As the cannabis industry evolves, the inevitability of the big fish eating the small fish is happening faster and faster. International firms, multistate operators, and publicly traded companies seek to expand their footprint in the space while others look to cash out on their hard work.
For sellers, their concerns revolve around whether or not they are getting a fair price for their years of hard work, blood, sweat and tears. For buyers, their motivations are in finding the “diamond in the rough” in which a lower price could result in major payoffs for their investors and shareholders.
In both cases, compliance is an afterthought.
Sadly, traditional investors in M&A tend to only look at the bottom line of the companies they are interested in. Some sophisticated investors may know how to balance the opportunities they find with the specific regulated marketplace’s policies and regulations.. But generally fall short on understanding how their cannabis M&A deal will function in the environment they expect to operate in.
Its understandable as traditional due diligence dictates that P&L’s, Income Statements, and profitability dictate the value at which both parties negotiate a price.
However, in cannabis, these analytics are just the tip of the iceberg.
We’ve seen all too often that people miss the problematic areas of an operation. Such as staff, processes, or non-compliance risk. By missing these analytics, cannabis M&A’s aren’t getting the full picture of risk, value, or return on investment. Just like buying a car, investors and operators in the cannabis M&A space would do well to have an experienced mechanic look “under the hood” first before negotiating price or committing to a deal.
Not only can it help with the change management process in cannabis businesses, but it can help identify whether the business at hand is a “lemon” in terms of potential businesses to acquire or merge. No one wants more headaches after they buy a cannabis business..
Additionally, not knowing the full extent of the risk at hand has shown us that buyers often underestimate the amount of risk, cost, and work involved to restore the integrity of an operation after they are responsible for its license. Knowing beforehand is critical to success.
In a manner of days, iComply can identify the true happenings of a company through our cannabis compliance due diligence services. Our audits help highlight the problematic areas of an operation and discover the diamonds hiding in the rough by taking a hard look at more than the numbers. We examine the details in the robust picture of the operational compliance infrastructure, processes, and people that run the business.
On the other side of the deal, for sellers, we do this due diligence for our clients BEFORE they even list their businesses for a cannabis merger or acquisition.
Our clients understand that having their own due diligence done before coming to the negotiating table is like having a series of mechanic records for selling their vehicle. It can put buyers at ease and facilitate the transaction as it shows integrity and transparency. This could mean the difference between wasting time or having a successful exit considering most prospective deals don’t close.
Additionally, sellers can leverage a greater price tag with less posturing or convincing as iComply’s third-party validation of their efforts shows true value in consistently compliant operations. By investing in their business from day one in compliance, they can prove beyond financials that they are a prized and distinguished prospect to potential buyers.
iComply performs this critical function for both sides of cannabis acquisitions and mergers. As the oldest cannabis compliance firm, we are experienced in conducting due diligence through individual, third-party-validated services such as compliance auditing, seed to sale inventory reviews and reconciliations, compliance books and records audits, and operational SOP and records reviews which provide transparency and insight that financials simply fail to do.
iComply serves a critical role for sophisticated cannabis investors who are looking for ideal deals in their portfolio.
After a merger or acquisition, we establish compliance services that ensure newly acquired cannabis businesses restore integrity in their staff and processes, and are ongoingly managed and measured. Each time we perform a service, our reports and results are provided to stakeholders to better understand and guide their new business, its practices, and how to avoid problematic areas of operational compliance before its too late. In doing so, our clients build their value from day one and are supported in continuing to prove their worth, at all levels of compliance, over time.
After all, “the bigger they are, the harder they fall”.
And the same applies for growing companies acquiring and merging cannabis businesses into their brands and portfolios. Compliance budgeting is imperative in the due diligence process to analyze the sufficient amount of information necessary to make informed decisions on the true value and risk of cannabis M&A opportunities. No matter the size of the fish, iComply helps sophisticate both sides of the transaction in our mission to provide the most relevant, comprehensive, and meaningful compliance support possible for the cannabis industry.