5 Tips for Preparing to Sell Your Dispensary
Published on 7/26/22
Whatever the reason may be, if you're looking to sell your dispensary, there are some things you should know. We're here to give you some tips to prepare for the sale and acquisition of your dispensary.
What Is an Acquisition?
First and foremost, let's briefly go over what an acquisition is. An acquisition is when a company purchases the majority of another company's shares (if not all of them), giving the purchasing company control over the acquired business' decisions without the need for other shareholders' approval. The owner of a smaller dispensary operation may see an acquisition as good because they will make a good amount of money from the sale.
Additionally, many companies will retain their brand and employees under an acquisition, only the management changes. It's a legitimate option for companies wanting to grow or business owners wanting to move on with a payout. Larger companies often consider acquisitions as part of a larger growth strategy, as a way to reduce competition, new markets, or as an entry point into a foreign market.
Why Are Dispensaries on the Rise?
We're discussing dispensary acquisitions right now because the US House of Representatives recently passed the MORE Act in April 2022, which would effectively remove cannabis from the banned controlled substances list. If this were to happen, the cannabis industry as we know it would change forever, and cannabis would quickly become a much bigger market. This is the second time in history that the House of Representatives has passed such an Act, and the likelihood of it passing through the Senate is far from guaranteed. However, there's still a lot of hype and speculation surrounding this piece of legislation. Between that and lower interest rates over the last few years, acquisitions within the cannabis industry have been on the rise.
5 Tips to Prepare Your Cannabis Dispensary for Sale
Understand the Market
If you're looking to be acquired by a larger company, you first need to understand the market, the competition, what it takes to get acquired, and the process as a whole. Companies frequently make the mistake of crediting themselves with more value than they're worth, which results in frustration and even the end of negotiations depending on the delta between each entity's evaluation. To make sure this doesn't happen, you need to research what the valuation process looks like and what the current market for cannabis acquisitions looks like in your region or state.
Hire an Accountant and Lawyer Who Know Cannabis
To get through an acquisition, you'll lean on two more roles: your accountant and your lawyer. Cannabis businesses, including dispensaries, must deal with unique tax rules, including paying more local, cultivation, and excise taxes (among others). Hiring an accountant that knows the cannabis industry inside and out will ensure your paperwork is ready for acquisition. Not having your finances and taxes in order during a purchase can cost you hundreds of thousands of dollars.
Of course, you'll also want a lawyer familiar with cannabis acquisitions because, like the finances and regulations that accompany the business, they are held to higher scrutiny than other industries.
Let Your Executives Know Early
Acquisitions take time, so it's important to let your accountant, lawyer, and other executive members of your business know that an acquisition is coming. Creating a game plan, ensuring the books are in order, and optimizing your business for the ideal valuation will take months to prepare. The general rule of thumb is to give your dispensary six months to prepare for an acquisition. To this point, you should also be as open with your executive team as possible. Ensure they're aware of any issues or complications within your business to address them appropriately before the sale.
Optimize Your Business
When you put your business up for acquisition, you aren't just selling your brand and your location; you're also selling your employees, management, and operations. If your leadership team is on board with your decision and everyone knows what's to come, you will likely have a seamless transition and higher valuation. Make sure you have hardworking members on your staff that are well trained and excellent at compliance and customer service. Have your compliances documented and every contract your business is engaged in saved and available. Finally, boost your marketing strategies to increase your share of the regional market. Even if you're not making a significant profit, your company will be valued higher if you have a dominant share of the regional market (this is because cannabis is only set to increase in demand over the next few years).
Agree On An Accounting Approach
As we discussed above, cannabis and taxes are a complicated combination - there's a lot of room for interpretation. To ensure you're ready for an acquisition, you and your accountant must be on the same page in deciding how aggressive or conservative you'll be in cleaning up your books. Note that shortcuts, improper taxes, and filing could result in massive fees and broken deals. Because federal legalization is seemingly closer than ever, now is the best time to get your books in order and prepare for a sale that could make you a lot of money.