While these acquisitions can come in a few different forms (e.g., stock purchase or merger), we typically see these transactions effectuated by an asset purchase agreement. An asset purchase agreement is advantageous for an acquirer because it allows the acquirer to purchase certain assets of the target company (i.e., the OLCC license, inventory, equipment, etc.) without assuming the target company’s liabilities. Below are a few important considerations when entering into an asset purchase agreement to acquire a cannabis company.
Obtaining all necessary regulatory approvals
An acquirer should never commit to paying the purchase price for a cannabis company until all necessary state and local approvals have been obtained that (i) allow the acquirer to properly own the applicable OLCC or ODA license, and (ii) authorize the acquirer to operate the target company’s business under the acquirer’s sole and direct control. The acquirer should also ensure that the asset purchase agreement requires the target company to cause the city where the business is located to issue any necessary permits or registrations that are required for the business to operate in the acquirer’s name should there be any.
Payment of the Purchase Price
Any portion of the purchase price that the acquirer plans to pay in cash should be paid to the target company on or after the “closing date” of the deal, which should be defined in the asset purchase agreement as a date that will occur at a specific time after all of the conditions required under the agreement have been satisfied, including obtaining all regulatory approvals. As the competition for OLCC licenses continues to heat up, we are seeing more acquirers offer to make a deposit for… click to continue reading
