Red Flags To Watch For When Purchasing Marijuana Businesses In California

Many people in this world are just looking for a chance to make a profit, even if it means being less-than-honest about what they are offering. And anytime a business sees a big boon, scam artists come running, looking for a way to cash in on a trend. As we are coming up on the full rollout of SB 94 —the Medicinal and Adult Use Cannabis Regulation and Safety Act— here in California, you can bet that there are people chomping at the bit to find ways to take advantage of this expanding market. One way that you might do this, which is on the up-and-up, is to purchase a cannabis business already operating in California. The problem is that some sellers are looking to scam buyers. To avoid being taken advantage of, keep an eye out for the red flags listed below.

The Sellers Avoid Answering Questions

Purchasing any business is a major investment, and you would be doing yourself a disservice if you failed to complete your due diligence before signing contracts and exchanging money. Part of this due diligence is asking specific questions and getting proof from the seller to back up their answers. What are some things you need to look into? Check to make sure the business has not been suspended by the Franchise Tax Board, is not facing an IRS audit, owns the property being sold, and that the person selling it to you actually has the right to sell it. If the seller ignores questions, answers them without providing proof, or seems to talk around the issue, move on. Another common approach is to claim that there is no documented history of the business because it is better in the industry to operate this way. However, if you are buying an above-the-board business, this just isn’t true.

The Sellers Get Nervous About Interacting with Regulators

Another aspect of your due diligence is making certain that the business you are purchasing is licensed and approved to sell medical marijuana products and is also in good standing to be given permission to sell to adults in general come 2018. To do this, you need to speak with local regulators. If the seller seems nervous about speaking with them or discourages you from contacting them, it is a very strong sign that not everything is in order, and that you could, at best, find yourself jumping through a lot of hoops to be ready to go in 2018.