Mistakes cannabis buyers make

These are errors of judgement and process by buyers. Warning signs in the target itself are covered separately in red flags when buying a cannabis business.

The mistakes at a glance

Mistake	What it costs	Fix
Pricing on pre-tax EBITDA	Overpaying by a multiple of the 280E bill	Value on after-tax cash
Assuming the licence transfers freely	Dead deal, lost deposit	Check transfer rules and eligibility first
Planning on bank or SBA debt	Funding gap at closing	Line up cash, seller note, private credit
Taking control before approval	Licence discipline for both sides	Wait, or use a disclosed and permitted agreement
Under-budgeting the wait	Cash crunch before day one	Fund the approval period
Betting on federal reform	Paying for upside that may not arrive	Price on current law
Ignoring successor tax liability	Paying the seller’s taxes	Clearance, withholding, holdback
Skipping data reconciliation	Buying revenue that is not there	Tie sales to tracking and tax records
Forgetting the landlord and the city	Approval without a place to operate	Get consents in parallel
Using generalist advisers	Missed industry traps	Hire cannabis specialists
Buying complexity first	Operational failure	Start with a simple, profitable asset
Spending every dollar on price	Default in year one	Hold working capital

1. Pricing on EBITDA instead of after-tax cash

Section 280E denies ordinary deductions to businesses trafficking in Schedule I or II substances. The April 2026 rescheduling order moved state-licensed medical marijuana to Schedule III, but adult-use marijuana stayed in Schedule I. An adult-use seller’s EBITDA therefore overstates what a buyer keeps, often by a wide margin. Ask for tax returns, compute the federal bill on gross profit, and value what is left. The method is in how 280E affects valuation.

A related error is accepting yesterday’s multiples. Viridian Capital put the median public MSO at about 5.1 times forward EBITDA in November 2025. A seller quoting a higher multiple for a single private store needs a scarcity argument to support it.

2. Assuming the licence transfers like any other asset

A cannabis licence is a permission granted to vetted people at a specific address. Some cannot be sold yet at all: Maryland’s converted licences cannot change controlling ownership before 1 July 2028 outside narrow exceptions. Others transfer only through an equity purchase, or only to qualifying buyers. Buyers also forget to check themselves. One investor with a recent felony or the wrong state of residence can sink the application; see ownership eligibility, background checks, and residency.

3. Planning on bank or SBA financing

SBA rules make marijuana-related businesses ineligible for 7(a) and 504 loans, and conventional banks do not make acquisition loans to plant-touching businesses. Buyers who sign a letter of intent expecting to “find a lender” usually end up asking the seller for an extension. Build the capital stack before you offer: equity, a seller note, and possibly private credit at rates well above bank debt. Start with cannabis acquisition financing options and why SBA and banks are unavailable.

4. Taking control before the regulator approves

The temptation is strong. You have signed, your money is in escrow, and the seller is tired. But until approval, the seller is the licensee. California’s rule is typical of the logic: where all owners change, the business may not operate under the new ownership until a new licence is approved. Directing staff, controlling accounts, or sharing profit early can be treated as undisclosed ownership. If you need involvement before closing, use a disclosed arrangement the state allows; see interim management services agreements.

5. Under-budgeting the approval period

Between signing and approval you carry legal fees, escrowed funds earning nothing, possibly rent on a related property, and your own time, while the seller runs a business that may drift. Buyers routinely assume 60 days and live through something much longer. Put an outside date and an ordinary-course covenant in the contract, and fund the wait. The stages are set out in cannabis sale timeline: LOI to close.

6. Paying today for federal reform that has not happened

As of September 2026:

• Adult-use marijuana remains Schedule I. A hearing on broader rescheduling was scheduled, but no final rule covers adult-use; see the CRS summary.
• The SAFE Banking Act of 2026, S.4942, was introduced on 24 June 2026. Introduced is not enacted. Earlier versions have been introduced many times.

A seller may argue the price should reflect 280E relief or normal banking. If that upside matters, share it through an earn-out or contingent payment tied to the event, rather than paying for it in cash at closing. See selling before or after rescheduling for how sellers frame this, and earn-outs in cannabis deals.

7. Ignoring successor tax liability

Buying assets does not always leave the seller’s taxes behind. In California, a buyer who fails to withhold for the seller’s unpaid sales tax becomes personally liable up to the purchase price unless a clearance certificate is obtained. In an equity purchase, every historic tax position, including aggressive 280E filings, comes with the entity. Request clearance early and negotiate a holdback; see tax liabilities and holdbacks in a sale.

8. Skipping the data reconciliation

Cannabis gives buyers something most industries do not: a state-mandated record of every unit sold. Not using it is a mistake. Sales on the profit and loss statement should tie to point-of-sale data, to the tracking system, to excise and sales tax filings, and to deposits. The method is in verifying revenue with track-and-trace data.

9. Forgetting the landlord and the city

State approval does not give you a lease or a local permit. A landlord who must consent to assignment has leverage and knows it. A city may have its own transfer process, fees, or a cap that treats a new owner as a new applicant. Run these in parallel with the state filing, not after it. See local control and municipal approvals.

10. Using a recycled LOI and generalist advisers

A cannabis transactional lawyer writing in May 2025 named old templates and missing regulatory terms among the most common LOI failures. A template from a restaurant deal will not mention regulator approval, interim operations, or what happens to the deposit on denial. The letter of intent guide covers what belongs in it.

11. Buying complexity first

A vertically integrated group in three cities looks like a platform. For a first-time buyer it is three sets of regulators, a grow that depends on one person, and an extraction lab with fire-code obligations. Most successful entrants start with one profitable, simple asset and add from there.

12. Spending every dollar on the price

With no bank line behind you, working capital is your only cushion. You will need cash for inventory, tax deposits, the first payroll cycles, and surprises found in the first month. Buyers who stretch to meet the price often miss a seller-note payment within a year, which can hand the business back to the seller. Plan the early months with first 90 days after buying.

This is general education, not legal, tax, or investment advice. If you want a second view on a deal you are considering, you can book a confidential intro call.