Mergers and acquisitions in any industry are difficult, but in the cannabis industry, they’re even more so. There are a number of things in mergers and acquisitions that business, buyers, and sellers need to be aware of that they aren’t typically aware of in other industries. Due diligence is important prior to a cannabis transaction. It’s even more so given the history of how cannabis has grown up in the various states, and to know more about the person you’re buying your company from.
The second issue has to do with the ownership structures that particular states allow in the cannabis industry. Each state is unique, each state has its own rules, each state has its own way of interpreting its own rules, and in each state, there are certain types of people who either cannot own a cannabis business, or there are particular ways they can own a cannabis business, and these can create very complicated ownership structures, and makes it difficult for cannabis companies to raise capital.
The third issue that people need to be aware of in mergers and acquisitions is how to value a cannabis business, whether it’s a licensed cannabis business or an ancillary cannabis business. The industry has not been around for very long, so how the market values each particular business does not have much history. Typically, in the state of Colorado, businesses are sold on a multiple of earnings, but that can change from place to place, location also matters, and other states don’t have much history at all of buying and selling of cannabis businesses. And there’s also the problem that there are very few publicly traded cannabis businesses, so there are no public markets for anybody to tell valuations of cannabis businesses.
At McAllister Garfield, we’ve handled hundreds of mergers and acquisitions in the cannabis industry, both for licensed cannabis businesses, and for ancillary businesses, and we can help you with yours as well.