Distribution businesses: how they are bought, sold, and valued

What does a distribution or transport licence authorise, and what is it called in each state?

It authorises moving cannabis between licensed premises. Whether it also lets the holder buy, store, and resell product depends on the state, and that difference decides what kind of business is for sale.

State	Licence name	What it allows	Notable terms
California	Type 11 Distributor	Move goods between cultivation, manufacturing, and distribution premises and to retailers; store goods for other licensees; arrange testing	Product must pass through a distributor before retail
California	Type 13 Transport-only distributor	Move goods between cultivation, manufacturing, and distribution premises only	Reduced fee if carrying only your own product
Michigan	Marihuana secure transporter	Transport and temporary storage between licensees for a fee	Owners may not hold interests in growers, processors, retailers, or microbusinesses
Washington	Transportation licence	Physically transport or deliver product between licensed businesses	$250 application fee, $1,300 annual fee; deliver within 48 hours or return to shipper
Oregon	Wholesaler	Buy from producers and processors and resell to other licensees	A true buy-and-resell wholesale tier, but optional
Massachusetts	Third-party Transporter and Existing Licensee Transporter	Transport between licensed entities, not to consumers	An existing licensee can add transport for others

So there are three models:

1. Mandatory full-service distribution (California). The distributor is a required gate between producers and stores. It warehouses, arranges laboratory testing, checks packaging and labelling, and delivers.
2. Optional wholesale (Oregon and similar). Producers may sell direct to retailers, so a wholesaler must earn its place by aggregating supply, breaking bulk, or providing sales coverage.
3. Transport only (Michigan, Washington, Massachusetts). The licensee never takes title. It is a secured logistics service.

None of these licences authorises delivery to consumers. That is a separate retail activity covered on the delivery page.

How does a distribution business make money?

In one of three ways, often combined.

• Buy and resell. The distributor takes title at a wholesale price and sells to retailers at a markup. It carries inventory risk and credit risk.
• Fee for service. Brands keep title and pay the distributor a percentage of wholesale value or a per-unit or per-stop fee for storage, testing coordination, fulfilment, delivery, and collections.
• Sales agency. The distributor’s sales team represents brands to retailers for a commission on top of logistics fees.

Public, dated margin data for private distributors is scarce, and figures quoted in trade articles are not reliable enough to repeat here. What can be shown is the sensitivity.

Illustrative fee-for-service economics. Assume a distributor moves $20,000,000 a year of wholesale product for brands at a 12% service fee.

1. Fee revenue: $20,000,000 x 12% = $2,400,000.
2. Warehouse, vehicles, drivers, security, insurance, compliance, and sales staff: assume $2,100,000.
3. Operating profit: $300,000, or 1.5% of product value handled.
4. If wholesale prices fall 10% with the same unit volume, fee revenue drops to $2,160,000 while costs per stop stay the same. Profit falls to $60,000, an 80% decline.

The fee rate and cost figures are assumptions for arithmetic. The pattern is real: fees are a percentage of price, costs are per mile and per stop. LeafLink’s 2026 pricing guide reported 2025 wholesale prices down 12.0% for cartridges, 10.3% for pre-rolls, and 5.4% for flower, so percentage-fee distributors have been squeezed without losing a single customer.

The receivables problem

Distribution is a credit business with no bank behind it. The distributor often pays or owes brands before retailers pay it. When stores stretch payment, the distributor’s cash runs out first.

The clearest example is Herbl. Once California’s largest distributor, it reportedly handled $700 million of product sales in 2022 and collapsed in June 2023 after defaulting on a loan, leaving brands with unpaid invoices reported in the tens of millions. In the receivership that followed, Herbl’s accounts-receivable claims were sold to a private investor for $600,000. A ledger that size fetching that price tells a buyer how to treat aged cannabis receivables. The mechanics of such sales are on the receivership sales page.

One burden has been lifted. California distributors used to collect the state excise tax from retailers and remit it, which put large tax balances on their books. From 1 January 2023 retailers collect and pay the 15% excise tax, and distributor tax accounts were closed. Pre-2023 liabilities can still exist.

How is a distribution business valued?

On normalised earnings, with heavy adjustments for working capital, and with little or no value assigned to the licence in states that issue it freely. The general approach for each licence is set out under valuation methods by licence type. For distributors, the drivers are:

• Contracted versus at-will revenue. Written brand agreements with term and exclusivity are worth far more than month-to-month arrangements.
• Brand concentration. If two brands supply half the revenue, the buyer is underwriting those two brands’ intentions.
• Retail account coverage. The number of active stores served and order frequency is the real asset. It is what a brand entering the state pays for.
• Receivables and payables quality. Value is set on a cash-free, debt-free basis with a working-capital target. Old receivables are excluded; amounts owed to brands are treated as debt.
• Owned brands and other licences. Many distributors also manufacture or own brands. Value those streams separately, as described for manufacturing.
• Fleet and facility. Vehicles, vaults, and cages are valued through earnings when profitable and at resale value when not.

Who buys distribution businesses?

1. Brands and manufacturers that want control of their route to market and their collections.
2. Larger distributors buying route density and retail accounts. Adding stops to existing routes is where the synergy lies.
3. Multi-state and vertically integrated operators bringing logistics in-house in states that allow it.
4. Out-of-state brand houses that need a compliant landing point and sales coverage in a new state.
5. Logistics and security operators from outside cannabis, mostly for transport-only licences.

In Michigan, buyer groups 1 and 3 are shut out. The Cannabis Regulatory Agency’s guidance is that a person may not hold an interest in a secure transporter and also in a grower, processor, retailer, or microbusiness. See the Michigan page. Conventional bank and SBA loans are unavailable, so most deals are cash, seller notes, or stock.

Selling a distribution business: what to prepare

1. An aged receivables and payables report, by customer and by brand, reconciled to the general ledger. Write off what will not be collected before a buyer does it for you.
2. Every brand and customer agreement, with term, exclusivity, fee schedule, and change-of-control language flagged.
3. Revenue and gross margin by brand and by model: buy-and-resell, fee-for-service, and commission.
4. Route data. Stops per day, cost per stop, on-time rate, and rejected or returned deliveries.
5. Transfer manifests and inventory reconciliations from the track-and-trace system, showing clean chain of custody.
6. Tax account history, including any legacy excise or cultivation tax balances, and payment plans. See selling with tax delinquency.
7. Fleet schedule with titles, liens, mileage, GPS and camera systems, and insurance loss runs.

Buyer due diligence specific to distribution

Alongside the general due diligence checklist, test these:

• Whose inventory is in the warehouse. Separate owned stock from goods held for brands. Consigned goods are not an asset you are buying, and shortages become your liability.
• Collections history by retailer. Average days to pay, disputed invoices, and any stores on cash-on-delivery terms.
• Amounts owed upstream. Call the largest brands, with the seller’s consent, to confirm balances.
• Manifest accuracy and incidents. Look for regulator citations on manifests, vehicle requirements, or storage, and for theft or robbery reports.
• Testing and quality-assurance records in states where the distributor arranges testing. Failed batches, remediation, and destruction logs.
• Driver files. Agent badges or employee registrations, motor vehicle records, and turnover. See employee transfer and agent badges.
• Cash handling. Whether drivers collect cash from retailers, how it is counted and deposited, and whether the bank account will survive a change of owner.
• Lease and local permit for the warehouse, including vault requirements and any local distribution tax.

Transfer and approval quirks for distribution

A sale is a regulator-approved change of ownership, like any other licence. The distribution-specific points:

• Cross-ownership bars remove buyers. Michigan’s independence rule for secure transporters applies to every investor in the buyer, not only the controlling party.
• The licence is rarely scarce. Most states issue distribution and transport licences without a cap, so a buyer can often apply fresh. What is being bought is the customer book and the team, which makes an asset purchase of contracts a realistic alternative to buying the entity. Compare the routes under asset sale vs membership-interest sale.
• Contracts may not follow automatically. Brand agreements often terminate on change of control. Get consents as a closing condition.
• Vehicles are part of the licensed premises record. Regulators typically hold a list of approved vehicles and drivers, which must be updated when the owner changes.
• Local authorisation. In California, the city or county permit for the warehouse must also accept the new owners.

280E exposure for distribution

A distributor that takes title and resells is a reseller for tax purposes. Product cost and inbound freight go into cost of goods sold; warehousing for sale, outbound delivery, sales staff, and administration do not. That is the same unfavourable position as a retailer, described on the 280E by licence type page. Costs of arranging testing and preparing goods for sale have a better argument for inventory treatment, but the Tax Court has read reseller costs narrowly.

A fee-for-service or transport-only operator never sells cannabis, but it possesses and moves a Schedule I substance for customers when the product is adult-use. Its 280E position is unsettled, and a buyer should ask to see the seller’s written tax position and how returns were actually filed. Product moving under a state medical marijuana licence has been in Schedule III since the 28 April 2026 order, so a distributor handling both channels needs records that separate them.

This page is educational and is not legal or tax advice. If you are weighing the sale or purchase of a distributor, a confidential intro call is the place to start.