What not to do When Selling Your Cannabis Company
Hello and welcome to the Daily Blunt, today is Wednesday, August 30th, 2017 and probably will be all day.
Today we’re talking about a segment that we like to call
Learning From Others
All of our stories come from real life examples and people we know, but the names have been changed to protect the innocent… or in some cases to also protect the guilty. After all, we take a lot of things to the grave.
What NOT to do when selling your company
As a buyer or seller in the cannabis market, things can get really exciting when you are trying to put your deal together. It is this excitement and these emotions that come with it that can sometimes lead you to make hasty decisions that aren’t necessarily in your best interest.
Let’s say you are a producer/processor and you’ve found a buyer willing to make you a great deal for your spot. You're rearing to go, and have your attorneys draft the purchase documents, get the paperwork started with the state, and then… you hurry up and wait.
As many of you already know the LCB likes to drag its feet. In our experience, the LCB can take 2-4 months for a change of location, and the same for a change of ownership request.
It is during this quiet waiting period where it feels like nothing is happening. As a buyer, you are getting anxious about getting it over with.
As a seller, you are anxious about getting your cash – and you may keep getting more and more worried as time passes by and your crops, which you’ve been diligently tending to throughout the process, start to dwindle - and what if this doesn't end up working out? Many sellers hit the point where they’d expected to be out of the game, or on to something else, and revenue stops coming in. But more on that in a future issue.
This quiet waiting period is a silent killer. And it has killed more than one deal.
And then you get some communication from your buyer - your buyer is so anxious they want to get started NOW.
You figure… why not? What is the worst thing that could happen and start making deals with them to improve the building and change your floor plan and line up leases for new equipment.
It is an additional expense initially, but you know you will just make it up on the backend when the deal closes, so no big deal… right?
See, what happens more often than not is that the seller (you) ends up completely changing how they (still you) operate in an effort to appease the buyer and keep the deal together. Except, as time drags on, the buyer keeps trying to change the terms on you.
Now after all that you've gone through, including the LCB interviewing anyone of interest, the buyer seems to change their mind about the deal. They want to decrease your cash payment and switch to seller financing. They want to change the interest rate. Now they want to delay the closing because their financier changed the terms on the money. Whatever the reason, there is usually something and it just spirals downhill from there.
The problem is you were kind enough to let the buyer into the business before they owned it.
I relate a lot of things to real estate, since that is where we come from. The best comparison I can make is…. Would you let a buyer for your real estate move into the property before the sale closed? Absolutely not. Because you know of this thing called buyer’s remorse. As a buyer, their emotions run high until the closing. Then, after they have access and sleep there, they start to see all the work that really needs to be done.
As a cannabis seller, if you are already deep into the state approval process, the last thing you want to do is have to renegotiate everything again at the end. And, if you let the buyer in early and make changes to accommodate them before they own it…. They’ll get that buyer’s remorse before you even get to the closing table, and now you’ve lost all the leverage you used to have.
So, don’t be like the countless business owners we have seen who make decisions they later regret.
Keep your business hat on until the end in order to keep your sale on track to closing.
Need help seeing your transaction through? Our transaction oversight is only $499/month, and we’ll help you keep the perspective you need on all sides to get the deal to the finish line.
Call us at (206) 466-4020 or email@example.com.
We’d love to help.