5 Lessons I Learned Starting and Exiting Two Multi-Million Dollar Cannabis Companies
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I am very fortunate to have been able to create two cannabis security companies, breathe life into them, and exit them all in five years. These are my lessons learned from both exits.
1. Prepare for resistance to change.
Once your employees (and the general public) are aware of your business's nearing merger or acquisition, they may begin to feel uncertain. The fear of change, including layoffs, budget/salary cuts, restructuring, and downsizing, is often top of mind. Most people have a natural resistance to change in the workplace and even the anticipation of that change. So when the rumor mill kicks into high gear, you want to have a carefully thought-out plan prepared.
Discuss any and all potential upsides with your employees, noting positive outcomes such as how the transaction will help increase the company's budget and lead to better benefits, new positions, and the ability to grow. Start calming the waters before they get too choppy and, if possible, convince the purchasing entity to hold off on any changes for the first 90 days post-transaction. We were able to do this with both of my businesses after the purchase. After the dust settled quickly internally, most employees realized that it wasn’t such a big deal, after all. It's essential to truthfully convey to your staff that you are still putting them first and have their best interests at heart.
2. Show 100 percent confidence in the deal
We held off during my first transaction until our third offer from a third company, which proved to be a smart move We almost took the second offer and even signed a non-binding Letter of Intent (LOI) to sell. But we ended up walking away from the deal after the purchasing entity began discussing significant changes to the terms after the LOI was executed. After careful thought and discussion, we realized that we actually held all the cards. We were the thriving company; We were the growing entity that doubled in size and revenue year after year; We were the ones with the bright future ahead. We knew that if they wanted quality, they had to pay for it, so we set the price tag. That confidence paid off. After waiting a year, we received an extremely generous offer from another publicly-traded conglomerate in the cannabis space—and we happily accepted.
Be 100 percent certain about the decision to move forward with a sale of your hard work, those assets, and the people that live within it. Logic should always be first in your decision-making process, then listen to your heart and gut. Ask yourself, does it feel right? Are you jumping up and down about it after weeks or even months processing the possibility of such a transaction? Does it make good business sense?
3. Choose your business partners wisely.
I’ve had dozens of amazing business partners through the years—except one. Unfortunately, during my first company exit, I had a toxic relationship with one of our equity holding partners. I realized I needed to terminate the partnership, but we had an agreement that would not allow this to happen, even though I was the majority shareholder and CEO. Our relations grew so hostile that this partner began to partake in irregular and sometimes unethical activities and almost sabotaged the sale.
Fortunately, our buyer was understanding and patient, which allowed the deal to go through but made the negotiating and legal process extremely cumbersome and stressful. Although I knew this partner before the business relationship, I failed to look closely at the warning signs. I now know I should have taken these red flags more seriously and decided against the partnership. Lessons learned: Choose your partners wisely and trust your instincts about their negative characteristics.
4. Be patient
I feel like a hypocrite as I write this section because my business partners, and even my wife, will admit that I have very little patience. But there have been occasions where my lack of patience has come back to bite me.
For example, I had little patience with my first exit and was anxious to get the deal done, which created unnecessary stress that almost made me sick. Weeks passed when we made no progress to the finish line. I was concerned that if we lost that momentum, we'd blow the whole deal. I realize now that multi-million dollar deals can take many months or even years to complete. My first exit took 18 months, and I had partners, and even the buyer, tell me that it was a relatively smooth and simple deal.
Some multi-billion dollar deals take years to work out and close, then there is the transition period, which for some Fortune 500s can take over a decade for the dust to settle finally. Stay the course and create deadlines for your deal. Don't lose your mind or beat yourself up when deals are delayed, or if the projections to close are double, or even triple, the time frame you initially anticipated. Be kind to your buyer as well, and try not to rush them. The legal and accounting process alone can take many months. It will happen when it's right.
5. Starting planning your next step
After exiting my first company, I took a long breather and did very little business for a couple of years. Instead, I started a family. I don’t regret this much-needed break, but I do regret not having a detailed plan as to “what’s next?” At 34, I was far too young to retire. Plus, by nature, I have to be working on something almost all the time. Even during my family break, I had several work projects, started investing, and kicked off a new start-up, but I didn’t put serious hours in, and I was doing things on my own timeline. I even stopped going to networking events and turned down speaking engagements.
I didn’t have a clear focus, which led to missed opportunities. I was busy spending and starting projects that needed a lot of work put behind them, but it wasn’t enough to hire or contract out that work. The projects needed me, and they needed me full-time. But I couldn’t work on everything at once. I had to force myself to reduce the irons in the fire and work on one thing at a time. This allowed for that laser focus necessary to provide the deep work needed to gain traction in cannabis.
It's great to approach with caution in business, but sometimes business simply doesn't allow you to be as cautious as you'd like. There will be highs and lows in cannabis (pun intended!) but always trust your business logic. Try to approach your exiting decisions divorced of emotion. Even if that emotion is excitement, never let it blind your judgment. Don't be desperate; there is always another way. Wait for the right moments. All the signals should be clear and make sense for you to exit. Most importantly, the clearest sign should be wonderfully lucrative.