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Three Key Questions to Start a Successful Cannabis Succession Plan

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Having a plan for leadership succession in any business is essential. For a cannabis owner, it is critical. But in the excitement of starting and growing your business, many cannabis entrepreneurs don’t take the time to consider who will run the company when they decide to leave. One of the most challenging events in a cannabis business owner’s life is business succession. Who will control the business in the future? Whether it is a transition to family member(s) or a sale to private equity, it takes intense planning and time to execute a successful succession strategy. Several strategies can help. Start by asking these three challenging questions.

What does success look like?

The demands of starting and running a successful cannabis business are many. It is hard to move away from the inertia of daily demands to begin the succession planning process. Many experts advise investing the time to develop a plan that works well for the owner.

Start small. Block out a couple of uninterrupted hours a few times a month. If you are like most cannabis business owners, you likely have thoughts you have been pondering for some time. These sessions are your opportunity to focus on those thoughts to start to mold what success looks like for you. There are many complexities to be addressed in the process. By defining what success looks like to your unique circumstances, you are better equipped to guide the process and maintain forward motion.

Now maybe the time to get others involved to further craft and execute the plan. Bring other key positions you have identified, such as chief financial officer, top sales and marketing positions, into the conversation and planning. Allow people you are grooming for leadership roles to get involved, invest in growth opportunities and early adoption activities.

How will they ever replace me?

In a young industry like cannabis, the founding owner(s) are critical to the business’s early and ongoing success. Replacing your skills is optional; however, those who can do it successfully have a much greater opportunity for a smoother internal transition or external sale of the business.

If equity sale is the succession goal, potential buyers will always be concerned with what talents remain with the business they are looking to acquire. After all, those talents likely impact future cash flows, which drives what they are willing to pay. It also affects their risk level, which affects value and may ultimately be a driving factor in their decision to purchase the business. Transitioning your talents (especially those unique to the cannabis field) so they stay with the company increases the likelihood that you will be able to sell your business at a greater price no matter what the market conditions.

Knowledge transfer can be demanding on your time and a difficult task. This transfer will be a key component to any plan and goes back to the point mentioned above of including key positions in your plan and starting early to develop a well-rounded leadership team.

When should I start the process?

“You may delay, but time will not.” Benjamin Franklin. This saying holds true with cannabis succession, just as it does with any other business. Of course, starting at the beginning would be of great advantage, but if you are like most entrepreneurs, that is in the rearview mirror. The best time is today, so let’s get going!

Given the complexities of the process and consequences of the risk of failure, the sooner you start, the more ground you can cover and the more setbacks you can recover from while still meeting your goals. It is best to start planning at least five to seven years before the anticipated transition. While this timeline is acceptable for a planned change, it does not protect the business in an emergency.

Enlisting those you trust and have experience with the process can significantly increase the probability of your success. What they know about you, your business, and the process can prove invaluable in going from ‘what should I do’ to achieving a successful succession plan.

Working through these three questions will help you get started on your way to success. At Maner Costerisan, we understand the complex challenges of the cannabis industry and are experienced in helping business owners develop succession plans. We help our clients through the process while offering the advisory tools necessary to achieve their goals. We can help.

Tim Bograkos

tbograkos@manercpa.com

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