What does Seller Financing mean?
Sounds good at first, right? In certain circumstances, it can be. In others, you should beware.
In the Washington Cannabis world, anyone who offers financing for a property is called a financier. Financier’s no longer need to have residency in Washington State for 6 months, but they still need to pass the criminal background check and financial scrutiny from the Washington State Liquor and Cannabis Board (WSLCB, also known locally as LCB). This change came about in another rule change adopted March 24, 2016 (Supplemental CR 102). Before this change, small producers couldn’t even get a loan from their parents if they lived out of state.
The good news is, that has changed.
For Washington Cannabis Companies, Seller Financing doesn’t mean quite the same thing as real estate seller financing. As a financier on the license application, those individuals still play a minority role in the license status.
TROUBLES FOR THE BUYER
What happens if the seller who offers financing gets into trouble and ends up with too many points on the criminal background check? And, then they don’t even disclose it!
What happens if they are wrongfully accused, but their case still isn’t settled in the 90 day window?
Will the LCB try to terminate the license because one of the parties of interest no longer meets their criteria?
TROUBLES FOR THE SELLER
Let’s say that you are the seller and you want to offer financing. Everyone knows that seller financing means bigger paychecks in the long run!
Seems like a good idea. You get a partial lump sum now and regular payments over the next year or more. What could go wrong?
Well, what if buyer just doesn’t know how to run a business and drives it into the ground? Of course, they probably won’t pay the previously agreed sums if there isn’t enough cash coming in.
What if the buyer gets desperate and accepts funds from another source without telling the LCB? What if there is a violation with operations? What if they stop paying their taxes? We could go on and on…
The point is there are a number of things a buyer (even one with good intentions) could do that may end up with a loss of one of the major assets of the company…. the license.
THINK ABOUT IT
There are a lot of “what ifs” that can go wrong in a typical real estate transaction. In the real estate situation you are a little bit safer. All you do is foreclose and take your property back.
For a Cannabis Company… with the LCB and all the hoops to jump through, you risk a lot more than a foreclosure. You risk losing the licensing you fought so hard to get in the first place.
Think it through. Then think it through again before you decide to offer seller financing with your Cannabis Company sale.
At the very least, get to know the other side before you commit to a relationship that is based primarily on trust in making payments and following rules.
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Thanks for reading!
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