Selling a vape and tobacco retailer in Canada

An owner who has decided to sell a vape and tobacco shop may have a different job from the owner of other retail stores, because the buyer is acquiring a business that depends on staying inside rules a regulator enforces and inspectors check. That makes the sequence matter. The facts a buyer will verify, and the approvals only the regulator can give, can take longer than the price negotiation, so a seller who starts with them is less likely to meet a late-stage surprise. This guide sets out the order of work: the compliance file, the question to put to the regulator, the stock, the lease and location, the tax steps on a sale of the business, and what can delay a close.

Start with your own compliance file

Gather every inspection report, notice, warning and piece of correspondence with the regulator and your local health unit before you list. Public records can show more than a seller expects. Peel Public Health, as one Ontario example, lists convictions under the Smoke-Free Ontario Act and the Electronic Cigarette Act, lists smoking and vaping related by-law convictions separately, and strongly encourages prospective buyers of tobacco retail dealer premises to contact it to confirm the premises’ conviction history. A buyer in that area can do exactly that. Knowing what the record says before the buyer does lets you explain it. If there is an old matter, assemble what happened, when it was resolved and what changed in the shop’s procedures afterwards. Other provinces run their own enforcement regimes, so ask the regulator in yours what is on file for the premises.

Ask the regulator what a change of owner triggers

Do not assume that the permission to sell tobacco and vapour products moves to a buyer with the shop. Whether a buyer must apply in its own name, whether a sale of the operating company’s shares is treated differently from a sale of its assets, and whether history attached to the premises or the operator follows the new owner are questions for your province’s regulator, and the answers may differ between provinces. Ask in writing and early, because the regulator’s response may set the earliest realistic closing date, and a purchase agreement can be made conditional on it. Some places add a municipal layer: Peel lists smoking and vaping related by-law convictions apart from the provincial ones. If you also sell cannabis, that is separately licensed: in Ontario the AGCO says a cannabis retail store needs a Retail Operator Licence and a Retail Store Authorization; the cannabis retail selling guide covers it.

Get the stock into a state you can count

Stock can be where a vape and tobacco sale goes wrong at closing. Run your own count by product category before listing, and separate current stock from anything aged, damaged or in a category you suspect may become hard to sell, because those are the lines a buyer may argue about on the day. Keep the supplier invoices that match what is on the shelf. CRA notes that a sales agreement can set a price for each asset, a value for the inventory and, where relevant, an amount for goodwill, so the count method and the pricing basis are worth writing down in advance rather than improvising at closing. A count you ran yourself is also evidence if the buyer’s figure comes in lower.

The lease and the address

The buyer is taking over a use at an address, so the lease and the zoning belong in your preparation. Read the assignment clause and the remaining term, and approach the landlord early. In Ontario, the Commercial Tenancies Act deems a covenant against assigning without consent to be subject to a proviso that consent is not to be unreasonably withheld, unless the lease contains an express provision to the contrary, and it lets the tenant or the assignee apply to a judge of the Superior Court of Justice, where the landlord refuses or neglects to consent, for an order determining whether consent is unreasonably withheld. Other provinces have their own rules. On zoning, Hamilton’s guidance warns that a use permitted on one property is not necessarily permitted next door and recommends checking before signing a lease or purchasing, so be ready for a buyer to check your address before committing.

Tax steps when you sell the business

When the sale is of a business or part of one, CRA says the seller may be able to elect jointly with the purchaser so that no GST/HST is payable on the sale, though CRA lists supplies on which GST/HST is still charged even with the election. The election cannot be made if the seller sells only one or more assets of the business, or if the seller is a registrant and the purchaser is not, and CRA adds that a seller whose business has a GST/HST account must contact its tax services office to close it. CRA also notes that, depending on your situation, you may have a recapture or a terminal loss of capital cost allowance on the sale of your assets, so how the price is allocated between inventory, equipment and goodwill is a conversation for your accountant before the offer, not after.

What can delay a close, and keeping it quiet

Word of a sale can reach staff, suppliers and customers; BDC notes that, depending on a listing site’s confidentiality procedures, word could get out to employees, customers or suppliers that you are selling. BDC also says a business broker can discreetly approach qualified buyers on your behalf and vet them, that buyers ask to look at your historic and interim financial statements, projections and tax returns, and that buyers may insist on a reduced price if you cut all ties. Delays can come from causes such as:

• A regulator’s response on a new owner that arrives after the purchase agreement’s closing date
• A landlord who has not yet answered the assignment request
• A stock count that does not agree with the invoices, or that includes lines the buyer may not pay full value for
• A compliance matter the buyer first learns about from a public record rather than from you
• Financial statements that do not reconcile to the point-of-sale reports