Cannabis M&A Trends See SMBs Surge As Green Rush Fades, Says New Bianchi & Brandt Report

Exploring the cannabis industry's transition from the early green rush to a phase of recessionary thinking, industry veteran Laura A. Bianchi of cannabis-focused law firm Bianchi & Brandt spotlights the end of unleashed growth and the resurgence of small and midsize businesses (SMBs) and offers insights into emerging markets and potential M&A targets for investors.

From Early Green Rush to Recessionary Thinking: ‘The Great Correction’

Discussing "The Great Correction," a term outlined in their recent report, Bianchi highlighted the aftermath of the green rush, where impulsive partnerships and oversupply led to a phase of recessionary thinking and market contraction.

“Large players, burdened with high-interest loans and oversupply challenges, are now navigating the complexities of recessionary thinking, reassessing strengths, Bianchi told Benzinga in an exclusive interview. “The scarcity of capital in the industry has prompted small and medium-sized operators to think strategically, focusing on core competencies.”

 Photo: Laura A. Bianchi - Courtesy Bianchi & Brandt

"The termination of the $2 billion Cresco and Columbia Care merger in late July exemplifies a cautious mindset among executives and investors, reflecting recent struggles seen with MSOs like MedMen, Curaleaf, and Canopy Growth," reads the report. 

A recessionary mindset among cannabis investors has driven operators to evaluate their priorities, licenses, operations, and financial positions, emphasizing margins, earnings, and cash flow over the sheer scale of a company's footprint.

Bianchi views it as an ideal time for smaller players to reassess and engage in creative collaborations. She emphasizes the resilience of smaller operators, showcasing how recessionary thinking can drive strategic growth.

M&A Targets: Tips For Investors

• Despite challenges, emerging markets offer valuable M&A opportunities driven by financial potential and early access to legal cannabis.
• The M&A market is transitioning from large-scale acquisitions to a more nuanced approach with a focus on smaller optimized interactions.
• Rather than a one-size-fits-all strategy, companies are becoming more strategic and attentive to market particularities.
• The maturation of the market allows for a diversified product offering, catering to the specific demands and preferences of consumers in different regions.
• Notably, cultivation and retail licenses become prime targets, emphasizing acquisitions at a time when valuations are favorable.

SAFE Banking in 2024: A New Deal For Cannabis SMBs?

The report underscores the vital importance of federal policy reforms, notably spotlighting the SAFER Banking Act and the potential rescheduling of cannabis.

“The Act would alleviate the burden of not being able to take advantage of normal business tax deductions, that, coupled with the exorbitant costs of maintaining depository accounts, places a heavy financial burden on cannabis businesses,” Bianchi explained. “Passing the SAFE Banking Act would enable cost control, fostering competition among banks and financial institutions.”

Drawing a parallel to the New Deal era, cannabis SMBs emerged as key players driving growth, emphasizing the need for government-driven programs and financial reforms.

In envisioning a ‘New Deal’ for the 21st-century cannabis industry, Bianchi & Brandt emphasize the strategic and adaptable role of SMBs, contributing significantly to the sector's growth and stability.

“Small and medium-sized business owners are emerging as larger players through strategic agreements and the ability to adapt and pivot, in contrast to some larger operators,” Bianchi said.

“Despite economic challenges, resilient small to medium-sized businesses, characterized by steady growth, solid foundations, competent executive teams, and minimal financial burdens, are poised to make a substantial impact and punch above their weight class, shaping the future of the cannabis industry towards maturity and sophistication,” Bianchi concluded.

Photo by Andrew Ling on Unsplash.