she said, adding that the regulatory aspect is stringent and constantly changing, leaving some entrepreneurs “just fried” by the time they are even ready to open.
State regulations may also hamper the sale of the Uncle Ike’s and Main Street businesses as state law limits individuals to a total of three licenses, although Eisenberg and Hamide said they are working with lawyers to make sure any sale of the entire group would be done legally.
While they would be willing to discuss the sale of individual stores, they are more interested in unloading the full lot to someone looking to expand or make a splash in the Washington market.
“Any real buyer will want all of them,” Eisenberg said.
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