When Is A Strategic Partnership Or Joint Venture Right For Your Cannabis Business?

Vicente Sederberg LLP
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Vicente Sederberg LLP

One of the biggest mistakes a cannabis and hemp business owner can make is trying to do everything alone. To ensure this mistake is avoided, business owners should first develop the right internal team, and then look to strategically partnering or creating a joint venture with another business that compliments their team’s core competencies, helps them achieve stated goals, develops new products, provides access to new markets, resources and distribution channels, increases valuation, shares in risks or costs, or otherwise provides the business with a competitive advantage.

This partner must share the vision for the business that the owner has moving forward, in an effort to capture the synergistic effect that a successful partnership or joint venture cultivates. The right strategic partner can scale your business, build your brand reputation, give you access to a broader audience, and increase your market share. Common types of strategic partners include:

  • Financial Partners

    • Cash flow is the lifeblood of any business, and financial partners including accountants, bankers, investors, or financial advisors can help monitor, increase, or come up with new solutions relating to the cash flow of your business. While financial partners are the most obvious and common partnership, the success of this alliance can determine the success of your business, and its importance bears repeating.

  • Marketing Partners

    • Effective marketing can be the key to taking your cannabis business to the next level. It is still extremely common to meet a young cannabis business owner who does zero or very little marketing of its products or services, and this is usually a result of a lack of capital. One solution to this issue is to develop strategic marketing partners who are in a complementary business that can help grow a business at a very low cost through a simple referral arrangement, resulting in increased revenues without additional advertising costs.

  • Supply Partners

    • Manufacturers, distributors, and vendors supply a cannabis business with everything it needs. Developing a partnership or working closely with a supplier will ensure your business runs smoothly as it relates to timely deliveries and shipments, and may even lead to discounted services or products. Most importantly, supply partnerships potentially provide the business owner with an opportunity to develop new products tailored to the business owner’s specific needs, giving the business and its products a competitive advantage in a marketplace that is open but quickly filling up.

  • Technology Partners

    • The modern world is heavily reliant on technology, and the cannabis business is no different. With a multitude of businesses operating exclusively online, the services a technology partner can provide may range from implementing office networks, creating or refining existing digital systems or software, or even designing or managing a cannabis business’ web-based presence. A successful technology partner can ensure your business remains competitive at the digital level, which is particularly important if the tech world is not within the core competencies of existing team members.

But how does a cannabis business owner determine who to partner with, and how should potential partners be evaluated?

1. Define and Validate the Market

You must first identify your target market, which will allow who your customer base is and what solutions you can provide that will benefit them the most. Through this process, you can identify the gap between what would be a complete solution and what your business currently delivers. This gap represents your partnering roadmap and represents where you need to partner to deliver a complete solution. In a cannabis world with a constantly evolving regulatory landscape, you’ll likely never have enough capital or resources to ever deliver a truly complete solution, but through an honest evaluation of your business’ core competencies, filling the gap with appropriate partners can bring you as close as possible.

2. Find the Best Fit

Sit down with your team and identify the most important criteria for finding the best fit. Areas to consider include:

  • Access to Other Networks?

    • Does the potential partner have access to networks that you don’t? Who are their other partners, if any, and how do they benefit your business? Does this new network help fill the gap in what you need to obtain the complete solution?

  • Compatibility?

    • Is the culture and management team of your potential partner compatible with yours, and do you have compatible core competencies?

  • Impact?

    • How much value does the potential partner bring to your business? Would the alliance impact your competitive position, brand awareness, or market traction?

  • Reputation?

    • What is their attitude to collaboration and do they share your level of commitment? Do they have a good reputation with their current partners, if they have any? Do their brand values complement yours? Have you researched them as thoroughly as possible? What is the professional history of their respective management team? Can you trust them?

  • Risks?

    • What are the risks of moving forward with this potential partnership? Are they financially secure? Is there an imbalance in levels of expertise, investment or assets brought into the partnership or venture? Is your team comfortable with the partnership, or do they feel threatened?

  • Similar Goals?

    • Does the potential partner share similar goals and objectives of your business? Are all interests aligned to maximize the potential to create a successful, long-term, synergistic alliance?

3. Prioritize, Prepare, and Partner

Using the criteria you’ve identified from the steps above, prioritize potential partners based on your evaluation of them. Even if you have a pre-existing relationship with a potential partner, you only have one chance to make a first impression as it relates to your business acumen and professionalism. Approach the potential partnership the same way you’d approach targeting a key client acquisition, and be able to answer why a potential partner would want/need to partner with you, and what you bring to the table that helps them compete more effectively.

Understand the company's goals, objectives, and strategies and what's happening to them in the market, and if you don’t know, ask! Think through what your combined value proposition would be to customers. Identify a compelling vision for the partnership and articulate the impact of that vision on the marketplace. Lastly, make sure the potential partner knows exactly what you are proposing, through the use of a business terms document, such as a letter-of-intent.

The way you set up your partnership or joint venture affects how you run it and how any profits are shared and taxed. It also affects your liability if anything goes wrong. You need a clear legal agreement setting out objectives, financial contributions, whether any assets or employees will be transferred, ownership of intellectual property created, management and control, how liabilities, profits, and losses are shared, how any disputes between the parties will be resolved, and an exit strategy. how the partnership or joint venture will work and how any income will be shared.

Before rolling a celebratory joint, realize that after the new partnership or joint venture has been formalized through a written agreement, the real work begins. Your new alliance must develop a plan that outlines both short and long-objectives and goals, courses of action, individual responsibilities, and checkpoints. The health and happiness of the overall relationship should be carefully monitored, as unhappy partners can quickly snowball from minor issues to separation if not dealt with swiftly and appropriately through transparent and immediate communication.

This article was also featured in "Let's Talk Hemp Summer Solstice Digital Magazine 2020" by Honeysuckle Magazine

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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