There has been such a big increase in mergers and acquisitions in the cannabis space that Single Point President Greg Lambrecht believes that a billion dollar fund is in the future. There are several reasons why there is so much activity in the cannabis industry ranging from marijuana business fatigue to Canadian public companies flush with cash on spending sprees. Whatever the reasons – there is lots of wheeling and dealing happening these days.
“The first entrants to the space are making their first exits,” said Lambrecht, whose Single Point firm acquires undervalued cannabis companies. “Owners that got in five to six years ago and haven't gone out of business means that they are doing well. These people are taking their exits.” He said that is especially true for some dispensaries that have grown weary of waiting for a more favorable business climate. They want out. Single Point has actually packaged a few dispensaries together for investors.
According to Viridian Capital Advisors, 3.2 deals have closed per week from the start of the fourth quarter in 2016 to date in 2017, up from last year's average of 1.4 deals per week. Their research shows that the activity is being driven by a desire to “bolster their competitive positioning and increase market share.”
Eli Bilton Chief Executive Officer of Attis Trading believes that the new Attorney General Jeff Sessions is the reason why some companies are selling. “My opinion is that it has slowed down investment in the space,” he said. Bilton did note that while ancillary businesses dominated the deals in the past, cultivation properties are starting to gain favor. States like Oregon or California, where businesses have access to full banking have created a positive backdrop for acquisitions. “Acquirers want audited numbers and formal books. Transparency is a big issue and bank accounts give them that” he added. Evidence of the growth of these deals is Golden Leaf acquiring Portland's Chalice Farms for $15 million It was one of the first major acquisitions for a company that “touches the plant.”
Some think that the increased risk from the federal government is a sign that it's time to get out. Derek Peterson, Chief Executive Officer of Terra Tech Corporation (an agricultural cannabis company) understands that reasoning, but points out that if you already invest in cannabis you assume a high level of risk. Back in 2010 in California, companies faced a high volume of raids and Peterson doesn't think the industry will be subjected to that same amount of enforcement. He does concede that many investors are concerned enough that they are willing to get out at cost plus. “They are a little more concerned about the climate,” he said.
Peterson also agreed that Canadians companies that are swimming in public market money are crossing the border to invest in American cannabis companies. The U.S. investors can't afford to pay the prices that the Canadians can. “They are getting first mover advantage and can execute faster than the Americans,” said Peterson.
Viridian Capital Advisors President Scott Greiper doesn't believe the new administration is slowing investment in the cannabis industry. “We see continued acceleration and even getting into a frothy environment. Many investors are worried they will miss the boat on the cannabis opportunity,” he said. He agrees that the Canadians are driving a lot of activity in the cannabis M&A deals and that they are being very aggressive.
“They have raised much more money than in the U.S.. There has been heavy institutional money and many of the capital raises have been fully underwritten deals,” Greiper said. Harrison Phillips of Viridian said that the Canadians have been creative at finding ways to circumvent residency requirements for American cannabis companies in order to invest.