What your EBITA means for Acquisition

As a store owner, making intelligent decisions regarding your business’s finances is critical to success. But with so many metrics, it can be hard to know which ones to focus on.

One important metric to consider is EBITDA.

EBITDA stands for Earnings before Interest, Tax, Depreciation, and Amortization. It’s essentially the revenue before non-cash expenses (such as depreciation or amortization), income taxes, or interest expenses. This means that it reflects the company’s financial performance in terms of profitability before certain uncontrollable or non-operational expenses.

To put it simply: a higher EBITDA margin indicates a company’s operating expenses are smaller than its total revenue, which leads to a profitable operation.

But how does EBITDA help cannabis store owners? 

• Currently, many cannabis retail acquirers in Canada are valuing stores at 1.6 to 2.5x EBITA.
• What does that look like?
• Let's say your store did $1,500,000 in 2022
• Your operating expenses = $1,300,000
  (Rent, Payroll, Marketing, Inventory etc)

This leaves you with an EBITA of $200,000.

Meaning your business could be in the range of 1.6 - 2.5 x $200,000

Which is anywhere from $320,000 to $500,000.

A company’s EBITDA multiple provides a normalized ratio for differences in capital structure, taxation, and fixed assets and compares disparities of operations in various companies. This multiple is used to determine the value of a company and compare it to the value of other similar businesses. So if you know your business's current EBITDA multiple compared to other stores, you can make more informed decisions about where your business stands financially—and how best to make investments accordingly.

Understanding your EBITDA can help you make informed decisions about investments, operations, and overall financial strategy. So take the time to analyze your EBITDA today and see where your business stands financially.