Marijuana Multi-State Operators: Top 5 Mistakes
We work with many multi-state operator (MSO) cannabis companies. there is always. Most of these companies are publicly traded, although other companies still maintain close holdings. With the emergence of more MSOs than ever before, now seems to be a good time to list the traps of MSOs, their decision makers, lenders, etc., because these companies cross state boundaries and even internationally.
Hire the wrong person
There are many clichés in the thinking that “a company is only as strong as its employees”. These clichés may feel bland, but they are also often true. Many cannabis MSOs have poor leadership skills, and inappropriate compensation structures may exacerbate this situation.this is A piece from last fallFor example, Aurora paid millions of dollars in administrative bonuses immediately after massive layoffs and reported losses of $2.3 billion. These numbers are too large, but this situation is common in cannabis companies of all sizes.
In other words, this is not only related to the c-level. Especially for newer and smaller MSOs, it is crucial to have strong personnel stationed. Some of our MSO customers have excellent “grinders”, they can communicate easily, quickly eliminate nonsense, establish correct local contacts, determine strong acquisition targets, etc. These MSOs understand the market they are buying and make wise choices. The same rules apply to local recruitment. For example, it is great to have a group of stores, but if these stores make the most profit, so much the better. Local management makes all the difference.
Buy the wrong thing
This is related to the above point. We have seen (and admitted helping) cannabis MSOs buying various items that shouldn’t be purchased-at least not at the price paid. I helped MSO acquire companies and then sold them for a cent in US dollars two years later. I also helped companies that bought MSOs, and these acquisitions disappeared after a year or two. When the deal is concluded, I will give the client some general ideas, but at some point, the lawyer’s job is to hold his nose and the things on the paper.
Many times, MSO will buy things (with other people’s money), just to buy things. Companies are competing for market share; or MSO has publicly announced that it has locked in XYZ’s amazing deal; or MSO feels pressure to return funds to investors quickly; or it wants to look active to attract more investment; or leadership Not sure when another transaction will be realized in a particular jurisdiction; etc. Various “forward” competitive motives and pressures. However, if there is no coherent strategy in the market or operations, then the chance of success is very low.
Announce something that will never happen
This happens often! Everyone likes a good press release. Read them carefully. MSO has a state that cannot be named, and is always posting messages, rarely encounters, and will never make money. An example of this is the countless zombie cannabis companies on the Canadian Stock Exchange, which are changing their name to Psychedelics and/or starting last year to issue press releases on the psychedelic “initiative”.These press releases said: “We have signed a non-binding letter of intent to purchase [whatever psychedelic research company] Treat with its valuable formula [anorexia or depression or some other thing] after [issuing super cheap common shares or warrants and paying some cash], And the completion of the transaction will be subject to satisfactory due diligence. “These announcements are designed to improve the company’s image and attract investment. In the short term, the announcement may have a limited positive impact; in the long run, the fact is the opposite.
Lack of focus
This is the most common problem among all problems, and it is closely related to everything written above. A successful MSO will accurately understand: 1) Where are the discrete market opportunities; 2) How to execute; 3) When to execute (or not execute). People often ask me various questions in trading, such as market characteristics and trends in Oregon, and I am often surprised. Otherwise, I will be surprised to learn that other transactions that MSO is running at the same time, in other jurisdictions from other angles, and have no obvious synergy. Sometimes, a cannabis MSO will switch from one shiny award to another without a fundamental strategy or long-term vision.
The true story: A few months ago, I received a call from a large out-of-state law firm that we have assisted for many years. This law firm does a lot of advertising in the marijuana field and is rated by Chambers. I like them. The lawyers hope to discuss the issue of “last-minute disclosure” at the end of the transaction. In the conference call, the lawyers explained how to link disclosure to the complex business structure they created, thus avoiding the “non-resident ownership issue” of the MSO acquisition. Friends-Oregon has no residency requirements for ownership of cannabis businesses in the past five years. That call was embarrassing, and I don’t know what will happen next.
When our MSO customers move to other states, I never want to make these transactions anymore. I don’t care if others can earn this fee. I don’t know the local regulations. Even if I can study them, to get the maximum possible value, many things I need to know are not available online. Without exception, I will be handled by Harris Bricken’s lawyers (if we have an office in the state), or I will guide clients to find good local lawyers from other solid companies. However, I often see MSO believe that a lawyer or law firm is adequate for its transactions across the country. It is best to work with qualified people. The value will be there.