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 important, 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 most extremely popular methods to get general public into the cannabis area is an SPAC (Special Purpose Acquisition businesses). 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 here are some key factors for cannabis operators seeking to place by themselves 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 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 governance that is corporate (development papers and bylaws or working agreements) for many of the entities easily available, along side their state or neighborhood cannabis licenses regarding each. Any potential acquirer will have to determine just how all assets are held – especially the licenses – additionally the specific individuals behind each permit that have 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 some instances, 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 go over the distinctions). A few of these things ought to 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 key factors, 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 most of the cannabis 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 lender, and acquire 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 cannabis 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 capability to supply 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 desire to be ready or risk dropping behind.

SPACs are experiencing their minute into the cannabis 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 cannabis M&A the likes of which we’ve never seen.(* in limited license areas)

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