Mitigate the Risks of Cannabis Investing
This due diligence checklist helps ensure that vital information is gathered to thoroughly vet cannabis investment opportunities.
The cannabis industry is fraught with risks, yet filled with great opportunities for investors who understand the level of due diligence that is required to mitigate cannabis investment risk. Complex and constantly changing regulations, unqualified teams, substandard operating procedures, and a lack of compliance discipline put cannabis portfolio company investments at risk every day, making investment due diligence increasingly tricky. We've put together this cannabis due diligence checklist to provide a high-level road map to separate vulnerable companies from substantial opportunities in the sector.
Note that if you have cannabis investments or are considering investing in the space, it is vital that you find a 3rd party cannabis expert to help you conduct due diligence. Each and every time 3C has been called in to inspect and audit cannabis operations for investment groups, we have found between 30 and 100 fundamental flaws that range from problems that could lead to a revoked cannabis license to tripling or quadrupling product output due to improving cultivation or manufacturing systems and processes.
Due Diligence Checklist Information
- Business Model
- Deal Structure
- Accounting, Tax & Legal
- Management Team
- Employees and Contractors
- Partners
- Marketing & Branding
- Financials
- Shareholders
- Insurance
- Technology
- Licenses & Permits
- Regulatory Compliance
- Environmental, Workplace & Product Safety
- Security & Surveillance
Questions for Specific Operation Types
- Cultivation
- Extraction, Processing, Manufacturing, & Infusion
- Retail
- Delivery
- Distribution
- Ancillary Products & Services
While this checklist is thorough it is by no means exhaustive. Vetting cannabis investments requires extensive industry experience and knowledge, as well as an understanding of the local, state, and federal regulations that apply to the target company.
Who is 3C?
3C Consulting, LLC, is the leading strategic consulting firm in the global cannabis industry. Having worked directly with over 500 cannabis operational companies in 34 U.S. states, two territories, and 17 countries, 3C knows how to thoroughly vet businesses to determine future profitability and avoid common investment pitfalls. Whether you seek assistance with the due diligence process, want general investment guidance, or need a full audit of your portfolio operations, 3C has the resources and industry savvy to help. We have saved our clients from losing hundreds of millions of dollars in private cannabis and hemp investments. We'll find out what's wrong and provide a detailed report so you and the operational team can correct it.
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Case Studies
As an investor, you are undoubtedly familiar with scrutinizing financial models, assessing markets, and evaluating products, teams & intellectual property. But does your team know how to identify any one of the dozens of cannabis compliance violations that could result in a suspended or lost cannabis license? For example, understanding the financial impact of soil and nutrient solutions with a pH below 6.0 or the production efficiency achieved by actively monitoring PAR values and supplementing light when necessary could mean the difference between a below average operation or a best in class future exit possibility. These are just a few of the hundreds of compliance and efficiency elements you need to understand as a cannabis investor to continually assess the risk of your portfolio companies. In our 14 years of consulting with over 500 cannabis companies, we have found that less than 1% of the companies we've audited were fundamentally compliant, operationally efficient, and effectively deploying their investor's hard-earned capital. As an investor, you need an effective way to check on your cannabis investments continually.
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