Almost any time when a transaction involving a cannabis company merger, a cannabis company acquisition or a cannabis real estate sale, and in many cases the sale of the assets of a cannabis company, the parties may encounter a type of “closure” in their transaction the concept of. Purchase agreement. Closures are not necessarily the only buying and selling situation, and can also occur in other types of contracts, but for the purposes of this article, I will focus on cannabis mergers and acquisitions (M&A) and real estate transactions.

The “settlement” in the contract is essentially the process of executing the main purpose of the contract. In most mergers and acquisitions and real estate transactions, the contract is executed before it is closed-in some cases even before the contract is executed. For example, the purchaser of a company may sign the document on June 1, but the actual transfer and purchase price of the shares may not take place until September 1.

You may ask: “Why not just sign the contract on the same day as the asset is purchased?” The answer is that future settlement will give the parties to the contract time to implement certain pre-closing conditions. For example, if the local jurisdiction that obtained the business license requires pre-approval from the new owner (buyer) when making a cannabis company acquisition, then there is a closing condition before the transaction occurs, that is, the parties must obtain that approval , Both parties have an obligation to work together to complete the task. Other common pre-shutdown conditions include:

• The buyer obtains financing for the purchase price of the transaction
• The seller assumes any existing debts-for example, repaying tax debts or resolving litigation
• If you want to sell your business, you need to get the landlord’s approval-most commercial leases require the tenant to get the landlord’s consent before ownership changes, so this is usually something that must be done before closing.
• Execution of third-party agreements that may require closure
• Obtain the necessary internal company approvals for the transaction
• Allow buyers to conduct due diligence

You may now ask, “Why not do all these things before signing?” There are many reasons. Signing a contract will lock both parties into a specific process of performance. The seller usually cannot continue shopping or buying and selling goods nearby, and the buyer usually does not feel the need to look for other opportunities. Resolving pre-transaction conditions can cost a lot of work (and money), so the motivation for doing so with the transaction unlocked is usually a huge risk that experienced merchants are unwilling to take.

Well, you may ask: “Is there a long delay between signing and closing, and does the purchaser not bear the huge risk of possible changes in property or business during this period?” The answer is no, depending on the purchase agreement the quality of. The buyer usually insists on all seller contracts before the transaction is completed and incorporates them into the purchase agreement. Some common ones include:

• Maintain a certain amount or range of inventory and working capital so that the seller does not just take money or assets from the business before the transaction is completed – the calculations of these two concepts are usually complex, which can change significantly between transactions
• Will not cause major adverse changes to the business or property-usually also a very clearly defined term
• Any permit that the seller maintains in good standing
• Any statements and guarantees made by the seller at the time of signing are still correct at the time of delivery.

The purchase agreement will state that under any circumstances, the parties can terminate the agreement, and if certain pre-trading conditions fail to meet the satisfaction of the applicable counterparty, or if certain pre-trading contracts are not executed, the parties to the transaction cannot terminate the transaction.

Considering that the transaction may not be completed in the long run, it is not surprising that the parties are reluctant to exchange anything when signing. Before the end of the transaction, many parties will use the escrow company to hold certain assets to be exchanged. For example, the buyer can deposit the purchase price in an escrow company, and the seller can deposit the ownership of the property. This further reassures both parties that the other party will not be released on bail for terminating the agreement without good reason.

The purchase agreement usually does not define when it will be completely closed. Instead, the transaction is usually subject to the occurrence of any pre-transaction conditions and/or the exemption of conditions from parties that do not have to fulfill the conditions (that is, even if the buyer can make a satisfactory due diligence result as a condition of the transaction, it will also be subject to It depends on the situation). If it does not want to do due diligence, although it can take a lot of risk, it can be exempted from this condition). It is often impossible to tell when the closing conditions are met and set an end date – for example, no one knows when the regulator approves the change of ownership. The best parties can usually say that after the parties agree to meet the conditions, the case will be closed at a fixed time.

Another option we saw is the “discontinuation date”, which is a date at a certain point in the future. If the closing conditions are not met, the contract will be terminated. The parties do not want to be caught in a permanently delayed transaction (unfortunately, this is common in the case of cannabis). A fixed shutdown date will motivate both parties to complete the work and work towards reaching an agreement. If the parties cannot complete the task despite a lot of effort, they sometimes agree to extend the date.

Once all transaction conditions are met, the parties will end the transaction and perform any obligations that need to be performed at the time of the transaction, such as the exchange of currencies or stock certificates. In many cases, certain documents may be executed at checkout to confirm that the sale has been completed. Usually, both parties also have some post-closing obligations, such as removing the previous owner from California’s state cannabis license and tightening other loose links.

After fulfilling all post-closing obligations, both parties will usually complete each other. M&A agreements usually limit the lifetime of any statements and guarantees in the purchase agreement after the deadline, which means that when these statements and guarantees expire, the parties will no longer assume further obligations.

We plan to write more articles on the complexities of mergers and acquisitions and real estate transactions, so stay tuned to the Canna Law Blog.