Merger and acquisition activity is accelerating throughout the cannabis business as extra corporations land multimillion-dollar capital infusions and ink offers aimed toward rising market share.
The momentum is giving extra firm founders a chance to cash out at a lovely worth – or leverage the offers to launch their subsequent enterprise. The flurry of activity is a robust sign that the authorized marijuana market is maturing as the business’s early pioneers start to exit.
As the primary half of 2018 got here to an finish, greater than 145 mergers and acquisitions had been introduced since Jan. 1, in line with Viridian Capital Advisors, a New York agency that tracks funding activity throughout the cannabis sector within the United States and Canada.
That’s almost double the activity that was underway throughout the identical interval final yr when 79 offers closed, in accordance with Viridian’s Cannabis Deal Tracker.
“What you’re seeing is consolidation across the industry as companies like mine are going in and buying up dispensaries and building up their portfolio of assets in the major markets,” stated Derek Peterson, founder and CEO of Irvine, California-based Terra Tech, which posted almost $36 million in income in 2017.
‘Eager to cash out’
For Mason Levy, the M&A growth got here at an opportune time – and allowed him to pursue a brand new enterprise enterprise.
“I never imagined that I would sell this company just two years after we launched it,” stated Levy, co-founder of cannabis tech app WeDevelop, an academic platform for residence growers based mostly in California and Colorado.
In February, Levy and enterprise companion Rodolfo Ramirez bought WeDevelop to Rhode Island-based lighting options agency VividGro for an undisclosed worth.
The incentive: It gave the corporate a cash infusion and allowed the founders to focus full time on their chat bot tech startup Swivl, stated Levy.
But not each cannabis cash-out yields excessive or leverageable returns, warned Jason Thomas, CEO of Avalon Realty Advisors, a Denver brokerage agency targeted on marijuana and actual property offers.
That’s partially a end result, Thomas famous, of the U.S. cannabis business having to be rigorously thought-about on a state-by-state foundation since every one has its personal distinctive market and different laws.
“In Colorado, there’s significant attrition in cultivation because the price of wholesale flower has fallen through the floor,” he stated. “We have groups struggling to stay in business, and it’s really turned into a buyers’ market.”
The CEO of Colorado-based enterprise accelerator Canopy Boulder, Patrick Rea, famous that licensed cannabis companies in his state are promoting at multiples of only one occasions their gross sales – in different phrases, at costs equal to their annual income.
“That’s certainly not selling at the height of market, but timing the market is one of the most difficult things to do for an entrepreneur,” Rea stated.
“Businesses can be very emotional, and the fear of missing an opportunity can be a strong motivator for someone who may need to pay back investors.”
Another main motivator for some cannabis operators is burnout.
“It’s incredibly hard work to eke out a profit, especially if you’re paying your taxes and remaining compliant with all of the regulations,” Rea noticed.
Avalon’s Thomas, who has gross sales listings for a half-dozen cannabis cultivation and retail operations throughout Colorado, agreed.
“The most common theme I hear from operators is that they’re just tired,” he stated. “They’re tired of the headaches, the regulations, the costs, the 18-hour days. They’re eager to cash out.”
‘US is the end game’ for cannabis
Deals amongst Canadian cannabis corporations have dominated a lot of the current M&A activity and delivered the very best valuations as companies prep for the nation’s imminent adult-use market, stated Viridian Vice President Harrison Phillips.
“But the U.S. is the end game for many operators because of the size of the market potential,” he stated.
The want for a U.S. footprint and up to date spike in capital raises is a robust sign that extra funding is on the horizon.
Through June 22, private and non-private cannabis corporations within the United States and Canada had raised almost $four billion, in accordance with Viridian, up from $1.three billion throughout the identical interval in 2017.
Top acquisition targets embrace cultivation and retail operators as nicely as infused product and extract companies – and that’s on prime of the consolidation of cannabis funding companies, in accordance with Viridian.
“The U.S. is still relatively untapped, and we’re far from the scale and magnitude that this industry could be operating at,” Phillips stated. “We expect that there is going to be significantly more capital coming into this space.”
Recent transactions of observe in each the United States and Canada embrace:
- MedMen Enterprises signed a $53 million deal to accumulate a Florida-based cultivator and the best to open 25 dispensaries within the state. The acquisition of Treadwell Simpson Partnership locations MedMen – which operates 18 cannabis amenities in California, Nevada and New York – squarely in Florida’s increasing MMJ area. That market is poised to turn into one of many nation’s largest.
- Aurora Cannabis inked a deal to accumulate rival Canadian cannabis producer MedReleaf in a transaction valued at $three.2 billion Canadian dollars ($2.5 billion) that may create one of many world’s largest marijuana corporations.
- California-based Kush Bottles signed off on a greater than $1.5 million acquisition of CMP Wellness, a distributor of vaporizers, cartridges and equipment based mostly in Los Angeles. In April, Kush closed a deal value greater than $three.2 million to purchase Colorado-based Summit Innovations, a purveyor of hydrocarbon fuel utilized by marijuana extract producers.
- British Columbia, Canada-based cultivator Emerald Health Therapeutics agreed to a CA$90 million deal to purchase rival cannabis producer Agro-Biotech. The settlement expands Emerald’s footprint into Quebec, Canada’s second-largest province.
Lisa Bernard-Kuhn may be reached at [email protected]