Cannabis M&A Activity At All-Time Highs With Little Signs Of Slowing Down

Cannabis industry M&A activity continues to boom in 2021. Financial tech firm Refinitiv reported a 94% surge in M&A during Q1 2020.

The trends continued into May with such companies as Jushi Holdings Inc. JUSH JUSHF, Trulieve Cannabis Corp. TRUL TCNNF and Green Thumb Industries Inc. GTII GTBIF having announced or completed deals early in the month.

U.S. industry experts tell Benzinga that several factors could be sustaining the M&A uptick. Experts say the surge should continue throughout the year, with various sources likely playing a part.

Market confidence supported by several factors

Confidence in the market is spurring M&A activity, say several sources though the source of the uptick in confidence may vary.
Matthew Kittay, a co-chair of Fox Rothschild's mergers and acquisitions practice group, gives credit to macro-market drivers and industry-specific elements.
U.S. consumer spending and confidence play a significant role. In 2020, legal cannabis sales passed $17.5 billion in the United States, according to BDSA.
"Any industry connected to retail is a good acquisition target," Kittay stated.
He added that market leaders are emerging with cash on the balance sheets to put to work.
"These companies are over-solicited by later-stage investors who want to put capital work in this emerging industry as it becomes more acceptable and less risky even for conservative investors," Kittay explained.

Like Kittay, Matt Hawkins, who is the founder and managing partner of Entourage Effect Capital, credited federal legalization discussions for helping bolster market confidence.

"As a result, many are currently proactively scaling up in order to become more attractive to institutional capital and other large industries that will be quick to engage with legal cannabis once the federal government gives them the go-ahead," Hawkins explained.

Brightfield Group Managing Director, Bethany Gomez, said loosened regulations in the U.S. and Canada played their part. Still, Gomez believes market fragmentation in both countries negatively impacts customer loyalty development.

"Companies are under pressure to show phenomenal growth rates to investors but are running up against the current capacity of the market, which is driving the desire to grow sales through acquisition," Gomez said.

Sales and customer loyalty growth are part of why companies seek to enter additional markets. According to Planet 13 Holdings Inc. PLNHF co-CEO Larry Scheffler, strategic acquisitions have proven to be an entry-point for many brands.

"New licenses are scarce and difficult to obtain, so acquisitions are the only option for many companies to expand their footprint," Scheffler said.

How long will the M&A surge last?

Cannabis companies and investment leaders seem to agree that the high level of M&A activity should continue through at least 2021.

"We expect M&A activity will increase as the cannabis industry becomes more mainstream and broader legalization gains even more momentum," Scheffler forecasted.

Everett Knight, EVP of corporate development and capital markets at the Valens Company Inc. VLNCF, expects a flurry of activity to last into 2022, with cannabis going through a phase of consolidation as the market matures further.

"As long as the Biden administration continues to ride the green wave, we see no signs of this surge slowing down anytime soon," Knight said.

Valens has been part of M&A activity in recent months, acquiring LYF Food Technologies in March as an entry into the Canadian edibles market. The company entered the U.S. market the following month through its acquisition of CBD brand Green Roads.

Fox Rothschild's Kittay said it might be difficult to forecast how long the current surge will continue, and that significant industry swings could extend the rally.

Kittay also views federal legalization as a primary factor, adding that further normalization of the plant via state legalization, banking reform and U.S.-based IPOs would help.

The recent legalization of consumption lounges in major markets like New York City will play their part as well, he noted.

"As urban areas in the U.S. rebound from COVID-19 shutdowns, on-sight consumption is going to change the ways people socialize fundamentally," Kittay concluded.