It’s common in many different kinds of cannabis contract negotiations for the parties to execute a document early in the stages of negotiations that is often called a letter of intent (or LOI), but can also be called a term sheet. LOIs are used in most real estate and M&A transactions, but can be used for any kind of contract negotiation. In this post, I’ll look at some of the reasons why people execute LOIs as well as some of the legal issues surrounding them.
LOIs are typically executed to early on in a transaction once the parties have settled on big-picture terms like purchase price and payment terms. Unless they are completely binding (more on that below), they don’t contain a ton of the terms that will eventually go into the final agreement (commonly referred to as the “definitive agreement”). In very complex deals, you may see longer LOIs that include complex provisions, but even those are much more abbreviated versions of the definitive.
The reason for LOIs is basically to hold a deal open and to make sure the parties have the basic terms summarized and agreed upon. LOIs are usually not binding and parties are free to