Six Lines Sit Between the Price You Agreed and the Money You Get

A buyer sent back a one-page markup on a New Jersey dispensary deal last month. The agreed price had a line drawn through it and a smaller number written above it in pen.

Nothing on that page was a renegotiation.

Every subtraction was already in the letter of intent the seller had signed three weeks earlier. That is what a cannabis purchase price adjustment is in practice: not a buyer changing his mind, but arithmetic the seller agreed to before anyone opened the books. Sellers price the headline. Buyers price the wire. In New Jersey the gap runs into the hundreds of thousands, and little of it survives the LOI.

Below is one composite deal, marked line by line, with a running total. The figures blend real New Jersey deals and listings. Start at $2,600,000, agreed on an asset basis for a Class 5 retailer doing a little over $2.4 million in trailing gross.

Line one: the add-backs that do not survive

The seller presented $140,000 of add-backs. The buyer's accountant kept $85,000 and struck $55,000 - the owner's vehicle, a family member on payroll above market, and travel that appeared three years running and was therefore not one-time at all. Nothing dishonest happened. The items had no document behind them.

At the 4x multiple in the letter of intent, $55,000 of struck add-backs is $220,000 of price. It is the most expensive line in the markup, and it turns on whether your books support each item on paper. I walked that cleanup in the ninety-day books cleanup.

Running total: $2,380,000.

Line two: inventory, re-worded from retail to cost

The seller assumed $210,000 of inventory came with the business, valued as he sees it on the shelf. The buyer re-worded the line: inventory conveys at documented cost, counted the night before closing, anything aged past sixty days discounted.

That is standard, not aggressive - well-run stores discount roughly 20 percent at one month old and 40 percent at two. At cost the $210,000 was $118,000, so $92,000 came off. Cohen & Co's 2026 purchase-price guidance is blunt about where this goes: most adjustment disputes turn on inventory valuation and receivable reserves.

Running total: $2,288,000.

Line three: the working capital peg

Almost no first-time seller reads this line properly. The buyer does not take the balance sheet as he finds it at closing. He sets a target for net working capital - commonly a twelve-month average of monthly balances - and trues the closing figure against it weeks later.

On the worked example in that same guidance, moving the target from a twelve-month to a three-month average cost the seller $1 million on a $12 million deal, and one machine bought before closing cost $500,000 more. Here, $96,000 of vendor payables the seller meant to clear himself were assumed by the buyer and deducted instead. Stretching vendors in the final quarter does not help; the true-up catches it.

Running total: $2,192,000.

Line four: the holdback, which is not a subtraction

Nothing came off the price here. Ten percent of it - $219,000 - stopped arriving on closing day. It sits in escrow eighteen months against the seller's representations, behind a basket of roughly half a percent to one percent and under a cap of 10 to 15 percent.

In cannabis the licensing and regulatory-compliance representations are load-bearing, and representation and warranty insurance carves out precisely those. The holdback is the coverage. The clause-level version is in Article 8 of the purchase agreement.

Running total: $2,192,000. Cash at closing: $1,973,000.

Line five: the earnout, where part of your price becomes a maybe

The buyer re-worded $250,000 of what was left into contingent consideration, payable only if twelve months of trailing revenue hold at the diligence figure. Earnouts appeared in 24 percent of 2025 private M&A deals at a median potential value of 34 percent of the closing payment, and all-cash deals fell to 51 percent from 58.

There is a second reason it shows up here. Banks will not lend against a licence, so the buyer funds from equity and whatever paper the seller carries. An earnout and a seller note are the same conversation in different clothes - the note side is here.

Cash at closing: $1,723,000.

Line six: the escrow the State sets, and the allocation nobody argues about

Two items the seller cannot negotiate at all. Under the Bulk Sales Act, N.J.S.A. 54:50-38, the buyer must notify the Division of Taxation at least ten business days before closing on Form C-9600. The Division audits the seller, issues a clearance letter or a notice of potential liability, and can require part of the price held back. No dollar threshold.

The allocation is quieter and costlier. How the price splits across the assets decides the seller's tax treatment and the buyer's amortisation - and under Section 280E that step-up is dead weight, since $10 million of Section 197 intangibles throws off $1.5 million a year a plant-touching business cannot deduct. Rescheduling has not changed it: the Schedule III proceeding was stayed September 29, 2026. Ask your CPA before you initial the schedule.

The markup you never see

Every one of those six lines existed in the buyer's model before he wrote the letter of intent. He did not discover the add-back problem in diligence. He assumed it, priced it, and set his headline high enough to give it back later. That is not sharp practice - it is what a disciplined buyer does.

So the negotiation that decided your proceeds happened before the handshake, in documents you controlled. One northern New Jersey store on the market now asks $1,500,000 for the business and lease, or $2,250,000 with the real estate, on better than $2.2 million of trailing gross. The six lines above moved $877,000 on a deal a third that size. Your attorney and CPA decide the legal and tax lines; you decide what paperwork they get. Listings are on the main njcannabisbroker.com page.