Increased Merger & Acquisitions Strengthen Cannabis Market Confidence

The cannabis industry has been steadily gaining steam both nationally, and abroad. With Canada legalizing recreational cannabis earlier this year, the market has begun growing at a staggering rate. The United States, however, remains the prime location for cannabis companies, especially the western states like California and Nevada, where the cannabis market is attracting investments from abroad.

In a nod to the impending Federal legalization of cannabis in the United States, which President Trump had said he “probably will end up supporting,” and would like to leave to the states to decide individually, Canadian companies have begun moving south of the border to snatch up American cannabis companies. On March 29th, for example, the Ontario based CannaRoyalty Corp. acquired three U.S. companies: RVR, a distributor in California which pulled in USD 25.4 Million in revenue in 2017; Alta Supply, a medical marijuana distributor based on Oakland; and Kaya Management, an edible and vaporizer manufacturer. More recently, on July 16th, C21 Investments Inc., a public Canadian company, announced the acquisition of a leading Nevada cannabis company, Silver State. The deal was reportedly worth CAD 37.5 Million and included the option to acquire a 155,000 sq. ft. cultivation facility.

More pointedly, large beverage companies are starting to see the potential of cannabis-infused drinks. Last year, Constellation Brands, the creator of Corona, had invested in the public Canadian company Canopy Growth Corp. in an effort to stay ahead of the curve and legalization. This year, however, a competitor had started a bolder play in California. Lagunitas Brewing Company, headed by Heineken, started selling cannabis-infused sparkling water in California dispensaries, a step that Constellation brands is said to be “pretty interested” in, and is waiting to see how the legality of this move will play out Federally. Although with risks, the move by a Heineken brand shows the Company’s belief that Federal prohibition is going to be short-lived, and a leg up on the competition is worth the risk.

U.S investment funds are also seeing the potential rewards for getting into the cannabis business. About a month after CLS Holdings USA Inc. (OTCQB: CLSH) had closed the acquisition of Oasis Cannabis, a fully integrated cannabis operation in Las Vegas, the New York investment management firm, Navy Capital, invested USD 3 Million with an option for it, or several others, to invest an additional USD 2 Million with a 15% overallotment by August 15th, 2018. The investments will allow CLS to complete the build-out of its Las Vegas cultivation and production facility and continue growing in the state of Nevada.

In addition to the political pressure the Federal government is under to legalize cannabis on a national level, companies have begun to add financial pressures, beating revenue and growth estimates, as well as returning healthy taxation profits to legalized states’ coffers. As can be seen by the continual investments pouring in from Canada and the growing confidence from other established U.S. companies in the cannabis business, many are willing to accept risks when it comes to getting in front of the pack in the United States and meet legalization with processes in place.

Sponsored Content Release. Click for Full Disclosure

Leave a Comment