Marijuana Business Magazine - April 2018

A s more states legalize medical and recreational cannabis, plant- touching com- panies are look- ing for partners to produce and peddle their branded products in a new market. But finding the right partner is a bit like dating. Companies that choose their part- ners well could be married for life. But a poor choice could end in a messy, costly divorce. The federal ban on interstate marijuana shipments means expansion- minded, plant-touching companies – from edible manufacturers and retailers to testing labs – must own licensed facilities in each state or partner with a company licensed to do business there. Partnering can be cheaper. What should cannabis compa- nies look for when establishing partnerships? “The first thing we’re looking for is someone who is going to be a good brand steward for us – someone who knows our brand and appreciates our brand,” said Nancy Whiteman, co- founder of Wana Brands, a Colorado manufacturer of marijuana-infused edibles. Wana Brands has partners in Oregon, Nevada and Arizona and has plans to team up with companies in Florida and Illinois. “A lot of it is just personal chemistry and integrity,”Whiteman said. “We look for people we would like to be long-term partners with and we feel the chemistry is good.” Developing a relationship that both companies are comfortable with can take anywhere from two to six months of meeting with people and visiting their facilities. It also requires a good understanding of their finances, trust and face time – among other things. Below are tips for finding a suitable business partner. Capital is Crucial When vetting potential partners, it’s important to learn whether they have the capital necessary to build infra- structure and acquire product inven- tory, such as edibles, vaporizers, etc. “I always go on a diligence trip to a new market prior to consummating a licensing relationship,” said Chris Driessen, president of Organa Brands, a Denver provider of vape pens, edibles and other infused products. “During that process we require proof of funds equivalent to the capital and operating expenses for at least two years.This can range from a couple of million dollars to tens of millions of dollars, depending on the size of the market and opportunity.” Scott Cathcart, executive vice presi- dent of global expansion for cannabis science and technology company Steep Hill Labs, also said adequate capital is critical.That said, Steep Hill doesn’t comb through its partners’ books. “We are able to get a pretty clear sense of both the integrity and the capital resources of our potential part- ners in the discussion phase,” Cath- cart said. “Thanks to our experience across multiple U.S. states and several international countries, we know well what kind of capital, equipment and scientific expertise is needed.” Trust a Must Perhaps the most important con- sideration is trust in the people you partner with. “Most important to us, because we’ve had a bad experience, is: Are you good people? Are you somebody we want to do business with?’” Driessen said. During the courtship phase, confer- ence calls and emails are a good start. But when things start to get serious, spending face time with potential part- ners is imperative. Consider Organa Brands. Last November, it teamed with Canopy Growth, an Ontario, Canada-based marijuana producer, and Netherlands- based Green House, which owns Strain Hunters, Green House Seed Co. and King of Cannabis.The trio’s aim: Serve the global cannabis market. Key members of the Organa Brands management team traveled to Creemore, Ontario, a small town a few hours north of Toronto. “You’ve got to show up,” Dries- sen said. “We sat in a farmhouse and talked. You want to learn what kind of men and women they are. Are they somebody you want to spend time with and break bread with? You’re looking EXECUTIVE SUMMARY As more states legalize marijuana, companies that want to expand are looking for partners to produce and sell their products in a new market. Here’s what you need to know to do it successfully: • Do your due diligence to make sure your potential partner is well capitalized. One way to do so is to go through their books. • Spend face time with potential partners to make sure you can trust them and that the companies share a synergy. • Partnership contracts should detail provisions such as escape clauses, quality standards and minimum sales targets, as well as financial terms. • Contracts also should require your partner to follow recipes and produce products that measure up to specifications. Similarly, products should use approved packaging and authorized logos. April 2018 • Marijuana Business Magazine • 71