In my last post in this series, I discussed how the purchase price is structured in cannabis M&A transactions, and how escrow can be used in connection with the purchase price. Today, I want to discuss how adjustments are commonly made to the purchase price, both during the pre-closing period (between signing and closing), and also after closing. I’ll break these down below to discuss, at a high-level, some of the more common adjustments we see.
One of the most common adjustments we see to the purchase price is for indemnification. Indemnification is a legal concept that may force one party to a contract to pay certain expenses of another contract party incurred in a third party action. For example, a cannabis business seller may agree to “indemnify” a buyer if the seller did something wrongful or breached the contract, and a third party sued the buyer in relation to the seller’s action.
Indemnification clauses can be among the most highly negotiated in any M&A transaction. If someone buys a business, they want assurances that they can be compensated, for example, if something the seller promised was false. In other words, if the seller said all taxes had been paid