Cannabis valuation for partner buyouts and disputes

Start with the standard of value, not the multiple

In a sale to an outside buyer, value is whatever the market pays. In a partner buyout there is no market test, so a document or a statute has to define what “value” means. Three definitions are common, and they give different answers for the same stake.

Standard	What it means	Where it comes from	Discounts
Fair market value	Price between a hypothetical willing buyer and willing seller, neither compelled, both informed	Revenue Ruling 59-60; many operating agreements; some statutes	Lack-of-control and lack-of-marketability discounts commonly applied to a minority stake
Fair value (statutory)	The partner’s proportionate share of the business as a going concern	State dissenters’ rights, oppression, and buyout statutes	Minority discount usually rejected; marketability discount varies by state
Agreement value	Whatever the operating agreement says: a fixed price, a formula, or an appraisal process	The contract	Whatever the contract says

Two examples show how state law differs.

• New York. In Friedman v. Beway Realty, the Court of Appeals held that fair value in a shareholder buyout does not include a discount for minority status, because that would hand the majority a windfall, while a discount for lack of marketability may still be considered. The reasoning and its later criticism are summarized by New York Business Divorce. See the New York page.
• California. When a member sues to dissolve an LLC, the other members can stop the dissolution by buying the petitioner out at fair market value. If the parties cannot agree, the court appoints three disinterested appraisers, and the valuation date is the day the action was filed unless the court orders otherwise, under Corporations Code 17707.03. See the California page.

Which rule governs your company depends on where the entity was formed and what the agreement says. That is a question for a business lawyer, and it comes before any valuation work.

Illustrative: one stake, three answers

Illustrative only. The business value and both discount percentages are assumptions to show the mechanics. They are not market data, and real discounts are set by an appraiser from evidence.

A cannabis company is worth $3,000,000 as a whole. One partner holds 30%.

Standard	Calculation	Value of the 30% stake
Pro rata fair value, no discounts	$3,000,000 x 30%	$900,000
Fair value with a marketability discount only (assumed 30%)	$900,000 x 70%	$630,000
Fair market value with control (assumed 15%) and marketability (assumed 30%) discounts	$900,000 x 85% x 70%	$535,500
Agreement formula written in 2021: 1.5 times trailing revenue of $4,000,000, times 30%	$6,000,000 x 30%	$1,800,000

The spread between the lowest and highest figure is more than three to one, and none of it comes from disagreement about the business. The last row is a common trap. Formulas drafted when public cannabis multiples were far higher can now require a buyout the company cannot afford. Viridian Capital put larger multi-state operators at a median 5.1x forward EBITDA in November 2025, down from 7.8x in June 2024, and private revenue-based formulas from earlier years are further still from today’s market.

Cannabis-specific issues inside the valuation

Whatever the standard, the appraiser still has to value the enterprise, and the usual cannabis problems apply. The methods are set out under valuation methods by license type. Points that cause the most argument between partners:

1. Valuation date. Wholesale prices have fallen sharply in many states, and marijuana under a state medical license moved to Schedule III in April 2026. A date a year earlier or later can change the answer materially. See how oversupply and price compression affect value.
2. 280E and unpaid tax. Accrued or disputed federal tax is a company liability that reduces equity value for every partner. The partner who ran the finances may face claims if returns were not filed. See how 280E affects valuation.
3. Owner compensation and related-party dealings. A managing partner’s salary, a building owned by one partner and leased to the company, and management fees to an affiliate all need to be restated to market before earnings are capitalized.
4. Marketability. A cannabis interest can be sold only to a buyer the regulator will approve, and many agreements add transfer restrictions of their own. Appraisers working under a fair market value standard treat that as support for a larger marketability discount. Under statutory fair value, some courts disregard it.
5. Who holds the license qualifications. If the departing partner is the social equity qualifier, the local resident, or the only person with the required background, their exit may endanger the license. That affects the value of the whole company, not just the stake. See social equity license transfer restrictions.

The regulator is a party to every buyout

Cannabis regulators license people as well as entities. A buyout removes one owner and increases the others’ percentages, which is a reportable change almost everywhere.

• Washington vets every true party of interest, and changes in ownership require agency approval. See the Washington page.
• Massachusetts requires prior approval for changes of ownership or control under 935 CMR 500.104. See the Massachusetts page.

Practical consequences for valuation and timing:

• The buyout agreement should make closing conditional on approval, and say who runs the business meanwhile. The mechanics are covered under change of ownership approval.
• If the buyer of the stake is a new investor, that person must qualify. A price from an investor who cannot be approved is not evidence of value.
• A note to the departing partner may itself be a disclosable financial interest. See true party of interest and financial interest rules.
• A pledge of the purchased interest as security is enforceable only with regulator consent to the eventual transfer. See seller notes and security interests.

Buy-sell clauses: how they work and how they fail in cannabis

Mechanism	How it sets the price	Cannabis weakness
Fixed price, updated annually	Partners sign a value each year	Rarely updated; stale within months in a falling market
Formula (multiple of revenue or EBITDA)	Arithmetic from the financial statements	Ignores 280E, price compression, and tax arrears; multiples drafted in boom years
Appraisal	One appraiser, or one per side with a third to break ties	Slow and costly, but adapts to current conditions; agreement should name the standard of value and address discounts
Shotgun (one names a price, the other chooses to buy or sell)	Self-policing in theory	Favors the partner with cash, and the partner who can be approved by the regulator
Right of first refusal on an outside offer	Market sets the price	Outside offers for minority cannabis stakes are rare

An appraisal clause that names the standard of value, states whether discounts apply, fixes the valuation date, and requires an appraiser with cannabis experience prevents most disputes. The difference between a formal appraisal and a broker’s estimate is explained under appraisal vs broker opinion of value. In a dispute, the appraisal is the document that counts.

Deadlock, receivership, and the alternative of selling

Partners in an ordinary business who cannot agree can sometimes use bankruptcy to force a resolution. Plant-touching cannabis companies generally cannot. The fallback is a lawsuit for dissolution, and with it the risk that a court appoints a receiver. Lawyers at Husch Blackwell noted in November 2024 that cannabis receiverships were rising. A receiver’s fees come out of the company, the receiver must be qualified with the regulator, and sales out of receivership tend to clear at distressed prices, as shown under valuing a distressed cannabis business.

That arithmetic is the strongest argument for settling. If the partners are $300,000 apart on a $900,000 stake, and a receivership would plausibly cut enterprise value by far more than that, both are better off splitting the difference or selling the whole company to a third party and dividing the proceeds. A sale to an outsider also replaces the argument about hypothetical value with an actual price. The process is described in how to sell a cannabis business, and longer-range planning is covered in the guide to cannabis exit planning.

This page is educational. It is not legal, tax, or valuation advice. Partner disputes turn on the specific agreement and state law, and need a business lawyer and, where value is contested, an independent credentialed appraiser.