Cannabis Business Value | Cannabis ValuationTime 2022-10-21 09:43:29
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Managing Member, Erin Spaulding, CVA, CM&AA has over 20 years of experience involved in all forms of valuations and has provided various financial consulting services to numerous organizations in her time with Spaulding Financial, SingerLewak, PriceWaterhouseCoopers, American Appraisal Associates and GurseySchneider.
Ms. Spaulding provides professional business valuation and related advisory services. She has managed valuation engagements involving entities ranging in size from start-ups and small closely held companies with under $1 million in revenue to multinational, publicly traded companies with revenues in the tens of billions. Engagements include financial reporting and compliance, mergers and acquisitions (including fairness and solvency opinions), corporate restructuring, leveraged buyouts, equity investments in early-stage companies, capital raising, estate and tax planning, employee stock ownership plan (ESOP) transactions, shareholder disputes and litigation support.
Ms. Spaulding has performed valuation services for companies in all major industries and for innumerable purposes. Current and past enterprise, equity, IP and derivatives valuations have involved real estate investment companies, aerospace and defense, energy and renewables, computer hardware and software, fintech, biotech and consumer technology, professional services, manufacturing and apparel, food and beverage, employee and professional staffing, healthcare including urgent care, consumer packaged goods and retail.
With extensive experience in fair value determinations for corporate transactions and derivative securities, Ms. Spaulding has been engaged to opine on fair value reporting issues with auditors, as well as on valuation matters for income, gift and estate tax purposes involving the Internal Revenue Service.
Since 2018, Ms. Spaulding has focused her efforts on the developing area of cannabis and ancillary industries as the lead practitioner on engagements with financiers, commercial real estate owners, growers, manufacturers, brands and retailers, across several legalized states with medical and/or recreational licensing, and for purposes of financial reporting, capital raising, shareholder disputes, economic damages, and marital dissolutions.
Erin Spaulding holds a Bachelor of Science degree in Applied International Finance from the American University of Paris, France. She is a Certified Valuation Analyst accredited by the National Association of Certified Valuators & Analysts, and is a Certified Mergers & Acquisitions Advisor accredited by the Association of Mergers & Acquisitions Advisors.
Member Emeritus, Vanita Spaulding, MBA, CFA, ASAhas more than 40 years of valuation experience providing valuation services in many industries and to clients in the cannabis industry since 2015. She has a diverse background in valuation projects purchase accounting, tax reporting, fairness and solvency opinions, intellectual property analyses, pre-acquisition financing, merger and acquisition pricing, and various litigation support actions.
Vanita Spaulding holds a Bachelor of Science degree in Finance and Economics, Magna Cum Laude and a Master of Business Administration in Finance, both from California State University, Northridge. She is an Accredited Senior Appraiser by the American Society of Appraiser, and is a Chartered Financial Analyst.
She is qualified as an expert to perform litigation support services and has appeared as an expert witness before the Superior Courts of Los Angeles, Orange, Riverside, and San Bernardino Counties, as well as the American Arbitration Association.
Vanita has been active in the American Society of Appraisers as a course instructor and developer for many years and served as the President of the Los Angeles Chapter in 1994. She is a past member of the International Business Valuation Committee and the past Chairman of the American Society of Appraisers Advanced Business Valuation Conference held in October 2007. She currently serves on the Appraisal Issues Task Force (AITF).
Recently, Ms. Spaulding co-chaired the IRS ASA Symposium on valuation issues in Los Angeles. She has presented before live audiences and on broadcast webcasts for many years on business valuation and cannabis valuation topics.Contact
Parties may find themselves in various types of legal dispute, including shareholder and partner disputes, marital dissolution, tax disputes, and other civil litigation. Whether called upon to opine as to the value of a particular business interest or to quantify economic damages, deep understanding of the litigation environment and thorough preparation while maintaining objectivity in one's expert opinions leads to defensible value. By working with clients and their advisors on matters of strategy pertaining to valuation, we prepare presentation of conclusions, and cross examination of opposing experts.
PURCHASE PRICE ALLOCATION
ASC 805 – For GAAP financial reporting purposes the fair value of the assets and liabilities of an acquired business must be determined in accordance with FASB ASC 805, Business Combinations, and FASB ASC 820, Fair Value Measurements and Disclosures. Under ASC 805, the purchase price of an acquisition is allocated to the identifiable assets acquired and liabilities assumed at fair value, with limited exceptions. The identifiable finite-lived assets are then depreciated and/or amortized over their remaining useful lives. An independent valuation of a transaction's identifiable assets and liabilities (including remaining useful lives) is the preference of most auditors. With audit-side experience, we are aware of the variables an auditor weighs to determine the reasonableness of an allocation.
GOODWILL IMPAIRMENT TEST
Pursuant to ASC 350, subsequent to the acquisition of a company or its assets, the goodwill value booked from that acquisition must be tested at least annually to ascertain if any impairment to goodwill has occurred. FASB has recognized over the years that the impairment testing process may be inordinately costly for some private companies, and so two updates (Accounting Standard Update or ASU) to the initial impairment codification have been adopted: ASU 2011-08 and ASU 2014-02. ASU 2011-08 allows companies to test for impairment via a qualitative test by comparing the current situation of the company with the situation as of the last impairment test. ASU 2014-02 is a revision for some private companies to elect to amortize goodwill rather than testing annually for impairment.
With increasing frequency, a company’s most valuable assets are its intellectual property rights. These may include recognizable brands and trademarks, patent portfolios, software rights, proprietary code, genetically modified organisms and hybridized agricultural products, manufacturing processes, film libraries, music publishing and recording catalogs, and book publishing rights. The list is virtually infinite as these intangible assets are inherently unique, often involving complex legal rights, and which rarely trade in arm’s length transactions. These challenges necessitate extensive due diligence and innovative application of standard valuation metrics, for purposes of sale, equity investment, tax and estate purposes, loan collateral, litigation support or purchase price allocation.
STOCK BASED COMPENSATION
In 2005, the IRS issued proposed regulations under IRC Section 409(A) that, for tax purposes, regulates the treatment of “nonqualified deferred compensation” including the issuance of compensatory stock options. The proposed regulations shifted the burden of proof to the IRS to demonstrate that the option exercise price is below the fair market value of the common stock when a company obtains an independent appraisal. Since then, Spaulding Financial has performed numerous common stock and preferred stock valuations to establish the fair market value of common stock in connection with the issuance of compensatory stock options on common as well as for subsequent preferred rounds. Such valuations are in accordance with FASB ASC 718 and 505-50 IRC Section 409(A), and compliant with the Big 4 accounting firms’ audit testing regimen.
In developing financial projections, one must determine which revenue sources are most important, what are the key business drivers, how fast can the company grow and what drives that, how much in labor and equipment would be needed to reach milestones and what capital costs should be considered normal in highly uncertain, rapidly evolving markets, or for young companies with new products or unique business models. An advisory firm must have the experience and understanding of early-stage companies and their nuances in order to aid in the development of cash flow projections or management's financial model review. While entrepreneurs will have a clear view of tactical goals and strategic milestones for the near-term, we bring independent, critical insight to support fund-raising or a potential sale. We have a diverse and extensive track record working with entrepreneurs through the challenges associated with capital raising. Our circumspect analytics will help develop more credible revenue and cost projections by weighting management assumptions with historical results, as well as industry, sector and economic data.Contact
Erin has outstanding financial modeling skills along with excellent communication skills. She helped us build and maintain various financial models including consolidations, joint venture models, detailed forecasts and projections. With her background in valuations she was invaluable in the review of our share-based payment program and related 3rd party valuations. Erin also produced models mapping executive team’s path and overall strategy to growth, while understanding value drivers with ease.
Roy Dar, CFO - Optimist, Inc.
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