Some of the trickiest but most necessary numbers to know when trying to evaluate the performance of a privately held cannabis company, or any company for that matter, is revenue, which of course is only part of the total financial state of a company. Many factors determine the current state of any individual company, and revenue at any given point in time may present a skewed portrait of that company’s financial state and may in fact be totally irrelevant to its strategy and ultimate destiny. But getting a handle on company revenue is a good place to start, especially if one wants to create baseline execution against which operating expenses and capex are factored in, the hopefully being an accurate picture of the current or eventual profitability of the company.
The tricky part comes when one factors in the different types of business relationships and partnerships companies enter into when they set up shop state after state. For instance, some companies are determined to be vertical wherever they are located, which usually means acquiring the necessary licenses by whatever means and building out the assets to support those licensed businesses, pursuing an investment-intense strategy that hopefully results in a huge payday down the line.
Other often brand-based businesses also move into new states by entering into what are basically IP deals in which licensed operators take on the heavy lift of production and other services to get those products on the shelves in a rev-share deal designed to benefit everyone involved. Frequently, however, the sheer number and complexity of these partnerships make coming up with accurate revenue numbers seem all but impossible.
In an interview with CBE published last September, Wana CEO Nancy Whiteman, who in many ways is a pioneer of putting together creative ways of entering new states without having to start from scratch every single time, described the complexity in coming up with the type of solid revenue numbers we at CBE would expect to get.
“I’ll tell you why [it’s complex],” she said. “We have our Colorado revenue, which is reported at the wholesale basis, and then we have our out-of-state revenue, which is the revenue share portion of it. So, one of the things I can tell you that might be a helpful number and easier to digest is that I often translate the total wholesale numbers into retail numbers, because that seems to be what people can understand. So, I’m taking our wholesale numbers in Colorado, and then our wholesale numbers in all our other markets, and then I keystone it, assuming that most dispensaries double.” Using that methodology, Wana said it will end the year with over $250,000,000 in retail sales.
But did Wana in fact end the year with a quarter billion dollars in retail sales, and if so, what relationship does that number have with its revenue or its profitability. And while the assessment may be clouded by complexity, that does not mean that Whiteman was not aware of her revenue numbers down to the penny, which neither she nor the company are not obliged to share. Indeed, there were legitimate reasons why she did not want to reveal revenue at that point in time, but that said, it was the myriad rev-share deals with different state licensees that created the web of complexity and allowed her to plausibly give an umbrella number that maybe only a computer could untangle.
Wana is not the only company that follows this model, to be sure, and the licensees that work with flexible-partnership companies also have to parse direct from rev-share revenue to get to real numbers. There is nothing wrong with it, and in many ways these creative partnerships are the mothers of invention in an industry beset by a lack of federal legalization. But they also present companies with a legitimate if wobbly method of obscuring their bottom line, and present a bit of a challenge to anyone trying to get a clearer picture of performance in an already fractured industry.
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