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Anatomy of a Highway 33 Capital License Sale in Arizona

December 13, 2021
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TYPE OF TRANSACTION

Sale of a 2021-issue rural license. (In April 2022, the Arizona Department of Health Services awarded 13 new adult-use cannabis retail licenses across eight rural counties, signaling further growth of the state’s new recreational cannabis market. https://mjbizdaily.com/arizona-issues-13-new-adult-use-cannabis-store-licenses-in-rural-counties/)

ANYTHING SPECIAL ABOUT IT

Highway 33 Capital transacted the first license of this type and established a market value.

SELLER PROFILE

Seller is a single-state operator now expanding to Arizona and Illinois. Seller was attracted to Arizona’s limited-license program and prospects for adding recreational use. Seller earned only one of the rural licenses for which they applied.

BUYER PROFILE

Buyer is a successful businessperson within and outside cannabis. Buyer was committed to establishing a sizable cultivation operation in Arizona, his home state, and concurrently purchased a warehouse-type property. Buyer looked at leasing the offsite piece of an operating vertical license—in fact he ran this option in parallel with buying—but found that the economics and risk favored license purchase over lease.

WHO WE REPRESENTED

Highway 33 Capital represented the seller since we had worked on transactions in the Arizona market for the last four years, know most of the state operators, and have legacy and new qualified buyers.

PROCESS

Early in the process we led a back-and-forth negotiation on price, which was somewhat protracted because there were no comparable transactions. The points of comparison where rural vertical licenses as well as lease rates for the offsite component of existing vertical licenses. Highway 33 Capital along with buyer and seller chose to go direct to a purchase agreement rather than sign an LOI requiring exclusivity. Both parties were willing to move rapidly and the seller did not want to shut down other bidders. Highway 33 Capital advised the buyer on legal representation. The buyer had both a “trusted advisor” lawyer, with whom the buyer had a history of non-cannabis deals, and a just-hired lawyer specializing in cannabis compliance. We recommended a lawyer who knew compliance as well as cannabis M&A. With new representation in place, parties completed and signed an agreement. The agreement spelled out next steps, laid out a timeline and escrow requirements which the parties adhered to with only modest prodding required.

TIMING

Timing from Highway 33 Capital’s introduction of buyer to seller to a signed purchase agreement was approximately two months. Timing from signed purchase agreement to deal close was five weeks! 

WHERE WE ADDED VALUE

Highway 33 Capital was able to bring a professional qualified buyer to the table with the ability to not only close, (after sorting legal representation)— but to close the deal in record time. We also helped build the trust level between parties, which yielded simpler agreement terms; for example, around hold back. 

WHAT ELSE ABOUT THIS TRANSACTION TYPE OR STATE

Arizona assets and licenses are in high demand. Many sellers believe they don’t need to work with a banking advisory firm like Highway 33 Capital. Before we entered this Arizona license sale, the seller saw many many letters of intent from parties that were not able to close. We brought one qualified buyer who closed in record time. 

PARLAY

Highway 33 Capital is now working with the buyer to source debt for his cultivation build out. We are also working with the seller to sell other assets they have in Michigan and Illinois.

MISC

Cannabis is a relationship business. Our work with buyers and sellers almost always leads to ongoing relationships and future profitable opportunities for our clients.