With M&A Plans On Hold, Cannabis Advisers Keep Busy With Strategic Coronavirus Response

Cannabis deals may have stalled, but financial advisers still have plenty to do.

That's according to Scott Hammon, head of the MGO Ello cannabis practice. While this initial adjustment period to the coronavirus pandemic saw many clients put their M&A plans on hold, it has also resulted in companies bringing other strategic plans to the table, he says.

Those plans include operational assessments to increase efficiencies, real estate reviews to reduce occupancy costs; cybersecurity assessments for remote workforces, tax restructuring and help navigating the capital markets, Hammon says. 

"So at this point we are seeing more of a change in service mix than anything else."

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Harvest Health Nixes $850M Deal

"After the adjustment period, I do think we will see an increase in M&A," Hammon adds. "We will find that the way in which transactions are done can and will adjust very quickly if we are in a new normal and deals will still get closed."

The changes come as businesses focus on adjusting their operations to navigate the COVID-19 pandemic. Some have furloughed employees. Others have shuttered retail locations completely. It's all a way to offset losses incurred over the last two months.

Business owners and investors alike are focused on their families' safety, with little deal activity on the horizon, Hammon says.

Take Harvest Health & Recreation Inc HRVSF for example. Last month, the Tempe, Arizona-based company confirmed that it was ending M&A talks with Verano Holdings LLC. Regulators were already slow to approve the $850-million deal since April 2019, and the coronavirus outbreak was enough to put it on hold indefinitely. 

"Now with the COVID-19 pandemic often being dealt with in the very agencies that must approve the transaction, it has become clear that this combination would not be completed within the established timeframe," Verano CEO George Archos said at the time.

"We look forward to continuing to grow our operations as one of the largest privately held multi-state operators in the U.S."

Akerna An Exception To The Trend 

The M&A chill also follows a rough 2019 where cannabis companies nixed 95 deals valued at a combined $2.46 billion, per data from S&P Global Market Intelligence. That's up from 48 terminated cannabis deals valued at $946.7 million in 2018.

Still, there are certain cannabis companies that are ramping up dealmaking, despite the recent economic downturn. Akerna Corp KERN managed to ink two separate deals in one week. The Denver-based company bought Trellis for $2 million and Rolling In The Green for an undisclosed price.

'Day-By-Day, Hour-By-Hour Situation' 

It remains to be seen whether the current economic climate will yield more or fewer M&A deals. Julie Herzog, head of Fortis Law Partners' corporate securities practice, says both scenarios are possible. 

"At the very least, many current deals probably are going to be postponed, and I would expect a short-term slowdown in any current level of dealmaking in the industry," she recently told Benzinga.

"And later, depending on how our economy responds to the virus, we may see deals going through but with changes. Or, if there is a prolonged downturn, we actually may see more M&A activity because more businesses will need to consolidate to survive. It’s a day-by-day, hour-by-hour situation right now."