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Intro: Welcome to the Kaya Cast, the podcast for cannabis businesses looking to launch, grow, and scale their operations.
Tommy Truong: So you have a pretty extensive history in the cannabis industry, and you started off [00:01:00] as a dispensary owner in California.
Meilad: back in 2014 is really when the journey started. And I would've been a long time customer and have been an entrepreneur since pretty much 2006. I remember walking into a store as a customer for the first time a medical operation, and I was just shocked. I was like, man, I can't believe this.
You could buy smoothies here, you could do all kinds of stuff. And a few years later when I had some money to test it out and there was an opportunity, a legal way to do it through Santa Ana I rolled the dice and got the 19th outta 20 lottery balls and was able to operate by 2015.
Tommy Truong: So how was that? This is the old, it's the we call, we like to call it the old days, the good old days, right?
Meilad: yeah. And I just jumped right in. Most of the people that were from the good old days had 10 years of experience on that side of the market. But that was my first segue was in 2014. [00:02:00] and it was really, I think from someone with my perspective seeing it all at once and having a store that was licensed and legitimate in the eyes of the city, which helped legitimize you in the eyes of the state. Even before 2017 was huge, in terms of these operators coming to you who had no licensing, the cultivators manufacturers. So they were pretty much Hey, you can open and sell, I don't wanna know where you're getting your product from. I just know that you got it. And you're selling it and once it gets to you it's sellable. So it was really interesting to meet these guys because I bought all the product too. 'cause I really wanted to learn about products and the business itself. And meet these guys that were living that life. And then they come into our building and then all of a sudden they you could see like the stress come roll off their backs for like the 10, 15 minutes they're there wrapping with me and talking about whatever we're talking about. It was a really unique angle to see that. And also very educational and good for me to [00:03:00] really understand that side of the business more and what they go through.
Tommy Truong: So you've, you caught lightning in a bottle, right? We were talking about. You went into it eyes wide open. Got a little bit of an understanding on the operations side. How, actually, how was sales and how was the market back then? I.
Meilad: I went in thinking it's gonna be great, and those people are just gonna be rushing through the door. And we had some really great days, especially at the beginning. But back then we were still really up against illegal operators, that were still, I. Pretty prominent in Santa Ana. give you a quick history lesson, like Santa Ana even came out with the idea of licensing retail. 'cause they were somewhere around like 150 to 200 unlicensed retail shops. It became like a haven for them. and by the time. I sold the business or by the time I was op, yeah, by the time I sold the business in 2017, there was still like 40 plus operational unlicensed shops that were getting shut down and opening back up again. [00:04:00] and I think now it's five or less. They, once they pop up, they shut 'em down. So that was a challenge. And so no wasn't, and again the ordinance was pretty restrictive in terms of where you could be located. So we were tucked away in the back of an industrial complex. so there's a lot of things working against us. Signage restrictions were really bad back then. You can only have a 10 by, not even a 10, like a five by 10 sign or something ridiculous. I not even feet. It was crazy. But so yeah, at first it was tough. It was tough. It took a little while.
Took us about a year till we get to a point of break even. But then it started getting a lot more positive. And honestly, I I. Took that opportunity, 'cause that was right around when adult use passed. and I took that opportunity to get a higher multiplier and get it sold that there's gonna be a lot of expenses that we're gonna roll in as well too with adult use and our location in general.
We had the option. On the front unit, which [00:05:00] has the freeway frontage. And that was gonna be a lot of expenses. So I was hoping to maximize on the value at that point before having to take all those expenses on and, go from there.
Tommy Truong: That is for me one of the most interesting takes because oftentimes entrepreneurs, they get into. The industry, and you buy that hype, right? You have a dream and you're, you got license, you built it out, and you have this grandiose plan of, Hey, I hit the lottery, let's go. And you took a different approach, which is fascinating.
You you timed it. So did you, so what was your timing like? What was your thought process? You mentioned it, but what happened? So did you time the. Accidentally or purposely the valuation at its highest.
Meilad: I could lie and make it seem like I'm some mastermind genius. But there was, that's some strategy to it, but a lot of it just comes down to. The specific operator's personal situation and business [00:06:00] situation. And for me be it a combination of a new dad, just been married and thinking,
Tommy Truong: I.
Meilad: wow, I'm building my family.
What are the next steps for me? How risky could I be at this point in my life? Or do I feel comfortable being the partners that I had at the time, how much did I want to continue being their partner, landlord I had, all these things play into your factors of. this something that I wanna double, triple down on and continue to expand?
Or should I cash out right now and bank on myself again and do the next project? And that just made a lot of sense for me. And to be honest, it wasn't plan a, it was far from Plan A initially when we opened the business. But at that moment it came from me going to raise capital for the second and third shop.
Okay.
And from doing that practice you tend to start bringing up the option of selling it, and buyers started coming to the table. Word got out very quickly without me even trying. and it was a part and knowing the business well. Knowing the expenses or [00:07:00] understanding at least what I thought the expenses were gonna look like from a regulatory standpoint. And knowing our situation with having to move and everything. And it just made a lot of sense, especially when the offer started coming in and I thought, wow, I don't know if we're gonna be able to get this type of multiplier in a few years.
Tommy Truong: What was the multiplier when you sold and how much was it like a year later when the hype died down A little bit.
Meilad: We sold at a three times multiplier of gross. and when it died down, I mean it, even at the highest points, generally you weren't getting more than two times gross. And right now in California for retail, you're marketing something at 0.5 gross revenue. And you're probably selling somewhere between 0.3 to 0.5 gross. and if you have high net revenue, then there's other factors where you can try to drive that up.
Generally not the case in today's market in California.
Tommy Truong: So it's indicative of just a mature market really.
Meilad: [00:08:00] Yeah. Yeah. And but there's a lot of other benefits to that as well too. And I think California has a lot of strengths long term. And this is actually a really good time to be buying here.
Tommy Truong: Really why?
Meilad: If you. Really believe in federal legalization. And you
Happen one day.
I'm not saying hold your breath starting now, but it I am confident that it will become the breadbasket of America when it comes to cannabis that's grown here in the States. Yes, there's gonna be competition at that point product coming from other countries for cheaper rates. But, the closer you are to the source, it was this type of product, the better the quality is gonna be at the end of the day. and I think California has a very long standing brand of the best cannabis in the world. It long term, you'll be in a good position if you can figure out how to survive in today's market. And there are a lot of operators that are surviving and there are some that are thriving. Then you'll be in a good position, not only from a cash flow standpoint as regulations lighten, if it's not [00:09:00] federal legalization fully. if they do deschedule it, and that does lead to opening up banking that makes a big difference. these will incrementally improve your cash flow, incrementally improve your asset value, and that's probably gonna be the biggest play. Is, what does this do to the multipliers people are willing to pay once these laws pass like it did for me, and taking advantage of that right before it happens, or right after it happens is it would be like the long term plan if, people are trying to a, an exit and maybe knock it out the park.
Tommy Truong: I really like your approach. Of buying and selling in this space. And it really reminds me of just investing too. If you listen to Warren Buffet, he has that, he has his principle of be fearful when the market's greedy, be greedy, when the market's fearful. And I'm guessing right now in your view, in California it's, we're at more or less the bottom of the multiplier [00:10:00] valuation.
Meilad: I don't see it getting much less. Again, it could
Tommy Truong: Yeah.
Meilad: the policies are rough, if there isn't any improvement from a state or a federal level for a long time, it could get worse. But yeah it's, we could be at the bottom. I could, I definitely could see that as well too. We may be at this bottom for a while, but it's a good time to buy if you ask me, especially again, you're right now in California picking up. Turnkey businesses for way cheaper than it is to actually build those businesses. Not even talking about your holding costs for real estate, licensing fees and other stuff.
Just building that business and the tenant improvements itself and putting product in there. That in itself that, that should get investors interested. Of course. That's scary. Why are they so cheap? But also, part of it is the story of a new market. That's coming out of the shadows of the illicit side of the industry and a lot of [00:11:00] operators that are gonna jump in.
A lot of different entrepreneurs that are gonna come in, a lot of different investors and are gonna give us a shot. And great, thank you for everyone who's doing that. It's, but it's there. A lot of 'em are gonna
And there are folks that have sharper pencils whether it's their work experience or educational experience or a combination of everything and resources, they can come in and do a better job.
And I think that opportunity is pretty ripe right now in California for folks to do that.
Tommy Truong: I, I, after selling your first dispensary I know that you went into a different profession and you've since now have helped countless business owners buy and sell the. Businesses in in the cannabis industry. If I was somebody looking to buy in California, what would I be looking for?
Like how do I assess the opportunity amongst the opportunities?
Meilad: To me the cleanest transactions are first and foremost, I think you should be looking for something that's either operational or was operational, because there's a lot of that [00:12:00] out there. it's much less attractive and makes a lot less financial sense to start from the beginning in California right now. So that's I think, your first filter. And then from there, ideally you're finding something that. Has less of an operational history because most of everything in that condition is distressed. So it's, you're not necessarily buying it off the financials. And so the lack of operational history could limit the amount of liabilities you're exposed to, And it makes it a much cleaner transaction
Tommy Truong: What? What do you mean by that?
Meilad: So when you buy any kind of business. You buy it today, you never know what's gonna pop up in the next 2, 3, 4 years in terms of lawsuits, li any other kinds of liabilities that could pop up. You misfiled your tax returns. You did, they didn't file tax returns, all kinds of stuff.
You add a cannabis layer onto that. You have metric concerns. You have DCR or. DCC concerns. If you're a retailer, now you have your, sales tax concerns. They're all governmental, regulatory [00:13:00] bodies that can obviously pop up and say, Hey, you owe me money. And then there's everybody, everything else.
The other employers deal with EDD claims and stuff like that. So these all. pop up, right? So again, sometimes people think of operational history as a great thing, and it could be for track record to give you some basis on what's gonna happen. But if you are confident enough in terms of what a business can do in certain locations, then seek those out.
And I think ideally you find one that has less operational history from a reliability standpoint that's the cleanest way. But other than that, yeah the stuff that is operational, I think those are, there's a lot of, there's a lot of 'em out there. It's a lot of businesses where you don't have to go in and, spend an arm and a leg on getting the business ready to make you money. They're pretty much ready to go or they're already operating.
Tommy Truong: What would be some key financial indicators that you'll look at that you can assess, Hey, this is doing bad because of the operator, and we have a gem here that we can [00:14:00] turn it around.
Meilad: I think the easiest low hanging fruit is like saturation in terms of other competitors in the area. If that's low and you have, good population counts, you have. Good traffic counts in terms of, visibility of the facility. Those, those facilities should do well, and there's other factors of course, that can bring it down that you have to also pay attention to.
But it, to me, it's a red flag if those type of facilities aren't at the very least profitable.
And then you gotta look at other factors like, okay, how much rent are they paying? And other factors that could really affect that. But yeah, I think those, that's a, that's generally a pretty big red flag that there is an operator that can come in here maybe just has more money.
A lot of folks, including myself they, by the time they get open, a lot of their money's spent. So now it comes to actually investing in marketing. And back in the day it was really tough with weed maps. It's not very different now 'cause their prices are so high. And they're getting a little bit more competitive.
If you don't have money to do marketing, if you don't have money to put into your [00:15:00] product, then you can only work with guys that do consignment. and you're limited to, to even having enough staff on the floor and stuff like that's gonna also affect you. So if you just have someone who comes in and has more money than you did to do all that and may have the exact same know-how, that makes a huge difference.
Tommy Truong: It does, right?
Meilad: Yeah.
Tommy Truong: So on the flip side, Meilad. It's a really good time to buy in California. You've had the experience of selling. When should somebody think about selling their business and maximize their exit?
Meilad: One point I wanna
Tommy Truong: I.
Meilad: is that we're also doing a lot of work outside of California. We are based here I can talk to those markets as well too. But in terms of California, to me right now you, if you're selling, it's generally because need to, you're extended financially for whatever reason
Tommy Truong: Oh yeah. What I meant outside of California, California is if you're up, if you're running and you know you are, if your cashflow positive, then [00:16:00] probably is the best to hold out until the market turns, is what you're saying.
Meilad: Yeah, kind. No, I'm not saying that either. 'cause honestly, again, even the folks that are cash flowing in California. There's a lot of pain to get that business to cash flow, right? You gotta again, assess your own situation. And the problem about selling something right now in California that's cash flowing and doing well is that there is so much on the market. That is less valuable from, and, but also from a, just a sales price standpoint, right? And the buyer's gonna look at that and say yes, there's shop A that's maybe cash flowing $200,000 a month or something. And there's shop B that's barely breaking even or making $20,000 a month. but shop a I gotta pay 4 million for let's say, not even, no, you're gonna have to pay. a month, about 2.4, I gotta pay, somewhere around, yeah, I gotta [00:17:00] pay like. Four or 5 million for versus shop BII might be able to get it for like less than a million bucks. I should be able to get it for less than a million dollars. And if I think I can do well with shop B and I'm a good operator, you're most people are gonna take down shop B right now. if the number crunching makes sense. It's just not that kind of market. So in these mature markets, it's tough to sell an operational business that's cash flowing. It happens, but you're, but it's just a much more niche buyer because there's way more buyers in the market that are looking at distressed stuff.
Tommy Truong: Got it. That makes sense actually. Especially if you're looking to buy in California, you're probably a pretty good operator
Meilad: Yes.
Tommy Truong: I would imagine.
Meilad: yeah, absolutely. And but outta state, outta California. The best time to sell strategically is when your numbers are good. And honestly, actually, no, I take that back. The best time to sell strategically is when you haven't operated yet, but it's ready to operate [00:18:00] because it's, and I. It's just like buying a car, as soon as you drive it off that lot, it instantaneously loses value because now you have to justify value financials, and it's, it'll take you time to ramp up those financials. There's no guarantee. and by the time the financials get ramped up. Maybe there's been other factors, good or bad to the market that could affect your price and, but to me, the best time to sell, again it cuts out all operational history, liability by providing a turnkey asset to somebody that's fully licensed. Pretty much just needs product and staff to operate.
Tommy Truong: That is, that makes a lot of sense. I'm thinking about markets that are, that have, are just emerging and there's just a lot of hype. I.
Meilad: A lot of hype.
Tommy Truong: Going into these markets, what would you say? If there's always a risk of you missing out though, [00:19:00] isn't there?
Meilad: If you, if that's what you are good at, right? If you are an operator and you're better than most people at operating these stores, then you can bet on yourself
Tommy Truong: Yeah.
Meilad: and say, I am gonna do well financially. I can wait. I'm not stressed. I don't need to sell right now. But if you're also, if what you're good at is project managing the entitlement, the build out. The staffing, the concept, the politics, whatever it is, everything that gets a store open. But you're not necessarily an operator. You are an operator. That person can be a good operator, but that may not be what they're great at. Then keep doing that. Keep focusing on what you're good at is getting these things to operational status and let someone pay you to, do a better job than you at operating it.
Tommy Truong: There is a skillset there at getting the project management of a store ready to operate.
Meilad: Yeah.
Tommy Truong: Really?
Meilad: that's kinda my background too. I just, [00:20:00] every job that I've had, I somehow fell in project management. So that is how I, we had the fourth license shop in Santa Ana to open, and we had a shoestring budget. But we got open. I think the licenses were pretty much if I remember correctly, somewhere around like April or February, is that, let's just say April, they approved, they, we got picked in the lottery and we were opened by November. So it was less than a year. And so that, that's that project management background. Okay. When I started operating, I, I definitely had a lot to learn especially coming from the service side of being an entrepreneur.
And so it it also translated well into helping folks flip these things as well.
Tommy Truong: If I was looking to sell a business, what should be my, the checklist that I, that I should create to get the business ready for sale and maximize the value
Meilad: Number one and two. Number one and two, maybe just one A and one B in this industry is make sure your licenses are in order. Make sure they're not [00:21:00] expiring. Make sure they're in good standing. This includes your entity, your corporate entity.
Tommy Truong: I.
Meilad: those are. important. They take time to fix. Especially when it comes to taxes and maybe getting your license suspended for not filing a tax return.
It's not just a matter of you filing that return and boom, it comes back online again. So that's, I think I one A is make sure your entities and your licenses are in good standing and remain that way. two, get your finances in order. Get your profit and loss statements in order for. Historical and moving forward. Current and get, if you don't have a bookkeeper or someone who can get you your financials ready by the 15th of the next month or by the end of the next month, that problem solved as well too. 'cause these deals will move quickly. and you don't want to be sitting around. With buyers waiting to, to set, submit an offer just 'cause they don't have financials. I'd say those are the two most important things. [00:22:00] and then after that, it's just more so like working with the right folks, whether it's getting the right broker, getting the right lawyers that will move and work on your contracts.
Once you have buyers at the table. I've seen a lot of deals die because either the client, buyer, seller didn't. hire a lawyer fast enough, didn't know who they were hiring, and it just either wasn't the right person for the job because that person was too busy or not as experienced, whatever it may be. And or they had the right person, but that person just wasn't prioritizing this project. So I think having lawyer who can be nimble and has the right experience where they're not. Learning on the client's dime. Ultimately in terms of how these type of deals are structured is important.
But also having a good broker, that has been through it and understands these transactions to work with the lawyers and, to help structure everything and even before it even gets to them, [00:23:00] really help the buyer and sellers structure as much as they can. So there's not much work for them, the lawyers to do once it gets to their stage.
It's really important as well too.
Tommy Truong: Have you brokered any deals that are, that have restrictions in terms of ownership for a certain period of years?
Meilad: Almost all of them. I don't think I've, I don't think I've no the city of LA is a lot easier to work with, but even then, it's a four to six month, maybe 12 month period until that actually goes through. So yeah, when I sold my business, there were no transfer policies allowed. You technically couldn't it, and by the definition of transfer in the city's rising, there's still a lot of cities that way. But the reality of it is this is all, it's all legal. It's just legal jargon and definition that you need to understand and stay within the bounds of
That's what we do our best at doing. What it does help for us as a firm and at least our transactions, because we do so much licensing work [00:24:00] and that's something we haven't touched on.
We do a lot of regulatory and compliance work. That's actually what we built the company off of while the brokerage was picking up steam. So we really get that stuff. We really understand that piece of it and can help structure these deals a little bit. But, yeah. Almost every transaction you run into some law about why people in this industry specifically cannot sell their businesses or can't transfer certain amounts of equity.
Tommy Truong: If I was selling a business, why? Why is it important that I go to a broker that's exclusive, that I'm exclusive with?
Meilad: I think it's, if you're gonna go exclusive, it is important you pick the right broker. 'cause if you do go exclusive with the wrong agent and broker and you're stuck to them, that could really suck. It could be a big time waste, for everybody. But exclusivity is important if you do find the right broker as brokers.
I don't collect fees upfront. I know some m and a op investment bankers and m and a brokers will. But we don't we work off commission and most do. So we know [00:25:00] you want, just and these are all entrepreneurs, so they've, they have different ways of motivating staff. Motivating contractors. We're just another contractor. Empower us, give us a little bit of stress relief. Hey, I'm not getting paid hourly for this work, but I have the full commitment of this person and I'm not gonna be working and putting hours and hours and hours in.
And if Joe Schmo calls 'em, and, they're all entrepreneurs, they might meet somebody and he just brings an offer, a poof. I get nothing for the work I did. And that's honestly being really transparent. You may not hear that from any other brokers. But that's our vulnerability. And again, I think it's an insight to an, to the clients.
Like we're all entrepreneurs, we're all figuring out how to motivate people to, to work for us and work with us. And then it also is a sign to the market that you are serious. Especially in the cannabis industry where we have a bad stereotype as business owners for just fishing to see what the value of our business is.
'cause there isn't all this data out there about it. And yeah, it just shows that you are, you're committed to [00:26:00] seller, the buyer's time. They're not gonna be wasting their time you're committed to getting one of these deals done. 'cause they're hard deals to get done too. If you're not, if you're on the fence about selling, this likely you're not gonna.
Tommy Truong: You made a really good point too. And if I was a,
a lot of, I would imagine a lot of brokers that have, that are okay with non-exclusive deals. They're probably not that successful at selling. And they need that lead
Meilad: Yeah
do when you're hungry and you're green, you
Tommy Truong: yeah.
Meilad: to stir up. I've done it in every industry, whether it's in my construction business, in cannabis, when I was giving out deals to get people to come in that's just part of the nature of it. But then you get, the crappy thing is like in almost every other industry, you're still getting paid something, right?
And brokerage, when you do that you just get burned. And I think a lot of folks get burnt out. 'cause you are also dealing with very savvy business operators,
Are gonna, they don't have to pay you if they're not contracted to pay you. A lot of times they're not gonna.
Tommy Truong: [00:27:00] Typically, and this probably happens, you probably see this all the time in your business when somebody has a baby, I. And they're looking to part ways with the baby. They tend to over evaluate the baby, and that can probably, that's probably the number one thing that hurts the deal, right?
So if I was looking to sell a business, how do I, what should be the litmus test for me to understand what is the market and how close am I to to what the market is without shooting myself in the foot on actually good deals.
Meilad: I think, broker's gonna ask you when you go to some about evaluating your business and you should be talking to brokers in the space and get their feedback, but they're gonna want some guidance, right? But you really should push for them to give you their opinion. Of what it's worth. But you should also give 'em the tools to do you should give 'em financials if you have 'em, whatever information they ask for to help them come to their valuation, provide it for [00:28:00] them and see what they say. And if, if you're questioning one or two of them 'cause you don't know 'em that well or whatever, for whatever reason, to other ones and see what they say.
Go on. the different third party platforms can. MLS four 20 property.com. And look and see what people are selling these businesses for. Look and see how long have they been on the market That tells you what's overpriced, what's potentially not, and take all that information and be honest with yourself.
That's, those are the analytics. That's where the answer is gonna be. It's not gonna be in how much money you spent putting. Building the business. Unfortunately, it has really little to do with it. In today's market, it's more so about the performance of the business and the potential performance of the business.
That's really what it comes down to.
Tommy Truong: I love that point that you've made, and I can't stress this out more 'cause I see it all the time. And the build outs are too extravagant. Extravagant build outs, you're spending too much money. But really the [00:29:00] return on that is not, it probably won't impact the sale very much.
Meilad: I honestly don't know too many re and I retail operators and we work with retailers more than anybody. Probably worked with close to a thousand different retailers. And I can't think of one operation that is extremely successful and I could hang. One of the reasons that they're successful on being the fact that they build out their store so beautifully. I just, I haven't seen that the two that I can think off top of my head that crush it in terms of retail and catalyst, they don't do that. They have a style, they have a very urban and nice clean style, but it's not expensive.
They're not spent, they're not putting fine marble down or something, it's that's for sure.
Tommy Truong: How long should if I was, if I were, if I was to put my dispensary on the market, how long should I give it? What is too long? What is the [00:30:00] expectation and how long does a deal generally take to close? I.
Meilad: They are hard deals. They are the, to me, to give you a scale of, how difficult these transactions are. Residential property sales are, let's put it on a one to 10 in terms of difficulty, 10 being the most difficult, a one or two, you do commercial leases and commercial property sales, somewhere between a four to a seven. You get, typical m and a transactions are like an eight or a nine, and cannabis transactions are a 10. And it's just because all the d additional regulatory issues that you deal with and the nature of the illicit market, adds complications into how these deals are done. I would say give it six months, plan for six months.
And it could be longer. I've had listings that have gone longer than that, and we've had different buyers come and go, then it gets done after nine, 10 months. That said, if you are not [00:31:00] getting traction, if you're not getting any type of like looks or questions at all, not necessarily offers, but. And within the first 30 to 45 days you are probably not priced correctly, very likely, not priced correctly. And you also have to take a deep look at your broker and say, Hey, what have you done? Who's seeing this? And how are we making sure people are getting eyeballs on this?
Tommy Truong: That's a really good point. If I were to sign an exclusive contract with the broker, how long should that period be and or is there any caveats in, Hey we, I can terminate this if you don't have any, if you're not performing on your end, can we shorten this?
Meilad: Yeah, they all have termination agreements. And you can negotiate that on the front end. But the standard is six months. I think, and I, that's fair.
Commercial real estate is six months standard and it'll take. sometimes that long to sell, a commercial property that has no business tied to it, let alone a business that's much more complicated.
Yeah, I think that, but you can, I've had folks ask [00:32:00] for, three month listings. I rarely agree to it just because I know how much time and effort our firm, and I'm gonna put in that first 30 to 45 days. but I've done like four month listings every once in a while. Yeah, there's different ways I do really think you need to give. 'cause again, that first 30 days is pretty much all marketing and people might have buyers that step up immediately. But you gotta assume that first 30 to 45 days, just a whole bunch of marketing. And then after that, and during that time people start trickling in. So yeah, I would give it at least four months, but I think six months is your best bet.
Tommy Truong: You mentioned this earlier on, you've touched base a little bit on when deals fall through. Can you talk a little bit more on your, in terms of your experience, this deal was at the finish line or deals that were close to the finish line. Why do deals fall through?
Meilad: Number one reason is buyers don't really have the funds.
People can show you a proof of funds pretty easily, doesn't necessarily mean it's real, or that they can actually pull that money [00:33:00] out. So that's the number one reason. And however you can as a broker for your client. Do your diligence on the front end that especially in this industry any emerging industry, you're gonna get entrepreneurs who can take this data and information that you have that's very valuable 'cause it's not readily available out there. And go use that data to go raise money. They could have guys lined up, until that money is liquid, it's not there. that's a huge factor in this industry. But yeah, after that point, why the deals fall apart, it more so than falls from the seller's end after that, and part of it is not having your licenses and entities in good standing.
I literally am on a deal working on right now. I've had this listing. Good example, like 10 months on and off. Took it off, brought it back, took it off, brought it back got the pricing right finally this third time. And they, there's no f there's no taxes returns filed for since 2017. And the [00:34:00] seller calls me and goes, Hey, we're supposed I need to get that money released today. I'm like, Hey, gotta file your taxes. I can't sell your business if you don't file taxes. It's just very simple, so I. That's a big, make sure you're in good standing entities licenses same thing.
If you're selling something, you're on a six month listing and your license doesn't expire for six months. If this municipality says you need to submit 90 days before submit on that 90th day, make sure you're doing everything in your power so the seller or the buyer can't hold it against you or try to jump out of the deal at the very end because they got scared or something.
Tommy Truong: That it's all common sense, but it makes so much sense and you see life happens, right? And you get busy.
Meilad: Yeah. I'm not trying to say the person that does it, the idiot or a moron. It happens. I've. been fortunate enough to start and own three different businesses and I've made plenty of these type of mistakes myself to different degrees. [00:35:00] And, I've been fortunate where I haven't had a whole bunch of family drama besides just raising kids and dealing with the good stuff that just keeps you busy. But, stuff happens in people's lives and. People forget and we're all human. But if you're getting ready to sell, take a deep look at yourself and your business and say, what have I not done? And go fix that first.
Tommy Truong: That's so true. You definitely have to have a checklist, a regulatory checklist, license taxes. There's so many different types of taxes too. They have to pay for. You have to make sure that they're all current.
Meilad: Yeah, metric issues. If you got some metric issues that you like swept underneath the rug that you are, maybe I'll circle back to this later. 'cause I haven't gotten hit up for it yet. Stuff like that as well too. Anything that can scare a buyer, I. At the end of the day, but those are the low hanging fruits. and again, honestly, I've seen I have a lot of great, there's a lot of great lawyers out there that send me business. They've been a lifeblood of our business for a long time, and they're great at what they do, but I've also seen a [00:36:00] lot of lawyers just completely kill deals. and it may be from the standpoint of, protecting their client, but again, I think in this, most of the time that I've seen it, if it's a matter of really protecting their client, myself am, even if I am hurting for a check, I'm never gonna push someone to do a deal that I feel like is gonna be bad for them. it's just long term. That's a really bad business decision for me.
But almost nine outta 10 times when the deals get killed by a lawyer. It's just 'cause they don't understand the market. They don't understand the industry, they don't understand how deals get done in this industry versus others.
It's not as buttoned up sometimes, and you do have to take some risks because of these draconian laws that we're dealing with and transfer policies and whatnot. Perfect example, I sold my business we signed the agreements in 2017 January, I believe. I got paid out over two years and I still didn't transfer any equity over to the [00:37:00] buyers.
They were operating the whole time. They exchanged names a couple times and because the city didn't allow it, but we had an agreement in place, we had an understanding. I signed it, I honored it. And when the day came that Santa Ana had a transfer policy, I stepped up and I signed the documents and everything transferred over.
So you tell somebody to come in and buy a gas station on that premise, they're never gonna do it.
Tommy Truong: Yeah.
Meilad: And if that's all you've done and maybe restaurants and other stuff, since, it's just, it's too hard for them to wrap their brain around that. Especially a lawyer whose job is to protect their client. So if they don't understand how they protect them, they're gonna kill the deal.
Tommy Truong: So is a, I'm guessing, a bulletproof operating agreement that just needs to be bulletproof.
Meilad: Which don't exist, to be perfectly honest. I don't think anything's bulletproof and legal. But as good as it can get. Yeah, I think it is more so the management services agreement, which could be considered an operating agreement. That's I. gotta be written in a really [00:38:00] strong manner. So both sides are comfortable. And the seller isn't overexposed to liabilities, during that time. At the end of the day, their name is still on the hook too. The buyer's sitting there hoping one day, this guy, this person's gonna actually transfer the equity. But the seller's sitting there saying, man, I hope this guy is not pushing guns out the back door. And if this entity gets hit for it, I'm on the hook. If there's a bunch of taxes due. I'm on the hook.
Tommy Truong: How does it really complicate things? If there's a sale that happens afterwards on, I sell my business to you, it's still under my name. You're looking to sell that business a year later, and it's under my name. Things can get really squirrely in the second sale.
Meilad: tough. That one's a tough one to be honest. Most of the time it doesn't happen. You gotta complete one to the other. But again, it is an emerging industry. An emerging market, and depending on how hungry somebody is to get their hands on that business, I. Then there's ways to contract that up too.
Just like there is a way to take a lease and [00:39:00] turn it into a sublease. There's there's ways to do that.
Tommy Truong: That's fascinating to me.
Meilad: But it gets complicated and and everything takes time. Everything takes time. And one thing I haven't said here, which I have is one of my go-tos is Time kills deals.
So as much as we talk about how long it takes to get a deal done, these deals take a lot of time, even if very little goes wrong, and there will always be something that goes wrong. but time more than anything kills deals. So again, not having people lined up. To help service the transaction properly is a big factor.
'Cause life happens and life will just kill your deal as well too. Right now politics can happen, and even if has outside the industry, these tariffs, I don't pay attention to this stuff too much 'cause I'm too busy with my three kids and my business. But I get on the phone and the investors and are all asking questions about tariffs just.
People freaking out about something
Tommy Truong: Yeah.
Meilad: your deal.
Tommy Truong: Yeah, definitely. [00:40:00] Uncertainty is the death of a business.
Before I let you go. Anything else you wanna talk about?
Meilad: I, it just, this has been great. I really like the way you've poised these questions. It got, I think, I felt like I, we were able to communicate some insightful stuff for folks that are buying and selling. But no, I think we've done a great job. If anything, I just wanna point out that our firm, WeCann, cannabis real estate consultants which. We combined forces back in 2022. and we do a lot more than just selling the businesses and helping people buy it's a lot of what we do. Probably about 70% of what we do now, but we do a lot of licensing and compliance work. We've submitted well over 200 plus applications for folks nationwide, and we've won about 85% of those applications that we've submitted, and we help folks that are operational. Deal with issues that pop up for violations and stuff like that. Hope if you, if anyone needs a resource for the licensing and compliance work too, we're also here for you for that.
Tommy Truong: How can our listeners find you?
Meilad: Yeah, so our, we, our website, [00:41:00] wecann.biz is a great resource of information for folks looking just to educate on licensing, and also we have our listings on there. Cre, crec.us is our other company's website. Cannabis Real Estate Consultants, same thing, plethora of information there. Even more listings 'cause we have agents across the nation that will post their listings on there that aren't even a part of our firm. And LinkedIn, and our co-founder, Jason Piazza of upped our game on LinkedIn and we're trying to be more active on there as well too.
Tommy Truong: Awesome. Thank you so much for joining me today.
Meilad: That was a pleasure. Thank you for having me.
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