MJBizMag April 2021 - 58

Secondary Education
M
arijuana business owners
seeking to sell their operations
on the secondary market are
sitting in the catbird seat, experts say.
Multistate operators wishing to expand
their footprints are fueling demand,
as are investors entering the market
anticipating federal marijuana reform.
" With $1.6 billion in capital raised
in January alone, public cannabis
companies now have a lot of cash on
their books, so I think we are going to
see a lot of mergers and acquisitions this
year, " said Charles Alovisetti, a partner
at Denver-based cannabis law firm
Vicente Sederberg.
There is an " optimistic expectation of
accelerated federal cannabis reform now
that the Democrats control the White
House and Congress, " added Jade Green,
founder and CEO of Seattle-based
CannaMLS, a nationwide listing service
for marijuana properties.
At the request of Marijuana Business
Magazine, Green looked at the activity of
buyers and sellers contacting CannaMLS
in the first six weeks of 2021 compared to
the same period in 2020. The increase in
activity, Green said, was " incredible. "
Interest from buyers jumped 427%
between January 2020 and January
2021, and seller interest rose by 500%,
according to CannaMLS records. In
the first two weeks of February, buyer
interest was up 500% from the same
period in 2020.
Alovisetti, who is based in Vicente
Sederberg's Boston office and is
licensed to practice law in Colorado,
Massachusetts and New York, said he
expects that special purpose acquisition
companies, also known as SPACs, will be
major players in buying private cannabis
firms this year and bringing them public.
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While demand for existing marijuana
operations perhaps has never been
hotter, experts said there are tips and red
flags that both sides should be aware of
before agreeing to acquisitions.
Charles
Alovisetti
For example, it is crucial that sellers
don't price their operations too high.
" A lot of sellers think their business is
special and deserves a premium price. If
other dispensaries in your city are selling
for 1X gross revenue, you should realize
you are not likely to sell your dispensary
for 2X gross revenue, " said marijuana
attorney Alex Freedman, founder
and principal of Los Angeles-based
Freedman Strategic Consulting.
For help pricing your business,
interview brokers to find out what your
business is worth and how they will
help sell it. Lawyers and credit lenders
well-versed in local, state and federal
marijuana laws will be helpful in vetting
potential buyers and closing the deal.
Buying an existing marijuana
license from an ongoing MJ business
is especially daunting for newbies,
according to Green.
" For investors interested in purchasing
a license on the secondary market,
I would first advise (that clients be)
100% sure they are ready to enter the
cannabis industry at all, " Green said.
She noted that the industry is a " highly
complex, ultra-fragmented, federally
illegal business that can take years to
understand-let alone successfully
operate in. "
" From IRS rule 280E (that prohibits
tax write-offs) to a complete lack of
interstate commerce, there are plenty of
challenges that aren't common in any
other multibillion-dollar industry, " Green
pointed out.
58 Marijuana Business Magazine | April 2021
Veterans in the marijuana licenseresale
market say 2021 could be the
biggest year yet for mergers and
acquisitions. But buying a company
can be perilous if you don't know
what red flags to look for or have
experts guiding you in the process.
Business brokers, attorneys and
consultants told Marijuana Business
Magazine that buyers and sellers
should keep these things top of mind
when considering a deal:
* Overpricing a marijuana business
positions sellers for failure before
they've spoken with any potential
buyers. To price your company
competitively, find out how other
businesses in your sector are priced
relative to revenue and use that
as a guide. A business broker can
also help come up with the perfect
number.
* If your professional background is
not in cannabis, know that planttouching
companies are not eligible
to take standard business tax
deductions, and licensing fees will
be substantial.
* Don't take the seller's word for it
when it comes to ease of license
transfer. Check in with your local
regulator to learn exactly what
documentation and fees are
necessary to complete the deal.
* Success in other industries does
not always equate to success in
the marijuana industry. Onerous
tax laws command a large part of
revenue, and regulations hamstring
many businesses in areas such as
transportation and security.
Just buying an MJ license can be a
time-consuming task, which will include
a criminal background check.
" Most jurisdictions require
background checks for new owners, "
Freedman noted.
" Often, the most difficult part of
buying a license is just the lengthy
wait to get a response from regulators, "
added Freedman, who previously served
as general counsel to Los Angeles'
Department of Cannabis Regulation and
Cannabis Regulation Commission.
MJBizMag April 2021

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