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2019 is looking like the year of mega-mergers and acquisitions (M&A) with medium and large-sized cannabis companies converging; looking to expand footprints and establish brand loyalty in a newly emerging U.S. customer base.
Canopy Growth announced April 18, 2019, that it had bought the rights to acquire Acreage Holdings for US$3.4 billion, beginning with a US$300 million cash payment. The acquisition is contingent on U.S. federal legalization of cannabis. Three weeks prior to that Cresco Labs entered into an agreement to acquire all issued and outstanding shares of Canadian branding and distribution company Origin House for C$1.1 billion. That was just after Harvest Health & Recreation announced the US$850 million ending acquisition of privately-held Verano Holdings.
All this action is not only predicated on land grabs and moves into vertical integration, there are numerous strategic reasons that make them perfect marriages. One major factor pushing these transactions and consolidations are larger companies looking to shore up their corporate teams and infrastructure. Much of the cannabis industry, especially in places like California, have markets that are hard to get established in due to legacy networks and existing infrastructure that precedes legalization.
In Canada large mergers and acquisitions have been occurring in the cannabis sector since 2015 when Canopy Growth acquired Bedrocan Cannabis. Canopy Growth followed that up in 2017 buying Mettrum and then buying Hiku Brand in 2018. Aurora Cannabis acquired CanniMed Therapeutics and then MedReleaf last year, two of the leading revenue generating cannabis companies in Canada at the time. Aleafia Health recently closed on the acquisition of Emblem while Tilray recently acquired part of Manitoba Harvest.
In the U.S. most of the movement has been acquisitions of privately held companies like the Cresco Labs and VidaCann deal. Green Thumb Industries is in the process of acquiring Essence for US$290 million, most of which is stock value. Earlier this year, Anthus Capital acquired the U.S. assets of MPX Bioceutical. These deals mainly represent a broadening of retail footprints.
More M&A To Come
Expect more consolidation in 2019. Small and medium sized cannabis companies have issues expanding because, among other things, their products can’t be transported across state lines. Companies that want multi-state expansion need to establish infrastructure in each new location or form a partnership with a company that already has that infrastructure. Without access to traditional banking, it’s been hard for these companies to make that happen. Which is where M&A comes in, giving larger companies access to diverse markets and small to medium sized companies the ability to grow in a substantial way. In addition, as deregulation and legalization continue across the U.S., large tobacco, pharmaceutical, industrial, and food, and beverage companies will enter the cannabis space looking to disrupt the existing marketplace and take massive market share with an eye on international supply chains and global operations.
According to Bloomberg and Mordor Intelligence, the global cannabis market will reach $65 billion by 2023, from $7.7 billion in 2016. This exponential growth will incentivize established corporations from other industries to enter the cannabis marketplace and large cannabis companies to continue growth strategies utilizing economies of scale, further consolidating the market.
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