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Negotiating the Sale of Your California Cannabis Business

Apr 25 2021, by Jessica McElfresh in Marijuana Business, Marijuana Business

Cannabis has become another business in California, though a highly regulated one, where operations and storefronts can be bought and sold.

So if you own a cannabis business in California, you may feel it’s a good time to sell. But whether your reasons are personal, financial, or business-related, you need to cover your bases and work with an experienced cannabis business attorney, like Jessica McElfresh.

With a history of success with California’s cannabis industry and (858) 756-7107 to schedule an appointment.

What Type of Cannabis Operation Are You Selling?

There are many kinds of marijuana businesses in the state that can be bought and sold. You could be a cultivator, a processor, transporter, a testing lab, a dispensary, or involved in distribution. You may even own more than one related business.

Issues Cannabis Business Owners Should Consider

There are many factors to consider when selling your business, according to Business Partner Magazine:

Why Are You Selling?

There may be several reasons, but what’s the most important? That reason will drive your priorities for sale. If you’re suffering a family or health crisis, you may need to exit the business quickly so that you may sacrifice profit for speed.

If you’re planning to retire, speed may not be a priority, so you have time to find the best buyer at the highest price.

What Do Buyers Want?

Is your business attractive to buyers? What can you do to make it more appealing without making a significant investment?

Buyers also need to know your business’s performance to see if it’s worth the price. If your financial documents are detailed, accurate, and available, it will help. Potential buyers will want to look at them, but you first need to protect yourself with confidentiality agreements so they won’t walk away from a sale with valuable information they can use against you.

The Documents You Should Prepare

  • Year-to-date income statement: They state your revenues, profits, expenses, and the costs of the sold goods. It should have all the vital information allowing a potential buyer to decide your business’ value and profitability
  • Year-to-date balance sheet: It lists your liabilities and assets. It states what you have and what you owe
  • Year-to-date cash flow statement: It states the money that comes into your business and how much is spent. Buyers want to know how much cash it’ll take to run your business
  • Tax returns: They should confirm your financial statements about net income and revenue are accurate. It should also prove you’re current on your taxes, so that’s not an issue the owner will need to deal with
  • Business Summary: Dress up your business in a professional summary book. Include information that makes your business look good and how you successfully compete against similar businesses

Are You in Debt?

The less in debt you are, the easier it should be to sell your business. Buyers don’t want to spend money on a liability, particularly in the regulated cannabis industry. Paying off as much debt as possible before putting your business on the market may give you a good return on your investment.

Does Your Marijuana Business Have Weaknesses?

Every business has a weakness, maybe several. Correcting as many as you can, as well as you can, will make your business more attractive to buyers. If you’re asked about weaknesses, such as local cannabis compliance issues, be honest. State what they were, what you did about them, and why they’re no longer problems.

What’s Your Cannabis Business Worth?

Marijuana Business Daily states that, in general, its worth is based on your company assets, income, and the market values of similar businesses. These factors are adjusted based on your company’s unique situation and a standard valuation formula called Earnings Before Interest, Taxes, Deduction, and Amortization. Having a local permit can boost your business’ worth.

Who is Your Buyer?

Don’t talk to just anyone who says they’re interested. Determine their financial capacity and level of interest before you spend your time. Ask for a credit score and a personal financial summary.

You may be bought by a local competitor or by a multistate cannabis business operator. When you talk about your business to potential buyers, find out as much as you can about them. The better you know their resources and plans, the greater you understand their motivations, the better the chances negotiations will go well for you. You can pitch the sale as a way to meet their goals, making it worth a higher price.

How Do You Want To Be Paid?

How you’ll be paid depends on what you’ll accept and what they’re willing to give.

This includes:

  • Cash
  • A financed sale through a promissory note with payments over time, which may have tax benefits
  • An ownership interest through stock

Don’t Sell Yourself Short

Your cannabis business is a significant investment in your money, time, and energy. You may have made many sacrifices to make sure it’s a success. Trying to sell your business without the help of an attorney who knows your business and the cannabis industry may be penny-wise and pound foolish.

Depending on the circumstances, an unsuccessful negotiation could lead to legal action by a potential buyer. You may also have a basis to file a lawsuit against a possible buyer, depending on what they say and do.

McElfresh Law Can Help Your Cannabis Business

Whether your cannabis business needs help with banking, zoning, business formation, buying, or selling a company, Attorney Jessica McElfresh can provide your business with guidance and legal representation in every aspect.

If you have questions about selling your cannabis operation in California, call McElfresh Law at (858) 756-7107 to schedule an appointment.