Cannabis companies that once commanded billion-dollar valuations with minimal revenue now struggle to sell for pennies on the dollar. Market conditions have forced accounting professionals and financial advisors to reconsider how cannabis businesses should be valued completely.
Marko Glisic, Partner at GreenGrowth CPAs, recently shared his analysis of current valuation models during an interview about market trends. The cannabis industry expert’s professional background reflects broader industry shifts, including persistent regulatory headwinds, market saturation in mature states, and emerging threats like Texas’s proposed THC ban that could eliminate an $8 billion market overnight.
The Valuation Bubble Bursts
Cannabis industry valuations mirror classic speculative bubbles throughout history. According to data from Finerva, in Q4 2023, the median EV/Revenue multiple for public cannabis companies was only 1x, over 80% below pre-pandemic levels. Pre-pandemic valuations have become a distant memory.
“We’ve gone from insanity to reality,” Glisic stated when reflecting on the market transformation. “This used to be like 2018, 2019. You want to buy a cannabis business, it was insane. It was five times revenues and the craziest valuations. I mean, you had companies that barely had anything in revenue valued at billions of dollars.”
Numbers paint a stark picture of this correction. According to Whitney Economics, average retail cannabis prices have dropped -32% since 2021. Price compression, combined with persistent regulatory challenges, has fundamentally altered how investors and operators must approach valuations.
Current Market Dynamics Reshape Valuation Models
Today’s cannabis market operates under entirely different dynamics than the boom years. Whitney Economics reports that the regulated marijuana market in the United States increased by $2.6 billion in 2024, to $31.4 billion and is expected to grow 12.1% in 2025, to $35.2 billion. While growth continues, valuations have normalized to levels more consistent with traditional retail and agricultural businesses.
“Now the deals are you’re getting valued at 2-3 times your earnings, 30% down and the rest is a seller note,” Glisic explained the current transaction structures. The experienced accounting professional has observed how the industry has completely shifted from a speculative frenzy to reality-based assessments.
Three critical factors drive these compressed valuations:
- Section 280E Tax Burden: The devastating impact of Section 280E continues to crush profitability. “In cannabis business, you can only deduct your cost of goods sold,” Glisic noted. “Your sales, your marketing, a lot of these things you can’t deduct. So effectively, the cannabis business has a much bigger tax obligation.” Dispensaries face effective tax rates of approximately 50% of taxable income, or about 10% of revenues, according to his calculations.
- Overpaid Assets: Many operators drastically overpaid for assets during the boom years. “A lot of these guys that got into the industry, they overpaid for real estate, they overpaid for their license, they overpaid for their buildout, and really poured in millions and millions of money into it,” Glisic observed. Inflated asset costs make achieving reasonable returns on investment nearly impossible under current market conditions.
- Market Competition: Increased competition has eroded profit margins across mature markets. According to Flowhub’s 2025 industry report, price compression has made the industry even more competitive, with businesses seeking “mutually beneficial partnerships that allow them to maintain a foothold in the market to ride out this correction.”
The Texas THC Ban
Texas’s proposed THC ban exemplifies the regulatory uncertainties that complicate cannabis valuations. Senate Bill 3, which passed through the Texas legislature, bans “products derived from hemp, including consumable hemp products and hemp beverages and the hemp-derived cannabinoids contained in those products.” Legislation threatens to eliminate what industry estimates suggest is an $8 billion market supporting 50,000 jobs.
Texas Hemp Business Council delivered 5,000 letters to Governor Greg Abbott’s office, along with a petition signed by some 120,000 people, urging the governor to veto the bill. Ban would criminalize products containing any amount of THC, including popular delta-8 and delta-9 derivatives that have become ubiquitous in convenience stores and smoke shops across the state.
Regulatory whiplash demonstrates why cannabis valuations must incorporate substantial risk premiums. Businesses operating in states with unstable regulatory frameworks face the constant threat of legislative changes that could destroy their market overnight. Updated valuation models now include specific adjustments for regulatory risk based on state-level political dynamics and enforcement patterns.
Regional Divergence Creates Two-Tier Market
Market analysis reveals a fundamental bifurcation in cannabis markets that directly impacts valuations. “If you look at the market now in cannabis, I think you’re going to have two sets of markets. You’re going to have existing mature markets, think California, Colorado, Washington, Oregon, Oklahoma, and then you’re going to have the newer markets that are opening up, like New York, New Jersey, Kentucky, Delaware,” Glisic said.
Divergence creates dramatically different valuation dynamics. Mature markets with unlimited licensing see oversupply crush margins. “A lot of the legacy mature markets have unlimited licensing, and so you’re finally seeing that trend shift where now people are exiting the industries,” according to Glisic. As he noted in recent observations, “you look at California, the number of licenses in Oklahoma is going down. In Colorado, the number of licenses is going down.”
Conversely, limited-license states present compelling opportunities. “The markets that have a limited number of licenses, those guys that can win, get those licenses are going to win,” Glisic stated, highlighting Kentucky as a prime example where restricted licensing creates sustainable competitive advantages.
Updated Valuation Frameworks for Today’s Reality
Modern cannabis valuation models must account for multiple factors beyond traditional financial metrics:
- Tax-Adjusted Cash Flow Analysis: Given 280E’s impact, valuations must focus on after-tax cash generation rather than EBITDA. Traditional EBITDA multiples fail to capture the true economic reality of cannabis operations.
- Asset Efficiency Metrics: With many operators burdened by overpriced assets, return on invested capital becomes crucial. Valuations should penalize inefficient capital deployment and reward lean operations.
- Regulatory Risk Adjustments: State-specific risk factors require different discount rates. Texas’s proposed ban demonstrates how quickly regulatory changes can destroy value.
- Market Maturity Factors: Mature markets warrant lower multiples due to competition and price compression, while emerging limited-license markets may justify premium valuations.
Industry analysis suggests that if rescheduling occurs, it would “alleviate the tax burden but also increase investor confidence. This could lead to higher valuations for cannabis companies and attract institutional investors who have largely avoided the sector due to regulatory risks.”
Consolidation Accelerates Under New Dynamics
The valuation reset has triggered widespread consolidation. According to market analysis, “financial pressures of high taxes, compliance costs, and market saturation drove many small and mid-sized companies to seek exits. This trend is expected to accelerate in 2025.”
Market consolidation will reshape the industry: “The guys that are in those markets that have been operating very lean and profitably, they’re going to start absorbing those assets for pennies on a dollar,” Glisic predicted. Well-capitalized operators find opportunities to acquire distressed assets at attractive valuations, as detailed in his comprehensive analysis of business overvaluation.
Future Catalysts for Valuation Recovery
Despite current challenges, several factors could improve valuations. “I think there are going to be two sets of factors that are going to change that,” Glisic said. “One is banking. If the banking can open up, then a lot of the capital market activity will open up as well.”
The ongoing regulatory challenges with banking legislation continue to hamper industry growth and limit access to traditional financing. Potential rescheduling of cannabis from Schedule I to Schedule III could serve as another major catalyst. “Once that tax code changes and 280E goes away, you’re going to see valuations go up as well,” according to Glisic. Change would significantly improve cash flow metrics and bring cannabis valuations closer to those of traditional retail businesses.
MJBizDaily reports optimism for 2025, noting that “bipartisan support for marijuana reform is gaining momentum” and that “88% of Americans say marijuana should be legal for medical or recreational use.”
Industry Shifts
The cannabis industry’s shift from speculative excess to disciplined analysis marks a painful but necessary maturation. Current frameworks emphasize cash flow over revenue, operational efficiency over growth at any cost, and careful consideration of regulatory risks.
“There was the initial 2018-2019 where the guys that entered the industry earlier were able to exit at a good multiple if they were smart, and then things went down,” Glisic reflected. “I think now, when some of these new things pop up, again, access to capital, access to banking, lower taxation, here’s going to be another big boom of guys exiting at really, really, really good multiples.”
For now, cannabis valuations reflect an industry in transition, one where traditional financial discipline has replaced speculation, and where success depends on operational excellence rather than market hype. Regulatory reforms may unlock new value, and operators who have survived this correction may find themselves well-positioned for the next phase of industry growth.
