Marijuana Business Magazine

112 • Marijuana Business Magazine • November / December 2017 manufacturing, is real estate availability, prices and tax rates. In most municipalities, real estate usually starts off at $120-$150 per square foot, Bulbulyan said. But once those locales decide to allow marijuana businesses and start working on regula- tions, prices can “skyrocket” to $300- $400 per square foot. “So you want to jump on that as quickly as you can,” Bulbulyan said. “In Long Beach, as long as you have the real estate, and meet the compliance requirements, you’re going to get your license. …But you won’t find anything for less than $300 per square foot out there, whereas six to 12 months ago, it was about $150 per square foot. Timing is everything.” Pick Partnerships Carefully If out-of-state entrepreneurs are determined to get a toehold in a Cali- fornia local market that doesn’t allow out-of-state residents, there are ways it can be done. The best opportunity, in Rogoway’s opinion, is for out-of-state businesses to acquire property and then lease it to an operator, such as a retailer, manufacturer or cultivator, he said. Another possibility is to partner with C alifornia D reamin' a local operator, and those partnerships can take on different forms, including: • A straightforward partnership where two or more parties invest and work together. • An intellectual property licensing agreement where one party sells to another party the right to use tech- nology, processes, recipes and the like. • A financial stake in a local business. Again, remember that different municipalities will have different rules for out-of-state partnerships. “Local government is not really concerned with corporate structur- ing and financing.Their job is to make sure you’re complying with rules and land use,” Bricken said. “But it depends on the city and county and how they interpret that. As long as the city doesn’t take issue with that partnership, then you’re fine.” But those who aren't residents beware: Many local California busi- nesses casting themselves as potential partners for out-of-state entrepreneurs may be a source of pain. Bricken said her law firm recently has done due diligence for several out- of-state clients on California cannabis businesses. But the firm has yet to finalize a deal because none of the busi- ness candidates passed muster. According to Bricken, red flags can include operators who are inexperi- enced, have poor compliance standards or “don’t have the accolades that they claim to have.” Local operators also may inflate the actual dollar value of their business. “There’s not always lots of transpar- ency. So you could be walking into a big tax obligation, an illegal operation, or maybe the person who signed the deal didn’t have the authority,” she noted. To avoid these pitfalls, Bricken said, business owners need to get “a thor- ough corporate and asset due diligence checklist.” Further, Bricken advised, if the people you are vetting don’t answer questions, then you know it’s a bad deal. In a typical merger or acquisition deal, the seller should be willing and able to answer every single question you have. “It’s potentially one of the best markets in the world, but also one of the most dangerous because of the people who are already operating in it. You need to be asking questions constantly,”Bricken said. “And if you’re not getting the responses you need, don’t be delusional. You’re prob- ably walking into a trap.” ◆ The best opportunity is for out- of-state businesses to acquire property and then lease it to an operator, such as a retailer, manufacturer or cultivator. Joe Rogoway