Sports teams often prize the benefits of home-field advantage, but when it comes to valuing a cannabis multi-state operator, playing in your home court does not necessarily result in the highest valuation. As we have posted about before, different states take vastly different approaches to valuation litigation, resulting in the same MSO potentially having a significantly different valuation depending on where that litigation is brought. Among other things, to the extent that different states select a different point in time for the valuation exercise is alone often outcome-determinative of the resulting value. Thus, for instance, Delaware law requires the court to determine the company’s fair value as of the date that the merger closes, while California law directs a court to figure out what the fair value was immediately prior to the announcement of the merger. In addition, the degree to which different states recognize the so-called market-out exception leads to variable availability of appraisal rights where the target company’s stock trades in a highly liquid market: states such as Arizona adopting the market-out exception to preclude appraisal of targets whose stock trades on large, liquid stock exchanges, while states such as Massachusetts have not adopted the market-out exception (although appraisal in that jurisdiction is limited to transactions presenting potential conflicts of interest). Delaware’s appraisal statute bears the unique feature of having incorporated the market-out exception, while also yet allowing appraisal for M&A transactions where the merger price is paid in whole or in part in cash. And focusing on these variations across the United States does not even take into account the unique attributes of Canadian appraisal, a totally different animal with a different federal/state interplay altogether.
A company in any space may wind up with substantially divergent values depending on the jurisdiction hearing its valuation litigation, but the inherent vagaries of cannabis valuations only magnify the already significant differences that valuation disputes may experience across different jurisdictions.