Look for Cannabis Industry Mergers and Acquisitions to Take Off in 2021

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The American cannabis industry is ending 2020 on a high note, with strong growth, easier access to equity and debt capital and expanding opportunities as more states legalize. There are now 9 multi-state operators with market caps above $1 billion, with more on the way through newly public companies that will begin trading in Q1. Investors are excited by the growth, and we are already seeing several companies use M&A to supplement strong organic growth. Some recent examples include Jushi Holdings, Trulieve and Ayr Strategies making acquisitions in Pennsylvania, Ayr Strategies also entering Ohio and Arizona through acquisitions, TerrAscend entering the Maryland market with an acquisition and Verano Holdings acquiring AltMed, with operations in Arizona and Florida, ahead of going public.

The cannabis industry has seen some big acquisitions to date, most recently the purchase of Grassroots Cannabis by Curaleaf, but we don’t expect the deals ahead to involve larger MSOs combining. Instead, we anticipate that the larger MSOs will get bigger by purchasing assets within their existing states of operation, where possible, or enter new states by purchasing private operators. Doing a large multi-state acquisition is challenging in the cannabis industry, as many states cap the number of licenses an operator can hold, sometimes at just one. The American cannabis industry remains highly fragmented, and we see consolidation ahead.

One state that we think is likely to be the hottest is California. The market was slow to develop, but it has had solid growth over the past several months. Looking ahead, retail store openings and the expansion of delivery services are likely to drive further growth. The pace of M&A has already accelerated. Cresco Labs acquired Origin House in early 2020, and, more recently, Columbia Care closed the acquisition of Project Cannabis. The pending merger of Caliva and Left Coast Ventures into the Subversive Capital Acquisition SPAC, a deal that is expected to close in January, could inspire other large MSOs, largely absent from the market, to get involved. One that comes to mind is Curaleaf. Its incoming CEO, Joseph Bayern, essentially said so in a recent interview with New Cannabis Ventures. Green Thumb Industries, which has a small presence in California but has been cautious thus far, could get more aggressive in 2021.

New York is another market that could see some activity. Most of the largest MSOs by market cap are in the state, with the glaring exceptions of TerrAscend, which is based there, and Trulieve, which has commenced a Northeast operation. With the state likely to go legal, creating what would be the second largest market in the country, it would seem like a priority for any large MSO.

Colorado, which until recently didn’t allow public companies to hold licenses, is another market that could see M&A. Columbia Care acquired one of the largest operators in the state, The Green Solution, and there are several large operators that could go public and then expand into other states or choose to merge with an existing operator.

Most of the largest MSOs have operations in Florida, but Cresco Labs, which had a pending merger in 2019, as well as TerrAscend aren’t in the state. Other large operators that could enter the state could include Jushi Holdings and Planet 13 Holdings.

We expect M&A to be one of the biggest stories in 2021. Limited access to capital and depressed stock prices restrained organic expansion and M&A activity over the past couple of years, but the promising industry fundamentals and the improving liquidity in their stocks are likely to inspire the leading cannabis operators to buy assets.

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Alan & Joel

Exclusive article by Alan Brochstein, CFA
Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email

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