What to Know About Cannabis Joint Venture Agreements

As the cannabis industry expands in California and across the country, new and exciting business arrangements are developing. Many cannabis entrepreneurs have found that strategic partnerships with financiers or complementary businesses can take their cannabis game to the next level. A joint venture can give you the opportunity to supplement your enterprise’s skillset without significant additional spending or corporate restructuring. Continue reading to learn about cannabis joint ventures and how your cannabis company might benefit. If you are considering a joint venture, or if you have other questions or legal concerns about the cannabis industry in California, contact a dedicated cannabis business attorney for assistance.

What is a Cannabis Joint Venture Agreement?

A joint venture agreement is not a corporate entity like an LLC or LP. Rather, a joint venture is typically a contractual arrangement between multiple separate business entities that provides for some amount of profit-sharing for joint pursuits. They can take a number of different forms and serve a variety of purposes. Joint ventures can, for example, connect angel investors or entrepreneurs who lack cannabis industry insight with educated cannabis manufacturers and distributors that need funding or business savvy.

Joint ventures allow professionals at different points of the finance and supply chain to connect with one another for mutual benefit, without the need for a formal acquisition. An equity transfer can trigger a lot of regulatory oversight and also require parties to surrender operating control over to another entity. With a joint venture agreement, each party can continue serving its own interests and remain beholden to its own shareholders while pursuing a common goal that benefits both parties.

Types of Joint Venture Agreements

Joint ventures can manifest in many ways. Depending upon the needs of your business and the market you serve, you may benefit from one or more strategic partners including:

• Financial Partnership. Cannabis enterprises need funding. There’s a wide range of start-up costs and overhead to field. Moreover, many cannabis entrepreneurs lack experience in operating a company engaged in large-scale manufacturing or distribution. Allying your cannabis business with an accountant, banker, investor, or financial advisor to help generate cash flow or manage funds acquired can help your business sustain continued growth. Financiers, in turn, get to enter the cannabis market without the need to obtain their own cannabis licenses. Financial partnerships are among the most common joint ventures.
• Supply Partnership. Growing and harvesting cannabis is one aspect of the business. Sales and distribution are entirely separate areas of business, requiring different skills, connections, infrastructure, and personnel. Cannabis growers can benefit from partnering with separate distributors so that each party can focus on what they do best.
• Marketing Partnership. A quality product means nothing without customers to buy it. Many cannabis growers or distributors are unsure of how to market their products or are simply unwilling to devote the resources necessary to get the word out. A joint venture with a complementary business can increase the customer base by way of referrals and capitalizing on existing customer goodwill without needing to allocate significant funds to marketing. For example, one entrepreneur launched a “Weed & Wine” tour company by partnering with Napa wineries and cannabis industry professionals.

Should You Enter Into a Joint Venture?

Whether you should pursue a joint venture depends upon the nature of your business and the skillsets of your current organizational leaders. It may be helpful to offer your cannabis license and sales in exchange for investment and portfolio management or to connect your budding manufacturing plant with certain types of distributors.

The most important thing is to find the right partner for your enterprise. Take time to consider what you want and need out of a strategic partner, including their access to other networks, funding, skills, reputation, goals, and overall compatibility. Make sure that you vet potential partners before entering into a binding contractual arrangement. A savvy Cannabis business lawyer can help you identify the areas in which a joint venture partner can help expand your enterprise, and work with you to find the best strategic partner.

Call a Practiced and Professional California Cannabis Business Lawyer for Help With Your Marijuana Business

If you are considering a cannabis joint venture in California, or if you are dealing with regulatory, licensing, or other legal issues with your hemp, CBD, or cannabis business in Los Angeles or Southern California, call McReynolds Vardanyan, LLP, in Glendale at 818-855-2115. Our California cannabis business lawyers will work with you to get your budding business off the ground efficiently, effectively, and legally.