Cannabis Transactions: Over-Negotiation is a Problem

21 Oct Cannabis Transactions: Over-Negotiation is a Problem

There are a lot of reasons why deals may stall or fall apart before the parties can ever sign a contract. Maybe a deal is too complicated. Maybe the parties can’t come to an agreement on the major terms. Maybe it’s not legally practical. But one thing our cannabis business lawyers have seen time and time again is deals falling apart due to over-negotiation.

Usually, when a deal falls apart due to over-negotiation, it plays out in one of two key ways:

In example one, one party may continually ask for the same “big ticket” item over and over again that the other is not willing to agree to. For example, a tenant in a lease negotiation may just keep asking the landlord not to require any guarantees even after the landlord has repeatedly said a guaranty is a requirement. After enough time, the landlord will eventually get fed up and walk, or the prospective tenant may just decide to look for another opportunity.

In example two, the parties have agreed on key terms but one of the parties or its counsel incessantly negotiates and re-negotiates provisions (often times minor) which causes the negotiation process to drag on for weeks or months. Sometimes, when it seems like the deal’s at the finish line, counsel will come back with more changes and start a lengthy process over.

I’ve seen this play out a lot. Maybe a party’s lawyer is not experienced in the field they are negotiating. Maybe the party itself is not confident in its position and wants to keep retooling the contract. Maybe the party doesn’t actually read the contract its lawyer has been drafting until the end and then suddenly has a host of change requests. In any case, drawn out processes like this can frustrate the other party, drag out the negotiation process, rack up legal fees, and kill a deal.

When deals get dragged out like this, parties end up getting deal fatigue. Even if the deal doesn’t fall apart, deal fatigue may lead the parties to ask their lawyers to cave on certain provisions just to get things done. I don’t need to explain why this is a bad idea, and a good lawyer will be able to spot deal fatigue and push back or at least flag these issues for their client. Sometimes, we even have to recommend walking.

There is no magic time it should take to get a deal done. I’ve worked on complex M&A transactions where the parties were able to draft and negotiate a purchase agreement in a short period of time. And I’ve worked on simple leases that take a few months. This kind of thing can be normal in general legal practice, but any decent lawyer or businessperson certainly can tell when the other side is over-negotiating and when one or both parties have deal fatigue.

The point of this post is not to say that people should cave immediately during negotiations or rush into contracts. I have seen countless examples of  cannabis businesses rushing into contracts without adequately protecting themselves and feeling the pain later.

The point is that parties need to know (a) when they can continue trying to negotiate something or when they should walk, and (b) what is really worth fighting for during the negotiation process. A lot of this comes from experience and good legal counsel. And without one or both of those things, parties may end up negotiating themselves right out of a good deal.