Thinking of buying a cannabis retail store in Ontario? We’re talking an AGCO-authorized cannabis store, of course.
Here are five things you need to know.
Share Sale Versus Asset Sale
One of the biggest considerations is whether you are structuring the transaction as a share sale or an asset sale. If share sale, the transaction must close before the AGCO registers the change on their end, and they don’t pre-approve the transactions, meaning the new owners will be subject to a due diligence check AFTER they have acquired the company. If an asset sale, you will have to apply for and obtain an ROL beforehand if you don’t have one, and then you need an RSA which will be granted at closing.
School Check
If an asset sale, know that the AGCO will do a check to see if the location is within 150m of a school. You might think that because the location passed this check when it opened, that it’ll be fine now. But there’s always a chance a school has cropped up in the intervening time, effectively making an asset sale of the property impossible if the buyer intends to continue selling cannabis at the location.
Inventory Considerations
Will your transaction include the inventory? That’s a question that needs to be answered in an asset sale. And if it does include it, are there any adjustments to the purchase price at closing as a result of the inventory levels which might not be known in advance? Without inventory you will have to place a new order with the OCS for completely new inventory. There are advantages and disadvantages to both.
Intellectual Property
Are you obtaining the intellectual property of the store when you buy it? Meaning the trade name, trade marks (or applications) and branding? If so, do your due diligence to ensure that no third parties have claimed that the IP infringes on their rights. Otherwise, you could be in a world of hurt.
Get a CPA
A share sale will likely be deemed a change of control by CRA and require the filing of a tax return for the corporation. For this and other reasons, such as participating in due diligence, it is always best to retain the services of a CPA in addition to a lawyer.
There’s more considerations, to be sure. But these are five you need to be aware of.
