hey there Jim briefs here from Green
Girls CPAs and today we're gonna talk
about buying and selling cannabis
business licenses now as the industry
matures we're seeing a lot of people
want to get into the industry we've seen
some of the older legacy players maybe
even the new people trying to get out as
well or trying to sell some of their
cannabis business licenses now for
whatever reason they're trying to exit
that means that there's a marketplace
now how do you actually navigate through
this marketplace for successful
transaction we're going to talk about
that and more in this video now if you
have any questions or you're looking to
sell your cannabis business license and
please reach out to greenville CPAs via
our website at green growth CPAs com or
give us a call at eight hundred 676
right into the presentation hey there
and welcome again to our webinar today
where we are gonna be talking about
buying and selling cannabis business
licenses my name is Jim breeze the chief
marketing officer here at green growth
CPAs and a little bit about us so green
growth CPAs is a cannabis only firm with
hundreds of active clients across twelve
legal states that have some type of
cannabis businesses whether it's the
medical market or the recreational
market now yes we do tax preparation and
things of that nature but we also do
audits business valuations to help with
M&A deals as well as compliance all the
financial compliance things to help you
keep your license in good standing as
well as the outsourced CFO service where
we help you create a smart plan for
managing your finances day to day month
to month quarter to quarter year over a
year as well as IPO readiness so if
you're thinking about going public in
Canada potentially in the States we can
help you with all the technical
accounting and all the little nuances
that come with that now we serve all the
different verticals in the cannabis
industry from testing cultivation
distribution manufacturing retail
everything top to bottom in the cannabis
industry so we have a lot of experience
with all these different clients working
in all the different aspects in
different states we've seen it all from
the small operator making a hundred
thousand dollars a year all the way to
the large operations doing fifty to a
hundred million dollars a year in
revenue so we have the ability to help
you carve that path towards your success
now before we dive into the topic I need
to let you know that the information
contained in this webinar present a
is meant for guidance purposes only and
not as professional legal or tax advice
and further does not give any
personalized legal tax investment or any
business advice in general so with that
out of the way let's review what we'll
cover in today's presentation so first
I'm gonna talk a little bit about the
cannabis market context and the industry
overall and why we're actually talking
about this and why this is a very
special time in the cannabis industry
then we'll review things about buying a
license the steps and considerations
when you're doing that as well as some
deeper dive into buyers due diligence
tips and then we'll talk about selling
your license in steps and considerations
building on that buying portion and then
we'll talk about some additional
licensing selling tips so first why are
we even talking about this
well if you look at the current state of
the cannabis industry and how we got
here right so there was a rush of money
that came in in 2015 to 2019 that was a
very large period of capital investments
people wanted to take advantage of what
we call this Green Rush well once you
start to get in there you realize
there's not really that big of a rush
there's a lot of building blocks that
need to be laid down first and many
cannabis businesses failed or they ran
out of cash essentially failing if you
have no money you have no oxygen for the
business and many of these businesses
these cannabis businesses are drowning
in debt and they cannot continue to
operate they may have gotten all the way
through you know licensing and some even
got as far as licensing the whole
build-out but they couldn't even afford
to operate so bankruptcy is not
available for cannabis businesses since
it's a federal protection and cannabis
businesses are illegal under federal law
but there is this thing called
receivership which we'll cover in our
next webinar which is one option for you
as a cannabis business operator if you
are one of these that are drowning in
debt to untie yourself from many of your
cannabis business obligations not all of
them taxes will not be able to be
dropped off in most cases but
receivership is a way to sell off your
assets including your licenses so in an
industry that's got these ever-changing
regulations the deeper your pockets the
longer you can stick things out and
straighten out your business so that you
can go forward but where we're at today
is that a lot of people overextended
themselves if they're with too much debt
or they invested too heavily in too many
markets and
now they need to get rid of assets but
what you see is that many assets have
depressed values the supply of licenses
is going to increase significantly for
two factors you have more licenses
coming online and then you have people
that are exiting the industry for a
multitude of reasons and that supply is
going up which then depresses down the
price of licenses
there's also spaces out there real
estate where some businesses haven't
paid rent in months so you can
potentially take over leases when you
start to buy these licenses and buy
entire business units so this is a
buyer's paradise and we have a very
small window as a seller to have a great
opportunity here so you're seeing new
market entrants come in they want to buy
licenses you have to strike while the
iron's hot while there's still this hype
and this excitement around the industry
and before supply goes up too much in
the number of licenses now what you saw
a real-life example of this was that med
men started to sell some of their
licenses what they did essentially was
had a fire sale on the Arizona licenses
and their Illinois licenses some of them
which mean potentially they can't find
cash anywhere else or maybe they want to
you know take non-core assets that they
don't believe is gonna be the best
markets and focus and double down on
maybe their California or their New York
operations at any rate they had like a
fifty or seventy million dollar sale for
licenses so it's not just the small
operators you're also seeing large
operators take advantage of this small
window of opportunity to sell licenses
at their max value so now that you
understand a little bit about the market
context and why we're talking about this
right now let's talk about buying a
license some steps and considerations
now these steps are pretty much in the
order you want to go but things can be
moved around as you progress down you're
buying path so first and foremost you
want to check local and state
regulations because not all licenses can
be bought and sold so at the city level
certain cities do not allow license
transfer an example of this is West
Hollywood if you attempt to transfer a
license it becomes null and void but
there is a possible workaround that I
will get to later in this presentation
so if you see it's all good at the city
level then you go up to your state
licensing body and you say alright well
can I sell my licenses how do I transfer
licenses in California this is called
the BCC the beer
of cannabis control and first and
foremost it's important to understand
that state licenses are not transferable
or assignable in other words a state
license in the state of California is
not an asset that a business can just
transfer in a sign to another buyer
instead the buyer must actually purchase
the entity or company that holds the
state license for example company X
cannot buy a company Y's state license
instead company X must buy company-wide
the end result is that company X is the
owner of company Y which holds that
state license now this is why having
each license in its own entity is so
important so once you do that you're
gonna make the transaction you're gonna
notify the BCC within 14 days now
there's essentially three phases to this
process the buyer will call company X
takes 80% of company Y with 20% of that
remaining equity retained by one of the
original owners
then again you submit that information
to the BCC along with the required live
scans and all the things that go along
with that and you continue to operate
your business while the BCC vets that
buyer now phase three of this process is
it after the BCC clears the new buyer
right the new owner the original owner
will be free to transfer the remaining
20% interest to the buyer now upon
transfer of that remaining 20% to the
buyer the original owner provides a sign
written statement to the BCC confirming
that they have transferred all of their
interest you may say how long does this
take there's no hard timeline to when
the BCC must complete phase three it
could take them two weeks or two months
who knows to actually do that vetting of
the buyers so it's gonna take a long
time I'll talk about this many times
throughout the presentation don't expect
a quick sale now once you have gone
through and saw all right I can sell or
transfer some type of license in some
capacity in some way you need to double
check with the local and state licensing
bodies that there are no points against
the license for any disciplinary action
now typically these actions come in
tears in California it's in three tiers
now tier one being the least severe tier
three being the most some examples of
those things are tier one fees not being
paid or not complying with any
regulations the smaller ones or not
confirming the
of your clients Tier two is like
considered you know things like sale or
delivery of cannabis to a motor vehicle
or selling to minors and then Tier three
this is the most harsh penalties or the
most harsh level and these are things
like working with non licensed cannabis
businesses you know intermingling white
market versus black market product or
selling returned goods to new customers
once you've figured out how many points
if none that's better if there are some
you know you look at the severity and
all the different nuances to how they
got into that situation if you want to
go forward the next step is going to be
researching the legal entity that holds
the license now again I brought up
earlier we would suggest that you
consider having each license in a
different entity so you can keep those
entities as clean as possible don't try
to roll over an entity from a business
previously that may have some issues or
some baggage that you bring along with
it now the things you want to look into
are making sure that the state filings
are up to date with the Secretary of
State statement of information all the
things of that nature making sure their
fees are paid now also you want to
ensure that there are no back debts or
any prior obligations now you can look
into services that will do this for you
there are many of them out there and you
want to do this because you will
potentially inherit these back debts or
prior obligations or all these issues
now your deeper due diligence we'll talk
about in a moment is where you really
really go deep into this but if you can
find any public information about issues
that's what you really want to do at
this step now once you've completed
those you want to do an initial
financial dive into the operations and
ensure that all the back taxes were
filed accordingly and accurately now you
want to make sure that they actually do
280e tax calculations did they take
deductions that they weren't supposed to
take did they take things that they were
supposed to take things of that nature
now this is quite involved and could
take some time and you will likely need
to engage a cannabis specific CPA or
someone that's very intimate with all
the nuances to cannabis tax filings now
this is where you're gonna have to
probably sign some agreements with the
seller you know they're gonna exchange
some very intimate information about
their business so you're pretty far
along in the due diligence process at
this point and you're gonna want to you
know really peel back all their tax
filings maybe they might share an income
statement or a balance sheet with you as
well at this time and we'll talk about
that a little bit further in the buyers
due diligence slide now if you like what
you see through these first four five
steps here then what you're gonna want
to do is create an LOI so creating an
LOI which is a letter of intent to
purchase you're going to work with your
lawyer to create this LOI and it's
essentially a quick high-level term
sheet saying alright these are what the
terms are of the deal you know barring
that we go through all this due
diligence and things work out fine or
things look right now I'm gonna hit on a
few things you want to put into your LOI
but this is not a comprehensive list of
all the terms so first and foremost you
want to put a purchase price on the
business now this could be arranged this
could be the dollar amount specific it's
really up to you how you want to phrases
now in 99% of cases as a buyer you want
to include an urn out for your seller
what an urn out is it refers to a
pricing structure that in most M&A deals
where the seller must earn part of the
purchase price based on the performance
of the business following the
acquisition this is kind of a lining
incentives in making things you know
future based not just hey I brought it
up to here you know if the business is
great and you can see its catapult its
growth and there's a lot of good things
going on maybe don't take that urn out
but at least always ask for that now urn
outs are often employed when the buyers
and sellers really disagreeing about the
expected growth or future performance of
the company that they're buying let's
just be clear here and we really Frank
this is a very common thing in the
cannabis industry seller's really think
their stuff is worth a lot of money when
it actually isn't you know this is just
part of negotiating I've made several
videos on negotiating and M&A and things
of that nature so you can you know watch
those videos and get a little bit deeper
into that but you know you wanted this
essentially structure and say hey if a
business hits a certain sales figure
then it'll pay out accordingly to that
seller lots of different considerations
there but in your LOI
include at least a purchase price or
range then you want to talk about what
type of consideration you're going to
take as a seller or give as a buyer for
that purchase price now is it gonna be
stock right is it a bigger company
buying a smaller company up we're gonna
give that smaller company some stock in
the large company is it going to be a
- deal is there gonna be some financing
and we'll go into this a little bit
later about you know stock versus cash
you know it could be a combination of
stock and cash but I would really say as
a seller you want to get as much cash as
possible I'll talk about that a little
bit later now the next thing you want to
include is closing conditions or
certainty to close now what this does is
spell out specifically what items need
to be done to close things like
agreements that need to be signed or
reviewed due diligence on ABC or XYZ
appraisals things of that nature so you
know exactly what needs to be done to
bring this deal to a close and then as a
buyer you may ask for what we call an
exclusivity window if you can get it do
it and what that says pretty much is
that hey we get 45 days to make this
happen
don't shop this deal around to anybody
else we have the first right of refusal
to make this deal happen you know kind
of paring onto that exclusivity window
is having a target closed date and what
this does is makes everyone move a
little bit faster this can be 15 to 45
days after all closing considerations
are met or whatever you think is good
for you and the team and everyone
involved in this the next step after you
created your LOI is doing that due
diligence as a buyer now you're gonna
start off with doing a deep dive on the
financials the people of the business
the agreements the licenses in many
other things now you do this pretty much
to prove the legitimacy of the business
that you're buying and the word of the
people that said hey this is like true
and this is true and that's true and
this is what it actually is going on you
want to make sure that that's actually
true okay now for taxes if you do find
anything phishing or simply just to
protect yourself as a buyer from audits
later down the road because we know that
they are coming this is a new industry
what you want to do is get an
indemnification of tax liabilities for
prior acts so for example if you get
audited for a past year before you own
the business that potential tax
ramifications will lie with the seller
you may not always get it but you should
at least ask for it and to explain
further on this deep dive with the
financials people's agreements and all
that now I already covered a lot of due
diligence items in our M&A due diligence
video so you can look that up just
google M&A due diligence for cannabis
businesses you'll see our video up there
it's got a nice orange bar you can see
the word due diligence on it
check that out it goes to all the
different items in why each item is
important in what to look for what are
some red flags orange flags yellow flags
things of that nature so really watch
that video it really pluses out the
whole due diligence process but
additional items that you want to look
at when you're doing a license purchase
for sure and if I didn't really cover
them in that video I wanted to spell
them out explicitly right now you really
want to do a background check on all of
the owners right now cannabis yes it
started with what we call the legacy
players or ex drug dealers now you want
to make sure you're not working with
extremely shady people things you know
they had any major criminal charges
is there anything fishy that comes up in
their background have they been part of
any kind of fraud cases are there any
you know what's going on with these
people you can do a formal background
check quick google searches things like
that then you also want to look into the
banking and merchant processing for the
business you know go and interview the
bank see how the relationship is with
the bank and the business called the
merchant processor make sure there's no
issues on that end things you want to
look for is the deposit frequency are
they doing it once a month once a week
twice a week every two weeks what amount
of Lee depositing what are the terms for
the banking arrangement you know are
they getting charged one point for all
their deposits up to a certain amount
and then higher as it escalates for
higher deposits is it four point six
points two points find out what those
terms are because you want to try to
keep that banking relationship intact if
you don't already have one on your own
now one of the most important things for
a retail business if you're buying a
license is to do what we call a trade
area analysis now what you're gonna look
at is the demographics of who make up
that trade area and the amount of
traffic either car traffic and foot
traffic there's a lot of companies out
there that can do this traffic analysis
for you or that have the data you can
just you know buy or peel into and
create that and just really look at some
good statistics about what is your
potential grab and market share or
potential market that you can grab at
right it's called total addressable
market Tam another one to build on to
this is the competitive analysis you
want to look at the other businesses in
your area the licensed businesses as
well as the unlicensed businesses you
have to understand no matter how many
regulations and how
law enforcement officers the black
market still rules cannabis on a
dollar-for-dollar compared to the
regulated legal market now you also want
to consider how many licenses are in the
area and how many licenses are going to
be coming up for the next two years
three years one year right we call these
licenses that are coming online and
typically cities have a rollout plan or
states have a rollout plan you know
we're gonna be adding another hundred
retail licenses twenty-five delivery
licenses eight more manufacturing ten
more distribution or whatever it's going
to be you know really look into that and
once you find all the currently
operational businesses you want to do
what we call window time and essentially
sitting out in front of the business and
count the number of patrons that go in
and out of the business
this tells you all right they're doing
35 transactions an hour or 75
transactions an hour or maybe 200 an
hour you want to go into each of those
businesses and see what the setup is
potentially you might see hey they use
this POS system or that or you know you
look at some of the things that are
going on the business to explain the
anomalies in the window time data so if
you see one dispensary is putting a lot
more people through the actual business
per hour then go inside see what's going
on see what the operation looks like
compared to a shop that's relatively the
same size that does maybe half the
amount of people is it that they have
bad you know weed maps reviews or is it
that they have just better processes and
you can kind of glean what those
processes are so you can integrate them
into your business once you buy them now
some key statistics when you're looking
at this competitive analysis would be
population per dispensary now it's like
alright how many people are there per
dispensary in this market you want to do
it at a one-mile radius a three mile
radius and the zip code of the business
this pretty much tells you how many
people are being served by each
dispensary in the area and then lastly
you want to dig down into the brand
relationships who are they working with
do they own any brands are there gonna
be any relationships that you lose
because there are you know it's best
friends and homies that work together
and they get great deals because they've
known each other in the industry for ten
years or five years or three years you
really have to look into them
because some of the numbers you may find
in your financial due diligence you say
wow the cogs are really low for this top
shelf high grade cannabis then you buy
the business in the person that was
selling that cannabis to the business
says hey I'm not giving you that deal
that was a sweetheart deal for Frank I
like Frank I've been working with him
for three years I'm not gonna do that
same thing for you and a little bit more
just peeling down into the terms of the
deal is it's EOD do you get 15 days 30
days to pay things back things of that
nature now this applies to you know all
the different types of businesses great
yeah as a retail person you may be
looking at other things or a
manufacturer you're not looking at you
know foot traffic but just consider and
look at some of these things and how
they can potentially apply to your
business that you're buying as a new
cannabis business operator or as someone
who's expanding their portfolio now that
we've talked about buying I want to talk
about selling your license in additional
steps and considerations so again first
starting off with the local and state
regulations with the city go ahead and
see hey does the city even allow me to
sell my license right if it doesn't like
the West Hollywood example then maybe
you don't want to open up in that city
so if you're a pre licensed and you
don't have a place and you're just kind
of in the beginning stages maybe look at
some of the local regulations say
alright well if we intend to exit the
industry in five to seven years are the
regulations good so that we can sell our
license or sell our business later down
the road now you know we already talked
about the BCC it's all those three
different phases just look into that for
your particular state when you're
selling your license are there any
limitations or things that must be done
before you saw your license now let's
expand the scope in these steps of
selling your license there's a few
things as a cannabis business operator
that you want to really know so you want
to know why you are selling the license
how much you want for that license and
you know how did you get to that number
you really need to know how you got to
that number not just some pie-in-the-sky
there has to be some meet you know under
this whole thing and then what you're
going to do with the proceeds because
it's gonna dictate some of the deal
terms strategic buyers and things of
that nature so there are many wise to
selling your cannabis business or you
just want to focus on a specific
vertical maybe you have a cultivation
and a retail space and you just want to
get out of retail and you want to folk
and triple down on cultivation that's
one way or you just want to get out of
medical and go only to recreational so
you're selling off while your medical
licenses are you exiting a state due to
certain tax reasons maybe you're like
wow the state here is not very good for
cannabis businesses let's just go to
another state or cut this arm off and
focus on the other operations that we
have or are you like med med and in need
of cash and you want to drop some of
your lower performing assets that could
be it too when you take that money or
those proceeds to invest in your
business in other ways or you just not
want to be in the cannabis industry any
longer
all these are valid you just need to
know your why and you want to know what
you want in how much do you want in how
you got there you know do you want 8.5
million dollars in cash and then another
million dollars in stock because you're
looking to be acquired by a large large
operator maybe someone that's public or
someone that has you know very deep
pockets you need to understand how much
you want and the reason for why that is
a good price because the business that's
buying you is going to be doing due
diligence and they're gonna check all of
those reasons and it can't be like oh
it's a huge industry and it's growing
rapidly and it's a Green Rush trust me
licenses are not that big of a deal
compared to they were two years ago and
in four years it's not gonna matter as
much as states start to see how much tax
revenue they can generate they're gonna
open up the floodgates and the states in
the cities are gonna give out a lot of
licenses and they're gonna let the free
market dictate who wins and who loses
now after you figure out how much you
want you need to know what are you going
to do with the proceeds from this sale
now you pretty much are going to want to
work with a CPA to determine the
potential tax liability when you make
this sale and you want to make sure that
that actually influences the timing of
when you sell your company or sell your
asset or sell your license for example
if you have a lot of profit in 2020 you
may not want to sell your company you
know in 2020 at all or at the end of the
year because that may increase your tax
liability for the year so you may want
to push it just you know ten days or two
months out to January 2021 assuming that
you're on a typical ordinary calendar
year now if you have an alternate
calendar year and you end your business
year on June 30th then you know pay
special attention to those dates all
about timing all about tax planning
right when you start to deal in the
large numbers the mill
the tens of millions it can be a big
deal and it can have huge implications
for you and you also want to know what
are you going to do with that money when
you get it are you gonna put it into a
1031 exchange are you gonna put it all
into you know just a regular account are
you gonna do some investments with it
it's all very important and you just
need to have at least a plan you may not
need to stick to it because things
change but at least be thoughtful about
how you're moving forward now if you are
in a good enough position where you know
you're planning an exit and you can you
know really be thoughtful about this try
to work on the numbers of your business
right if you're planning an exit see how
you can trim or pad the numbers of your
business things like cutting unnecessary
costs ramping up or optimizing
production so you can get more dollars
per square foot out of your cultivation
or more grams per square foot out of
your cultivation you know things like
minimizing waste in you know reducing
shrink within your operation creating an
offensive tech strategy where you're not
just thinking about taxes in April when
it comes up you're being thoughtful
every month about either you know
planning for the obligation reducing
certain costs are increasing certain
costs you can offset things doing a cost
segregation study working with different
tax codes to help you back in some
indirect costs into cogs things of that
nature
another thing you may want to do is
implement an accounting an inventory
software system this will improve the
value of your business and the value of
your deal once you get to that due
diligence stage the cheaper the due
diligence is or the better the
information they find around the
business to prove that legitimacy of
your business the better things will be
for you in the higher number you're
gonna get later down the road
now once you've worked on the numbers of
the business you want to work on the
operations of your business and the kind
of setup of the business we'll say so
one term you may hear is a keyman
discount now when you'll see this more
often is when the business relies
heavily on the contributions in any form
of one or two key people in the business
now why that's important what if that
person goes away right they get out of
the exit the business or they die or
they get hit by a truck right there's
this thing called key man insurance so
you can look into that a little bit more
but the way to you know mitigate that
risk is to start documenting your
business processes so that new owners
can come and understand how to repeat
your business success you
implement strong internal controls and
documentation which then helped make
this due diligence audit easier and they
can really see all right this is a
replicable business model we should buy
this business because everything's
documented the path to success is paved
it's not you know blazing our own trail
and if you have a business that is tied
to a person's name that consider
changing the name of the business and
you know it may even be a trademarked
kind of infringement situation where
it's too close to another existing
business maybe you are an edible company
and it's very close and you kind of
played off the name of a very popular
candy brand for example I saw one of
these when I worked at an intellectual
property law firm they were being given
cease and desist letters the you know
candy company was harassing them a lot
they end up having to change the name of
the business but if they had to do this
in order to make a sale it could have
gone to a heavy discount in that
purchase so just be thoughtful about
these kinds of things and as a seller
one last thing you want to do is to
perform due diligence on your buyers now
you're watching this video hundreds of
people are gonna watch this video a
thousands of people gonna watch this
video everyone wants to be in the
cannabis industry it's not a secret
anymore everyone thinks there's a lot of
money in here and there is if you do
things right you know you have people
like family offices PE firms private
investors angel investors venture
capital group's you know cannabis
enthusiasts and yes even some real
business operators that maybe run a
liquor distribution business or they may
run a food distribution business they
want to get into cannabis distribution
what you want to do is separate those
smart and good people whoever those are
from the tire kickers you want to find
who the true buyers are and the people
you really want to work with things you
want to look into are what deals have
they done who are they representing if
they're not representing themselves
right there may be agents out there
going to buy cannabis businesses for
family offices you know they may be
buying it for their children or they may
be buying it to get into alternative
assets so they have some non-correlated
assets - maybe the stock market or their
core business things of that nature find
out who they're representing and do due
diligence on the people that they're
representing also find out why do they
want to get into cannabis this will help
you into
waise first do they even understand the
dynamics of the industry right now how
we got here as well as it will also
dictate how you tee up the deal to them
if they say they really want to be
cannabis business operators they love
the industry then you play up certain
aspects if they're looking for pure cash
financial arbitrage then you play up the
financials you know what you have to pad
and things you need to really put
forward as these are the aspects of why
this business is worth a lot of money
we've covered a lot of ground here I
just want to go over some additional
licensed selling tips so the first one
here is if you're selling your business
never pay for due diligence fees you
never ever want to take on that burden
because it might be trying to scam you
so for example we had two cases this
last year and the one is gonna be the
most important of this and it
illustrates this example so you see scam
artists out there all the time they do
all these crazy things but what happened
is that you know a new client of ours
reached out and told us a story about
how a buyer reached out to them and said
hey we want to buy your business for
fifteen million dollars that big number
that gets the business seller all
excited they weren't even really
considering a serious sale but they were
like okay what will entertain the offer
now this potential quote-unquote buyer
said hey we'll buy it you know but you
have to pay us thirty thousand dollars
to do the due diligence fees and if
everything checks out smells right you
know we'll buy the business now what
these scams are essentially is just a
business it's gonna go ahead and take
that $30,000 in cash and due diligence
fees peel into your business but they
will never buy the business they were
never intending to buy the business they
were just looking to get that thirty
thousand dollars off of you so
throughout the due diligence process
make sure each side of the deal is
paying for their own due diligence fees
it's putting some skin in the game for
both sides of the deal in helping to
move things along in aligning incentives
now the next thing is as a seller avoid
stock purchases you know I talked about
this earlier what type of consideration
are you looking for cash financing stock
sale things of that nature I would say
really only take cash so what you'll see
sometimes this is a company will reach
out to you they'll make a thoughtful
offer it's the right number but they're
gonna say hey will purchase your company
for five million dollars but that
consideration is going to be stock of
our company our big parent come
now unless it's highly reputable but
even then you're seeing these large
cannabis companies the public ones you
know even the large private companies
their valuations are getting slaughtered
and who knows that they're gonna be
around in 12 to 18 months it's just too
risky your money is not safe when you
start to get into the stock market of
cannabis businesses it's just getting
crushed right now so I would say as a
seller try to get most if not all of the
money from the sale in cash you can
potentially take some of that you know
sale in stocks you know have some
potential upside limit your downside you
just really look for cash cash is king
in this industry and in every industry
now the next point expect these deals
M&A deals to take six to twelve months
all right and it could be even longer
depending on the taxes you know the
implications from it if you have to go
through any kind of regulatory you know
oversight reviews things of that nature
you just plan for these to be long they
don't take 30 days they don't take just
60 days they could take quite some time
and if you have that thought process
then you're not in a rush to sell and
when things take a while you're not
getting too frustrated but hey any M&A
deal there's gonna be frustration built
in it's par for the course now I brought
up that you may run into ownership
issues like in West Hollywood where you
can't transfer a license or it becomes
void and null so what you could do is
enter into a management service
agreement with the buyer so you'll say
hey the buyer has a management company
and whereby all the income and profits
from the acquired dispensary or from the
managed dispensary is ownership of the
buyers management firm essentially you
are just designating that all the
proceeds and benefits and income and you
know the losses are assigned to that
management company now you need to check
with your legal team on this to make
sure that everything is done according
to local regulations and laws and things
of that nature but that is potentially a
way around this license transfer and
business sale issue is a management
service agreement now the next point
here from multi license holders I
brought this up earlier and I want to
reiterate this break every license into
its own legal entity so if you're at the
beginning stages every license that you
get if you're not going to be you know a
microbe is licensed if you're gonna go
get a cultivation a menu
during a distro and a dispensary and a
delivery you know make sure that each
license is housed in its own entity it
makes this M&A process so much easier to
deal with you know the buyers can do
clean checks you know the entities are
fast you can fracture and break your
part your business easier as a seller
and the buyers will pay a premium for
those clean entities with the license
you know you may run into an issue with
your distribution company you know you
may get into some excise tax issues and
you want to sell off the distribution
business or you want to sell off the
dispensary that's just kicking butt well
they're not gonna buy that you know
whole kit you know with the distribution
issue and the you know the dispensary if
you have that issue so by housing that
retail license and its own entity you
have the ability to sell that operation
off in part and you know not be impacted
by the issues from your distribution
business if you're gonna be selling your
business for more than five million
dollars I would say even you know north
of three million dollars you want to get
audited financial statements by an
independent CPA firm audited financial
statements really move deals forward and
create confidence on both sides of the
deal what you're gonna notice is that
when you get into the realm of M&A in
the cannabis industry you know there's a
lot a lot of crappy deals out there but
when you get the stamp of a CPA firm
that has audited financials so many more
doors open up it's kind of that stamp of
approval CPA you know a national
designation it really helps give
confidence again on both sides of that
deal so if you're gonna go for a larger
sale try to get your financials audited
before you go for that sale so we're in
2020
go get your 2019 or 2018 get both year
is fully audited so that you can move
that deal along quicker you get a higher
number on that loi from your buyer and
your due diligence will move along much
quicker and lastly here if you're using
an agent to sell your business just be
thoughtful and understand that you know
their commission percentages range from
anywhere to six to ten percent and
sometimes it can be even higher
depending on the circumstances of the
sale especially if you're doing a fire
sale and you need to offload it quickly
and you're really tapping into their
network it could you know range all the
way up to fifteen or twenty percent you
know that can be quite egregious but in
all the
pens who has the leverage in the selling
situation and it also depends on how
much the agent is selling your company
for in most cases the higher the sale of
the business the lower the percentage is
going to be but also if you have like a
hurdle you know say you want to sell the
business for 4.2 million dollars and
they get a higher pricing they get five
million dollars that differential of 800
K maybe the agent gets a higher
percentage of that differential compared
to the base of the 4.2 million it's all
to you and how you structure that deal
you can always say no to the agent you
don't have to use agents but in many
cases having someone who is familiar
with the industry and you know kind of
plugged into the M&A network can really
help out and move that deal along
quicker and get you access to higher
quality buyers and as well in a buyer
situation you will likely pay some fees
as well so it's not just all on the
seller
buyers may be paying fees as well and
that can again range from the two to
seven percent you know sometimes it is
six to ten percent it all depends it all
depends every deal is unique in its own
right we've covered a lot of ground here
talking about both sides of the deal the
buying and the selling now I just want
to review a few key takeaways of buying
and selling cannabis licenses so before
you apply for your own license and go in
and get one consider looking at the
resale market again I told you at the
beginning the supply of licenses
increasing significantly and you have a
lot of businesses that either want to
exit are failing are struggling you know
they want to get rid of their license
you don't always have to go and do it
yourself
potentially look into buying a business
that is in a very depressed state now
the next point keep each license in its
own entity for smoother transaction is
down the road if you're gonna get
multiple licenses you know make sure you
break each license into its own entity
like its own LLC its own S corp its own
C Corp work with you CPA to figure out
what entity type is best for the each
license next buyers should always ask
for and earn out from the license
sellers now you may not always get it
but you should always ask for it next
due diligence is critical for buyers to
knowing what they're actually paying for
don't take any seller for their word you
want to make sure you have your team Hey
the money pay the 25 to 75 K to do a
full deep dive and audit the financials
out of the operations you know meet with
all the key people in the business
review all the licences review all these
things all the due diligence process
watch that video I did on ma deals the
due diligence side of it it's the first
part of all this M&A process watch that
video it's a lot of good information to
help you actually break apart peel back
the layers of the onion so you know what
you are buying and then lastly if you
cannot buy and sell your licenses you
know then really consider entering into
what we call a management service
agreement where you designate all income
and profits to you know the
quote-unquote buyers management company
so you can still retain the ownership of
the business but you sign away all
claims to income and profits of the
business so that's the kind of a work
around in those cities or states where
it's prohibited to transfer or sell
licenses or businesses that are in the
cannabis industry now thank you for
taking the time to learn about buying
and selling cannabis licenses I really
appreciate you learning and listening
with me here and if you need help with
selling your cannabis business license
and please reach out to green growth
CPAs today by visiting our website at
green growth CPAs com or give us a call
at eight hundred 676
the it's not easy to do when you're
doing it by yourself but when you have
an experienced team we've helped sell
three businesses and I think head he'll
be you know between seven there are nine
licenses last year some of them had
multiple verticals per business we've
been down this road we kind of know what
you're gonna be walking into you've also
helped to buy licenses for some of our
clients that want to open up in other
states so if you need help with selling
your license and please reach out to
green growth CPAs by visiting our
website at green growth CPAs com or give
us a call at eight hundred 676