Surprisingly, Aside from $500M+ Megadeals, 2022 Is A Normal M&A Year

The popular press notion that 2022 has been a disastrous M&A year in U.S. Cannabis is not the case.

The graph breaks U.S. Cannabis M&A into deal size categories. Taken from the top: Green represents transactions over $500M, Brown indicates $100M-$500M deals, Blue depicts $25M-$100M deals, and Yellow represents transactions under $25M.

2021 was the outlier year, with three megadeals totaling $3.41B, contributing to a $10.3B total. The deals include the two de-SPACing transactions that formed Glass House Brands GLASF and WeedMaps, as well as the Trulieve TCNNF acquisition of Harvest Health.  

2020 also included two megadeals by Curaleaf CURLF: the February 2020 acquisition of Select and the November acquisitions of Grass Roots.

Annualizing 2022’s YTD $2.57B figure gives $3.71B, equal to 2019’s total and 23% over 2020’s total.

So what happened to the big deals? By their nature, big M&A transactions are lumpy and occur only sporadically. Two large deals are nearing completion and are expected to close in 2022: Cresco CRLBF/Columbia Care CCHWF,(originally $2B now about $1.4B), and Verano VRNOF/Goodness Growth (GDNSF (around $400M). These deals would go a long way to rehabilitating 2022 into a better-than-average M&A year. On a YTD basis 2022 is almost 9% ahead of 2020.

There are several good reasons to expect M&A to heat up. The Valuation Gap (a statistic Viridian publishes each week, measuring the NTM EV/ EBITDA multiple difference between the Tier one and Tier 3 companies) has been increasing for the last month, making it easier for acquisitions to be accretive. We also note the increasing willingness of smaller competitors to accept MSO stock consideration, believing it to be an attractive investment. Similarly, mid-sized companies are looking to obtain better valuations through the achievement of greater operating scale.

2022 may be down, but it’s too soon to count it out in the M&A Olympics. While it is unlikely to catch 2021, it is far from a disastrous year for M&A.

The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from the Viridian Cannabis Deal Tracker.

The Viridian Cannabis Deal Tracker provides the market intelligence that cannabis companies, investors, and acquirers utilize to make informed decisions regarding capital allocation and M&A strategy. The Deal Tracker is a proprietary information service that monitors capital raise and M&A activity in the legal cannabis, CBD, and psychedelics industries. Each week the Tracker aggregates and analyzes all closed deals and segments each according to key metrics:

• Deals by Industry Sector (To track the flow of capital and M&A Deals by one of 12 Sectors - from Cultivation to Brands to Software)

• Deal Structure (Equity/Debt for Capital Raises, Cash/Stock/Earnout for M&A) Status of the company announcing the transaction (Public vs. Private)

• Principals to the Transaction (Issuer/Investor/Lender/Acquirer) Key deal terms (Pricing and Valuation)

• Key Deal Terms (Deal Size, Valuation, Pricing, Warrants, Cost of Capital)

• Deals by Location of Issuer/Buyer/Seller (To Track the Flow of Capital and M&A Deals by State and Country)

• Credit Ratings (Leverage and Liquidity Ratios)

Since its inception in 2015, the Viridian Cannabis Deal Tracker has tracked and analyzed more than 2,500 capital raises and 1,000 M&A transactions totaling over $50 billion in aggregate value.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.