Joyce Cenali 
Partner & COO at Big Rock Partners and Sonoma Hills Farm, Co-Founder at  Cannabis Media Council

Alfredo Barreto
Managing Director, Investment Banking, JMP Securities LLC

Lara DeCaro 
Partner, Leland, Parachini, Steinberg, Matzger & Melnick LLP

Cassia Furman 
Partner, Vicente Sederberg LLP

June 22, 2022 - San Francisco, CA

As some cannabis retail and delivery operators look to be acquired or expand their footprint, this M&A panel was designed to help dispensary operators better understand how to evaluate strategic relationships, vet deal terms, create fair contracts, sell licenses and consider how to prepare a business for a merger or acquisition.

Preparing for M&A Activity? Download the Due Diligence Checklist, courtesy of Clark Howell LLP
Listen to the full M&A panel conversation.

Read the transcript, edited for clarity, below:


I am really excited to moderate this panel and talk about how we can find a path forward in merging from a strategic values perspective.

I run a family office that's done a bunch of investments in the space. We haven't done any a minute because venture capital in the space is a little bit paused. But we also run a farm called Sonoma Hills Farm. So let's get into it. Do you guys first want to introduce each of yourselves?


I'm primarily q cannabis attorney and I'm coming up here today from beautiful Santa Monica, bringing that SoCal weather with me, because I feel like I'm at the beach, but it's good vibes here. Been working in cannabis for quite a while. Our firm has offices around the country, so we've had the privilege of working with companies big and small in trying to scale and get financing and navigate an ever changing landscape.


I'm an attorney here in San Francisco. I've been practicing cannabis business law for about 14 years in this market, so seeing it all. We say we've seen it all and then something new happens and it's like, surprise! You haven't seen it all. There's more we can throw at you. So it's been a really interesting time for me to be watching the growth of this market and so I would say maturation or development, but just watching it move into a more socially accepted space, a more normal space. And I love it. I like the way that we're approaching the market as a community, especially the people I see in this space. And knowing that you all are moving this forward on this level gives me a lot of hope for our future as the cannabis community, because we could get lost if we don't all stick together.


I'm with JMP Securities here in San Francisco. I have worked in the consumer sector, consumer package goods, retail, food, beverage, agriculture as an investment banker for the last 20+ years. I joined the JMP securities firm after some time at both Morgan Stanley and JP Morgan. And I joined to help expand the cannabis practice. JMP Securities is known for its deep relationships in the technology sector and the life sciences. And I joined to help expand that that practice into cannabis. We've been involved in a handful of financings, including Weedmaps, Leafly, and a number of other ancillary businesses. But have also worked with growers, distributors, and manufacturers in cannabis. So looking forward to this discussion as this emerging market continues to perplex us all.

cannabis industry M&A activity at the Meadow Summit


In the origination of California cannabis, a lot of companies had been in the medical market and probably had less taxation, less regulatory rigor, less necessity for outside services and whatnot. A lot of companies started out with some money buried in the ground. There was a big venture frenzy. So if you had a competent business model and you were well situated to be able to step into a license, there was likely going to be somebody that was going to give you money on a promissory future forward thing. So the early days I would say ended in mid 2019, and then the next chapter, I wanted to talk a little bit about what the Canadian exchange forwarded for exit values early for companies and, from my perspective, why did we ever think that it was only going to take two years for us to exit and what could have been the potential synergy with an exchange to actually give companies longevity? So let's baseline the conversation on the Canadian thing. And what that looked like from that perspective, if we could.


The fact that Canada legalized at the federal level made for the money flow and the capital flow to happen. And so we saw a lot of companies tap the public market, access cash, and grow. But Canada is small. Canada is smaller than California. And I think investors were expecting the Canadians to corner the whole North American market and that wasn't going to happen. So I think we saw essentially an accelerated boom in Canada and then the United States has had to slowly implement a broad set of regulations on a state by state basis. We've had to watch the Canadian companies access the cash and capital that the United States would love to have access to if, and when, we're federally legal.


I have done a few transactions involving Canadians. And all I can say is it's rather dysfunctional. I would probably stay away from getting involved in a publicly traded Canadian company right now, or working with one without talking to those who've already undergone that process.

So if you're approached by a publicly traded Canadian company or a Canadian company that's potentially planning on going public, I would want to reach out to those who've had experience with them right now, because they are imploding. And I do think that Canada is oversaturated on some levels. They're investing a lot in California right now in laboratories, which is an interesting business model. And I think might bode well for them. But inso far as a retail operation, I'm not seeing a whole lot of continued interest from the Canadian companies. And in fact, one of the Canadian companies that I have done some work with is dumping some projects. So it's become less attractive.

They got the first bump, right? They got the ability to play ball first and they ran with it. And now they are, I think, regretting a lot of the investments that they underwent. But now we shall see how all that pans out. There were a lot of smaller US-based companies that were talking about doing sort of reverse IPO things with Canadian companies. And none of that panned out. There's been a lot of talk about it. And until we really get some movement on the federal front with regard to safe banking, we're not going to see a whole lot of that sort of public activity. In so far as I think US assets are concerned.


The one implication that the Canadian Pub Cos may have for you: A lot of the MSOs are listed in Canada, including some that are very active in California. Harborside is the technically a Canadian company. So when we talk about that, they're not all visitors from the north, but an implication of being a public company is if they're looking to acquire retail, which has been a pretty classic model for them. And even though the heady days are long past us,they're still trying to grow because they have to, the ones that have good enough balance books to keep it going. They bought a lot of retail last year, less this year, but I know there's some delivery and some retail folks out there. And the advice beyond what Lara gave, which is really solid: when you're dealing with the public company, you have to play ball in their terms and getting ready for the deal. It can be a lot more involved than what you might be waiting for. I think the earlier session covered some of the prep stuff. But getting the books together, the audited financial records and all that stuff is a mandatory with any of those companies. And a lot of them are still trying to grow and consolidate, even though their balanced books aren't what they were. It's not without question that they could come knocking.


I think they could come knocking, but I think they're not as interested in California anymore. What I'm seeing is a lot of interest in the south and in the Northeast, but less in California. We talked about this on the first panel a little bit too.


I'm going to weave this into DCC required conversations and we'll come back to SPACs in a moment, but relative to Harborside, obviously they just launched their San Francisco spot on what is it, Stanyan, I think. So that did have a social equity applicant on it. I'm interested in terms of those of us that have operating businesses, we apply into Accela and we have to put our cap tables in there and sort of expose people that have over 20% ownership in our companies.

If you're building your business on the front end and you have your operating agreement and you start to take in outside capital, what does that look like in terms of how you need to frame that, both to the Department of Cannabis Control and then, kind of locally, and I guess this is sort of a broad question in terms of if it's a public company or if it's just a big outside investor. I think the requirement with the SEC is what, 10%? So the whole Elon Musk thing that's happening. Right? He had to declare once he got really high. So the 20% bar is the DCC. 10% sort of otherwise. So yeah. What does that look like in terms of paperwork filing and setting ourselves up to be transparent?


Well, I don't know that the DCC itself has showed a lot of interest in this topic over the years. Technically you're supposed to keep those ownership disclosures current within 14 days. But where we have seen it be an issue, because they've never said anything basically to any of our clients, no matter if they filed late, never, on time… is it becomes a very big deal in M&A, sometimes, not from a regulator perspective in California, but in the eyes of the diligence team on the acquiring party. And it can be a real problem if you don't have your cap tables updated and there's multiple LICOT 7S pending with the DCC and the buyer, or, you know, an investor comes in and it's just like, “Your disclosures are not current; you're not a good person. You're not a good operator.” I've seen people really turned off of deals because operators didn't have their paperwork current.


Yeah, I totally agree about that. Simplification of your cap table is sort of number one. You have to understand what's on that cap table so that you can understand what this merger or acquisition or joint venture or whatever it is going to end up looking like on the back end. But for regulators, they don't really care. The locals care. I would say that the local regulators care far more than the state regulators. And I've literally been told by state regulators that we’re over disclosing. They're like, “okay, wait, wait, wait. If they don't fall within this actual definition, I don't want to know who they are. So don't give me your entire cap table.” All right, I'll give you what you want. You always give the regulators whatever they want. Right? But they haven't been asking for it. And even when we had a slight change, the modification in the DCC’s rules with regard to the definition of owner expanded last year under the proposed consolidation rules. We got together a few lawyers and we were like, well, are you going to tell your clients to file a form 27 and update their ownership list with the DCC? And we all then turned to clients and said, well, what are you going to do? We think you should do this just to be technically compliant. And they were like, no, no. We're not going to do it. They don't care. We send stuff to them. They don't respond. We're not going to bother and we'll do it on renewal. And it's just a pain for them to comply. So it's interesting to see how I think that information's already trickled out into the community as to what the DCC’s really looking for, what sort of things that operators need to focus their time and limited resources on. And it seems to me that that's just not one of 'em right now. But you should do it for your own internal purposes, I should reiterate.


Especially if you want to be acquired or have a more sophisticated party invest in you because literally every other state in the country, this is do or die territory. You have to disclose accurately. And so it can be tough for California folks who are used to our system. You know, having those conversations with outside investors. And a lot of the companies that are interested in investing in California are not from here or have interest in other states and are used to a regulated cannabis industry. That's essentially a compliance game where if you do well enough at compliance, you can sell some weed at the end of the day. And California has kind of been the opposite model. So you just need to know that it's out there and be prepared to deal with it when it comes your way.


I think for any market in California, that really sort of underscores the need to engage with people who are doing the work wherever you want to operate. Right. Get to know people. There are resources out there. There are people out there. Any one of us I'm sure would talk to people at the drop of a hat. And just to share information about stuff like this. I mean, you know, that's what we're here for, right? Not just today, but every day, we're here to help each other along. One of the mistakes is that people try to go this alone. They don't reach out, they don't try to ask those questions and then they end up making a mistake and not engaging with the local regulator.


I would just simply add that if you're interested in selling, you need to have accurate books. And that includes all the necessary compliance issues. And whether it's working with the DCC or working with highly professional attorneys, like we have up here on the panel, that'll help you. But essentially, the buyer's going to look for a tight ship. They wanna make sure that the value that they're going to pay for your business is secured by the accurate books and records that you have. So that's the commentary from the high level banker over here.


Good advice. So California is its own culture. And obviously we have a lot of different even identities in San Francisco. So in terms of, if there is an outside party and acquisition potential from a group that has a totally different, geographic or I'm going to use the example of retail. If somebody from an MSO wants to acquire here locally, in terms of the mechanism for how they take over that deal. first and foremost, what is the smoothest mechanism? Let's speak to specific contractual terms, but in addition to that, how can the operator keep their identity and the deal so that the brand identity of that retail shop isn't completely dissipated within the transaction?


I worked on the first such transaction in San Francisco. And it was an article 33 MCD that was still under article 16 regulatory compliance obligations. So we really had to navigate both sets of rules, which meant also engaging both sets of regulators. I was a general counsel for this company, for the MCD. They were approached, we came to terms. I worked really closely with this MSO publicly traded Canadian company for a long time as we hammered out and we navigated what the rules were and what they were going to look like. And I thought that that was fantastic because what they did is they put their trust in the in the target. They said “you are doing this right. Clearly we want to acquire you. And so you tell us how best to get this done.” We ended up bringing up bringing in another co-counsel and then eventually we got to the point where I said, okay, you guys now need your own lawyer. I'm not advising you on that anymore. And we pulled in actually Nicole Howell, who so graciously provided that due diligence checklist for you here today, but to help represent the MSO. And it was fantastic. They listened to us on which council to bring in, they listened to us on which regulators to meet. So that perspective was super refreshing because prior to that experience, we had been approached by several potential buyers and most of them were US based. Traditional VC kind of guys who engaged lawyers at MoFo or Wilson Sonsini or one of those other big sort of VC thousand-dollar-an-hour lawyer firms that doesn't do cannabis. And, and so we had gone through a series of transactions where these lawyers just wouldn't believe that you couldn't pull up an NVCA template and press print, and it would work for a cannabis transaction, no matter how much we talked to them about this. So what was refreshing was the Canadian approach. And that is actually the most seamless way to approach it: convince this potential buyer or, or merger candidate that you know what you're talking about and you understand your local market. And if they're not willing to hear that message, it's maybe not the right mix. But that was the best thing that could have happened was the way that they approached the transaction. And it really led to a very easy, seamless deal. We all worked together countless hours on trying to navigate the various rules under which we had to navigate and it ended up working out. So for that transaction, it was great.


Yeah. Just to add to that, Lara and I both work with a number of social equity operators and we were talking before the session a little bit. There's been some differences between those early days that I've seen. And it's still, every deal is different, and every perspective buyer or investor has different expectations as do the social equity qualifying individuals. But early on in LA, when you know, they were starting to talk about social equity retail applications. I'd say the majority of the people who approached us just wanted like a blank check. Like I want a side letter and take all the money. And I talked to this person and they're cool with it. They don't want the worry of running the business, etcetera. And, you know, you gotta say, “no, that's not what the program's intended to do. They're not going to accept those documents. That's not in the spirit of the program.” And in the past couple of years, we've seen some, you know, because of the grassroots efforts of many folks from within this community. And in other communities around California, as well as nationally, that perspective kind of changed, where now you're seeing some of the larger companies buy in to the wholesale idea.

And there's just a lot more conversation that this could be a deal that both parties can benefit from. And both parties can come to the table and take something away and build something together and, tapping into that California culture. Although the MSOs aren't perhaps looking at retail as much in California or delivery, they're very much looking beyond MSOs too. I've just seen more people be a little bit more genuine about their interests and about the terms as well. More of the social equity folks. And part of that is because they've been fixing the definitions. I'm sure a lot of you are involved in the state efforts to adopt the definition of social equity that's going to hopefully eliminate some of the concerns around who is receiving these benefits and be a model for the rest of the country.

If we can do that collectively, which is on the table now. I talked to Yvette McDowell a couple days ago, one of the women working on the effort and a mentor of mine. And she said, you know, “it's herding cats,” like everything else in Sacramento. But there's some real need and momentum behind that. That's a really positive indicator moving forward in terms of investment opportunities for social equity businesses, too. So although there's a lot of bad stories and a lot of sleepless nights, especially for the operators, but also for people trying to help the businesses and listen to what the operators need, there's some positive direction and people are picking up those conversations too.


I would just simply add that oftentimes when we're working with a company that's looking to sell or raise capital in the case of selling, say for example, a retail chain, we'll want to make sure that we under truly understand the key cultural issues that have built that brand. So, you know, we'll just take an example of Cookies, for example. They have a clear message they want to send with regards to the retail experience, the whole setting. And if, if they want to sell the business, we need to understand the value of that brand. And what, if anything, they're willing to do with that brand under ownership of another company. So we would spend a lot of time making sure we understood exactly what the brand, the company represents, make sure that the financial parameters, revolving around value, are within the range of what we think is reasonable. And then we would look at all the social, cultural issues and make sure that the buyer is going to honor that, and/or if they are going to make changes that are within reason of what the sellers are looking for. So and oftentimes that'll create a situation in which you have a very high bidder, but they may come in and completely change things. And that's not necessarily what the seller wants to happen. And so we may end up taking a lower offer, but retain all of the other social and cultural issues that, that brand, or that seller, wants to get paid for.


I like how you brought it back to that question; that's a big deal. It is obviously brand loyalty especially in the California market. If you are operating in multiple states, if you've licensed your brand to other states, take a good look at your licensing agreements, because if you're acquired in one jurisdiction, it doesn't mean that you can be or will be acquired in another jurisdiction.

You may have some rebranding issues and you want to take a look at that as you move into other states so that your license agreements are fully equipped to deal with that kind of piecemeal transactional fracturing of of your stores or your brand so that you can maintain control, but that is something that does come up.

We need to give kudos to the Office of Cannabis and specifically Eugene Hillsman for really enforcing those social equity terms here in San Francisco and laying the groundwork for expected compliance. It wasn't lip service. You heard a lot about Los Angeles just playing lip service, and there was lack of enforcement. Eugene killed a couple of deals because he just wouldn't play ball with the investors when the investors were essentially trying to undermine the rights of the social equity applicant. And so, that's good and bad, I suppose.

Right. But we really need to recognize how that led the conversation in San Francisco. And now you can't even apply for a license here unless you have one of the legacy or social equity criteria until we have 50% of that license category held by social equity. Right. And it's actually kind of nice, but it does make you more attractive as an acquisition target, so keep that in mind.

"We owe it to each other as operators here to stand up for efficacy and quality within California, at the expense of an immediate exit strategy." -Joyce Cenali


I've invested in personally in 12 deals and I operate a company and I think about the deals that I'm invested in as partners of mine, the subscription of “you don't kill the golden goose. You don't kill the goose because the goose will give everybody eggs.”

In this most recent chapter with the dry up of a lot of the venture equity path, folks have kind of taken a path to going to certain debt facilities that aren't in theory user or predatory by legal definition, but by the business practice of those companies, they are squeezing everything that there is to keep the growth there.

And at the end of the today, California is the biggest global market, period. At the end of the day, California, we owe it to each other as operators here to stand up for efficacy and quality within California, at the expense of an immediate exit strategy. And I'm young, right? So some investors that I've brought around our holdings are not young.

And so understanding both sides of the conversation, like what people are expecting to get out of it. It's just kind of something people didn't do. And I was always like, what the actual, what do you really expect from me? Do you want me to be in this deal for five years, eight years, 12 years, the rest of my fucking life? That's not going to happen.

So people just need to be more transparent. It's not that hard. It is hard when you're an operator and you get this complex legal document and you have no idea what all the hooks are and whatnot. And so it's awesome, y'all, that there are resources, but what I will say to those resources is brokers don't talk to companies that are making less than a million bucks a year, unless their exit is going to be a seven figure opportunity for them.

It's moot. So there have been certain smaller pools that are trying to, through a consolidation effect across a given category, look at financing solutions. But at the end of the day, I just feel like we need to be a little bit more proactive about how we think about merging with other companies that we're aligned with, as opposed to finding ourselves in a position where we need to hail Mary because our businesses is going to be on its face.

So what I say to people is “Put your ego at the door. We are stewards for this plant. No offense, none of us are special. She's special. So if you're going to make money and be her voice and have a profession, work collaboratively with people that share a demographic focus that have supply chain stickiness with you, and don't step on their toes. Don't vertically integrate your little brand and launch a delivery service and then launch a distribution service and then launch a retail outlet. Partner with somebody that actually does that, and be reasonable. I will draw this into a question to say: What does it look like if I, as a business, want to retain the value that I put on the board and I say, this is where I want my life to go over the next five years.

This is where I think is reasonable for me and my family. You've got this business. We can engage and draw common value together. What does that look like for you? If I wanted to merge with somebody else, how would I do that in a way that protects their cap table, protects my cap table, and doesn't sort of invite a predatory player to incentivize them in some way after the transaction happens to dilute my value? It's a hard question.


Your comments made me think about a conversation I had that you facilitated visiting the CEO of CannaCraft and the basic topic was, what do you want? Where do you want to take this business? And it ended up revolving around the competitive landscape. CannaCraft had a solid brand, good production, grower, but they didn't have leverage at retail.

And it became clear that the solution for getting CannaCraft to the next stage was to possibly merge with somebody who had retail, and that's effectively what happened. I wasn't involved in identifying that partner, but CannaCraft had a portfolio of assets and attributes that had gotten them to where they were, and now the market had changed.

Other MSOs had come into California. Brands are individually getting bigger. And the distributors were exerting a fair amount of power. So in this case, the answer was: we needed to compete and fill out our portfolio to keep growing and eventually get public, or what have you. So, that's a real world recent example.

And what I'm observing is that many of the public MSOs are, for the most recent phase of the development of the cannabis industry in this market was a lot of white space, meaning people needed to get into different geographies. They needed to lock in their supply chain and retail channels. And then they can compete. But things keep moving for all of us.

The local dispensary now has more competition and as Joyce is indicating: You need to collaborate and try to build the value of the asset that you have, whether it's a brand, a store, a distributor, etcetera. So I see this as a developing market, and we're in that phase where M&A now seems to be the best alternative for the smaller players. Think of yourselves as, “how do I fit into the portfolios of these other players from a strategic point of view?” Raising capital is sort of a different gain, but there’s similar positioning that you need to think about as to what makes you attractive to that investor or buyer.


Yeah, I would agree with all of that. I would also add in so far as the question relates to the cap table and the merger component specifically. So just to kind of walk back up a little bit, you know, a merger is usually an exchange of stock. That's generally the way that a merger is handled. There can be other structures but that's the most common, at least in so far as the legal terminology is involved. And acquisition would usually involve cash and/or stock, or both.

And but so when you're looking at these two cap tables, that's where using an app like you referenced earlier is gonna be a lot more efficient for memorializing and trying to streamline what your cap table actually looks like, because I've tried to spreadsheet those things. And I get lost, and I'm trained to do it.

So sometimes a lot of these apps can help you integrate a really holistic picture of what this is gonna look like for all of the players when you merge these cap tables and it can help both sides ascertain whether this is a good deal for you because it'll really break it down. And so that's something I would recommend is kind of moving away from Excel and getting an app.

And, you know, especially if you've done a number of raises or if you have a series of SAFEs out there that could really implement a change right to the bottom line and result in far less founders’ equity being present than you originally perceived.


Yeah. So, common shares, do they transition in a merger or do you have to reset the ESOP, and what happens with the preferences? If one is 1.5 and one is on, what happens there?


A fractionalized share is usually calculated downward or it's bought out. But I think that a lot of it depends on the fiduciary responsibilities with regard to the type of transaction too, because you're looking at various number of scenarios that you just alluded to.

So you need to investigate whether you're talking about an LLC, a corporation, what jurisdictions, so that you can really examine what your obligations are to the various shareholders. And then you may have an investor rights agreement in place that modifies those. Or you might have bylaws or an operating agreement, depending on whether you have a corporation or an LLC.

So it's a lot of due diligence to try to figure that out. And I think it is a really complicated analysis and that's where the apps come in really handy, because they can really break it down for you.


Just to add onto this, if I get a license tomorrow and I know I wanna get acquired in two years, what do you suggest in terms of how I form the corporation and how to keep it clean to make it very easy for a future merger?


I like what what Will was talking about earlier, maybe it was Kieran, about the structure looking like an umbrella, where you've got your holding company up here and it's probably a corporation. And in part you want that because it's a more traditional investment vehicle, but also in part, because the corporation is taxed and that then cuts off personal liability under 280-E and other taxes that you might be subjected to.

So but then holding the licenses in individualized LLCs. I would recommend, just like if you owned a series of buildings in any geographic region, that you hold your licenses in separate LLCs, just as diversification of risk. It's basic one on one. Unless you're getting a micro, don't get a bunch of licenses under one company name. That would be my one piece of advice.


Yeah. And it's always kind of tough at the beginning of a company because you don't want to create additional unneeded expense with having so many entities, especially in California, where it's so expensive on an annual basis.

My in-laws have real estate holdings and they're like all still in their personal names after 40 years, because they don't wanna pay for LLC franchise taxes in California. It's crazy. I used to live in Colorado and it was like $25 to register an LLC. And you were done it's a little different story here.

So you kind of want to consider what's realistic in terms of multiple entities and debt structure and keep things as simple as possible. But if you are looking at potential expansion, the other entity is probably the IP licensing vehicle that has a lot of flexibility for cannabis companies.

And if you can build some value in your brand through ancillary stuff, whether it be tech or merch or any kind of goodwill that you can then potentially look at doing licensing deals, which Lara alluded to. And I work on a lot. I'm sure you do with your clients. It's probably half of what I do most days.

And there's states opening left and right. And people who are looking for expertise and looking for solid brands. That's a good idea too.


Yes. C Corp. And then hold the licenses and an LLC and generally have a separate IP structure and do licensing deals in other states is kind of the way that we've done it, but it does get complicated. Usually you'll set up some sort of perpetual license to be able to access the brand and then the deriving origin of where that brand gains traction, how you value that when you then take it to another state that has been, you know, I don't have an answer to that. I'm kind of in the middle of figuring that out.

I think we all are at this point. So in terms of seeking mergers or seeking partners in other states, I want to go back to the panel and ask what you guys suggest in terms of who we could tap to sort of find who's looking out there in the world for new partners, but to add to that, I've been observing what's happening on the east coast.

I'm from Georgia. Georgia's… I don't know, it's not going to go anywhere anytime soon. But I've taken really small positions in a few companies in states that I care about because I want to just get to know people in those states and start understanding other operators. So I was an early investor in Sava, a delivery retail service. And it built its own technology stack. So kudos to Meadow, love Meadow stack. Sava built their own. And relative to what my thoughts are in terms of their growth, it's like, okay. Maybe this makes sense from a brand perspective in New York. The DCC, they'll process out every new license and it's standing. I get them for cultivation. I get them for retail. You can get that in most other states. So you can start to do, I mean, I'm not a macros Excel person, so I'm not super formulaic about it, but you can start to get inbound emails to tell you who's activated those licenses.

Sometimes it's a little difficult to understand, like what brand is on top of the shell. Because most people are smart and originate LLCs in non look-through places. But usually with a little Google magic, you can start to figure out who is what. So that's a trick that I've used to try and start to understand who's doing what in New Jersey and Massachusetts and New York and whatnot, and just literally inbounding them on their websites.

Because I think like from a natural growth perspective, money's not coming to California for a minute. It's going to come back, y'all. We're in a big state. If you need to go find outside capital right now in an advance of a merger, you should be looking to do a licensing deal in one of the new states.

And then that is going to add a lot of top line value. But what that looks like given that we're a little bit more on the foundational floor than certain other states, and how you contractually build that, you need to seek that from experts and parties. So what are some of the resources?

Obviously you guys are great resources, but if somebody doesn't necessarily have access to a retainer or are looking for a large seven figure, acquisition, where can they go?


Well, so the International Cannabis Bar Association has resources of attorneys that are active in cannabis all over the world.

They have like 900 members and you can go to their website and be connected with an attorney. And, there are obviously some that are working in the pro bono sector. So to your question about whether, if you don't have a retainer available to engage an attorney, a lot of them will at least give you a couple of hours of their time and then lead you to a local resource for pro bono activity. The Bar Association of San Francisco has a verified equity applicant pro bono legal project that we started. So there are lawyers there that are designated to give you free advice if you are a verified equity applicant in San Francisco. You can't take up all their time, but they want to give you the best tools that you have moving forward and, and I think that there are a lot of Bar Associations that run pro bono projects, and I would start there in the community that you've identified as wanting to get into. And then networking with the attorneys that you meet through through those organizations.


I think networking with attorneys, business brokers, investment bankers, attending conferences of this nature that put you in touch with folks that can help you execute, whether it's a sale or a merger. It's easy to do a one plus one equals two. If you can identify a handful of buyers or investors that turn it into a one plus one equals three or 2.5, you know, that's where you're going to get the incentives structured in a deal for everybody.

So it sounds counterintuitive, but if depending on what size your operation is, if you're on the smaller side, think about your competitor with two or three units on the retail side and makes an interesting geographic position for you. That's the kind of design or synergies that you can begin to explore and try to get a deal on the table, and then we can help you figure out the right structure.

But sometimes it's kind of simple. It's like who would I like to dance with and where can we make some more music and get this plant out to people? So look for opportunities while networking, talking to advisors, and then just thinking logically, where can I create some more value with another party?


Yeah, for sure. I went just anecdotally when Nevada was starting to go live, I had done some work with Senator SLO at the time. And I had classmates from law school who lived in Vegas. So my clients tapped me. They're like, “Hey, Lara, we'll fly you to Vegas if you just introduce us to some people.”

And they worked out really well for everybody, we all found partners to take home from the dance, and it was a lot of fun in the making. So you could really just take advantage of the relationships you have. And just capitalize. People will know people in this industry, because it is still pretty tight.


Yeah. And even in new markets, everybody's talking about the east coast, obviously it's still goning to be a real estate game. So everybody's got a second cousin somewhere who might have a down-on-hard times, industrial building, maybe because consider that California real estate isn't really the norm for the rest of the country, too. I used to work in California, and when legalization happened there, it was during the last recession. Maybe we're about to have another recession, or at least a bear market. But at the time there was all sorts of class C industrial buildings that were underutilized or sitting vacant or full rats in the outskirts of Denver and the legal cannabis industry powered real estate revitalization of those areas.

And, overall the real estate markets have been pretty strong nationally in the past couple of years, but finding a location is still kind of number one, even in the new states. And that's where starting with your network is kind of the blessed place to start even for a licensing deal.

In some cases, you can start putting together these people: Okay, I've got a property. I met someone who's qualified as social equity, cause all the delivery licenses in these new markets, or at least the initial ones and some other, lots of other license types, too, are being designated for people who have certain qualifying credentials.

And so you start putting together a team of life minded, people who have similar goals and values. Everything always looks good at the beginning, but if you have some pretty good contracts backing you up, then you're about as well positioned as you could hope for.


I'm going to stay on that track for a second and we'll get to questions relative to the real estate. Before you have a license, it's just real estate.

So, trying to position yourself with a landlord to get a future purchase price before you get that license and trying to get a bank loan before you get that license. Great idea, to speak to the maybe potential recession that's coming. I just wanted to put this out there: banks are not gonna have as many people to lend to; commercial activity will slow down.

People are going to stop purchasing houses at the frequency that they have been. So I believe, and I'm starting to see this personally, that I think there's going to be an era to come where certain regional banks, mainly credit unions in legal markets, are going to start to lend to people that have collateral.

So what is that collateral? Real estate is the best. But perhaps there's, you know, potential for packaging, you know, factoring.

I hope this doesn't offend anyone, but: Do not do the bespoke deal. It is not going to be good for your long-term business. So a factoring model, that's actually a little bit more realistic to what traditional CPG companies do, I would love to see somebody come out with that.

And I think that there would be banks that would maybe, through a consolidated effort, if a bunch of people are sourcing similar packaging, or have similar inventory needs, that could be something that we can shake out and even in advance of safe banking. Relative to rolling back a distressed debt structure, any thoughts or comments on how somebody might do that if they're finding themselves in a situation where they maybe did a deal they shouldn't have done on the death side?


There are a number of family offices that are still looking at distressed debt situations. And then there are other general distressed investors that are beginning to look at the cannabis space. But they're far and few between. If you're not a cannabis investor and been on the sideline, there hasn't been anything in the news to get people to go into cannabis. So it's going to need to be a cannabis-specific distressed situation investor; that is my current recommendation.


Yeah, my experience with this is that these investors are really smelling blood in the water. And so rolling it back isn't necessarily going to be the end result. When you engage with a lot of these distressed asset investor types, you're going to end up agreeing to a deal that on paper looks like you maintain some control of your company, but in reality is basically a full acquisition for payment of that debt that you've accumulated.

So I would be really careful getting into those conversations, but sometimes there's no other out. Sometimes you just need that out. But that's been my experience in how those have gone. The other thing I did want to talk about is the people that you're working with.

One of the constant themes that we have going on in this panel is finding your tribe. Figure out who you actually want to be in business with. Who is it that you can actually see yourself going to dinner with in a couple of years? Who do you want at your kid's birthday party?

I don't know. Whatever your criteria are: it's you find your tribe time when you're talking to all these people, because if you're not aligned on ethical and social or governance, you're gonna find yourself being pushed out on some level pretty easily, and so you just need to protect yourself against that.

I had one recent conversation with a social equity applicant that told me that their incubator had essentially offered to pay for their legal fees for the review of some contract. And then they chose the lawyer for the equity applicant. And it was a lawyer that I know for a fact does not have the most equity aligned perspective on business deals in the area where this took place and that kind of stuff will happen if you're just not aligned on a more moral level with the people that you're talking to.


One other point on that topic: we're seeing trying to avoid that distressed asset restructuring, because there's not very many good options create some of these large mergers. And I won't refer to the deal specifically, but I think everyone's aware of a recent, large merger in California involving some of the largest retailers and supply chain companies.

And I think part of that impetus was companies looking at their debt stacks and looking what they had come do, and converting and talking to each other and saying, how can we together create another couple years of runway to try to ride it out? The two year thing again, brighter days, wait for safe banking or whatever's going to come down the pike for bigger change and try to pack it out and make it work. Whether that's successful or some of these other mergers is successful remains to be seen, but it's worth a shot.


Awesome guys. Cheers to another day, California. We're gonna get through this. We are gonna open up to questions. We didn't talk about SPACs. I'm such a jerk. I'm sorry. We didn't get there, but if anybody would like to talk about SPACs, we can talk about specs. So opening it up. We don't wanna talk about specs anyway. They're stupid. Don't do them. Okay, what is the risk in SPACs? I'm gonna hand this over to Alfredo.


So if you're thinking to sell to a SPAC, there's a risk that all the investors that put money into the publicly traded vehicle may not want to be in your deal. And so the risk is basically you scare away all the investors and you have to basically attract a whole bunch of new investors at the time of the deal.

And so the SPAC investors are looking at all of these transactions and saying, my risk in this environment is getting too high, and you're seeing them just flip out. (Flip out of the stock, not flip out mentally. In some case both.) So the risk is it's just a highly volatile vehicle to get public.

Weedmaps had this big group Silver Spike out of New York. They had capital to do real estate, capital to do debt, and capital to acquire companies. And so investors saw mitigated risk in that opportunity when they acquired Weedmaps. And at the time, late last fall, Weed aps and the whole sector was still on a growth trajectory.

So currently some SPACs are getting done. But the number in volume has decreased dramatically. I think the SPAC market is down 90% on volume. It's just a different way to get public and to get other investors, and in this market it's very risky.


Yeah. I saw a few try to look at operating cannabis companies and separate out the ancillary assets and get there and then just ultimately decide it was too much effort.

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