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How to Sell Your Cannabis Business

by Hasum | | 420 Smoke Shop Near Me | 0 Comments

Target Marketing

It’s not only the potential buyer or investor who is expected to conduct due diligence before the acquisition of a cannabis company. As a seller, you also have to do the same. And this means intentionally targeting potential investors. 

Sending out a press release about the sale to the open market is not a good marketing technique. You’ll end up with numerous calls from all sorts of people seeking information about the potential sale. And most times, many of the calls are from individuals who show interest in the acquisition but never make a buying commitment. They’ll engage your sales team, asking all manner of questions. And in the end, they’ll protract the sales process without leading to a successful outcome.

Ideally, you have to target private equity entities and family-owned businesses with a keen interest in the transaction. This helps weed out tire kickers. To do so, for example, you can pool over 50 prospective buyers who satisfy all the application requirements in your state. After drafting the list, the next step involves notifying them privately. You can send them a private press release informing them about the offering.

Non-disclosure Agreements

Prospective leads may seek further information about the sale. All potential buyers should sign a non-disclosure agreement (NDA). This should be done before sharing confidential information with them. You don’t want to share information about your patents, recipes, and so on without an NDA. Talk to an attorney to help you draft a good NDA.

The Due-diligence Folder

As a seller, you don’t have to wait for the investor or buyer to send you a due diligence questionnaire. You need to do a bit of prep work in advance. 

When looking for a buyer, you must create a due-diligence folder. This acts as a data room containing all the crucial information that buyers may want. Here are some of the due-diligence items that you should be ready to send to a potential buyer.

Bookkeeping and Accounting

Bookkeeping and Accounting

Imagine a scenario where a potential buyer scrutinizes your books. And in the process, they discover some irregularities that you don’t know about and can’t explain. If they unearth major issues, they are likely to assume that you have a lot of other skeletons in your closet.

Potential buyers and investors will always review your financial records before signing a deal. They’ll want to scrutinize your company’s profit and loss statement as well as the balance sheet. And chances are, they won’t just take your word for it. So, you need an independent accounting firm in your cannabis business to do the job.

The accounting firm ensures accurate financial bookkeeping. The records should capture everything on leases, inventory, licenses, vendor lists, and tax returns. 

Speaking of tax, investors also want a cannabis business that is tax compliant. To avoid tax issues with IRS, your accounting professional must be conversant with:

  • Generally accepted accounting principles (GAAP)
  • Cost accounting
  • Absorption accounting
  • Accrual accounting

As a cannabis business owner, you must budget for a third-party accounting firm from the onset. Keeping clean records is good for legal and regulatory compliance. And more importantly, it gives investors the confidence to proceed with the business acquisition.

Cannabis Licensing

The cannabis industry is highly regulated—the Department of Cannabis Control is tasked with issuing licenses to cannabis businesses. The licenses vary depending on the type of business your company intends to perform. So, if you intend to do more than a single activity, you will need a license for each of those activities. 

Sellers must show proof of their state business license. Here are the types of licenses issued based on the cannabis activity:

  1. Cultivation license (growing weed)
  2. Distribution license (moving cannabis)
  3. Manufacturing license (creating cannabis products from flower)
  4. Testing laboratory license (testing the safety, purity, and potency of cannabis)
  5. Retail license (selling weed products)
  6. Event license (for the individual holding the cannabis event or for the event itself)


The cannabis industry is still an emerging market, so it may lack established industry standards or practices in some areas. That’s why you’ll find the owner or senior executive playing several roles within the company, but this often doesn’t bode well with suitors.

To make your cannabusiness more attractive to potential buyers, you should have different departments within the company. Departments help you divide tasks and responsibilities. These include:

  • Accounting
  • HR
  • Advertising and marketing

Each department should have internal controls for accountability reasons.

Good Employment Practices

Good Employment Practices 

Layoffs are a common thing in almost every industry. And the cannabis sector is no exception. Often, HR departments in most cannabis companies are small or entirely non-existent. This means that the companies are ill-prepared to handle the legalities related to immature termination practices. And frankly speaking, no buyer or investor wants to touch a company faced with a series of litigations. So, cannabis business owners have a lot to lose.

Having an HR department in place before any layoffs is crucial. Some of the best practices for effecting layoffs at your dispensary include:

  • Having a folder to document the behavior and performance of each employee. Should an employee sue the company for wrongful termination, you will need this documentation to back up your actions.
  • Creating an employee handbook with all the employment procedures. Include how staff performance is assessed and the consequences when those standards are not met. Define which behaviors may lead to dismissal and the entire termination process. Ideally, have a qualified EPL (employment practices liability) lawyer help you spell out these policies and procedures. 
  • Signing up for an EPL insurance policy is a good move. It can protect your cannabis business from the litigations related to:
    1. Wrongful termination 
    2. Negligent evaluation 
    3. Failure to hire or promote 
    4. Career opportunity deprivement 
    5. Employment contraction 

Highlight Your Unique Selling Propositions

Prospective buyers look at different factors when identifying which brands to add to their operations. Buyers search for dominant players in the marketplace and businesses with growth prospects. They are keen on key performance indicators such as:

  • What’s your annual revenue?
  • What’s your reputation in the marketplace?
  • What are your best-selling brands in the marketplace?
  • What’s your number of existing customers?

As a seller, you need to position yourself by designing a presentation deck that encompasses your company’s unique selling points.

Example 1

Let’s say your company has real expertise in hemp cultivation. You achieve this by growing organic hemp without the use of pesticides or herbicides so you harvest hemp that’s almost 100% pure and potent. This is an example of a unique selling point that should be part of your presentation to prospective investors. 

Example 2

Some investors focus on cannabis brands generating revenues above a specific target. For example, a buyer may want to acquire a dispensary making more than $250,000 in yearly revenue. So, if you’re making great annual returns, you should focus more on highlighting that. 

Example 3

Countrywide retail distribution is another attraction for potential buyers. So, if your brand has an extensive retail distribution network, draw attention to it. 

Example 4

As an acquisition target, you can show the potential buyer who your target customer base is. For example, are they novices or connoisseur CBD consumers? You should also have data on what your best-selling products are and how the brand products can be further enhanced to meet the high demand.

Intellectual Property

Intellectual Property

Protecting your intellectual property as a cannabis business is important, especially in the lucrative cannabis marketplace. The best protection for cannabis products and processes is patent protection. A patent offers a monopoly to the cannabis company. This prohibits others from designing, using, or selling the innovation for the period since the effective filing date.

Cannabusinesses can patent several products and processes. For example, you can obtain patents for new or adapted active ingredients derived from the weed plant. This may include the extraction of new cannabinoids or a specific mix of cannabinoids and terpenes. Patents may also be acquired for new cannabis formulations such as beverages, topical creams, and edible products. 

Cannabis companies can also file for trademark protection for their clothing brand. At the time of writing this publication, trademark registration for marijuana products is prohibited in the U.S. This is because cannabis is still a Schedule 1 substance under federal law, and thus not legal. The U.S. Trademark Office only allows weed-related trademarks for legal products like clothing. 

That being said, you should gather all documentation on your cannabis company’s intellectual property rights. These include patents and trademarks. This information will come in handy when pricing your business for sale. 

Company Valuation

As a cannabis business owner, you need to know the actual value of your business. Proper valuation should come ahead of cashing in on your business. Otherwise, you may get a raw deal. While at it, you should use an independent, third-party valuation specialist for accurate results.

A correct business valuation calls for meticulous and objective evaluation. The valuation specialist needs access to several updated company documents, including:

  • Financial statements
  • Legal documents
  • Tax returns
  • Customer lists
  • Licenses
  • Physical assets
  • Intellectual property
  • Business plans
  • Staff rosters

After gathering the information, valuation specialists analyze the data via the following three valuation methods:

  • Income approach: Your cannabusiness is evaluated based on the current value of its forecasted future earnings.
  • Asset approach: This approach is driven by the accurate market value of all your company assets, without the liabilities. 
  • Market approach: The value of your company is established through its stock prices or the latest selling prices of equivalent companies.

You can expect the company valuation to take up to six weeks. This is after you’ve supplied the valuation specialists with all the necessary documents. The final report will detail the value of your cannabis company in U.S. dollars. It will also explain the methodology and key aspects that contributed to the final valuation.

Enlisting the Services of a Broker

Enlisting the Services of a Broker

There are myriad potential bottlenecks that may arise and many standard procedures you have to undergo to ensure you get good value when selling your cannabusiness. Working with a broker whose specialty is in the cannabis industry is a wise move.

In a regulated sector like cannabis, you want somebody who knows the ins and outs of the sales process. Plus, you may not have the time or the patience to handle the entire sales process, which entails staying on top of everything. 

A broker can help you with various important facets of the sales process, including:

  • Connecting you with prospective buyers by marketing your on-sale business to their extensive network and on 3rd party websites
  • Handling inquiries from prospective leads on your behalf
  • Ensuring a profitable negotiation with interested parties

There’s a misconception that brokerage firms charge 10 percent under the normal business broker model. Yet, that actually only applies to transactions worth $1 million. Cannabis business brokers charge six percent of the selling price as commission. 

The Bottom Line

You should expect exhaustive scrutiny from prospective buyers when selling your cannabis company. They will likely request numerous documents, including financial statements, tax returns, intellectual property details, and employment contracts, among others. 

While gathering these documents may be stressful, pulling them together in advance gives buyers much-needed confidence. After all, you don’t want transactions to stall because you’re taking months to gather all the documents together. 

Equally, working with a broker in the cannabis industry can help accelerate the entire transaction process. You can leverage their contacts to get the right buyer.

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