As hopes rise that the United States could soon legalize marijuana federally, many cannabis business owners are dreaming of the upcoming M&A frenzy that could provide a profitable way out of the startups they have founded. However, experts point out that only those marijuana companies that were properly prepared for eventual sale will attract the best deals.
We discuss below some tips that can help a cannabis company prepare itself for sale.
Mind your people, papers and profits
To prepare your cannabis business for sale, pay close attention to the employees at the firm. Most people looking to buy a company aren’t interested in running the business themselves, so a big plus is to have a top-notch management team that will steer the company once it changes ownership.
The paperwork of the company, especially on matters of compliance, is important too. Cannabis laws vary from one jurisdiction to another, and there are federal laws to contend with as well. Ensuring that papers are in order will be beneficial to the valuation of the company and attract better deals.
Profits, or a path to profitability, is key in M&A discussions. For example, if your business is the runaway market leader in your state, potential buyers, especially those struggling to get a significant share of the market, may jump the chance to do business with a company that is struggling to capture a significant share of the market.
Hire the right accountant
Your best bet in preparing your cannabis business for sale is to hire an accountant who has impressive experience working with marijuana companies in your state or jurisdiction. Such an accountant will be familiar with all the applicable tax and business laws. They will also keep you abreast each time a change is made to any existing marijuana laws. In this way, you will avoid the unpleasant surprise of having a major loophole uncovered by the team of a potential buyer as they scrutinize your paperwork.
Take your time
Don’t call an attorney and accountant to get your company ready for sale in a few weeks; nothing good will come of such rushed efforts. Instead, start preparing early, even before interest in purchasing your business has been shown.
About half a year is a good estimate of how much time is needed to prepare a cannabis business for sale. During this time, every aspect of the business will be analyzed and put in place so that potential buyers will not have anything to jump on and drive the valuation down.
It isn’t uncommon to find leading industry companies such as Flora Growth Corp. (NASDAQ: FLGC) with growth strategies that include mergers and acquisitions among the options to consider. Cannabis startups need to think with an exit point mentality in mind, so that when a buyer comes knocking, they are ready to negotiate from a point of strength.
NOTE TO INVESTORS: The latest news and updates relating to Flora Growth Corp. (NASDAQ: FLGC) are available in the company’s newsroom at https://cnw.fm/FLGC
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