Los Angeles – Transactions under Prop. M

 Los Angeles – Transactions under Prop. M

Los Angeles – Transactions under Prop. M – if there is one activity that absolutely BOILS OUR BLOOD it would be when we see the individuals who can only either be “Forrest Gump STUPID” or OUTRIGHT CRIMINALS attempting to screw yet another numbskull investor with too much cash out of their $$$ to purchase a “turnkey dispensary in Los Angeles“, 

We will call out the fraudsters offering turnkey dispensaries for $15 – $20 million that suck in naive investors Los Angeles - Transactions under Prop. Mwho fail to undertake proper due diligence and get in way over their heads without proper representation.

Los Angeles – Transactions under Prop. M

While we are certainly not known for complimenting other professionals for their work, we are incredibly impressed and appreciative of Hilary Bricken, Esq. of Harris Bricken for an amazing article that is focused on the tortured process trying to do a transaction with an Existing Medical Marijuana Dispensary [“EMMD”] in Los Angeles under Proposition M.

Source: Buyer Beware: Buying and Selling Los Angeles Marijuana Dispensaries Under Proposition M

EMMDs are basically grandfathered Prop. D/Pre-ICO operators that met certain compliance criteria set forth by the City under Prop. M. As of the writing of this post, there are only 163 EMMDs in the entire City. This low number of dispensaries in potentially the largest cannabis market in the world makes the secondary market for these storefronts incredibly hot. So much so that our Los Angeles cannabis lawyers are receiving term sheets for the purchase of EMMDs on an almost bi-weekly basis. And based on that experience, it’s time to update readers on what to look for when contemplating the purchase of an EMMD, which is no small task under the City’s new laws.

Running due diligence on dispensaries in Los Angeles is massively important. The reason being (in addition to normal M & A due diligence) is that the City still has many, many illegal operators (though the City Attorney is doing his best to shut down those operations as fast as possible). Therefore, it’s not a stretch that an “LA dispensary” would try to take a buyer for a ride on a sale when, in reality, that dispensary is 100% illegal, making the purchaser a sitting duck.

While we haven’t been afraid to dive into the intricate details of the Los Angeles cannabis land use statute, we will link to Ms. Bricken’s article and let our readers torture themselves trying to fox through it.

If anyone would like to see examples of the types of deals being offered that we are referring to you can start here.

Los Angeles – Transactions under Prop. M
  1. Is the dispensary even on the City’s EMMD list?The DCR has done a fantastic job of continually updating its EMMD list on its website. Checking that list is the very first step for any reliable due diligence. If the dispensary is not listed, ask the sellers why that’s the case. At this point, with the window for EMMD licensing closed, failure to appear is going to be a huge and fatal red flag that’s fatal unless the selling dispensary can provide viable proof that they arein valid pursuit of EMMD status from the DCR or appealing a DCR denial of EMMD status,

  1. Licenses are not transferable.Many people don’t realize that commercial cannabis licenses are not transferable under California State law. The same goes for commercial cannabis licenses in the City of L.A.—they cannot be bought and sold as individual assets; only the entity that holds them can change owners (meaning, you’re looking at purchasing the company that holds the license). Therefore, any EMMD that’s trying to sell you one of its licenses (or one of its future licenses) is not recognizing that it can only sell its membership interests or stock, and not the licenses themselves, under state and L.A. laws and regulations.
  1. What entity type is the EMMD? Assuming your target EMMD is on the City’s EMMD list and the EMMD understands that it can only engage in an entity purchase and sale, the next question is whether the EMMD is organized as a non-profit or a for profit company. If the EMMD was in compliance with Prop. D, it’s most likely some form of a non-profit corporation (most often a non-profit mutual benefit corporation (“NPMBC”), stemming from 2008 State Attorney General guidelines regarding compliance with the Compassionate Use Act of 1996 under which the sale of medical cannabis for profit is not permitted). This obviously creates an issue where a non-profit has no equity that can be legally bought and sold, and individual NPMBC directors taking buyer purchase money undoubtedly violates the California corporations code in a multitude of ways. In turn, part of the EMMD purchase will entail some form of “conversion” to a for profit entity to ensure that future membership interests or stock can be sold off
Los Angeles – Transactions under Prop. M

Author: abizcannabis

Managing Director & CEO of integrated transactional financial advisory, tax, and technology consulting firm - aBIZinaBOX Inc New York, Chicago, and OaklandCPA.CITP.CISM.CGEIT.CGMAExpertise with: Alt. Investments/Private Equity, Real Estate, Professional Services, CA Cannabis, Tech Start-Ups and Distressed Assets/DebtTechnology Certifications including:Advanced & High Complexity Cloud Integrator AICPA PCPS, CAQ,, IMTA, CITP ISACA CGEIT, CISMState CPA Societies in California, Florida, Illinois, New York and TexasExpertise with Regulatory Compliance - US - HIPAA, FINRA, SEC Rule 17(a)(3)/(4), eDiscovery, FINCEN - EU- EBA, ESMA, EIOPA UK - BoE, PRA, FCA