For Marijuana Business Buyers, Due Diligence Items That Help Lessen Purchasing Risks
Mar 27, 2017 03:06 PM EDT
Purchase transactions for marijuana business buyers often involve a transaction handled by business brokers who may not know or care much about the applicable marijuana laws. To avoid the buyers' share of risks in buying a cannabis business, it's important to know the exact assets and liabilities that will be taken on - and this is where buyer due diligence items help.
The number-one due diligence item for marijuana business buyers is state and local law compliance, according to Above The Law. Before buying a cannabis business, buyers should first confirm that the company ought to be purchased is in good standing with the Secretary of State and the regulators. It's proof of licensing and permitting as well as its history of administrative violations must be essentially reviewed.
The second due diligence item is state law procedures for ownership changes. Despite what seller or broker may tell the buyer about ease of the transaction, marijuana business buyers should ensure that the sale can comply with applicable state law requirements for changes in ownership, which includes accounts for the timing of performance obligations in the purchase and sale agreement.
Also, buyers need to get a list of all real property owned and leased by the business that is to be sold. Therefore, the next due diligence item is real property. If there is a lease, marijuana business buyers may want to know the terms and the compliance that comes along with it and ensure that lease sufficiently covers other issues when it comes to state and local law compliance as well as the federal law conflict.
The last due diligence item for marijuana business buyers would be financial liabilities. Before purchasing a business, an agreement that requires the seller to have disclosure of information with every consultant, investor, and service provider is needed. According to Canna Law Group, this should include any instrument that grants a security interest from the cannabis business they are trying to buy to a third party.
To mitigate risks, comprehensive representations and warranties in the purchase and sale accounts are needed. Although they might not suffice to capture all liabilities that fall through the cracks, the due diligence items certainly do help marijuana business buyers to some extent.