Experts and insiders agree the coming year could have a lot in store for the maturing cannabis industry, from acceleration of M&A and funding in the capital markets to continuing momentum toward legalization on the state level. TRENDS STRATEGIC M&A Experts predict that shifting political preferences toward legalization in the U.S. and globally will kick off a flurry of consolidation in the cannabis industry.
But mergers and acquisitions in 2021, following last year’s onset of COVID-19 and a pre-pandemic market rout that rocked the cannabis sector, will be much more intentional and accretive than the land grab M&A of more cash-flush years.
“We started a few years back doing acquisitions for the wrong reasons, really going into these green meadow opportunities where they had a lot of cash available, and they’re just trying to grab market share. They realized that that was the wrong approach,” ETF Managers Group cannabis research and banking expert Jason Wilson said in a December interview. “They’ve come to the realization that they have to run like any other CPG company. And they’re focusing on synergistic acquisitions, to basically get their products into expanded marketplaces.”
Eric Berlin, cannabis law expert and partner at Dentons, added that M&A will, on the whole, be more strategic, especially when it comes to targeting distressed assets — companies or brands that haven’t weathered the trials of the past few years particularly well but still have value. “Coming out of where we have been — difficult times health-wise and economically — there will be folks who are doing better than others,” Berlin said.
“Some companies are just going to be seeing the end of day. They just can’t get the funding, they haven’t proven success, but they have good assets. So those are going to be some of the kinds of strategic acquisitions that will occur.” There’s evidence to suggest consolidation has already begun, even before the outcome of the Senate power struggle was decided in Georgia and before President-elect Joe Biden would assume the highest office in the U.S. with a pledge to decriminalize cannabis.
Canadian cannabis giants, for example, announced in mid-December a $4 billion “reverse acquisition” to create the largest cannabis company by revenue. On the heels of the transaction, market research firm Viridian Capital Advisors remarked that the transaction “signals a new phase of Canadian market rationalization,” adding that there may not be mergers of similar magnitude in U.S. cannabis, but multistate operators will likely continue to expand capacity in newly-legal states and solidify positions in ones on the precipice of legalization through strategic transactions. Viridian also forecasted an acceleration in deal making, estimating the industry had a backlog of about $2 billion dollars in undisclosed deals heading into 2021.