2019 Explosion Of Cannabis Mergers And Acquisitions Predicted
Forbes [December 27, 2018]
Most of the businesses growing, processing and selling cannabis across the United States are small independently-held entities. That may change in 2019 which looks like a big year for industry mergers, acquisitions and expansion. Large companies, like those in the food, tobacco and pharmaceutical industries have mostly stayed on the sidelines, held back by regulatory concerns, but are now expected to enter the market. The cannabis industry still has a mom and pop feel but that could change rapidly.
Cannabusinesses have been small, primarily because their products can’t be transported across state lines. Companies that want to expand to other states need to establish growing, processing and selling infrastructure in each new location, or form a partnership with a company in the other state. With a lack of access to banking and most capital, it’s been hard for small companies to make that kind of expansion happen.
A few have made that leap and are establishing footholds in states around the country. In 2018, some of the multi-state operators acquired additional licensed operators in new locations. By the end of the year, “We were seeing larger companies merge with one another,” said Kris Krane, president of 4Front, a retail and brand development company in the U.S. cannabis sector. As the industry continues to grow and mature, he expects to see more of this consolidation in 2019.
Jessica Billingsley, Co-Founder & CEO of MJ Freeway, an original seed-to-sale technology company, is herself working through a merger with MTech Acquisitions. With a larger company, she can make larger plans. Billingsley said she hopes to address “the entire supply chain at a global scale.”
Multi-state operators aren’t the only ones thinking about acquiring cannabis companies. As drug laws and regulations become less restrictive, it is widely believed that large tobacco, pharmaceutical, food and beverage companies will enter the marketplace.
These large established industries are a natural landing place for cannabis because they make products that can be re-formulated to contain marijuana. They also have the production and distribution networks to bring new products to market quickly, and at scale.
There’s already been some action. Altria, which makes Marlboro cigarettes and recently invested in Juul, purchased a 45% stake in the cannabis company Cronos for around $1.8 billion, and has an option to gain a majority interest in Cronos in the future.
Deals like these present the possibility of “hundreds of billions of dollars in future shareholder value creation,” said Edward Fields, chief executive of DionyMed, a multi-state cannabis brand and distribution platform.
Alcohol and big tobacco “want their piece of this ever-growing pie,” said Brad Nattrass, chief executive of Urban-Gro, a horticulture and cannabis cultivation company. With several more states’ medical and recreational cannabis markets coming online in 2018, he has seen a flurry of capital raises and IPO’s, and more interest from major players outside the cannabis industry.
Interest in collaborating with cannabis companies will accelerate in the upcoming years as legalization expands domestically and globally said Taz Turner, chief executive of CordovaCann, a cannabis-focused consumer products company. The recently-signed Farm Bill makes hemp products legal, another industry boost.
“It could be M&A or partnership,” but big beverage, pharma, and tobacco companies are interested to be sure said George Allen, president of Acreage Holdings, a multi-state owner of cannabis licenses and assets.
The merger and acquisition flurry will likely include the ‘ancillary’ cannabis businesses as well said Nattrass, ”as investors realize the sheer breadth of the market and multitude of services and products that it now encompasses.”
Cannabis companies are keenly aware that they could be bought. For the ones going public, “the one common question they all have beforehand is how this move will position them as a potential acquisition target,” said Scott Hammon, chief operating officer at The MGO|ELLO National Cannabis Alliance, a firm in the cannabis financial, tax and advisory services space.
There may even be an acquisition race between existing multi-state operators of cannabis growers, and big pharma and tobacco companies said Beth Stavola, chief operating officer and president of US Operations for MPX Bioceutical Corp., a holding company that includes cannabis growing, processing and selling entities. “We expect the trend of consolidation of the multi-state operators to continue in 2019, though it remains to be seen how many will be scooped up by other multi-state operators and who will be scooped up big pharma, beverage or tobacco companies,” she said.
Of course, not all are fans of the big players. According to the New Jersey law firm Brach Eichler, that state’s choice to grant medical cannabis sales licenses to larger out-of-state cannabis businesses came at the expense of “entrepreneurial New Jersey applicants” and represents “a massive transfer of wealth out of the State.”
Some of the largest specific M&A activity in the cannabis space is listed here and below with articles for reference, as well.
- Aurora / Farmacias: Canadian cannabis producer Aurora Cannabis announced acquisition of Mexico City-based pharmaceutical supplier Farmacias Magistrales S.A., unlocking the potential for a market of 130 million consumers.
- MedMen / PharmaCann: MedMen acquired the medical-marijuana retailer PharmaCann in a $682 million stock transaction.
Recent acquisitions by top players in the industry:
- 4front/ Cannex
- Acreage / Form Factory
- Acreage / Blue Tire Holdings
- iAnthus / MPX
- MJ Freeway / MTech
- Golden Leaf Holdings / Tahoe
- KushCo Holdings / Summit Innovations