KEY POINTS:
- The eventual passage of the MORE Act mitigates several operational risks for cannabis businesses that touch the plant.
- The uncertainty around the timing of federal reform measures keeps valuations vulnerable to the impact of 280E.
- Most of the Multi-State Operators (MSOs) that we analyzed, will pay out 50-60% of Cash Flow from Operations (CFO) in taxes. This is a more meaningful metric to consider than an effective tax rate (total tax provision/pre-tax income) because the former excludes the tax effect of non-cash items such changes in the fair value of biological assets.
- Firms with negative CFO are also liable for income tax payments and, in some cases, have not paid what is owed. For example, MedMen recently reported its tax liability increased to $~57M at the end of Q3 as no payments were made in FYE 6/30/20 (nor in its Q1 ending 9/30).
