State of the Market - Producer/Processor Sept 2017

Tuesday, September 26, 2017

Hello and welcome to theBlunt

State of the Market. What’s up with Washington Cannabusiness and Licenses?  Producer-Processor Edition, part 1.

As the leaders in Washington CannaBusiness and License deals, we are noticing some trends that we think will cause a shift here very soon.

Let’s talk about producer licenses first. At the time of our analysis (September 8, 2017), there are 1175 active producer licenses in the state.

Of those, 18% are Tier 1’s, 43% are Tier 2’s, and only 39% are Tier 3’s. Last year we saw a big upswing of values in response to rumors of the LCB allowing a licensee to hold additional producer licenses. As we all know, that didn’t happen, and the market cooled.  But the tides shifted once again, with the new addition of actually being able to hold up to 3 producer licenses, how has that impacted values and what is going on?

First, it all comes back to supply and demand.  Let’s look further. 

Tier 1’s.

In today’s market, we are seeing a lot more Tier 1 sellers come to the table than did previously.  Tier 1’s are the smallest group of licenses and operate with 2,000sf or less.  However, with a minority of the market who hold Tier 1’s, they are holding their value.  We see a lot of Tier 1’s listed around $150k, but their sale prices to actually move them are closer to the $100k price point for a piece of paper.

Tier 2’s.

Somehow, Tier 2’s ended up with 43% of the market share for licenses.  It makes sense, given the size requirements of 2,001-10,000sf., but we don’t think it’s optimal.  What has happened is that the Tier 2’s have created a pocket of oversupply for the licenses in this range.  With additional options for buyers, the Tier 2 sellers have had to adjust their prices to compensate and be competitive.  While we see listed prices for Tier 2’s scattered from $200k and above, the sales prices seem to fall closer to the $150-$170k range, again… for the piece of paper, not an operating business in a location.

Tier 3’s.

While the recent change with LCB allows all producer types to hold up to 3 producer licenses, the only segment this really seems to impact are the Tier 3’s.  Remember, these are the big guys with 10,001-30,000sf, which can be a lot of canopy space for plants when you max it out. With some of the larger players looking to acquire more licenses, they have created what we would consider a level playing field.  Tier 3’s are holding their ground nicely and are still at a solid $350,000 cash today.  Of course, that is when your offer comes from an established, profitable buyer already in the cannabis space. 


Finally, we have processors.  Around a year ago, the market went through the scramble of activating old processor applications… anywhere… before the LCB closed the files.  Today, we are still seeing some of try to level itself out, but it’s a pretty bumpy ride in processor land ever since they went off the trail.

It’s important to realize that while there are 1,175 producer licenses, there are actually 1,210 processor licenses.  That means, an additional 3% of the market, or 35 licenses so far, scrambled and made it to approval stage before it was too late.  We realize there are a number of processor applications in the final stages of inspection right now, so we anticipate this number will elevate still.

Do you remember just a couple years ago when the processor license itself was selling for $100k?  We do.  Then, magically… and truly in the same week… 406 “forgotten” applications hit the market overnight when the LCB sent out their “use it or lose it letters” and sunk the price to $15k or less?  That felt like a punch in the gut for many of our clients.

Since that time, the market has improved a bit, but it’s still a pretty wide swing in prices for processors as they sort it out.  We see listed prices range from anywhere between $35k to $80k right now.  With fewer sales, the transaction that are taking place seem to be closer to the $35-50k range and is pretty stagnant at the moment.

What can we learn from this data?  Well, there is one piece we see consistently and that is how you market your business or license for sale matters.  The license holders that take the time to actually list their license with information and a full package of data through an organization such as ours, usually end up with a cleaner sale and higher purchase price in the long run.  Our detailed selling packages backed by over a decade of experience valuing and selling commercial spaces brings your transaction to more serious buyers.  

The other trend you need to keep in mind is that those prices and ranges we noted above are for the deals that are all cash now, no questions asked.  As soon as you start to discuss anything about seller financing terms and down payments or partial payments, the prices escalate substantially depending on the structure and what is offered in return.  Of course, this area is where we excel and can help you come up with a reasonable solution that meets the needs of everyone involved.

Thanks for sticking with us.  Tune in next time as we dig into the retail market and what is going on there.

Do you help buying or selling your Washington state cannabis license?  Need help working out terms that could benefit you even more than a quick cash sale?  We know the market and can help you put your next deal together.  Give us a call at (206) 466-4020 or to discuss your situation and figure out what your best options really are.  We’d love to talk.



Jennifer Hudson