Food and beverage DTC brand due diligence

Once a food and beverage DTC deal is under LOI, diligence has to move past the revenue history and into the three places risk in this sub-sector actually hides: the licence file, the co-packer relationship, and the shipping and spoilage data. None of the three shows up clearly in a standard set of financial statements, which is exactly why a buyer who treats this like an ordinary e-commerce diligence exercise can close a deal without ever finding the problem that was there the whole time.

The documents that actually matter

Start with the licence certificate itself and any correspondence with the regulator about complaints, corrective actions or pending reviews, since a licence that is technically current but sitting under active scrutiny is a materially different risk than one with a completely clean file. The co-packer or manufacturing agreement and the recipe or formulation documentation behind it matter almost as much, because they establish whether production can actually continue and on what terms. Shipping, damage and spoilage data, reconciled against total volume shipped rather than accepted as a summary figure, and the labelling files themselves for bilingual nutrition-facts and allergen compliance round out the core file a buyer needs before pricing the deal with any confidence.

Checks beyond the paper file

A buyer should confirm licence status directly with the regulator rather than relying solely on what the seller provides, and it is worth checking the regulator’s own recall-procedure guidance to understand what a past recall, if there was one, actually required of the business and whether anything from it remains open. Where production happens at a physical facility, confirming that facility’s provincial or municipal food-premises permit is current is a separate check from the federal licence entirely, and one that is easy to assume is covered by the federal file when it is not.

The findings that actually kill this kind of deal

A licence that is not in good standing, or that the regulator is actively reviewing over a labelling or safety complaint, is close to a hard stop, because it threatens the business’s basic ability to keep shipping product rather than merely denting the numbers. A co-packer who will not commit to continuing production for the buyer, or who says the recipe cannot move without their active cooperation, is nearly as serious, since it means the thing generating every dollar of revenue may not actually be available to the new owner. A materially higher spoilage or damage-in-transit rate than represented, once shipping data is properly reconciled, and a meaningful share of inventory sitting near or past its date code, round out the findings that most often unwind a deal that looked solid at LOI.

What a finding actually means once it appears

Not every finding carries the same weight, and treating them all as equally serious wastes leverage on the ones that genuinely do not matter. A minor labelling correction the brand already made on its own initiative reads very differently than an active, unresolved regulator complaint — the first shows a business that catches its own problems, the second shows one the regulator is actively watching. Similarly, a co-packer who is simply slow to respond in writing is a manageable communication issue, while a co-packer who goes quiet entirely, or who uses the ownership change to demand materially worse terms, is telling the buyer that the production relationship the purchase price assumes is transferring may not actually be there once the deal closes.

Confirming the brand itself transfers cleanly

Underneath the licence and the co-packer, a buyer still needs to confirm the more basic question of who actually owns the brand: is the name and logo a registered trademark held by the entity being sold, or an unregistered mark that a founder has simply used for years without ever formally protecting it? An unregistered mark can still transfer as part of an asset sale, but it carries more risk of a conflicting user turning up later, which is worth knowing before the buyer builds a repeat-purchase strategy on a name they may eventually have to defend or change. Confirming registration status, and that any formulation or recipe documentation is actually owned by the business rather than licensed informally from the founder personally, closes out the file on what a buyer is really acquiring.