What Financial Metrics Matter to Investors (and Why They Start Mattering Earlier Than You Think)

Most cannabis operators treat financial metrics as a fundraising exercise — something to tighten up when a capital raise is on the horizon. But the investor landscape has changed. The metrics that determine whether your company gets a meeting, let alone a term sheet, need to be in place long before you start looking for money.

This article breaks down what cannabis investors are actually evaluating in 2025 and 2026, why those criteria have shifted, and what operators can do now to position themselves for capital access.

Where the Market Stands

The capital environment for cannabis has tightened considerably over the past three years. EV/revenue multiples for U.S. operators have fallen from highs of approximately 6x to roughly 1x in many cases. The MSOS ETF has declined more than 80% from its all-time highs. And according to Crunchbase, cannabis startup funding has fallen steeply since its peak, with seed-stage investment in 2024 hitting its lowest annual total since 2013.

At the same time, the industry’s profitability picture remains mixed. According to Whitney Economics, only 27.3% of U.S. cannabis operators reported profitability in 2024 — up from 14.4% in 2023, but still well below the roughly 65% profitability rate for U.S. small businesses overall (per the U.S. Chamber of Commerce). Section 280E continues to impose more than $2.2 billion in excess taxes annually.

This combination — compressed valuations, limited capital availability, and uneven profitability — has fundamentally changed what investors look for and when they expect to see it.

The Metrics Investors Are Focused On

Revenue growth still matters, but it’s no longer the lead metric. Investors in 2025 and 2026 are evaluating cannabis companies through a profitability-first lens. Here are the areas getting the most scrutiny.

Gross Margin

Gross margin is typically the first filter. It tells investors whether the core operation is viable before overhead, taxes, and debt service enter the picture. For cultivators, it reflects yield efficiency and cost management. For retailers, it signals product mix discipline and purchasing strategy. Average gross margins for U.S. MSOs were in the 43–45% range in mid-2024, but the companies attracting capital tend to be above 50%.

Adjusted EBITDA

EBITDA remains the primary valuation metric in cannabis, largely because 280E distorts net income so significantly. The shift, however, is from projected EBITDA to trailing EBITDA (the company's earnings before interest, taxes, depreciation, and amortization over the most recent 12-month period). Investors want to see actual performance, not forecasts. Median EV/EBITDA multiples for cannabis operators stood around 4x as of late 2025 (per Viridian Capital Advisors), which means margin improvement has a direct and measurable impact on enterprise value.

Free Cash Flow

Free cash flow indicates whether a company can sustain operations and invest in growth without relying on external capital. In a sector where traditional lending is limited and equity markets have contracted, this metric carries outsized importance. Trulieve, for example, reported record free cash flow and 60% gross margins in its full-year 2025 results — a profile that naturally keeps investor attention.

Unit Economics

Beyond the headline financials, institutional investors are examining unit-level performance: cost per gram, average basket size, customer acquisition cost, yield per square foot, contribution margin by channel. These are the metrics that reveal whether a business model is repeatable and scalable.

If an operator can’t speak to these clearly, it signals a lack of financial depth.

Why These Metrics Matter Earlier Than Expected

There’s a common assumption among early-stage operators that financial rigor is a later-stage concern — something to address after scaling. The current capital market has made that assumption costly.

Unlike in 2019 or 2021, when investors were primarily focused on growth and market share, today’s investors prioritize profitability and balance-sheet strength, with the overriding concern being protection of capital.

In practice, this means investors are applying institutional-level due diligence to companies at every stage. They’re looking at whether cost structures can absorb the price compression that hits every maturing state market. They’re evaluating cash runway without assuming a future raise. They’re asking for granular financial reporting as a baseline, not a bonus.

The operators securing funding in the current environment tend to share a few traits: clean books, defensible margins, realistic projections, and a credible path to cash flow positivity. That applies whether the company is doing $5 million or $50 million in revenue.

The 280E Factor — Important, But Not a Strategy

Section 280E remains the most significant tax burden unique to cannabis. If rescheduling to Schedule III eliminates 280E for both medical and adult-use operators, Whitney Economics projects the industry-wide cash flow improvement could reach $3.1 billion in 2026. That would meaningfully improve after-tax profitability across the sector.

But experienced cannabis investors are careful not to build their thesis around a single regulatory event.

Anthony Coniglio, CEO of NewLake Capital Partners, noted that rescheduling alone would not deliver a lasting re-rating of cannabis equities, and that two additional developments were necessary: expanded institutional access to the sector and improving financial performance across operators.

280E relief would be a significant tailwind, but the companies best positioned to benefit are those whose financial fundamentals are already sound.

What Actually Makes a Cannabis Company Investable in 2026

Strong financials are necessary but not sufficient. Investability in cannabis is also a structural question — a company can have clean margins and positive cash flow and still be effectively unfundable if it lacks the underlying architecture that capital requires.

The change in investor expectations is visible at industry events as well. Darren Lampert, GrowGeneration’s CEO, attended Ignite It in California and observed execution rather than hype is essential for serious cannabis businesses.

In a mid-2025, Pete Karabas of Key Investment Partners identified some structural traits drawing equity interest in the current market: branded products with demonstrated customer loyalty and pricing power, real assets that can serve as collateral — particularly owned real estate and licensed infrastructure — operators positioned in smaller, underserved markets with less competition, and businesses that had built meaningful competitive moats over the prior several years. Notably, he also pointed to companies emerging from receivership that could be acquired without legacy liabilities — a signal that investors are now looking as much at what a company doesn't carry as what it does.

Practical Steps for Operators

For cannabis operators looking to position themselves for capital access, several areas deserve immediate attention:

Build institutional-quality financial reporting. GAAP-compliant financials, auditable records, and the ability to produce a detailed financial package on short notice signal to investors that you understand your business at the level they expect.

Know your unit economics in detail. Cost per gram, average basket size, customer acquisition cost, and contribution margin by channel should all be readily available and clearly understood by your leadership team.

Plan for price compression. Every maturing cannabis market experiences downward pricing pressure. Your cost structure needs to be flexible enough to remain viable when cost compression arrives, not just when conditions are favorable.

Prioritize cash flow generation. Investors increasingly prefer moderate growth with positive cash flow over rapid growth funded by ongoing losses. A clear path to free cash flow positivity is now a prerequisite for most serious capital conversations.

Treat 280E relief as upside, not your base case. Build a financial model that works under current tax conditions. If rescheduling delivers relief, that strengthens your position. If it doesn’t, your business still functions.

The cannabis industry is entering a phase where financial performance, not market narrative, determines capital access. The metrics that investors care about — gross margin, EBITDA, free cash flow, and unit economics — aren’t new. What’s changed is the timeline. Investors expect these to be in place earlier, and they’re making decisions based on actual results rather than projections.

Not sure where your financials stand from an investor's perspective? VERDANT Strategies works with cannabis operators to build the financial infrastructure that capital partners expect — from clean, audit-ready reporting to fractional CFO leadership that bridges the gap between day-to-day accounting and strategic financial oversight. The time to prepare is now. Reach out at verdantstrategies.com/contact to schedule a confidential assessment.