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Things to Consider When Buying or Selling a Cannabis Business in California

Things to Consider When Buying or Selling a Cannabis Business in California

Buying or selling a business is a complex undertaking in most situations. But operating in the cannabis industry adds extra layers of difficulty. It’s highly regulated, and the laws may vary greatly from one jurisdiction to another. This is true even within a single state. In California, you must review several considerations before attempting to launch a cannabis business or transfer ownership of an existing cannabis entity. Be aware that industry regulations are evolving. Changes may occur from one legislative term to the next. The following are some of the many factors you must consider when buying and selling a Cannabis Business in California.

Buying a California Cannabis Business

To purchase a company that operates in the commercial cannabis field, you need to consider registration, licensing, and permit requirements for the state, county and city you will be operating in. The type of cannabis business you’re considering and any employee requirements are a couple of the things you need to review. You must also look closely at any rules and regulations that are specific to the city the business is in.

Licensing Authorities

California does not permit transfer of cannabis licenses. When purchasing a cannabis business, you need to obtain your own license. California has created three separate state-level licensing entities for the cannabis businesses.

  1. Bureau of Cannabis Control — The BCC Bureau issues licenses to businesses that sell, distribute, trade and test medical cannabis and cannabis for recreational adult use. It also handles licensing for temporary events. This Bureau issues licenses to cannabis distribution, manufacturing and retail microbusinesses, as well.
  2. CalCannabis Cultivation LicensingThe licensing branch of this California Department of Food and Agriculture division issues licenses to businesses that cultivate cannabis in California.
  3. CDPH’s Manufactured Cannabis Safety Branch — The MCSB is a division of the California Department of Public Health that regulates the manufacturing of commercial cannabis in the state.

Before buying a cannabis business, educate yourself on the licensing requirements of the California authority you will be dealing with. These typically include background checks and surety bonds. Depending on the type of business you’re licensing, they can also include inspections, environmental reviews and many other demands.

Business Type

The laws and regulations governing a cannabis business vary depending on the type of business you’re operating. Will you be growing cannabis or manufacturing, selling and distributing cannabis and cannabis products? These decisions not only determine which licensing authority you must use. They also impact how extensive the process is, what you need to do to ensure compliance and what the related expenses might be. For example, businesses that cultivate cannabis are subject to the most regulation. But manufacturing edibles includes many additional expenditures, like setting up a commercial kitchen, brand development and marketing. Don’t forget tax implications.

Workforce

You’ll need staff to run your cannabis business. It’s a booming industry and there’s lots of competition. California leads the way in cannabis employment numbers. But as more states enter the fray, it’s likely to become more challenging to attract experienced, qualified staff. Consider industry salary standards and how difficult it will be to maintain good employees and hire new ones, when necessary. Fortunately, California currently has no special employee licensing or certification requirements for cannabis workers. Though they do need to be 21 and pass background checks.

Local Legal Considerations

Municipalities throughout California address commercial cannabis regulations differently. Some don’t allow these businesses at all. In the ones that do support the cannabis industry, the laws governing licensing and operation may be more strict and demanding than the state level laws. For example, in Los Angeles, Proposition M breaks licensing into three phases, wherein existing medical marijuana dispensaries enjoy a grandfather clause. But as a buyer, you need to check whether the dispensary is on the city’s EMMD list. Other California cities have enacted their own local laws that you must be aware of before buying an existing cannabis business.

Selling a California Cannabis Business

As the owner of a cannabis business in California, you are aware of its potentially high value. But when selling, to attract a quality seller and make a good profit, you need to document everything. Give your buyer a reason to work with you and show them that your business is organized and well-run. You can make this impression with the following documentation.

  • Licensing Documents — Demonstrate proof of state licensing and compliance with all state and local regulations and requirements.
  • Proof of Ownership — Offer documentation of who owns the business. If it’s ever changed hands, ensure you can demonstrate legal transfer of ownership.
  • Current Contracts and Agreements — Operating a business requires many business transactions with vendors, suppliers, leasing companies, employees and other entities. Provide these to a buyer so they understand their ongoing obligations.
  • Accounting Records — Show your buyer what they’re getting into with detailed bookkeeping and accounting records of how your business is run. Reveal profits, losses, debts and projections.
  • Tax Records — Provide proof that you’re in compliance with tax laws and regulations.
  • Disclosure of Negative Factors — If you have legal issues, pending claims or lawsuits, be sure to reveal these issues to your buyer. Retain control of the narrative by being upfront and disclosing first.

Whether buying or selling a cannabis business in California, you must carefully review all the legalities. Look at laws and regulations on the state, county and city level to ensure full compliance. Turn to the services of professionals in the real estate, tax and legal fields. Be sure they have experience with commercial cannabis. Planning, knowledge, education and preparation are key to a successful business transaction in this industry. Perform due diligence before you sign.

January 9, 2020 / by / in
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