Cannabis Mergers & Acquisitions: How to Prepare, Survive, and Thrive

No doubt about it: It’s a thrilling time to be in the cannabis industry! Coming off a year of phenomenal growth, legal cannabis sales are expected to reach $24 billion in 2021. And as we recently reported, recent polls indicate that some 12% of Americans identify as cannabis users, with that number only expected to grow.

Behind the scenes, there’s plenty brewing as well. While the number of cannabis mergers and acquisitions actually dropped over the past two years—in part due to the general wrench in the works that was 2020—some analysts expect that trend to reverse. Writing in Money & Markets, Matthew Clark says:

“One might look at this data and expect the M&A market in cannabis to slow further in 2021, especially when considering the lack of movement for federal legalization in the U.S. and the fluctuation of cannabis stock prices. But I have reason to believe…bigger companies will look to small-scale cannabis businesses as an easy way to get footholds in new markets.”

He goes on to cite several high-value mergers and acquisitions announced just in the single month of May, including Truelieve’s $2.1 billion purchase of Florida-based Harvest Health and Recreation. Among Clark’s predictions: Larger cannabis companies will be looking to purchase scalable cannabis dispensaries and brands in states where they can build a presence. And because California—the world’s largest legal cannabis market—boasts such a high number of independent operators, they’re are well-positioned to enter into mergers with larger, out-of-state cannabis brands.

That’s a bite-sized preview of what we may see on the macro scale this year. Let’s pivot now to a different aspect of cannabis mergers and acquisitions: How owners of dispensaries and cannabis brands can prepare for this exciting—but potentially challenging—stage of development and growth.

Cannabis Mergers & Acquisitions: Fundamentals of the Process

Legally speaking, a merger is the combination of two business entities into one, whereas an acquisition involves a company taking ownership of another company’s stock, equity, or assets. Together, they’re two of the primary ways acquiring businesses can gain market share in exchange for capital, or burnish—or even replace—their own brand by combining with one that’s built up the essential capital of credibility and recognition. Either way, undergoing a merger or acquisition is one of the most time-honored transitions in a company’s life cycle. In fact, the process has been codified into its own branch of corporate finance, known colloquially as “M&A.”

From a strictly commercial point of view, it’s a little more complicated. From the standpoint of a consumer, a dispensary or brand might appear exactly the same from one week to the next, even though the company is under completely new ownership due to an acquisition. Or it might undergo a radical change in appearance, mission, and vibe, even though the previous owner has merged the company with another brand and still retains part ownership.

Regardless of appearances, it’s safe to say that mergers and acquisitions can be challenging. In addition to the many steps companies need to take to get their financial and legal house in order, there’s a very personal side to the process too, and it’s one that’s too often overlooked. Let’s dive into the process by examining some of the ways existing businesses can prepare themselves—and their people—to undergo this radical transformation.

Cannabis Mergers & Acquisitions: Preparing for Acquisition

Regardless of how hot the market forecasts might be, there are plenty of reasons to sell a business. Perhaps one’s life circumstances have changed, or they feel they’ve achieved their goals, or they enjoy the risk-taking startup phase more than the steadier growth phase that follows it. Regardless, here are some of the legal considerations and preparations to consider when considering selling a business:

  • Get crystal-clear on your motivations and goals: What do you hope to achieve from selling the business you’ve worked so hard to build? Beyond a specific dollar amount—which is, of course, no small matter—there are questions of your legacy, your future, and those of your current employees. How does structuring the sale better serve your long-term interests, and set you up to land with your best foot forward? And while you may soon become the “former owner” of your company, the brand will continue to be a part of your backstory. Is there an optimal buyer profile that fits your expectations and dreams of what your former company will become? 
  • Do due diligence: Time to get your financial house in order! You’re going to need to go back through your company’s history—including all tax records, financials, and debts and liabilities—and ensure there are no dangling threads. Talk with outside partners such as your financial, tax, and other advisors, and solicit their counsel and best advice. Especially if your buyer is a publicly-traded entity—as an increasing number of cannabis companies are—you should be prepared for a long and exquisitely thorough process. Set realistic expectations, don’t go for the fast buck, and trust in the process.
  • Go team! No, really: Once you’re set on selling, it’s time to involve all the pertinent members of your team. Get high-level managers and employees involved in the process early and prepare them for the changeover. If they’re a skilled and forward-thinking company, the entity acquiring you will want to retain your best employees. Involving these loyal workers in this momentous change will not only set them up for success, but demonstrate to the acquirer that you’re all-in on helping the transition be as smooth and successful as it can possibly be.
  • Spread the word (selectively): Undergoing an acquisition or merger typically involves a certain degree of secrecy and discretion. But at a certain point, it’s time to engage with outside partners—growers, processors, transporters, and other vendors—and let them know what’s happening. In some cases, an acquiring entity will want to retain the supply chain you’ve fostered and built; in others, they’ll want to institute their own. By being up-front and transparent—with both the acquirer and your own clients and vendors—you’ll set the process up to be as smooth and painless as possible.
  • Get your story straight: At a certain juncture, it’ll be time to spill the beans. Whether this means something as formal as a press release, a story pitched to a cannabis media company, or simply what you’d like to tell your former employees and partners, we urge you to return to our earlier point and think about your narrative. Why did you start the business? Why did you sell it? What are your hopes for the future of the company and its employees? Having this story straight will help inspire trust and confidence in all parties. And whether you’re positioning yourself for your next big challenge (or just trying to allay your peoples’ fears), these are two things you can never have too much of.

Cannabis Mergers & Acquisitions: Taking Your Employees’ Side

Because we’re laser-focused on helping dispensaries and other cannabis brands reach their highest aspirations through cutting-edge marketing and storytelling, it’s natural that we hone our message on business owners and other entrepreneurs. But because your employees and staff are such a crucial part of your operation—and because their goodwill and trust will help you in your future ventures—it’s appropriate that we devote some attention to their perspective during a merger or acquisition.

While the sale of your business aligns with your long-term vision and goals, your employees are more likely to experience this moment in terms of uncertainty and doubt. Will they still have jobs once the merger or acquisition is final? If so, working under new management will by necessity require some adjustment, and some will no doubt find it challenging. Here are some simple tips for you to keep your mind on as you navigate this process:

  • Talk, talk, talk: As we hinted earlier, there are moments in this process that call for discretion. But the more transparent and open you can be with your employees, the more agency they’ll feel they have—and the more inclined they’ll be to offer their support and their best work when you need it most.
  • Make a plan: We humans like to know where we’re headed. Having a clear and sharable transition plan is a great way to let your employees know you’re still in command and that you have their welfare in mind. What’s more, having such a roadmap will help keep your operations running smoothly and predictably in the weeks and months leading up to the crucial changeover period.
  • Be positive: Change is hard. And change can be scary. But whatever you can do to be upbeat and forward-thinking—while maintaining honesty and transparency—can do wonders. Remember: Until the ink is dry on the paper, you’re still the one in charge. Dispel rumors, keep your people informed and up to date, and demonstrate the leadership skills that brought your brand to the finish line in the first place. Play it right, and that’s a lesson in trust and respect your employees will carry with them forever.

If you’re looking to rebrand after an M&A and want to get the word out, contact us!