The Importance of Due Diligence and Best Practices for Acquiring a Cannabusiness by Salam Elia, Of Counsel Attorney at Cannabis Legal Group

1. The Importance of Due
Diligence and Best Practices
for Acquiring a
Cannabusiness
Salam Elia
Of Counsel Attorney

2. What is Due Diligence?
 Comprehensive evaluation of the substance of a
transaction.
 When does it happen?
 What needs to be done?
 How long does it take?
 Why is it important?
 Who pays for it?
 Why do it?
 What happens after?

3. Types of Transactions
Real Estate Acquisition
Asset Acquisition
Equity Interest Acquisition

4. Life of a Transaction
 Offer
 Acceptance
 Purchase Agreement= terms of the deal memorialized in writing;
 Core Terms:
 Purchase Price;
 How it’s paid;
 When it’s paid;
 To whom it’s paid;
 Due Diligence Period;
 Contingencies;
 Closing;
 Reps/Warranties;
 Indemnification;
 Boilerplate terms

5. Corporate Structure
 Who Owns What?
 Organizational Documents;
 Operating/Shareholder agreement v EIN v Articles of
Organization.
 What if I want out? And other key provisions
 Does it matter how the company is structured?
 Who runs the business?
 Who should put up the money?
 What if we need more?
 Should we own the land and the real estate under 1 company?

6. Cannabusiness Considerations
 Cannabusiness is still just another type of business which means:
 Knowledge/operations/management/consulting services;
 Survival of the fittest;
 Evolution;
 Industry;
 Supply and Demand;
 No I in Team!
 It’s not only what you buy or sell but how you do it;
 What happens after you buy/sell?
 Valuations;
 Value in the license;
 Transferability.

7. Cannabusiness Considerations
 New License Types;
 Recreational Licenses:
 Designated Consumption Establishment (valid 1 year)
 Excess Marihuana Grower (valid 1 year)
 Marihuana Event Organizer (valid 1 year)
 Temporary Marihuana Event (valid for minimum of 1 day, ends on date
specified on license)
 Growing/Evolving market in Michigan and nationwide;
 Growth through acquisition;
 Battle of the product.

8. Issues with Cannabusiness
 Not Legal Under Federal Law
 Title insurance issues;
 Financing issues;
 Inability to invest, develop and build businesses;
 Limit individual’s ability to get involved in this business.
 Taxation
 Investment/Securities issues
 Prequalification requirements limits transfers for trusts/heirs;
 New area of law
 Pioneering a new industry;
 Municipalities and the market;
 Fees/overhead expenses/carrying costs/inflated prices.

9. Adapt to Survive
 Experience is priceless;
 Read before you sign;
 Research before you buy/sell;
 Do good business!