By Michelle Seiler-Tucker, Special for USDR
Last Tuesday the US Government posted a listing on their website soliciting proposals from cannabis farmers (and subcontractors if necessary) having the capability to develop plants with different variations of THC. The proposal requests a pot farmer to temporarily contract their property, crops, services, knowledge, and assistance to the Department of Health and Human Services. The requirements are very explicit with lots of clauses, requiring a vault, exterior video monitors, 12 acres worth of cannabis plants and a bunch of other criteria you can review on the GSA website if you really want to know specifics.
What a deal! Right? Well, actually the deal has been on the government’s website since 2009, with no interested sellers yet. The newest proposal is just a renewed version of their last attempt to conduct research on marijuana. As the leading authority on buying and selling businesses; I have dealt with clients of all kinds, and this is a very one-sided contract that offers farmers almost no incentive to sell. Federal law still classifies marijuana as illegal, making the legal technicalities of agreeing to this contract quite complicated. The government states it will award a one-year contract with four one-year options and would provide the selected bidder with compensated pay and time.
Because marijuana is illegal by federal law, it is probable few—if any, cannabis farms have accurately documented income and cash flows in par with government regulations. In order to get your money’s value, farms like such would have a lot of financial cleanups to do. The federal government also imposes extensive regulatory control on agricultural markets. There are a multitude of things that help and harm the sale of a business, and this is where the majority of small businesses I have worked with fall short. Of course there are exceptions to the rule, but a lack of proper bookkeeping completely weakens the credibility of a business’ worth.
Uncle Sam already makes it very difficult for small business owners to make a profit. Such an offer sounds fair, but without proper records it would force the pot farmer to agree for less money than it would be worth for the one-year contract. The government also requires that if the pot farmer is not registered with the FDA, to then subcontract someone who is registered as a pharmaceutical manufacturer. The vendor would also have to register with the DEA to research, manufacture, and possibly distribute what is harvested. The solicitation notice does not mention any possibility for further business negotiations. I think that even if a pot farmer wanted to be part of such research for the sake of science or because he wants to help people, the farmer would be vulnerable to unforeseen legal technicalities, financial losses, or even the possibility of business ruin. I always stress the importance of protecting yourself when buying or selling a business in my award winning and best-selling book, Sell Your Business For More Than It’s Worth. Confidentiality is the number one reason sellers hire business brokers to handle the sale of their business. It is a very delicate process requiring extensive due diligence. Perhaps there are beneficial reasons buried in clauses of the government’s proposal that would entice some farmers to consider doing business with Uncle Sam for a year. But before you even try to further educate yourself about whether the grass is greener on the other side of this business deal, make sure you find an expert, trustworthy business broker (and maybe a lawyer, too).