How Do You Get a Cannabis License on the Secondary Market?

marijuana second business

These are exciting times for cannabis business owners as those who desire to sell their operations on the secondary market have the upper hand right now. Multistate operators want to expand their business footprints across America, and this fuel demands a secondary license.

Cannabis business investors are also anticipating marijuana reforms in the light of this demand because, let's face the truth, demand means the market will expand, and this also means there should be better practices for business owners.

At the center of all of this discourse is the cannabis license. You cannot sell or conduct business with cannabis in any state without a permit. A secondary license within the context of the cannabis industry refers to an individual buying the already existing franchise.

If you are a part of the cannabis business community, you want to know how to get one of such licenses, and this article is about the best practices for getting one.

The evolving cannabis market

In January, public cannabis businesses raised about $1.6 billion in the capital, which means they had lots of cash to expand and signaled how the market was evolving. Access to this kind of capital also makes mergers and acquisitions possible for businesses.

As the market evolves, there is also increased optimistic expectation about federal cannabis reforms, with Democrats controlling both the Congress and the President's office.

These evolving market processes influenced the interest from buyers and increased it to 427% from January 2020 to January 2021. Sellers' interest also increased by 500%.

Since the cannabis market started its evolution, cannabis entrepreneurs began to seek secondary licenses on sale because they wanted to get into the new cannabis 'Wave." Wouldn't you do the same? You would like to cash in on the expansion, and getting the license is the first step.

Any market with the staggering increase in buyer's interest that cannabis has will surely get potential buyers' attention and has played a role in expanding the cannabis market.

Get educated before signing up.

Although the demand for existing marijuana operations is getting hotter and hotter, experts in the industry advise that some red flags the seller and buyer should know before the acquisition happens.

For instance, the sellers mustn't overprice their operations. Yes, many sellers assume that their business is exceptional and must get the "Premium" price.

Before signing the final lines on an agreement, you should compare prices between what the seller of the license offers you and what other sellers are offering in the same community. If a dispensary in your community is selling for $100 (this is just an example), you should know that you will not sell it for $200, which is twice the gross revenue.

One of the crucial educative moments you will need is to interview brokers to discover your business worth (if you are the seller). You will need the help of credit lenders and lawyers who are knowledgeable in local, state, and federal cannabis laws. Those experts will help you vet the potential buyer and successfully close the deal.

What to expect from the process

If this is your first experience buying a marijuana license, you should know it will be a daunting process hence the reason you need to ensure that you are 100% ready to get into the cannabis market. This industry is complex, and as a federally illegal sector, it can take many years to understand it and many more years to achieve success.

Cannabis is also a multi-billion dollar industry which makes it replete with challenges that are not surprising given the interest in cannabis. Buying a marijuana license is a time-consuming process that requires a criminal background check in some states.

In some states, a background check for the new owners is also required, and do you know the most challenging part of the process? Well, it is the necessary lengthy wait to get the regulator's response.

The advantages of buying a secondary license

Despite the challenges with the process, there are many benefits to buying a secondary license instead of starting the cannabis business from the bottom.

Building from scratch is a highly complex process that entails many regulatory agencies getting involved with construction timelines you may not meet. Things tend to be slower when you are doing it all by yourself without the secondary license, and this is why seeking a secondary license is crucial.

What to consider before putting your marijuana operations on the market

Always insist that buyers provide proof of funds before placing the property under a contract.

Work with an experienced broker that can sell your property.

All audited financials should be available just if you need to pull out your records before closing the deal.

Have a marketing plan that will facilitate the signing of documents like the nondisclosure agreement and the verification of funds.

Develop a presentation deck that details all your financials for the potential buyer's review.

Have all minutes of board meetings available to help the potential buyer understand your business operations and corporate process.

Bottom Line

Venturing into the cannabis business full-time is a viable step in the right direction and buying a secondary license helps buyers start on a good foundation. However, both buyers and sellers must be conscious of the best practices to imbibe and the red flags to ignore before completing the transaction.

Know who you are transacting with and how they managed the corporation before buying the license, and the other business transactions they completed. Some buyers get carried away by the "Perceived" value of the business, and after completing the transaction, they find a lot of rot which makes them regret their purchasing choice.

So stay on the safer side of the transaction (either as a buyer or seller) by utilizing these effective practices for purchasing a secondary license. The journey to getting your secondary license may be arduous, but if you stick with the ideas and strategies explored in this article, you will surely it right.