THINGS TO CONSIDER

What should you consider when looking at your Cannabis Company? It is not as simple as it sounds.  Here are some things you should probably consider.

This is real advice, from real professionals for your I-502 Business.

BEHIND THE SCENES: We don’t sell dirty merchandise.

You remember the part of the history books that talked about the ‘Land Grab’ in Oklahoma in 1893?  With a shotgun start, land-hungry pioneers made a mad dash through the country side and tried to stake out (literally!) the best acres around. 

It’s a whole lot like that with I-502.

In Washington State, as the producers and processors are getting nailed down and retail allotments are filling up, those that are left are scrambling still trying to claim their stake in the Cannabis Industry.

With this frenzy, I am frequently asked “what’s in your pipeline?”.

What I have realized, is that some opportunities take much longer to vet than others.

Take a typical Tier 2 Producer Company that does NOT include the location.  Pretend it is on a piece of land that is owned by the manager of the company, and they had it long before I-502 was even a thing.  That guy paid all cash for everything, and has just kept to himself without any partners.

That Tier 2 Producer location will probably make it through our clearing process relatively quickly.  With a copy of the formation documents, state status, county information, combined with public records, we can assess within a day or two that this company and the license it holds are clean and can be transferred easily.

Consider a Retail store who is open and operating next to a mall.  It seems like it would be relatively easy to work through the same process, right?

In this case, we have a number of items to verify before anyone can put a signature on paper to even sell it…. Let alone buy it!

We don’t want to sell dirty merchandise. It’s really bad business.
— Jennifer Hudson

With every potential opportunity, we will verify:

  • License and Status with LCB.
  • Local permits with governing jurisdiction.
  • Company documents and who has authority to sell.
  • ALL of the members and shareholders who could potentially kill the deal, and make sure they won’t.
  • The current inventory and what is included.
  • List of furniture, fixtures, and equipment that is included, and which is not.
  • Employment agreements or union contracts.
  • Any debts that may transfer with the company.
  • Easements for access, parking, signage on a property that could impact future use.
  • Lease agreements and if landlord will assign the rights to a buyer.  Will the landlord extend?
  • Are there any adjoining tenants in the building who have a right to expand into that space that will prohibit future growth?
  • If there are any prepayment penalties associated with breaching a lease agreement.
  • If the company will not include a location, do we need to transfer the company or the location first?  With LCB, we can’t do it together or it gets stuck.
  • Are there any pending lawsuits or disputes among or against the shareholders?
  • What taxes will need to be paid at closing?  What taxes will transfer to the buyer?
  • Are there any equipment leases or other third party arrangements that need to be transferred or honored?
  • What environmental concerns are in the area that could have contaminated the parcel?
  • Who is responsible for running the business while we wait for LCB approval?
  • Does the store need to remain operating at a certain level?

Of course, depending on the answers to any of the items above… sometimes it means a lot more research down another rabbit hole.

For the transaction, how do we ensure the seller will not strip all the value out of the business before closing?  How do we ensure the buyer will follow through and not get the license revoked?

With all the companies that we talk with, not all of them are able to easily be sold… or sold at all.  Sometimes, there are months of clean-up before we have a good opportunity to sell.  Occasionally, we just walk away instead. 

Anytime you want to buy or sell a Cannabis Company, just know there is bound to be a complication somewhere.  In order for the transaction to be successful, you need to be aware of all the problems that will surface.  It is better to know about all of those problems before money starts transferring around. 

Next time it sounds like we have had the same deal in our pipeline for a while, just know it’s because we are still vetting the opportunity before sending it out. 

We don’t want to sell dirty merchandise.  It's really bad business.

If you want to save yourself not only the time, but possibly many wasted dollars, then structure your transaction correctly.  When the deal sounds too good to be true, it usually is.

Thanks for reading!

Jen Hudson