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Webinar Recap: Cannabis Transactions and How to Avoid Litigation

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Attorneys Mia Getlin and Kevin Jacoby both discuss recent observations in cannabis business transactions, and how to keep them out of litigation.

Key Takeaways

Transaction Timeline: Understand the typical steps involved in a cannabis transaction, including finding a buyer/seller, negotiating terms, drafting documents, submitting applications, and closing.

OLCC Wait Times: Be aware of the Oregon Liquor and Cannabis Commission’s processing times for license applications and change of ownership requests. These delays can increase transaction risk. At the time of this webinar, the wait times are currently sitting at around 3 to 6 months.

Complete Applications: Ensure that all required documents are submitted with your application to avoid delays and potential rejections.

Closing Documents: Complete and execute all necessary closing documents to avoid future disputes and ensure a smooth transfer of ownership.

Leases: The current licensee must have legal access to the property. Ensure the lease terms align with the transaction timeline and that the buyer’s lease doesn’t start until after their OLCC application is approved.

Services Agreements: Use services agreements (which allow the Buyer to take over management prior to OLCC application approval) cautiously. They can be risky due to compliance issues and potential disputes.

Material Adverse Change: Be aware of clauses related to material adverse change in your contract. This can trigger termination or repricing if the value of the business significantly changes.

Drop Dead Dates: Include clear drop dead dates in your contract to establish a termination point if the transaction doesn’t close by a certain time, but make sure they’re not too short in light of current
or anticipated OLCC processing times.

Communication and Transparency: Maintain open communication with all parties involved throughout the transaction to address issues promptly and avoid misunderstandings.

Additional Insights

Mia and Kevin both emphasized the importance of careful planning and preparation to minimize the risk of litigation in cannabis transactions. While the specific examples discussed focused on Oregon, many of the principles are applicable to other states with legal cannabis industries.

Consulting with experienced legal professionals can help navigate the complexities of cannabis transactions and protect your interests.

Common Mistakes and Issues

Unforeseen Contractual Changes: Parties may make verbal agreements that alter the contract, leading to disputes later.

Missing Amendments: Informal agreements about changes in purchase price or down payment create complications if not formally documented.

Incomplete Applications: Delays in OLCC processing can occur if applications lack required documents.

Material Adverse Change Clauses: These clauses can allow a buyer to exit a contract if the business value significantly declines due to their actions.

Unrealistic Deadlines: Inflexible drop dead dates can lead to deal collapse if the OLCC processing time takes longer than anticipated. These processing times can and do change based on agency workload.

Owner Disputes: Disputes among owners regarding control or rights to sell a license can delay or prevent transactions.

Best Practices to Avoid Problems

Clear and Comprehensive Contracts: Include all terms and amendments in writing to avoid confusion and potential litigation.

Accurate Documentation: Ensure applications are complete and accurate to avoid delays from the OLCC.

Careful Due Diligence: The buyer should thoroughly review the seller’s compliance history to identify potential issues.

Authorized Representatives: Designate authorized representatives for both parties to facilitate communication with the OLCC.

Realistic Timelines: Account for potential OLCC processing delays when setting deadlines.

Legal Counsel: Consult experienced cannabis attorneys to guide you through the transaction process and protect your interests.

OLCC Involvement in Owner Disputes

The OLCC generally won’t intervene in disputes about who has control of a license between owners. However, compliance issues arising from ownership disputes can trigger penalties-up to and including license revocation. Court orders regarding ownership can be enforced by the OLCC.

Differences Between Business Structure Changes and Change of Ownership

Business Structure Change: Adding or removing an applicant on the license. Processed through an amendment, effective after five business days unless challenged by the OLCC.

Change of Ownership: A new owner takes over the entire business. Requires a full application process and issuance of a new license, taking longer than a business structure change.

Additional Resources

Mia Getlin can be reached at 503-308-8223, by email at mia@miagetlin.com, and www.miagetlin.com.