A few weeks ago, I wrote about issues in valuing partial ownership interests in a marijuana dispensary. (These apply to other businesses as well, naturally). That post focused on how the choice-of-entity selected at formation may affect later determinations of value. Broadly speaking, valuation issues may arise when a majority owner seeks to buyout the interest of a minority owner, or vice versa. Or when one or member seeks to expel one or more other members. Or when a majority or minority owner simply wants out of the marijuana dispensary and wants to sell her interest.
Oftentimes, when the dispensary is formed as a limited liability company (LLC), the operating agreement will include provisions governing the purchase and sale of membership interests. One common provision is a right of first refusal – i.e. the selling member must first offer to sell her interest to the other members before selling to a stranger. A good operating agreement — and we see many poor ones in cannabis — should also specify how the members will value the interest and the procedure for doing so. An initial key concept is whether the value of a member’s interest will be appraised at its “fair