Across more than 2,300 private-company transactions closing between 2020 and 2025, escrows in 2025 averaged 12.1 percent of deal value — and 14.7 percent where no representation and warranty insurance sat behind them. That is SRS Acquiom’s 2026 Deal Terms Study, measuring plumbing distributors and software companies. On a $2.8 million dispensary, 14.7 percent is $411,600 that nobody wires you at the table.
The clause that does it sits near the back, and almost no seller reads it until it is being negotiated against a closing date. So let me read it with you. What follows is a composite, not any one seller’s document; section numbers move around, the clauses do not. And no, this Article 8 is unrelated to the UCC Article 9 that governs a deal going the other way.
8.1 — Survival of Representations and Warranties
“The representations and warranties of the Seller shall survive the Closing for a period of eighteen (18) months, except that the Fundamental Representations shall survive until the expiration of the applicable statute of limitations.”
General representations market at 12 to 24 months. Fundamental ones — title, authority, capitalization, taxes — run four to six years, or to the statute of limitations. Sellers argue about the first number and skip the second. In cannabis the second is the one that matters, because the tax representation is where 280E lives: it outlives the eighteen months by years, on the largest exposure on the page.
8.2 — Indemnification by the Seller
“Seller shall indemnify and hold harmless Buyer from any Losses arising out of (a) any breach of a representation or warranty of Seller; (b) any Taxes of the Company with respect to any Pre-Closing Tax Period; and (c) any failure of the Company to have maintained its licenses in good standing.”
Clause (c) is the cannabis clause. Because a New Jersey licence cannot be assigned, these are equity deals almost without exception: the buyer takes the entity holding the licence and inherits everything it ever did — every CRC violation, every late return, every Metrc discrepancy.
8.3 — Limitations on Indemnification
“Seller shall not be liable until the aggregate amount of Losses exceeds one percent (1%) of the Purchase Price, whereupon Seller shall be liable for the full amount of such Losses; provided that no individual claim of less than $50,000 shall be counted.”
Three numbers hide in that sentence.
- The basket — the deductible before anything pays, market 0.50 to 1.00 percent of price. Whether it is a true deductible or a tipping basket that pays from dollar one once breached is worth real money, and gets settled in a two-minute call between lawyers.
- The mini-basket — the per-claim floor, typically $25,000 to $100,000. It stops a buyer papering you with small grievances.
- The cap — general representations cap at 10 to 15 percent of price; fundamental and tax representations cap at 100 percent. On the tax representation, the cap is the whole price.
8.4 — The Escrow Fund
“At the Closing, Buyer shall deposit the Escrow Amount with the Escrow Agent, to be held and released in accordance with the Escrow Agreement.”
How much, and for how long
SRS Acquiom puts 2025 indemnification escrows at an 8.8 percent average and 10.0 percent median. Cannabis guidance runs higher: 10 to 20 percent of enterprise value for 12 to 24 months, plus a working-capital reserve at 30 to 60 days and a tax holdback carried to a clearance letter. A step-down release — half at twelve months, a quarter at eighteen, the rest at twenty-four — is normal and negotiable. Ask for it. Most sellers never do.
Who will actually hold the money
It has to be an institution whose own policies permit cannabis funds: a cannabis-capable trust company or bank, a licensed escrow or title agent, or an attorney trust account where allowed. Sort that out in diligence, not closing week.
And there is a New Jersey wrinkle running opposite to expectation. In an ordinary asset sale here the State imposes its own escrow — the buyer files Form C-9600 ten business days out and the Division of Taxation sets a holdback that can exceed the purchase price. But sales of stock or membership interests by individuals, estates or trusts are exempt, and cannabis deals, forced into equity form by the licence, usually land inside that exemption. The State’s escrow never appears. The private one does all the work.
8.5 — Tax Matters and Refund Claims
“Any refund of Taxes of the Company for a Pre-Closing Tax Period shall be for the account of Seller, net of any costs of obtaining such refund.”
Almost nobody negotiates that line, and in 2026 it may be the most valuable sentence in the document. Whitney Economics puts the industry’s excess 280E tax at roughly $15 billion since 2018, about $1.6 billion of it in multi-state operators’ own admitted balances. The rescheduling order took effect April 22, 2026 for state-licensed medical marijuana only; adult-use stayed on Schedule I and subject to 280E. Treasury promised guidance within a week of that order and still has not published it.
Refund windows close anyway — three years from filing or two from payment, whichever is later, so 2021 is gone and 2022 is closing. So if a claim is filed and eventually pays, who gets the money: the seller who paid the tax, or the buyer who owns the entity the check is written to? Have your CPA and your cannabis attorney read that sentence before you initial the page.
8.6 — Exclusive Remedy
“Except in the case of fraud, the indemnification provisions of this Article 8 shall be the sole and exclusive remedy of the parties for any breach of this Agreement.”
It cuts both ways. It shuts the door on a buyer suing you in tort two years after closing over something the agreement already covers. It also means the caps above are not a floor on your exposure — they are the ceiling, and fraud is the uncapped hole in it. Which is the best argument there is for disclosure schedules that are exhaustive and boring.
- The escrow percentage. 8.8 percent is the general-market average; cannabis guidance runs 10 to 20 percent.
- The escrow term and the step-down. Twelve to twenty-four months, released in tranches. Get the tranches in writing.
- The survival period on the tax representation. Not the eighteen months on the front page — the statute-of-limitations tail behind it.
- The cap on general representations. Ten to fifteen percent of price, and confirm which representations sit outside it.
- Who owns a pre-closing tax refund. One sentence in Section 8.5. Have your CPA read it before anyone signs.
Why your escrow is bigger than a $200 million company’s
Roughly 46 percent of the deals in that study carried representation and warranty insurance, and on those the average escrow fell to 5.1 percent — barely a third of what uninsured sellers carried. The policy replaces the holdback and the seller keeps the cash. You almost certainly cannot buy one: cannabis underwriters put the floor at roughly $25 million of enterprise value and $5 million of coverage, at two to four percent of the limit.
So your escrow runs three times a large company’s not because your store is riskier, but because the instrument that would have replaced it is not sold at your size. You cannot fix that. You can stop treating Article 8 as boilerplate — at your scale it is not the back of the document, it is a term of the price.
I have watched sellers spend three weeks arguing over $50,000 of price and then sign a twenty-four-month, fifteen-percent escrow without a comment. On a $2.8 million deal that is $420,000 of their own money parked for two years, with a tax representation running years past it. The number on the first page is a headline. Article 8 decides what you collect.
None of this is legal or tax advice and I am not your attorney or your CPA — put both of them on this article specifically, well before you are negotiating it under a signed LOI with a closing date bearing down. If you want to know what your business would bring and how a buyer is likely to structure the holdback against it, that conversation stays in confidence. You can also see what is currently on the market on our listings page.