Buying or selling a cannabis retail store (otherwise known as a dispensary) in Ontario can be an exciting and rewarding affair. However, there are many aspects that you want to m make sure are taken care of before going ahead with a deal. Below I will share some tips for buyers and sellers of cannabis dispensaries, whether in Toronto, the Greater Toronto Area, or elsewhere in Ontario.
Buy a Dispensary For Sale in Ontario
Here are some tips for prospective purchasers / buyers of dispensaries:
Determine Your Store Location Search Area
As a buyer, you will want to ensure you determine the area in which you are looking to buy a dispensary. Are you looking across Ontario, or only in a particular city or cities? If your dispensary will be far from where you live, you will have to commute to it to oversee the store, or ensure you have hired one or more managers that can take effectively take care of the place. Confining your selection to one municipality can make decisions simpler, but it also means you are restricted in your odds of finding a strong locations. If you expand your search to the rest of Ontario you will have a greater opportunity to find a suitable location and more options to choose from that you can evaluate. Location is everything when it comes to a successful cannabis retail store.
Finding The Final Location
When you have decided on one or more final locations, it’s crucial you do a search to ensure you are not within 150m of a school, which isn’t permitted. As well you will want to check to see if you are closely to any existing operating cannabis retail stores. Particular attention should be paid to see if your prospective location will be close to existing stores. Two companies whose stores are known to charge below market rate for cannabis products is Canna Cabana and Value Buds. If your prospective cannabis retail store is close to one of these chains’ locations, dealing with them as competition can be fierce and difficult for an independent.
Determining Sale Type (Asset vs Share Sale)
One big consideration, which may depend on the situation of the seller, is whether you are going to be purchasing 100% of the shares of the company that owns the retail store licence (this is called a “share sale”) or whether you will instead be buying the assets of the company such as the lease and the right to obtain a cannabis licence at the location (this is called an “asset sale”).
This is an important determination, because with a share sale you will generally not have to apply to the AGCO for the applicable authorizations (the Retail Operator Licence and the Retail Store Authorization) after completing the transaction as a purchaser. You will still have to provide disclosure about the new individuals or entities involved to the AGCO, but with a share sale you will not need to apply for a new set of licenses with the AGCO as you would need to if you were buying a dispensary through an asset sale.
Doing Your Due Diligence
When buying an Ontario cannabis retail store, you must do your due diligence. That means reviewing all relevant documentation. What are the sales and profit margin of the store. What’s the annualized sales? What’s the average basket size, and the rate of growth every month? Are sales growing, stagnating, or declining? Is the lease assignable to the new owner? All these matters must be taken into consideration.
Selling A Cannabis Dispensary or Thinking of Putting One On Sale?
Here are some tips for prospective sellers of dispensaries:
Determining Sale Type
As a seller you must determine if you’re going to structure the sale as an asset sale or a share sale. Earlier in the article we talk about the differences in the two. Essentially, if you have cannabis retail licences at other locations under the same corporation, you will likely be stuck with an asset sale – what you are selling to the third party is the assets of the deal, namely a lease assignment and permission to apply for licensing from that location.
Drafting the Documentation
It’s always a good call to have a lawyer draft your sale documents. That way they can draft robust sale contractors that are tailored to your situation. Ideally both the seller and the buyer will have their own legal representations, but in certain situations the lawyer might represent both sides of a transaction.
Closing Thoughts For Buyers and Sellers
One last word I would like to share: The cannabis retail environment is highly competitive in Ontario. The truth is some existing stores are or will fail to stay in business, while on the other hand there are some stores consistently pulling in seven digits of sales per year. It is a tough but rewarding industry.
You deserve a dependable and reliable lawyer on your side. Harrison Jordan is a Toronto-based lawyer assisting the buying and selling of cannabis retail stores (aka dispensaries) in the Greater Toronto Area and Ontario. Call him at +1 647 371 0032 or email him today. He’ll get back to you as soon as he can.