Business Succession Planning: Cannabis Edition
Business succession planning is an essential part of ensuring that your business is not only successful, but protected and secure in the event of your retirement, death, or disability. It’s also a critically important component in both determining the ongoing management and operation of your business, as well as governing the eventual final distribution of your business and/or company assets. Never a fun topic, we know, but it’s a necessary and essential part of your personal and professional life, especially for entrepreneurs. For those in the cannabis industry, business succession planning is a much more complicated process, and without the appropriate planning, your passing may have a chaotic and devastating effect on your business, your colleagues, and even your family.
Even with 36 states and DC having adopted some form of medical marijuana program, and 13 states plus DC implementing recreational programs, cannabis remains illegal from a federal law perspective. The federal illegality of cannabis continues to present a number of complications for cannabis entrepreneurs, especially those operating in multiple states. Difficulties accessing traditional banking and lending continue to create hurdles and place additional financial burdens on cannabis business owners. High dollar months, increases in product demand essential designations, and ever-shifting regulations are a lot to contend with for any business owner, let alone those trying to manage a multi-million dollar business without the typical tax deductions, credit card processing abilities, and FDIC-protected banking.
Of course, every state program is different, resulting in a variety of different rules, requirements, and restrictions that complicate typical business succession planning processes. Restrictions related to criminal records, varied and sometimes creative ownership structures and prohibitions on outright transfers create an extra layer of challenges to address when planning. Additionally, with so many nuances, regulatory requirements and unknown hurdles to handle, more often than not entrepreneurs just don’t have the additional bandwidth to add business succession planning to their “To Do” list. Unfortunately, as a result, unforeseen tragedies often create crippling results that, in many instances, cannot be remedied. For that reason, business succession planning is as essential to the success of a business as air is to breathing, a fact that many entrepreneurs must come to terms with.
Of course, beyond making the right professional selections, there are a number of difficult and complex decisions that an entrepreneur must consider. Leaving 2020 behind and embarking on this new year seems like the perfect time to put your business succession plan into action. Consider questions such as:
- Is my spouse and/or children interested in continuing the legacy that is my company?
- What individuals in my life would I trust to take the baton and continue the successful management and operation of the business?
- What risks do I need to consider and address now and in the future?
- What regulatory restrictions and/or requirements present an issue or hurdle to my business succession plan? Do I have a backup plan to my business succession plan?
- Who are the key players in my business?
- What are the primary assets of my business?
- What is my exit strategy?
Despite the fact that the cannabis industry has evolved immensely over the last 45 years, even when many states began to loosen cannabis laws it has remained a nascent industry that continues to change and develop in a positive direction. The first step for every entrepreneur toward prioritizing personal and business estate planning is taking the time to identify and select the right legal, business and tax advisor team. Again, we must stress that failing to properly plan your business succession could be a costly and irreparable mistake. Seeking out a lawyer or legal firm with experience in estate planning as well as cannabis is a must for your business succession plan. Most traditional lawyers and estate planners are unfamiliar with all the rules and regulations associated with the cannabis industry, as well as any hidden trapdoors.
What we’ve shared here are the same sorts of things a typical adviser would discuss with you for any business, but it’s even more essential to address these issues when you’re part of the cannabis industry. If you don’t have a cannabis-specific business succession plan, schedule your legal appointment today. It’ll be one less thing to worry about so that you can get back to building your empire and legacy.