Tag Archives: ESOPS

The Third Exit Path for Cannabis Founders

By Darren Gleeman
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For many cannabis founders, the exit problem is not finding the right buyer. It is that there are barely any buyers at all. The field is narrow, capital is tight, and the strategic buyers that do exist are rarely showing up with clean cash offers. More often, founders are being asked to accept low valuations, seller paper, stock in the buyer, or some other compromise that falls short of a real exit.

That leaves owners in a bad spot. They can sell on terms they do not like and watch the company they built get absorbed into a larger platform. Or they can keep running the business and hope the market improves. Neither is a strong answer for a founder who wants liquidity now.

For years, the industry has told itself a familiar story. Survive the chaos, build something real, wait for institutional capital, and eventually a good buyer will show up. It is a nice story. It just has not been true for most operators.

Cannabis does not have a deep buyer universe. 

Most private equity firms have stayed away from plant-touching companies because there is no clear exit path. Most large strategic buyers have their own capital constraints, which means they buy selectively and often on terms that shift risk back to the seller. At the same time, 280E has drained cash from otherwise solid businesses, making it harder for founders to wait around for a market that may or may not improve.

That is why so many owners have been stuck in the same position for years: they have built valuable businesses, but when they want liquidity, the options are limited, and the terms are often weak. “Hold on, and the buyers will come” is not much of a plan.

In a strategic sale, the business usually gets folded into the buyer’s system. 

That means integration, overlap, and eventually cuts. Redundant roles are eliminated. Decisions get centralized. The team that built the business often does not survive the transition intact, not because they did anything wrong, but because that is how acquisitions work.

That is especially important in cannabis because so much of a company’s value sits with the people who know how to run it. Licenses matter. Facilities matter. But so do the founders, operators, and key managers who understand compliance, vendor relationships, local markets, and the day-to-day realities of staying alive in a difficult industry. A buyer can acquire the company, but it cannot instantly replace the people who made it work.

The Independent Buyout is the savior

Most founders do not even know there is another path. In cannabis, the conversation is usually framed as either selling your company to a strategic buyer or keeping it going. But there is a third option: selling shares to an employee ownership trust through an ESOP. It is called an “Independent Buyout” because that is what it actually is. The founder gets liquidity. The company stays independent. No private equity. Leadership stays in place.

The process is more straightforward than most people think. The company is valued, the purchase price is negotiated, and the founder sells some or all of the stock to the trust. In most cases, the founder receives cash at closing and seller notes for the balance. The company then uses its future cash flow to pay down the transaction over time. The important difference is that the buyer is not a strategic acquirer looking to absorb the company. The buyer is a trust set up for the employees, which allows the company to keep operating as its own business.

An Independent Buyout gives founders flexibility and tax breaks

They do not have to sell everything at once. A minority sale can allow an owner to take meaningful liquidity off the table while continuing to run the company and keeping future upside. For a founder who has spent years reinvesting earnings back into the business and wants some personal liquidity without walking away, that matters.

There is also a tax advantage that is hard to ignore in cannabis. A company that becomes 100% ESOP-owned can operate free of federal and state income tax. In practical terms, that means cash that would have gone out the door in taxes can instead be used to pay down debt, support operations, and fund growth. In this industry, that is a major shift.

One of the biggest differences in an Independent Buyout is that leadership usually stays in place. That matters because cannabis businesses are not easy to hand off. Much of the knowledge that keeps the company running is sitting inside the heads of the people already there. When those people leave, performance often suffers at exactly the moment stability is needed most. An Independent Buyout helps avoid that disruption by keeping experienced leadership in the business after the transaction closes.

This is not for every company. If a founder wants a clean break and there is no leadership team to keep running the business, a traditional sale may be the better route. But for founders who want liquidity without handing the company over to a weak buyer on weak terms, the Independent Buyout is a real alternative.

 

While Everyone Waits for 280E Relief, Smart Cannabis CEOs Are Creating Their Own

By Darren Gleeman
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For years, cannabis executives have built their financial strategies around a single hope: that Section 280E would vanish with federal reform. But hope has quietly drained billions from balance sheets. Every year, operators “wait it out”; they forfeit the one thing they can’t afford to lose, cash flow.

It’s an understandable reflex. No one likes paying taxes they shouldn’t owe, and 280E has always felt temporary. But the reality is clear: Washington doesn’t move on cannabis at the pace business requires. Operators who treat legislative change as a business plan are gambling with time, liquidity, and their company’s future.

 

The Cost of Waiting

Under 280E, cannabis companies can’t deduct ordinary and necessary business expenses, resulting in effective tax rates that often exceed 70%. That burden has crushed margins and stalled reinvestment. The irony is that while leaders lobby for relief, the IRS already provides a legal framework that can make 280E’s impact completely irrelevant: the Employee Stock Ownership Plan (ESOP).

An ESOP, when structured properly, allows companies that are 100% employee-owned to operate entirely income-tax-free at both the federal and state levels. In cannabis, where every after-tax dollar counts, that can double available cash flow.

ESOPs work by selling ownership of the company to a trust that holds shares on behalf of employees. The founder receives liquidity, the company gains a massive tax advantage, and employees become genuine stakeholders in its success.

An ESOP allows a company to keep more of what it earns. Instead of sending large sums to the IRS, those funds stay in the business where they can support growth and stability.

Proof in Practice: Theory Wellness

When Theory Wellness became the first cannabis company in the U.S. to sell to its employees via an ESOP, it didn’t just make history. It proved what was possible. By transitioning to employee ownership, Theory Wellness created a structure that aligned purpose with profitability. The company retained its culture, rewarded long-time staff, and unlocked a permanent tax exemption that removed the vice-grip 280E had on the company’s finances.

That move wasn’t theoretical; it was financial engineering in action. In many industries, companies that share ownership with their teams tend to keep employees longer and run more efficiently. When people have a real stake in the outcome, they’re more invested in helping the business grow.

Cannabis remains capital-starved. Banks are hesitant, and equity investors often require terms that founders don’t want. An ESOP is a sale to an employee trust at fair market value. It delivers liquidity now, potential deferral of capital gains for the seller, and powerful company-level tax benefits, zero federal and state income tax when 100% ESOP-owned, so cash flow rises. Founders can stay to manage the business post-sale and, if structured correctly, receive warrants that allow a future buyback at today’s low equity value. 280E becomes irrelevant, the board still governs, and the company stays independent of outside buyers.

Additionally, ESOPs are fully compliant with current IRS regulations. This is the farthest thing from a loophole or gray area. It’s an established structure used for decades in mainstream industries. Brands like Publix, King Arthur Baking, and Clif Bar have thrived under employee ownership. Cannabis companies can do the same, yet few know it’s possible.

 

A Shift in Mindset: From Operator to Financial Engineer

The next phase of cannabis leadership requires a shift in perspective. Founders and executive teams can no longer afford to think only like operators; they must think like engineers of capital. Waiting for Congress to fix 280E is not a strategy. It’s an expensive form of denial.

When structured with discipline, an ESOP allows leaders to:

  • Eliminate income tax entirely for employee-owned entities.
  • Reinvest tax savings directly into expansion and talent retention.
  • Secure liquidity for founders while maintaining operational control.
  • Build lasting employee loyalty through true ownership.

The Call to Action

As 2026 approaches, the winners in cannabis won’t be those who waited for policy change. They’ll be the ones who engineered their own relief. They’ll be the CEOs who saw 280E for what it was, a constraint that forced financial creativity and turned it into a competitive advantage.

For decades, ESOPs have helped companies outside cannabis grow faster, last longer, and outperform peers. Now, they’re poised to do the same here. The model is legal, repeatable, and transformative. The only question is whether leaders will seize the opportunity or keep waiting for a political rescue that may never come.

The future of cannabis finance belongs to the builders, not the bystanders. In this industry, time is the one asset that’s still taxable.