Buying a Cannabis Business

Buying a Cannabis Business

In recent times, there has been an increase in mergers and acquisitions of cannabis businesses. The reason for this activity is linked to the wave of recent laws passed in states legalizing cannabis as well as the Federal government taking steps toward legalization or decriminalization of cannabis. This has opened up the market space for cannabis businesses to thrive but to do this, they need a license (and capital). Some states have provisions for application for new licenses but in most cases, potential business owners would rather buy out existing cannabis businesses and take over their license. Some of these businesses are either failing, unable to obtain the capital they need to start, or their owners simply want to sell a turnkey cannabis .

Whatever the reason, it would seem this is a perfect time in many states to acquire a cannabis-bases-licensed business. This article talks about the process of purchasing a cannabis-bases business on a very high level (no pun intended).

Most of the existing cannabis-bases business deals were carried out by buyers and sellers directly via 420 Property, or through the small community of cannabis-bases business owners. Cannabis Business Brokers have been known to put together such deals. 

It is advisable that you get legal counsel when trying to buy a cannabis business. There are a lot of complex legal issues in the industry and only a good counsel would be able to ensure that your deal covers all the bases. Here are some things that should be clearly stated in a purchase contract:

  • The obligations of all parties
  • Due dates of the obligations
  • Conditions for the validity or otherwise of the obligations
  • Warranties, representations and/or assurances provided by both parties to make the deal go through

If your agreement contains the above items and they are stated in clear terms, then you may proceed to sign. However, if any of the above is missing, you should probably have a rethink.

With respect to business acquisitions, the obligations of the parties involved are quite straightforward: you make payments of the agreed price and the seller hands over the financial details, LLC membership, stock, and so on. The challenge usually arises with the duration and how long it would take both parties to fulfill their obligations. One of the factors that could determine this includes the requirements of the state licensing agency because they have to approve the acquisition, run background checks and so on. Additionally, you would not want to hand over your money until you are sure the business is yours, and the seller would also not want to have to deal with any problems that may arise from you. If this is dragged out for too long, it would affect the time the deal would go through.

It is advisable that rather than wait for one party to finish their own obligations, both parties should do their part simultaneously. Thus, while waiting for the state agency to approve the acquisition, both parties would continue the purchase process. This would ensure that you save some time and all you would be waiting on would be the approval from the state licensing agency.

When stating the conditions that may invalidate the deal, it is important that you include regulatory approval as a condition. Therefore, if the state approval is not granted, then both parties can go their ways as per the agreement.

With respect to warranties, representations and/or assurances provided by both parties to make the deal go through, they must be included in the agreement. Some examples of standard representation include:

  • Both parties are certified to sign the agreement
  • Both parties are legally recognized by state laws
  • There is full disclosure of all lawsuits brought against each party and their potential effect on the deal
  • The financial situation of both parties, including their debts, credit, etc. has been fully disclosed

These warranties are essential to assure the buyer that the company is honestly represented and they have the true understanding of the state and strength of the business they are acquiring.

These steps are highly simplified in this article but it is very important that you follow the advice of a seasoned cannabis lawyer and conduct due diligence when buying a cannabis-bases business.

December 9, 2017Comments Off

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