MJBizMag January 2021 - 62

Landing a
Buyer
" It's important for the seller to explain
to the prospective buyer who their
target demographic is. For instance,
are they beginners or advanced CBD
consumers? It's also key to have a lot of
data on what customers of the brand/
company in question are buying and how
the asset can be innovated to meet those
demands, " he said.
OPENING THE BOOKS
Buyers will insist on reviewing updated
financial information before striking
a deal. As a publicly traded company,
Thoughtful Brands prefers this information
to be audited by an independent
certified public accountant, Hoggan said.
Sellers might be expected to explain
how they came up with certain figures.
For instance, some firms have different
definitions of their earnings before
interest, taxes, depreciation and
amortization, or EBITDA, Vita said.
Typically, buyers are looking to see a
profit and loss statement and a balance
sheet, said Karen Muller, founder
of Santa Monica, California-based
Cannabis Business Brokers.
The company looking to sell should
set up a Dropbox folder or something
similar to share all financial records and
other documents the buyer will need
to study during due diligence, Muller
said. The information should include
documentation on inventory, leases,
licenses, payroll, tax returns and vendor
lists. This information is also important
for determining the valuation amount.
" The hardest part of this process-and
our secret sauce-is how we price the entity
for sale, which is something we don't
publicly talk about, " Muller said.
Generally speaking, determining a
company's worth includes looking at its
current financials, growth projections,
assets and the regulatory outlook in the
states where they are operating.
Hoggan introduces valuation into
the conversation early on to ensure the
parties are well matched. " Based on our
previous transactions, we have used
revenue as the basis for valuation. The
New York-based Columbia Care
acquired The Green Solution
in Colorado for $140 million.
Courtesy Photo
discussion is a collaborative
process between the seller
and our board. "
SELECTING A BROKER
Sellers can enlist a growing
number of brokers who
work or specialize in the
cannabis industry to help
to find buyers for their
businesses.
" In a regulated industry,
Karen Muller
you probably want someone
who has some level of expertise, " Muller
said. " Most of the people that come to us
neither have the time nor the inclination
to deal with the day-to-day process of
selling a business, which requires that
you stay on top of everything. "
Brokers can help owners navigate the
selling process, including marketing the
listing to their network and on third-party
websites, handling inquiries and vetting/
negotiating with interested parties.
" Under the standard business broker
model, people think business brokers
charge 10%. That's only true if the
transaction is at $1 million. As the
price of the transaction goes up, the
commission rates go down, " Muller said.
Cannabis Business Brokers typically
charges a commission of about 6% of
the transaction price, but the rate varies
depending on the size of the deal, she said.
AFTER THE DEAL
Business owners should think through
what role they will play-along with
62 Marijuana Business Magazine | January 2021
their staff members-once
the company is sold.
Some executives might
want to retain their roles
permanently or for a
transition period, while
others might choose to stay
on as investors or advisers
to the venture. These details
can be worked out during
the negotiation process.
" Employees should
be spoken to about
the sale, " said Clint Sheer, a broker
at Cannabis Business Brokers. " You
always hear from these business owners
that their employees are like family.
Well, in a well-run family, there's open
communication. "
Sheer recommends sellers notify
staff-especially at the point where
the buyer's team might be walking
through the business as part of duediligence
efforts. Cautious companies
can ask workers to sign nondisclosure
agreements to keep potential or
imminent deals under wraps.
A lack of communication about a
potential sale could lead to dampened
worker morale. Employees sometimes
find out via listings or other methods,
Sheer said. Sellers can encourage buyers
to retain staff or create severance packages
when retention is not possible. Additionally,
key employees can be offered
retention agreements, which sometimes
include bonuses, to stay on after the new
owners take over.
MJBizMag January 2021

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