In a divorce context, does the valuation of an interest in a marijuana dispensary or grow business differ from the valuation of other businesses? Because marijuana businesses are legal in Colorado but not legal under federal law, the taxation of profits and expensing of costs differs dramatically from other businesses. How does this difference impact the valuation process? A typical method for valuing a spouse’s interest in a business entity is based upon earnings, both historical and future. But if the gross revenues for a marijuana business are subject to different tax and expense rules, what adjustments have to be made by the valuation expert? Is it certain that the federal government will continue to have a “hands off” policy towards marijuana businesses? Does the uncertainty over the federal government’s policy increase the risk factors associated with an interest in a marijuana business? If so, does that also increase the discounts that should apply to a fair market value? Are there other risk factors that should be applied to a marijuana business?
Colorado was one of the first states to legalize marijuana but, as of yet, we have no reported decisions from our appellate Courts regarding the rules for valuing interests in a marijuana business as part of a property division in a divorce. These businesses generate significant revenue. The next few years should see these cases make their way through the Colorado Appellate Courts.