With the impending codification of the OLCC’s moratorium on new licenses for cannabis producers and stores via Senate Invoice 218 (which we mentioned in this article), our purchasers proceed to increase their business functions by obtaining licenses from existing OLCC licensees. While these acquisitions can occur in a number of various kinds (e.g., stock obtain or merger), we ordinarily see these transactions effectuated by an asset invest in agreement. An asset order agreement is advantageous for an acquirer mainly because it allows the acquirer to acquire selected belongings of the target business (i.e., the OLCC license, inventory, equipment, etc.) without the need of assuming the concentrate on company’s liabilities. Underneath are a several significant factors when entering into an asset obtain settlement to purchase a cannabis corporation.
Getting all required regulatory approvals: An acquirer ought to under no circumstances commit to shelling out the invest in selling price for a cannabis business right until all necessary point out and local approvals have been attained that (i) make it possible for the acquirer to appropriately possess the relevant OLCC or ODA license, and (ii) authorize the acquirer to operate the concentrate on company’s small business less than the acquirer’s sole and immediate control. The acquirer must also be certain that the asset purchase arrangement calls for the target firm to induce the city in which the company is located to situation any required permits or registrations that are expected for the organization to run in the acquirer’s title really should there be any.
Payment of the Order Rate: Any part of the invest in rate that the acquirer options to pay in cash really should be paid out to the target business on or after the “closing date” of the deal, which should really be defined in the asset invest in agreement as a date that will occur at a certain time following all of the disorders necessary less than the arrangement have been glad, such as acquiring all regulatory approvals. As the competition for OLCC licenses continues to warmth up, we are looking at much more acquirers offer to make a deposit for the asset invest in to preserve the deal. If an acquirer is offering to make a deposit, we commonly recommend that asset order agreement specify that the deposit shall remain in escrow right up until the closing day, at which time the deposit and the remaining stability of the purchase selling price will be disbursed to the goal organization.
Tax Liabilities: Given the elaborate tax treatment method of hashish companies beneath IRC §280E, acquirers will want to make certain that they have specified contractual protections against any taxes owed by the target enterprise. When symbolizing an acquirer of a hashish business, we will ordinarily consist of representations and warranties on behalf of the concentrate on corporation that confirm, among the other issues, that (i) the goal company’s tax returns and stories are correct, (ii) there are no deficiencies for the payment of taxes, and (iii) there are no liens for taxes on the target company’s small business or any of the concentrate on company’s belongings that are getting bought. In the occasion that any of individuals representations turns out to be inaccurate, our acquirer will have the prospect to either terminate the agreement and/or be indemnified for any damages ensuing from this sort of inaccurate representations.
The terms of just about every offer are unique, and the goods talked over over are just a several of the difficulties to preserve in head when conducting thanks diligence on a likely goal company. Our crew is here to assistance if you want any aid navigating the method of attaining an OLCC licensee.