Are Mergers & Acquisitions the Next Big Thing for the Cannabis Market?

Cannabis market

It is no secret that the cannabis market has been growing at an alarming rate in the last few years, with analysts predicting even more growth to come in the next four years. This increase in popularity has also caused a number of companies to enter the cannabis space in hopes of gaining a piece of the billion dollar market.

Another trend in the cannabis market is an increase in mergers and acquisitions, fueled by interest from non-cannabis companies looking to cash in on the burgeoning market and a desire for increased visibility from Canadian cannabis companies. In fact, according to a recent report by Viridian Capital Advisors, 140 US cannabis companies were targets for mergers and acquisitions in 2018, a massive increase from 86 the previous year.

Consolidation also ramped up, with Canadian cannabis companies representing the buyers in 207 M&A transactions in 2018, which was more than double from the previous year.

“We’ve seen an increase in M&A activity of Canadian companies on the (Canadian Securities Exchange) targeting American operations,” explained Harrison Phillips, VP of New York-based Viridian.

Up until this point, the cannabis industry only included a handful of large companies, while a majority of the market was made up of small businesses. However, all of the recent and upcoming M&A activity in the space is beginning to transform the layout of the cannabis market and is creating businesses that are vertically integrated, more efficient, and have an increased market share.

There have also been a number of non-pot companies that are investing in the cannabis market, including large alcoholic beverage, tobacco, pharmaceutical, and healthcare companies.

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Let’s take a look at cannabis companies that have made strategic mergers and acquisitions in both North America and overseas.

Cannabis Market M&A in North America

Canadian cannabis giant Canopy Growth Corporation (TSX:WEED) (NYSE:CGC) has made a number of moves over the past few months to increase its production capacity and expand its reach beyond Canada. The company announced this week that it will be acquiring large US multi-state operator Acreage Holdings (OTCQX:ACRGF) for a cool $3.4 billion in a deal that will go into effect once the US legalizes cannabis. Acreage also had some recent M&A activity when it acquired Deep Roots Medical LLC last week, increasing its foothold in the US to 20 states, the largest in the US cannabis market.

Following this news, international beverage company Constellation Brands (NYSE:STZ), which owns a 38% stake in Canopy Growth, announced that it is modifying more than 100 million warrants held in the company.

Last month, Canopy also acquired AgriNextUSA for an undisclosed amount to create Hemp Industrial Parks, a large-scale production facility focused on hemp extraction and product manufacturing that will be similar to the one it plans to build in New York state.

Another company making moves to become a multi-state operator (MSO) is Harvest Health & Recreation (CSE:HARV) (OTCQX:HRVSF). The company announced last month that it plans to acquire Verano Holdings, one of the largest privately held multi-state, vertically integrated licensed operators of cannabis facilities in an all-stock transaction.

Cannabis Market M&A Overseas

While there is a ton of M&A activity happening in the North American cannabis market, there has also been a significant amount of movement overseas in the cannabis space. In fact, M&A transactions outside North America have tripled since last year, as a number of cannabis companies look beyond the North American continent for growth opportunities.

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Canopy Growth expanded its international reach in recent months through its wholly-owned subsidiary Spectrum Cannabis. The company currently has medical cannabis facilities in Poland, Denmark, and the United Kingdom, and has plans to build an additional facility in either Greece, Italy, or Spain.

OrganiGram Holdings Inc. (TSXV:OGI) (OTCQX:OGRMF) also gained access to the European cannabis market after it signed a $5 million agreement with European hemp and CBD producer Eviana Health Corporation (CSE:EHC).

Massive Canadian medical cannabis producers, Aurora Cannabis Inc. (TSX:ACB) (NYSE:ACB) and Tilray Inc (NASDAQ:TLRY), have also moved into the EU. Aurora has established a facility to produce medical cannabis and derivative products in Portugal, which will produce 2,000 kilograms per annum in the first phase and increase to 4,000 kilograms per annum in the second phase.

Tilray has just completed the first harvest at its 250,000 square foot operation, also in Portugal. The facility includes indoor, outdoor, and greenhouse cultivation, offers processing, packaging, and distribution sites for medical cannabis products, and even has a research lab.

The Green Organic Dutchman Holdings Ltd (TSX:TGOD) (OTCQX:TGODF) is another company that is moving into international cannabis markets. The Canadian cannabis company acquired a $49.18% stake in Jamaican medical marijuana company Epican last year and has since been ramping up cultivation as well as opening retail dispensaries in Jamaica. TGOD also recently acquired privately owned Poland-based hemp producer HemPoland.

These are just a few of the M&A transactions that have happened in the cannabis market in recent months and analysts expect many more to come this year. If you are interested in investing in the cannabis market, keeping an eye on M&A activity can help you make more educated decisions on which stocks to choose.

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