By Dan Roda, J.D., LL.M.
Demand for medical and adult-use cannabis far surpassed objectives in 2020. The industry had been announced become crucial, and from coast-to-coast income hit an all right time high. In 2021, federal legalization of cannabis is inching closer to being a reality and an unprecedented level of capital is prepared to enter the industry. While reasonable minds could certainly debate the pros and cons of this impending influx of new cash, for many veteran operators, 2021 could be the year that is optimal prepare your exit.
One of the very popular approaches to get general public into the cannabis room is an SPAC (Special Purpose Acquisition organizations). Created by investors or sponsors with market expertise, many SPACs or Blank Check organizations are focused on acquiring and consolidating creating assets within the cannabis sector. For the business that is small, selling a private company to an SPAC can deliver a faster IPO process and increase the selling price point than working with an investment bank.
So, with 2021 shaping up to be a year that is SPAC-tacular below are a few key factors for cannabis operators seeking to place on their own for purchase in 2021:
1 – Lock down your Intellectual Property
You’ve invested your time and effort and passion into building a brand name your prospects know and trust. You borrowed from it to you to ultimately protect your brand that is valuable identity trademarks. While cannabis companies have sometimes experienced difficulty in obtaining trademark that is federal, it is perhaps not impossible. State legislation protection may be helpful, also depending on your situation. Always check with your attorneys about what’s best for your company. There are steps you can take to maintain ownership in what you’ve built.
2 – Get your house in order (or at least the data room)
It’s important to have the governance that is corporate (development papers and bylaws or working agreements) for many of the entities easily available, along side hawaii or regional cannabis licenses regarding each. Any potential acquirer will have to recognize just how all assets are held – especially the licenses – while the specific individuals behind each permit who possess authority to accept a transaction that is prospective. Depending on the size of the deal, you may also be expected to have a statement that is financial done by a CPA, but, in a few situations, an accountant’s compilation report or overview of your company’s financials may suffice in place of a full-scope review (check with your advisors to talk about the distinctions). Most of these products should really be maintained in a data space, preferably on a ongoing service such as DocSend or Dropbox, that can be shared with prospective acquirers with the click of a button.
3 – Take it to the bank
If someone is purchasing your business, they’re generally going to base the offer on a few factors that are key such as your income and cashflow. To allow anyone to be ready to spend you a multiple of the income in return for your company, they should manage to validate that revenue. it is gonna be difficult for anybody to audit and validate things – whether that someone can be your accountant or your purchase that is prospective you’re still operating largely in cash. Besides, it’s 2021 and everyone knows the majority of the* that is( industry is banked. You’re not just making yourself more difficult to work with – you look suspicious if you’re in the minority. Don’t stand out for all the reasons that are wrong. Get the profit the financial institution, and obtain that revenue that is stable on paper.
4 – Future proof your tech
The 2020 pandemic catalyzed a seismic shift in the way retail consumers expect to be able to do business. The* that is( industry is not any exclusion. Alterations in federal banking regulations will start use of leading-edge solutions that are financial. When that happens, there will be nothing standing between your ability to provide the true channel that is omni experience your consumers desire. But, you will have absolutely nothing standing in anyone way that is else’s, so you’ll want to be ready or risk falling behind.
SPACs are having their moment in the* that is( industry. That is news that is great companies looking to exit in 2021. Interest in SPACs and IPOs confirm that there is an increase in investment capital looking to find its way into cannabis. The result could be a competitive market for
M&A the likes of which we’ve never seen.(* in limited license areas)