Given the challenging current state of the California cannabis industry, an increasing number of CEOs are considering joint ventures, where companies at different points of the finance and supply chains connect via contract for mutual benefit. Joint ventures can help bolster profits and reduce costs for both operations – without having to endure the hassle and legal headaches of a formalized acquisition.
As our Los Angeles cannabis business lawyers can explain, a joint venture is a commercial enterprise with a specific goal undertaken by 2+ partners that otherwise get to retain their distinct identities. Joint ventures can take on many different forms, but typically involve some type of shared returns, ownership, risks, or governance. Often, they’re pooling resources such as expertise, labor, data, physical space, etc., and minimizing risk by dividing it up among them. The extent to which each partner benefits/takes a risk is outlined in the joint venture contract – which should only be signed after careful review by an attorney representing each party. In some cases, it can involve the creation of a separate business entity, such as an LLC.
Joint ventures can be an innovative solution, but it’s not ideal for every situation. Furthermore, it’s usually most beneficial for all involved when there is:
- A clearly stated purpose, a tangible goal.
- A time limit, either for termination or re-evaluation.
- A specified hierarchy or authority structure.
- Clear allocations of profit sharing and losses.
- Stipulated resources that will be shared (and which will not).
- A blueprint for dealing with disputes and liabilities.
These agreements tend to make the most sense in situations that involve:
- Pooling resources for branding and intellectual property. Ex: A grower and distributor pool resources to develop a marketing strategy to promote and sell a certain strand.
- Pooling resources for a single service. For instance, several small cannabis retailers might create a joint venture to get better rates on delivery or shipping. Smaller growers might band together to get better rates on regulatory testing of their products by an accredited testing facility.
- Developing certain cannabis products that wouldn’t necessarily be released by a single company solely with its own resources.
It’s worth noting that identifying joint venture opportunities and partners can be challenging in virtually any industry, but it’s fairly new practice in the cannabis industry. This is another reason it’s a smart idea to hire an experienced cannabis business lawyer to help you navigate the process. Continue reading