The cannabis industry is growing fast and has become an attractive market for many investors. Most of the small firms and cannabis growers are “pressured” by larger, consolidating firms to sell their business licenses. Until now, those starting up a new marijuana business have bought cannabis licenses on the secondary markets as the quickest way to enter this industry. The reasoning behind this being that it remains much easier to get a license from secondary markets than to undergo a long, costly, and difficult state application process. This article discusses some of the best practices for purchasing a secondary cannabis business license.
A Long Road Ahead: Aligning Priorities with Desires
Before buying a cannabis license through the secondary market, first you must be aware of what it means to enter said industry. The cannabis industry is not an easy path to pursue, and it requires commitment from its start-up to the actual day-to-day operations of the business. If any hesitation or apprehensiveness is present, one is opening yourself up to a plethora of issues that can plague cannabis entrepreneurs. The marijuana business is not like the other businesses that can be managed and maintained easily. Even if the acquisition of a secondary cannabis license is easier than the usual application, it will still need thorough education, caution, and preparation to ensure success.
Education, Just as Important as Desire: Familiarizing Oneself with The Rules and Regulations of The Trade
Another practice one should be aware of before you purchase a cannabis license on the secondary market, is familiarizing yourself with the marijuana rules and regulations state-by-state. One of the best resources to connect you to local trade associations is the National Cannabis Industry Association. Currently, the cannabis-related business has more complications and restrictions than any other business because of the associated risks that may occur in case of mismanagement and violations. Therefore, when you buy a secondary cannabis license, in order to avoid serious and unnecessary incidents that could restrict future operations, it is better to be well-informed about the important policies, including the rules related to the transfer of license ownership.
Perform Due-Diligence: Conduct Appropriate Background Checks on The Seller and The Business of Interest
Buying a cannabis license on secondary markets does not necessarily mean that the seller has a record of being in good standing. It is still advisable for buyers of secondary licenses to conduct background checks and reviews about the seller and their previous business performance. One has to know their records and how they are conducting their transactions. Adding onto this, it is necessary to review their permits, to see if they are really in good status, visit the facilities, and talk with the key personnel to check if all their processes and operations are well. All of these factors will help you decide whether or not to proceed with the transaction. A comprehensive guide to due-diligence is highlighted here.
Surround Yourself with A Strong Team: Hire Expert Lawyers, Financial Advisors, And Brokers That Are Experts in The Industry
The best way to be well-guided in buying a secondary cannabis business license is to hire expert lawyers, financial advisors, and brokers who have expertise in the cannabis industry and who will have your side. When you purchase a cannabis license, these individuals can contextualize the pros/cons of the arranged transaction and its likely prospects for the future success. Furthermore (and most importantly) they can give you the most appropriate advice on how to comply with the current local state marijuana laws. Remember, never assume that sellers will make an effort to fully explain everything to you because their goal is to close a deal, but the experts of the field will guard you to make more cautious decisions in your best interest.
Pricing: What Factors Go into It?
One of the best proven practices in buying cannabis licenses on the secondary markets is to consider the factors that affect the pricing. You have to understand that the first owners of a cannabis business license did not acquire it easily so expect the price they will offer to be an amount that will match or, if possible, exceed its original price. In order for you to spend your money efficiently, you have to examine the essential factors that can influence the price of a license. Some of the inconsistent factors are the level of business competition, the extent of zoning, and buffers. Remember that the lesser the competition in a certain market, the more valuable the license is. Moreover, the larger the zone is, the higher the price of a license will be.
An Alternative?: Purchase Assets, Not A Business Itself
Lastly, when you purchase cannabis licenses on the secondary markets, it is safer to buy the assets rather than the business itself. When buying a business, you may inherit ongoing issues. Thus, it is much better to buy only the assets to avoid taking on (potentially unbeknownst to you) some of the liabilities and other potential problems that may arise. Seeking the assistance of your lawyers and brokers in stipulating the contract will be helpful to carefully arrange the appropriate agreement.