In the final chapter of this four-part series, (click here for Part I, Part II and Part III) we will pull together what has been covered in the first three installments and look more closely at how to engage a qualified valuation professional, what to expect from their work and where to find industry data.
The ASA suggests asking the following questions when interviewing an appraiser for a valuation assignment:
- What is your general appraisal and educational background?
- What specific experience do you have with the kind of property I wish to have appraised?
- Are you a member of a professional appraisal society? Does that society teach, test and accredit?
- Do you hold a special designation issued by an appraisal society?
- Is that designation based on successfully completing written examinations?
- How long ago did you take the examination?
- What continuing education have you undertaken to keep up to date in the field?
- Has the appraisal society you belong to adopted a mandatory reaccreditation program to ensure that your education and knowledge are current?
- What do you charge for your services, and how do you base your fee?
- Are you required by your appraisal society to adhere to the Uniform Standards of Professional Appraisal Practice (USPAP)?
First, let’s recap the reasons for undertaking an appraisal of an ownership interest in a cannabis enterprise or in appraising the intellectual property associated with a cannabis business. Often a need is driven by merger and acquisition activity where a buyer and/or seller seek input on value for a transaction that may also involve financing needs. Business disputes over ownership rights drive many appraisal assignments in our shop, as do divorce proceedings where a spouse has an interest in a cannabis business that is part of a marital estate. Tax and estate planning can also drive appraisal needs.
The makeup of the appraisal assignment will be highly contingent on the required outputs. Business and intellectual property appraisers can do in-depth analyses and produce detailed, full-scope reports or they can undertake more limited scope procedures resulting in valuation calculations that can be useful where an initial, tentative estimate of value is helpful and appropriate.
Finding a Qualified Valuation Analyst
Finding a valuation analyst with specific industry knowledge and experience is paramount, particularly in cannabis due to the unique nature of the industry and its constantly evolving nature.
How do you find the right expert? One of best ways is a referral from a trusted professional colleague. You may also consider referrals from other professionals, including cannabis industry attorneys and advisers. Regardless of how you identify the expert, you need to make sure they possess the necessary professional qualifications and that their expertise matches the needs of your particular assignment.
Our analyses in the cannabis sector have utilized data and research from a wide range of sources, including data from the Marijuana Factbook (Marijuana Business Daily), The State of Legal Marijuana Markets (ArcView Market Research and New Frontier), IBIS World Reports and The Cannabis Industry Accounting and Appraisal Guide, published by LuLu 2018, (Ron Seigneur, Brenda Clarke and Stacey Udell).
Additional general valuation resources:
– Financial Valuation: Applications and Models, James Hitchner, Editor, Ron Seigneur, co-author, John Wiley & Sons, Inc., 5th Edition, 2017
– Valuing a Business, Shannon Pratt and Ron Seigneur, 6th Edition, Irwin Press, 2021
– Understanding Business Valuation, A Practical Guide to Valuing Small to Medium-Sized Businesses, 4th Edition, Gary Trugman, AICPA, 2012
– Cost of Capital, Estimation and Applications, 5th Edition, Shannon Pratt and Roger Grabowski, John Wiley & Sons, Inc. April 2014
– Cost of Capital Professional, Business Valuation Resources, 2021
In assessing the valuation analyst’s qualifications, you should consider his or her curriculum vitae for relevant professional appraisal designations, as well as industry experience. There are numerous professional organizations offering credentials in business valuations and the valuation of intangible assets. Each organization has its requirements for initial certification and recertification.
A few of the most prominent include:
– American Institute of Certified Public Accountants: The AICPA, founded in 1887, is the national nonprofit membership organization for the accounting profession. The AICPA has more than 400,000 members and offers numerous specialty credentials. The AICPA introduced the Accredited in Business Valuation (ABV) credential in 1997 for certified public accountants with knowledge and expertise in the business valuation field. More recently, the AICPA has allowed other qualified professionals who do not hold a CPA license to obtain the ABV credential.
– American Society of Appraisers: The ASA, founded in 1936, is a nonprofit, international, multi-discipline organization for appraisal professionals. The ASA grants designations in business valuation, gems and jewelry, machinery, personal property and real property. The two classes of designations offered are the Accredited Member (AM) and Accredited Senior Appraiser (ASA).
– National Association of Certified Valuation Analysts: The NACVA has approximately 8,000 members and offers designations in the areas of valuation and forensics. The Certified Valuation Analyst (CVA) designation was instituted in 1991 and was the first business valuation credential to require its holders to have a CPA license, a requirement that has since been eliminated.