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When someone buys a cannabis business, and not just that business’s assets, they essentially inherit all of its liabilities. And there are usually a lot.
If the business is in the midst of a lawsuit, owes back taxes, is behind on rent, etc., the buyer will need to deal with those problems on its own–unless the purchase agreement requires some form of assistance from the seller.
Smart cannabis business buyers spend a lot of time doing “diligence” on the target business either before signing a purchase agreement or before closing, in large part to flag potential liabilities. But in some cases, buyers fail to ask the right questions or sellers (whether intentionally or not) fail to disclose material information about the business.
We call these “undisclosed liabilities,” and if they are not properly addressed in the purchase agreement, they can lead to serious problems for the buyer. Below, I’ll identify a few common ways that buyers protect themselves from undisclosed liabilities.
Conducting thorough due diligence
You probably wouldn’t buy a car without test driving it, making sure title was clear, and maybe even having a mechanic check it out. So would you buy a business
