Just how to plan a “SPAC-tacular” exit: get the Cannabis Company eager for Acquisition in 4 Steps

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 most 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 into 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 trying to place by themselves for purchase in 2021:

1 – Lock down your Intellectual Property

You’ve invested your own time and passion into building a brand name your visitors 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 corporate governance documents (formation documents and bylaws or operating agreements) for all of your entities readily accessible, along with the state or local cannabis licenses pertaining to each. Any prospective acquirer will need to identify how all assets are held – especially the licenses – and the individual people behind each license who have authority to approve a transaction that is prospective. With regards to the size regarding the deal, you may even be likely to own a statement that is financial performed by a CPA, but, in certain cases, an accountant’s compilation report or review of your company’s financials may suffice in lieu of a full-scope audit (consult your advisors to discuss the differences). All of these items should be maintained in a data room, ideally on a ongoing service such as for instance DocSend or Dropbox, which can be distributed to potential acquirers with all the simply click of a button.

3 – go to your bank

If somebody is buying your organization, they’re generally speaking likely to base the offer on several factors that are key like your revenue and cash flow. In order for someone to be willing to pay you a multiple of your revenue in exchange for your business, they need to be able to validate that revenue. It’s going to be hard for anyone to audit and validate things – whether that someone is your accountant or your purchase that is prospective you’re nevertheless running mainly in money. Besides, it is 2021 and everyone understands almost all 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 be noticeable for the reasons that are wrong. Get your money in the bank, and get that revenue that is stable on paper.

4 – Future evidence your tech

The 2020 pandemic catalyzed a seismic change in how retail customers be prepared to manage to conduct business. The* that is( industry is no exception. Changes in federal banking laws will open up access to leading-edge solutions that are financial. Whenever that takes place, you will have absolutely nothing standing in the middle of your capacity to give you the true channel that is omni experience your consumers desire. But, there will be nothing standing in anyone way that is else’s, therefore you’ll wish to be ready or risk dropping behind.

SPACs are experiencing their minute in the* that is( industry. This is news that is great organizations trying to leave in 2021. Curiosity about SPACs and IPOs concur that there is certainly a rise in investment finance trying 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)

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