CANNABIS
the cost approach. diverse product which can be consumed in This valuation meth- various forms - - baked, eaten, put in mediciTrademark/Brand Vundle Valuation - Income Approach 2018 2019 2027 odology reflects the nal creams, inhaled or ingested in many variRevenue $30,000,000 $39,480,000 $105,409,542 cost that a company ations. Therefore, different forms should be x x x EBIT Margin 16.6% 16.6% 16.6% could avoid by pur- branded to fit many different lifestyle markets. x x x chasing, rather than With today’s technology and social media, it EBIT $4,980,000 $6,553,680 $17,497,984 x x x duplicating, a similar is easier than ever to tailor a specific brand Discount period midpt 0.50 1.00 9.00 development effort. identity and reach the customers most likely Discount factor @ 20.1% 0.91 0.83 0.19 The annual trade se- to identify with them or the “experiences” that Present Value of Free Cash Flow $4,544,172 45,456,776 $3,365,474 cret/know-how val- the brand curates for all to see. Total PV of Cash Flow $53,018,523 ue that the company Allocation of Value to will charge to license Future of Cannabis Branding Trademark/Brand Bundle 10% this IP is based on the A total of 12 states have fully legalized canValue of Cannabis Corp’s Trademark/Brand Bundle $5,301,852 time, labor, and oth- nabis while 21 states have legalized cannabis er inputs necessary to for medicinal purposes. The outlook for the etary IP, and one whose licensing program is maintain the system on an annual basis for the cannabis market is promising, as large nationjust getting started. The company wants to remainder of its useful life. We apply the an- al companies, such a Molson Coors Brewing license the IP within each bundle to companual IP costs to the entirety of its useful life, Company, continually test the waters with ponies in Colorado and California. Figure 3 In order to in this case just five years, and then discount tential cannabis infused products. Growth will value the company’s two bundles of IP, we Trade Secret/Know-How Valuation - Cost Approachthose annual amounts back to a present valbe on all fronts, from branding to manufacmust first consider the different Standard Value of $1,573,347. Although trade secrets and turing to growing (i.e. cultivation, soil, lights, Annualised Cost uation Methodologies: the income approach, Software $110,000 technical know-how are significantly import- and operating procedures). Additionally, Facilities the market approach, and the cost approach. $115,000 ant for the development of cannabis products, merger and acquisition activity will continue Data Management $105,000 Lab Testing $80,000 consumers generally make purchasing deci- to increase as more multinational players enter CRM $40,000 Valuing the Trademark/Brand Bundle sions based on brand name and the qualities this exponentially growing industry. To determine the value of Cannabis Corpo-$450,000 Annual Trade Secret/Know-How Value associated with that brand. Over the next decade, as cannabis legalization ration’s trademark/brand bundle, we relied on Figure 2 becomes more widespread, and perhaps fedthe income approach to calculate the present Trademark/Brand Vundle Valuation - Income Approach Brand Development and Social Media erally legal, corporations small and large will 2018 2019 2027 value of the hypothetical future cash flows. We Cannabis products have the unique ability to concentrate their branding and licensing efRevenue $30,000,000 $39,480,000 $105,409,542 accomplish this by conducting a discounted x x x offer both an “experience” and a tangible, en- forts to differentiate their products from the 16.6% 16.6% 16.6% cash flow (“DCF”) analysis, which estimates EBIT Margin joyable product. There arex two distinct types competition. Consumers can expect a major x x the value of an investment based on its future EBIT $4,980,000 $6,553,680 $17,497,984 of cannabis: indica and sativa. While indica increase in various types of branded cannabis Figure 1 x x x free cash flows. Discount period midpt 0.50 1.00 9.00 strains are generally calming, sativa strains products resulting from increased brand deParent Company Internally Developed Brands Externally Acquired Brands We project Cannabis Corporation’s revenue Discount factor @ 20.1% 0.91 0.83 0.19 provide more stimulation and are often paired velopment. And with new types of cannabis and profits into the future for Cresco10 years, a Present Value of Free Cash Flowor the $4,544,172 45,456,776products, $3,365,474 with social interactions creative process. an abundance of licensing opportuCresco Reserve Mindy’s standard DCF timeframe. While trademarks Remedi Total PV of Cash(or Flow Each strain a hybrid of$53,018,523 the two) offers a nities follows. essentially have an indefinite lifespan (think AllocationTweed ofpredictable Value to relatively “experience.” The two questions that remain are: 1) where is Canopy Growth Spectrum Therapeutics Doja about how long Coca-Cola has been and Trademark/Brand Bundle Van Der Pop 10% Craftgrow Social media has become a way to curate and licensing headed; and 2) will cannabis brand GeneticsCorp’s Maitri will continue to be around), for the sake of ValueDNA of Cannabis shareTokyo one’sSmoke own experiences with the world. development continue in-house? Nothing in $5,301,852 simplicity we have limited our projections to Trademark/Brand Bundle If branded properly, cannabis has the poten- this world is certain; however, cannabis licensonly 10 years. We then discount those future tial to become a family of lifestyle brands, ing looks poised to generate strong returns as cash flows to the present, and allocate an avembodying similar values and interests for a cannabis popularity continues to grow. Large erage trademark/brand value percentage that wide multigenerational group. Cannabis is a multinational companies are not only investis derived from public company filings during ing in cannabis companies, but also Figure 3 a merger or acquisition where the company examining how to incorporate canplaces a value on its IP. In Figure 2 (above), Trade Secret/Know-How Valuation - Cost Approach nabis into their own products. We is a summary of our trademark/brand bundle Annualised Cost believe that in-house cannabis brand Software $110,000 analysis. Facilities $115,000 development will continue to inData Management $105,000 crease as corporations develop experi$80,000 Valuing the Trade Secret/Technical Know- Lab Testing CRM $40,000 ence in honing and adapting existing How Bundle products and brands to fit consumers’ Annual Trade Secret/Know-How Value $450,000 To value Cannabis Corporation’s trade secret/ evolving lifestyles. technical know-how bundle, we employed Figure 2
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TOTAL BRAND LICENSING