NDA and confidentiality

What does the NDA do in a cannabis sale?

It is the first binding document in the deal and the one that makes every later disclosure possible. It does three jobs:

1. Keeps the seller’s information confidential.
2. Keeps the existence of the sale confidential.
3. Limits the buyer’s use of the information to evaluating this transaction.

The second job matters most in cannabis. Staff with portable badges can leave in a week, landlords with leverage can reopen the lease, and vendors can tighten terms. How to run a quiet process, including blind summaries and staged release, is covered on selling a cannabis business confidentially. This page covers the contract.

When is it signed, and by whom?

Before the buyer learns the name or address. The buyer sees a blind summary, signs the NDA, passes basic screening, and then receives identifying material.

Every person who will see the information should be covered. The NDA should bind the buyer entity and make it responsible for its representatives: partners, lenders, investors, attorneys, accountants and consultants. In cannabis, funding sources tend to be private individuals and funds, not banks, so the circle is wider than usual. Require the buyer to name outside capital sources before sharing material with them.

Core terms

Term	What to look for
Definition of confidential information	All information furnished, in any form, plus the buyer’s own analyses derived from it, plus the fact that discussions are taking place
Exclusions	Information already public, already known to the buyer, independently developed, or lawfully received from a third party. The buyer bears the burden of proof
Use restriction	Solely to evaluate and negotiate the transaction. This is the clause that stops a competitor from pricing against you with your own data
Representatives	Need-to-know only; buyer liable for their breaches
Compelled disclosure	Notice to the seller and cooperation in seeking protection before any disclosure under subpoena or regulator demand
Return or destruction	On request, with written certification; limited carve-out for backup systems and legal archive copies
No obligation to close	Neither side is bound to a deal until a definitive agreement is signed
Term	Fixed term for general information; trade secrets protected while they remain secret
Remedies	Injunctive relief, acknowledgment of irreparable harm, fee shifting

The no-obligation clause deserves care. Delaware’s decision in SIGA v. PharmAthene shows that preliminary documents can create a duty to negotiate in good faith if they say so. An NDA should not. That risk belongs to the letter of intent stage; see the letter of intent guide.

Cannabis-specific clauses

Regulatory disclosure carve-out. Both sides will eventually have to give the purchase agreement and financial details to the state, and often to a city. The NDA should permit disclosure required by a cannabis regulator, provided the disclosing party requests confidential treatment where the law allows it.

No contact. No approach to employees, landlords, vendors, customers, local officials or the regulator without the seller’s written consent. Site visits by appointment only, presented to staff in a way the seller chooses.

Non-solicitation. A bar on hiring or soliciting the seller’s employees for a stated period after talks end, with the usual exception for general advertising. This is separate from the seller’s post-closing covenants, covered on non-compete and non-solicit.

Track-and-trace and point-of-sale data. Exports from the state tracking system are the best evidence of revenue and the most commercially sensitive data a licensee has: volumes, suppliers, prices, margins. Provide them in summary first, in detail only after a signed LOI, and never by sharing system credentials. See verifying revenue with track-and-trace data.

Patient and customer records. Medical cannabis patient information is protected by state program rules. Share de-identified or aggregate data only. The NDA should say that no personally identifiable patient or customer data will be requested or provided before closing.

Security information. Camera layouts, vault locations, alarm details and cash-handling schedules should be withheld until late diligence and viewed on site, not copied.

Licensed-competitor buyers. When the buyer operates in the same market, use a clean-team arrangement: pricing, wholesale customer names and cultivation methods go only to named advisers or executives who do not set the buyer’s prices.

Federal-law acknowledgment. A sentence confirming that neither party will argue the NDA is unenforceable because the business is unlawful under federal law. It is not a guarantee, but it removes an easy argument.

Will the regulator keep what you file confidential?

Partly, and it depends on the state. The identity of a new owner usually becomes public; the deal economics often do not.

• Colorado restricts release of individualized licensee information, including sales information, leases, business organization records, financial records, tax returns and security plans.
• Washington exempts from public records requests the trade secrets, proprietary information and financial considerations in agreements a licensed cannabis business submits to the Board, under RCW 42.56.270(28), along with applicants’ financial account information and security plans.
• New Jersey approves ownership transfers by public resolution naming the licensed business, with individual details redacted.

Local hearings are the usual leak. A conditional use permit or local ownership approval on a council agenda is public. Plan announcements to staff around the first public filing, not around closing. The filing process is described on change of ownership approval explained.

Are NDAs actually enforced?

Yes, when drafted with remedies in mind. In Martin Marietta Materials v. Vulcan Materials, the Delaware Supreme Court in 2012 affirmed an injunction that halted a hostile bid for four months because the bidder had used and disclosed information in breach of two confidentiality agreements. The court relied on the agreements’ own statement that a breach would cause irreparable harm, and it read the use restriction to cover only a negotiated transaction even though there was no standstill clause.

Lessons for a small cannabis deal are the same as for a large one. Define permitted use narrowly. Include the irreparable-harm and injunctive-relief clause. Choose a governing law and court in the seller’s state. And keep records: who received what, and when.

Confidentiality inside the seller’s own team

Leaks often come from the seller’s side. Limit knowledge to the people needed to assemble diligence, usually a controller and a compliance manager, and have them sign short confidentiality acknowledgments, ideally paired with a stay bonus. If those documents protect trade secrets, include the federal whistleblower-immunity notice. Under 18 U.S.C. 1833(b), an employer that omits the notice from an agreement with an employee, contractor or consultant cannot recover exemplary damages or attorney fees in a federal trade secret action against that person.

After the LOI and after closing

The NDA continues alongside the letter of intent, which usually restates confidentiality as a binding term and adds exclusivity. The purchase agreement then replaces both, with its own confidentiality covenant running in the opposite direction: after closing, the seller promises to keep the business’s information confidential. If the deal dies, the return-or-destroy clause and the non-solicit are what the seller relies on, so make sure they survive termination.

This page is general education, not legal advice. A broker typically supplies a standard NDA; have counsel review any buyer markup. To talk through a confidential process, you can book an intro call at /book/.