What you need to know when buying a cannabis business, Part 4: Working with a broker

The purchase of cannabis businesses will not happen within a few days, and the transaction fails for various reasons, as we have in part 1 The focus of this series of blogs is on buyers of cannabis M&A transactions.in part 2, We focus on the regulatory environment and discuss concepts that first-time home buyers and their lawyers should understand.in Part 3, We looked at things to consider when hiring your cannabis lawyer. Today, we have a broker at the crosshairs.

I don’t hate agents, but I don’t want to invite most of them to dinner. I hope that the broker can get back their fair share in the transaction. Some brokers are very good at doing this, but others only focus on two things: (1) connecting buyers and sellers; (2) completing the transaction as soon as possible so that they can get paid.

(If you want to know if the Cannabis broker is any different from other brokers, please check the blog post I wrote for our sister China Law Blog International Personal Protective Equipment (PPE) broker. )

Marijuana commercial brokers that provide general brokerage services (connecting buyers and sellers) are common in the industry, but like most industries, the capabilities and experience of brokers vary greatly. There are specialized cannabis commercial brokerage companies, some of which also provide valuation services, but legal advisers are likely to encounter real estate agents and non-marijuana brokers who know very little about the industry, and apart from pushing for closure, they are The contribution is small as soon as possible.

Even developed cannabis markets such as Washington, Oregon, and California do not have licensed cannabis brokers. In my opinion, we may never see any broker that needs a license to trade marijuana assets.

Just like in the real estate market, a broker can represent the buyer or seller, or act as a dual agent if both parties agree in writing. The fee arrangement usually reflects the assets being sold: real estate-centric transactions with the real estate agent involved will be within a total commission of 6%, while commercial brokers usually require a commission of 10%, and the payment is divided between two parties (in In real estate-centric transactions) or fully paid by the seller (in business-centric transactions), unless otherwise negotiated.

If the transaction involves a broker, you and your legal counsel will need to assess the broker’s abilities and qualifications before allowing the broker to facilitate the due diligence process or any part of the transaction. If the broker is not competent, the lawyer should inform the buyer that the transaction will proceed more effectively without the broker’s substantial participation in the due diligence.

As an important rule of thumb, you should never ask your broker to provide a contract that will be used for trading. Even in the context of marijuana, brokers who choose to use an “industry standard” form of contract will often end up with a series of amendments that are not always meaningful and will never help clarify. I am not saying this as an experienced lawyer; I am saying this as a calm person who dislikes inefficiency and disorder, especially when important legal rights and money are involved.

Almost as a rule, even in real estate-centric transactions, lawyers should modify or completely replace the existing broker-provided transaction contract as soon as possible or completely use the lawyer’s own contract. There are very few contracts preferred by brokers (even the ones they have used in “dozens of transactions” will contain the level of detail and protection you want in the transaction documents.

Finally, even if I often encounter brokers raising eyebrows, your legal advisor should not advise you to circumvent your contractual obligations to the broker. This is usually legally unreasonable and not the right decision, even if you are hesitant about the broker’s actual percentage of transactions.

Keep your eyes open and look for good agents. When you find them, please send them on my way.

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