Our firm has worked with both buyers and sellers of licensed marijuana businesses in Washington State. A key issue for any buyer of a marijuana license and/or business is the viability of the existing location at which the marijuana business is licensed to operate.
When the Washington State Liquor and Cannabis Board (“LCB”) issues a license to a marijuana business, the license is issued for a specific location. The marijuana business cannot move to another location without approval of the LCB. Thus, in considering the purchase of a marijuana business, a buyer should carefully consider whether the existing location is suitable for its needs or whether it will need to move the business to another location.
I have often seen the price of a marijuana business or license negotiated without careful consideration of the existing lease for the licensed premises or consideration of whether the new purchaser will need to move the licensed facility. Buyers often want to relocate the license either because there is a problem with the existing leased premises or the leased premises are not large enough for the new purchaser’s planned business operations.
If the new purchaser desires to move the license to a new facility, issues of timing must be considered. Because any change in location requires LCB approval, the new buyer may have to operate at the existing location pending approval of the new location by the LCB. Alternatively, the parties may be able to file a change of location application at the same time the paperwork is pending with the LCB for the change in ownership of the license.
Existing leases should be carefully reviewed by the potential buyer regardless of whether they intend to relocate the business. A buyer may want to renegotiate the existing lease terms if they intend on staying at the existing location and if so may want to make the purchase contingent upon lease renegotiation. Even if the buyer intends on ultimately moving the marijuana business, the buyer may have to continue operating upon the existing leased premises until the new premises are built out and approved by the LCB.
Additionally, if the buyer intends to relocate the license, the parties may need to negotiate a lease termination with the existing landlord. It is not unusual for the seller of a marijuana license to be in arrears in rent since the sale of the license is often triggered by lack of profit. There are a number of issues that arise when a licensee is in default of rent. First, the parties will most likely want to make sure that the licensee is not evicted while the purchase is pending. Next, and especially if a buyer is purchasing the legal entity that holds the marijuana license, the buyer will want to make sure that any liabilities (including past due rent) are eliminated when the purchase closes. Consequently, a portion of the purchase price at closing may have to cover any past due rent.
As further discussed in my ebook- Turning Green to Gold, location is critical for the success of any marijuana business. Therefore in negotiating the purchase of a marijuana license or the licensed business, buyers should carefully examine the costs of remaining at the existing licensed location versus relocating.
For more information on the regulation of marijuana businesses, please contact Heather Wolf.