Marijuana Business Magazine

Do Extensive Research During due diligence, buyers should make it their mission to find out as much as possible about the company they’re considering acquiring. For starters, you want the two compa- nies to have similar cultures and missions so there’s no friction down the road, White said. During the 30- to 90-day due diligence period, carefully examine the company and all its documents to ensure you are acquiring precisely what you think you are and that the company you’re buy- ing can be integrated into your organiza- tion seamlessly. “If you are able to find an asset that fits with what you’re trying to do, learn as much as you can about the people you are acquiring and vet very carefully the legal team you’re going to use to help you with structure, due diligence and documenta- tion," White added. From the buyer’s perspective, it’s also important to take a close look at the seller’s management team. Sometimes, the management team of a company that’s for sale lacks experience.The company, for example, might be operated by people who were in the industry when marijuana was still illegal.They might lack management savvy. “It doesn’t make them qualified to raise $10 million and know how to invest that money wisely to grow their business or acquire another company,” Viridian’s Greiper said. “Management presents the most risk to a buyer or investor. You don’t want a master grower running the business.” Levine emphasized that a buyer must have a clear picture of what he or she is acquiring – especially when it comes to liabilities – to ensure the deal is properly structured.That means combing through documents supplied by the acquisition candidate, including litigation matters, employment agreements, customer lists, benefits, insurance policies, regulatory matters and tax returns. Before sharing any information, the seller and buyer must enter into a proper nondisclosure agreement or an actual purchase agreement that provides for a due diligence period before the deal closes and a confidentiality agreement.The seller must ensure that there is a legally enforce- able nondisclosure document. “There are a lot of considerations that go into whether it’s a stock, asset or a merger deal,” Levine said. “We usually see them structured as asset deals. If you buy the stock of the company, you’re also buying all their tax liabilities. In an asset deal, you’re able to pick and choose what you want to buy – the real prop- erty where a cultivation is located or the licenses for a dispensary.” According to Ford, iAnthus completes only 3% of the deals it looks at. Warning signs that could indicate an acquisition target isn’t a good fit include declining revenue or sloppy bookkeeping. His company also looks at locations, previous successes, brand performance and price. “We looked at one company where someone had signed some tax forms but wasn’t listed anywhere as part of the company,”Ford said. If there’s a lawsuit or other liability attached to the company, there must be an agreement between the parties as to who is responsible and funding must be set aside until the issue is resolved. “If you’re the buyer, you want the risk to be 100% on the seller, not on you,” Ford said. ◆ WORDS OFWISDOM FROM A DEALMAKER H adley Ford is an M&A veteran. The co-founder and managing director of iAn- thus Capital Holdings, a New York-based marijuana investment and operations company, worked as a dealmaker on Wall Street for 14 years before getting into cannabis. Throughout the course of his career in the investment industry, Ford has been involved in transactions valued at $50 billion. He has a few words of advice when it comes to mergers and acquisitions. During the three years since he co-founded iAn- thus, Ford has snapped up businesses that give his company a presence in five U.S. states where cannabis is legal. When hunting for deals, Ford said iAnthus first looks for buyout candidates in states where MJ regu- lations already are in place. An established regulatory framework provides predictability. By contrast, iAnthus hasn’t made any investments in California, because the state is still writing the rules that will govern its new medical and recreational cannabis markets. Second, iAnthus looks for companies that share similar cultures and strategies. If the management team is a good fit, you want to keep them on board. “The only long-term advantage you have in this business is your people,” Ford said. “If there isn’t a fit with vision and culture, you don’t want to do that deal. That’s what we look for first and foremost: Is it a good fit?” – Margaret Jackson Hadley Ford, co-founder and managing director at iAnthus Capital Holdings. 40 • Marijuana Business Magazine • November / December 2017