M & A Activity in Cannabis

Watch the full webinar here:

Although the industry is consolidating with the strongest players getting bigger, there is no question on the demand, success, and elasticity of cannabis.

The financing behind the Cannabis industry has always been complex given the unique nature of the space… it’s still federally illegal and typical capital markets financing is off-limits. Many investors and acquirers in and around the Cannabis industry are making moves and spotting opportunities during this unprecedented moment in time.
FlowerHire and Leafwire created a panel of expert investors and advisors including Emily Paxhia, Hershel Gerson, Raymond Chang, and John Ruckstuhl with years of combined cannabis investing experience to dive deep into the current M+A landscape, the current state of affairs, untouched opportunities, and what we can expect from new states and marketplaces.

What is the solvency of the industry post-COVID-19?

The panel began with a look towards the future and the outlook was fairly positive.  The dias could agree that cannabis would be able to stay the course through COVID-19. Although cannabis was not isolated the overall impact of the pandemic, it has shifted the light on cannabis and strategy of cannabis operations. Mr. Chang has observed the recovery of cannabis company stock prices as well as the emergence of big multi-state operators. Mr. Gerson predicts, as states budgets dry up, they will look towards cannabis to help with those numbers. Mr. Ruckstuhl agreed and emphasized states taking advantage of the tax impact of 280-E. Ms. Paxhia spoke about the shift of how we productize cannabis and get it to the consumers, with more emphasis on edibles and delivery/curbside pick up and further shift way from Brick and Morter operations. 

So, although the industry is consolidating with the strongest players getting bigger, there is no question on the demand for cannabis, and states will begin to take advantage of how successful and elastic cannabis can be.

Has there been a more pronounced decline or success of companies?

Ms. Paxhia commented that she has noticed this has been an important time of correction in cannabis. It has allowed companies to create strong foundations to build cannabis. Before COVID-19, capital was all over cannabis. However, no that the strongest players will come out on top, capital will begin flowing where it is treated best.  Mr. Chang discussed the stategy that will safe companies during this time. His company has been able to provide equipment and funding as a result of strategic decisions they have been to take advantage of this downturn. “It’s important to find ways to further strengthen the balances and positioning in the market, and those companies that do take that position will emerge stronger.” Mr. Ruckstuhl agreed and said “Making sure you structure your companies correctly or making sure you are focused on a single strategy rather than be all things to all people, has been more successful. 

However, Mr. Gerson commented on the pronounced downfall of some companies due to the current difficulty of acquiring capital.  As capital drives up, the winners will be those who are single state and have a cash flow business. There is a lot of positive momentum however, we need to curate more investors to come in. Investors that will set aside the book and look at opportunities. This will strengthen companies and open doors. 

The dias continued to dive deeper into M & A aspects of the industry in the Q & A section of the webinar.