iComply and Due Diligence for Cannabis Mergers and Acquisitions

April 27, 2020

iComply and Due Diligence for Cannabis Mergers and Acquisitions

As the cannabis industry evolves, the inevitability of the big fish eating the small fish occurs faster and faster. International firms, multi-state operators, and publicly traded companies seek to expand their footprint in the space. Meanwhile, 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 often an afterthought.

Sadly, traditional investors in mergers and acquisitions tend to only look at the bottom line of companies of interest. Some sophisticated investors may know how to balance the opportunities they find with the specific regulated marketplace’s policies and regulations. However, generally investors fall short on understanding how their cannabis mergers and acquisitions deal functions in their native environment.

This plight seems understandable. 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.

Missing Pieces of Due Diligence

We’ve seen all too often that people miss the problematic areas of an operation. For instance, many important factors often become overlooked such as staff, processes, or non-compliance risks. By missing these analytics, cannabis mergers and acquisitions aren’t getting the full picture of risk, value, or return on investment. Just like buying a car, investors and operators in the cannabis mergers and acquisitions space would do well to have an experienced mechanic look “under the hood” first before negotiating price or committing to a deal.

Examining these lurking variables help with changes to management processes in cannabis businesses. Such inquiry can also allow those looking into mergers and acquisitions identify whether the business at hand is a “lemon” or a gem. No one wants additional headaches after they purchase a cannabis business.

Additionally, not knowing the full extent of the risk contributes to how extensive the damage and fallout becomes. Buyers often underestimate the amount of risk, cost, and work involved to restore the integrity of an operation. Looking at this only after they are responsible for its license creates stress and loss of confidence in the deal. Knowing the establishment’s operational compliance schematics before purchase is critical to success.

Before and During Mergers and Acquisitions, iComply Assists Potential Owners in Due Diligence

Fortunately, in a manner of days iComply can identify the true happenings in a company. Through our cannabis compliance due diligence services, we work with clients to identify sticking points. Our audits highlight problematic areas of an operation as well as discovering the diamonds. We take a hard look at more than just the numbers. We examine all the tiny details in the robust picture of a business’ operational compliance infrastructure to include processes and even the people who run the business.

On the other side of the deal, for sellers, we complete due diligence services for our clients before they even list their businesses for a cannabis merger or acquisition.

Our clients understand the essential nature of due diligence. Keeping records complete and in alignment with state requirements creates business success. These measures compare to having a series of mechanic records when selling a vehicle. The presence of supporting documentation can put buyers at ease and facilitate the transaction. Such actions illustrate the integrity and transparency of the cannabusiness in question. As well, such documentation could mean the difference between wasting time or having a successful exit. In this volatile market, most prospective deals fail to close.

The Value of Third-Party Verification in Acquisitions and Mergers

Additionally, sellers can leverage a greater price tag with less posturing or convincing when they have physical proof of their compliance. iComply’s third-party validation of their efforts shows true value by documenting consistently compliant operations. By investing in their business from day one in compliance, prospective sellers can prove beyond financials that their business constitutes a prized and distinguished prospect to potential buyers.

iComply performs this critical function for both sides of cannabis acquisitions and mergers because we’re dedicated to legitimizing the cannabis industry. Legitimacy and decreased risk in mergers and acquisitions both spring from increased due diligence.

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, we strive to assist owners to provide transparency and insight into their operations that financials alone simply cannot encompass.

iComply serves a critical role for sophisticated cannabis investors who seek ideal deals in their portfolio.

After a merger or acquisition, we often establish compliance services that ensure newly acquired cannabis businesses restore and maintain integrity in their staff and processes. We ensure staff and ownership can manage and measure progress. Each time we perform a service, our reports and results allow stakeholders to better understand and guide their new business, its practices, and how to avoid problematic areas of operational compliance before it is too late. In doing so, our clients build their value from day one. As well, our clients continue to prove their worth with our support, at all levels of compliance, over time.

The bigger they are, the harder they fall.

We don’t want anyone in the industry to fall.

The same applies for growing companies acquiring and merging cannabis businesses into their brands and portfolios. Compliance budgeting becomes imperative in the due diligence process. Quality data allows potential mergers to analyze a sufficient amount of information. With an informed perspective, cannabis leaders can make savvy decisions and understand the true value and risk of cannabis merger and acquisition 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, we strive to elevate, support, and further legitimize the cannabis industry.