Mergers & Acquisitions in the Cannabis Industry

May 15, 2019by Brian Walsh

As medical and/or recreational marijuana becomes legal in most states, many business owners jumped at the chance to profit from the growing industry. Many large corporations stood back for a while, possibly to avoid regulatory complications and concerns. However, now, many larger companies are entering the field, planning to acquire smaller mom-and-pop cannabis shops across the country and in Florida. As pharmaceutical, tobacco, and food corporations try to expand into the cannabis market, industry experts predict an “explosion” of cannabis-related mergers and acquisitions in the coming year.

Some acquisitions have already started, including the following:

  • The Marijuana Company of America, Inc. acquired a stake of Natural Plant Extract of California. They are also planning to jointly launch a cannabis delivery company called Viva Buds.
  • Cannabis Strategic Ventures brought The Asher House Wellness company into its portfolio.
  • Aurora Cannabis Inc. entered into an agreement to acquire all outstanding shares of Hempco Food and Fiber Inc. This is after Aurora already acquired hemp companies Agropro, Borela, and ICC Labs last year.
  • Puration, Inc. recently announced a partnership with Kali-Extracts, which the company expects will continue to grow its profits after a 350% growth from 2017 to 2018.
  • Aleafia Health Inc. is substantially expanding its facilities to allow it to better partner with other licensed producers that want to make use of Aleafia’s extraction and packaging resources.

There are many additional corporations still waiting in the wings but preparing to enter the cannabis industry and acquire or merge with smaller existing companies. We will likely see a huge growth in this industry in the next couple of years.

Mergers and Acquisitions are Common in Certain Industries

While M&A can happen in any type of industry, some fields that commonly see these complex business transactions include healthcare, financial services, retail, and technology. For healthcare companies, the government is constantly enacting new legislation and regulations with which companies must comply or face serious penalties. Smaller companies can struggle to keep up with the changes and risk going out of business, so an acquisition offer from a larger corporation can be a lifesaver and the best option. Smaller healthcare companies also have difficulty competing with larger entities due to constantly rising costs, so an M&A can be the best option.

The cannabis industry seems to be similar. Many small companies can only have a presence in one state where they are licensed, which significantly limits the market. Large corporations build multi-state presences, so they can expand their portfolios by purchasing companies across the country.

No matter what industry you are in, a merger and acquisition is a highly complex transaction. If you are the purchasing company, you need to complete thorough due diligence and ensure there are no surprises after you sign the contract. If you are a smaller company being acquired, you want to make sure you properly determine the value of your business and do not over-guarantee anything that could result in liability at a later date. It is always important to have the help of a highly experienced mergers and acquisitions attorney before and during these transactions.

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