Do your due diligence before purchasing a Cannabis Business license

Acquiring an active cannabis business license comes with unique considerations to avoid legal consequences.

August 26th began a two year moratorium on new dispensary, grower and processor licenses in Oklahoma. OMMA business licenses are transferable and available to acquire throughout the moratorium, but demand is high and there are unique details that require your due diligence in cannabis business purchases.

The legal landscape of the cannabis industry is complex with many grey areas and contradictions between state and federal law. It is imperative when considering purchasing an active cannabis business license that the buyer know the license has historically and is currently operating in compliance with the law. “The fleas come with the dog” so to speak, and previous infractions carry potential for future disciplinary action—including license revocation or difficulty renewing.

Businesses being sold may have management issues that are reflected in everything from their tax compliance to seed-to-sale implementation, and if you become the owner overlooking these elements in your due diligence process they become your problem.

If you are buying an active cannabis license in Oklahoma, you must know if there are any encumbrances on the license. If that license is coming with real property, you need to know this on every level. Does any real property have a lien on it; have there ever been any OMMA or OBN violations; are there any active third party deals or disclosures? You need inventory lists and to verify them. You need to know if the equipment is paid in full. If you are acquiring a corporation or LLC along with a license, you need to see the bylaws, subscription agreements or operating agreement for that business. If it is a multi-member company, you need to ensure all members approve of the sale. If a member didn’t approve or they invoked a right of first refusal it could kill the sale at a point you were already vested.

A robust purchase sales agreement can serve multiple purposes in the process. Having one in place and properly reviewed if provided by a seller can help you discover where to direct your due diligence and protect you in the case the seller misrepresents anything on the agreement that was influential to closing the deal.

You might feel a sense of urgency to jump into the industry, but doing so without having done your due diligence can lead you straight to a dead end. Don’t leave any stone unturned.