'It Will Accelerate': Multistate Operators Talk Rising Cannabis M&A Activity

Canadian cannabis company Canopy Growth Corp CGC's confirmation Thursday of a $3.4-billion deal to acquire Acreage Holdings Inc ACRGF is the latest cannabis merger and acquisition news in a rapidly consolidating industry.

At the Benzinga Cannabis Capital Conference, a panel of multistate operators — MSOs — discussed Wednesday how a surge of cannabis M&A activity is expected south of the U.S.-Canadian border.

Canadian Dollars Flowing South

"In the U.S., we're already seeing it. And it will accelerate," said Vahan Ajamian, managing director of analyst relations at MedMen Enterprises Inc MMNFF.

Julius Kalcevich, CFO of New York-based iAnthus Capital Holdings Inc ITHUF, said his company has completed 18 M&A deals in three years. He expects Canadian cannabis companies to continue expanding south of the border to exploit easy access to cheap growth capital. 

"These Canadian guys are all waiting at the border and are figuring out how to get into these big states. There's a natural attraction to be in New York and Florida. If they want to get in there and put their balance sheets to work, it will create a huge amount of M&A, especially on the cross-border side," Kalcevich said.

Access To Capital

As the cannabis industry evolves, growth-oriented cannabis companies have looked to raise capital via public markets, including in Canada, where big players are listed on the Canadian Securities Exchange.

Mergers and acquisitions are necessary to compete against cannabis industry rivals that are expanding quickly across U.S. state lines, said Trulieve Cannabis Corp TCNNF CEO Kim Rivers. The company operates dispensaries in Florida, California and Massachusetts. 

"For our company, we think about M&A differently, in that we are focused on profitable growth. We look at companies that are profitable and align with our business strategy," Rivers said.

Mitch Kahn, CEO of Grassroots Cannabis, an Illinois-based, privately financed multistate operator, said access to cheap capital is key to successful M&A activity.

"Scale is the only thing that will matter in the next period of time. It's not scale for scale's sake, but scale for capital costs’ sake. The lowest capital cost will win this game," Khan said.

Execs Eye Banking Reforms, Legalization

As Canadian cannabis players and American MSOs continue to expand across the U.S. market, the panelists touched on the possible passage of The Secure and Fair Enforcement (SAFE) Banking Act to remove barriers to U.S. banks working with cannabis companies without incurring criminal scrutiny.

"The banking relationships are a challenge, but they do work," Kahn said. The CEO's company works in 11 U.S. states, and he said he's looking to passage of the SAFE Act to bring about much-needed reforms.

Panelists pointed to President Donald Trump possibly backing the legalization of cannabis use federally as a way to open the way to greater multistate, vertically integrated business models.

"I do think that it all hinges on Sen. Mitch McConnell and Trump allowing Senators to vote as they want to vote. I'm not sure whether anyone knows that will happen," Kahn said. 

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Investitute co-founder Jon Najarian, left, moderates a panel of multistate cannabis operators Wednesday at the Benzinga Cannabis Capital Conference in Toronto: Vahan Ajamian, managing director of analyst relations at MedMen Enterprises; iAnthus Capital Holdings CFO Julius Kalcevich; Grassroots Cannabis CEO Mitch Kahn; and Trulieve CEO Kim Rivers. Photo by Juil Yoon.