Options for Your Distressed Cannabis Business

In the last article from our Cannabis Advisors, we addressed the importance of going back to the basics with an effective business model and strategic planning for your Cannabis company – especially when trying to survive an economic downturn.

But what if it’s too late to correct your current course, and it’s time to make some major decisions about the future direction of your Cannabis company?

With a lack of traditional funding options, no protection under federal bankruptcy law and other restrictions on your operations and finances, options are more limited for turning around a company in the cannabis industry. Choosing the right course of action requires careful planning and collaboration with experienced industry advisors.

Alternative Funding Sources

Traditional forms of funding, such as banks and venture capital firms, remain scarce, but private investors still view cash-strapped cannabis companies as viable investments. Their investments – in the form of equity or debt – could be the lifeline your business needs to get back on its feet.

Corporate Restructuring

In addition to the financial stake new investors will receive in your company, they can also be part of a restructuring process and decision making that lead your distressed company to full financial recovery.

With or without investor involvement, you and your trusted advisors will play a critical role in these decisions. The restructuring process will involve your participation in the possible sale of assets, negotiations with vendors, expense mitigation and other key activities to improve your financial position.

Selling Your Cannabis Business

Perhaps you were already looking to sell your distressed business prior to the pandemic, or the resulting economic crisis left you with no choice but to seek out a transition of ownership. Either way, getting the most value out of the sale of your company is crucial to your long-term financial stability and future business plans.

While the current economy has all the signs of a buyer’s market, there are ways you can prepare your business to maximize its value and appeal to buyers. Get your house in order and prepare your internal financials, metrics, key performance indicators (KPIs), quality of earnings and other documentation your buyer will want to see. This will speed up the due diligence process for buyers who want to act quickly and will move you ahead of the competition.

While it may be tempting in this economic environment to jump on the first offer, do your own due diligence to make a wise decision. Consult with a valuation specialist to understand what your company is currently worth, and work closely with your CPA to get a clear picture of the tax implications and price pressures that could impact the amount of funds you walk away with after the sale. Explore the culture and financial position of the acquiring company to ensure they align with your goals and desires for the next chapter of your business, especially if you and/or your employees will continue to be involved in its operations.

Don’t Make This Decision Alone

Grassi’s Cannabis Advisors are highly experienced in assisting cannabis companies with structuring, restructuring, identifying alternative funding sources and conducting sell-side and buy-side due diligence for M&A transactions. We understand the regulatory environment in which you operate and can help you make a confident decision that will have the greatest financial impact.

John V. Pellitteri John V. Pellitteri is a Partner at Grassi and leads the firm's Healthcare and Cannabis Service Practices. Possessing over 30 years of experience in accounting, auditing, tax planning and business consulting, John is now applying his talent to the burgeoning cannabis industry. John possesses comprehensive accounting and taxation knowledge, which combined with his healthcare consulting experience, allows him to provide an all-inclusive assessment of... Read full bio

Categories: Advisory