Completing a cannabis M&A transaction is always an obstacle (learn more about the process here). Compared with ordinary companies that do not operate in a highly regulated field, the closure of cannabis M&A deals always has more unexpected events (for example, cannabis acquisitions require approval from the state and possibly local agencies).

A closed condition that people usually don’t pay enough attention to is landlord Agreeing that this is often a huge challenge. In this article, I will look at why this is a problem and what makes it so challenging.

For the purposes of this article, I will mainly focus on business and asset purchase transactions. In California, given the rules prohibiting the transfer of licenses, M&A transactions usually involve commercial purchases. Other jurisdictions may allow easier transfer or at least obtaining licenses while the business continues to operate, so it may be more common to purchase all the assets of the business (including leasehold interests in the property they use).

Whether it is buying some cannabis companies, all cannabis companies, or only the assets of cannabis companies, the buyer needs to obtain landlord Own the property used by the seller or the target company to sign. Why? Because in almost any lease, there are restrictions on the transfer of the lease itself (the landlord is automatically required to approve any asset purchase), and the lease will also stipulate that the sale of a certain percentage of the equity in the cannabis business is considered a transfer and requires the landlord’s approval.

Landlord’s approval of a transfer or change of control is a key part of the lease for landlords who want to know to whom they are renting. By prohibiting changes in control without the landlord’s approval, landlords can ensure that tenants are not just trying to sell their business to random people who may not have enough capital to handle higher than market rents (this is also common in cannabis leases).

By the way, a change in the control language can be sufficient to trigger the landlord’s consent to the required control change percentage for a high degree of negotiation. If I represent the landlord, I want the percentage threshold to be low so that my clients always know who is running the business. If I represent a tenant, I want it to be higher so that customers don’t have to go to the landlord every time they raise money or someone sells company stock.

I have said this before, and I believe I will say it many times, but the relationship between landlord and tenant in this industry is The worst and most abnormal relationship in. Considering the federal status of marijuana and the long-term anti-marijuana prejudice seems to have not disappeared, landlords are too suspicious of their tenants and often charge rent in the market. On the other hand, tenants are forced to accept what they usually consider (and sometimes correct) very one-sided leases, requiring them to give up a large number of leases, and know that the landlord has special influence over them, because in many states, permits can’t To be moved (or at least not easily moved) to a new place.

Therefore, at this end of the cycle, in any M&A transaction that transfers leases or sells all or most of the business, you can almost guarantee that the landlord needs to sign in a certain identity. This means that it is a good idea to contact the landlord as soon as possible. In addition to the obvious reasons that the buyer needs the landlord’s approval, there are two main reasons.

• It is a good thing to find out as soon as possible whether the landlord is “appropriate”. If the buyer and the landlord cannot get along well from the beginning, then the buyer should evaluate this when deciding to proceed with the transaction or close the transaction. Obviously, it is better to do this even before signing the agreement, if it completely disrupts the transaction to save money.
• In many mergers and acquisitions that I have participated in, especially in the case of acquiring smaller companies, due to various reasons, the initial lease was not good, and we eventually requested a re-lease. From the landlord’s point of view, there is almost no reason to spend time negotiating a new lease. Some landlords are still willing to do it, and it’s not bad to find out earlier.

In cannabis M&A transactions, there is a large amount of activity, and it seems that there is not enough time in a day to complete all the things that need to be completed. Meeting, interacting and getting acquainted with future landlords is not just a smart idea, but a priority for wise buyers.