As the cannabis and hemp marketplace continues to mature, more investors have begun to enter the playing field. These groups look at the cannabis space as an opportunity to acquire or merge with businesses that can offer potentially high returns.
But this process is not as simple as it seems.
Sometimes, the true financial picture of a company is not what it is portrayed to be. Companies could report a massive net income, but their operating cash flows may be negative.
An extensive process of verification, investigation or audit of a potential deal or investment opportunity is required to confirm all relevant facts and financial information. This is known as financial due diligence.
During financial transactions, it is also important to learn how a company accumulates its revenues. This report is known as Quality of Earnings (QoE) and is primarily concerned with the income from the core operating activities of a business.
To ensure accurate transactions, there is a need for expertise from independent third-party public accounting firms that offer traditional M&A (merger & acquisition) services — QoE, tax and advisory. These firms can also help smaller companies that want to sell to larger companies. The main objective of the accounting firm is to check the valuation and verify the future projections after analyzing the performance and quality of past earnings.
At the upcoming Virtual Cannabis Capital Conference, Crowe’s Mike Lux will discuss the importance of financial due diligence during buyer or seller transactions in the cannabis and hemp space. Mike is an M&A expert with over 26 years of experience in transaction advisory services and leads the company’s cannabis M&A efforts.
“Crowe has been serving the cannabis and hemp community through its Denver office almost since the industry’s inception in Colorado,” said Mike. “We are enthusiastic about continuing that effort as the market grows geographically and the industry needs our services.”
Crowe is a $1 billion global public accounting firm that serves multiple industries, including cannabis from many offices in the U.S. To its cannabis and hemp clients, the firm supports operations from start-ups to MSOs (multi-state operators) with solutions through four main channels — audit, tax, consulting and technology.
It is the largest U.S. public accounting and consulting firm in the cannabis space and ninth-largest in the country. Crowe’s cannabis clients are both privately-held and publicly traded companies.
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