Decades after Congress passed prohibitionist policies that outlawed the cultivation, sale and consumption of marijuana, dozens of states now allow their residents to use medical marijuana. America’s medical cannabis market currently has more than 3.5 million registered patients and is projected to be worth $248 billion by 2030.
Last year was historic for the medical cannabis market in terms of mergers and acquisitions (M&A), with Viridian Capital Advisors from New York tracking 306 such transactions throughout the year compared to 86 in 2020. Experts and industry insiders predicted that 2022 would be an even greater year for M&A transactions. MJBiz CEO Chris Walsh predicted in October that a lot of the industry’s largest firms would come together in the coming months.
However, 2022 hasn’t had as many merger and acquisitions as Walsh and others predicted. The M&A volume in the United States has dropped by a whopping 62% this year compared to 2021, Viridian Capital Advisors reports, and the medical marijuana industry has seen 39% fewer transactions. Data from Viridian also shows that capital raises in the U.S. cannabis market have decreased by almost 65% year-to-date and that cannabis cultivators and retailers have seen a 97% drop in equity capital raises.
Despite this, Viridian’s director of analytics Frank Colombo notes that 2022 saw a healthy level of consolidation activity. One notable example is the $2.1 billion acquisition of multistate medical cannabis company Harvest Health & Recreation by Truelieve Cannabis. We may also see two major M&A transactions involving multistate medical cannabis operators before the end of the year: Verano Holding’s acquisition of Goodness Growth Holdings for $400 million and Cresco Labs’ $1.4 billion purchase of Columbia Care.
According to Colombo, 2022 may be drawing to a close, but the curtain still hasn’t closed on M&A activity. In a September 12 newsletter, he wrote that although the industry may not be able to catch up to last year’s historic M&A transactions, 2022 was hardly a failure. Posiedon Investment Management cofounder and managing director Morgan Paxhia states that there has been a slowdown in M&A activity across various industries, not just marijuana alone.
He says that such transactions occur in a cyclical nature and that for the past 20 months, marijuana capital markets have been especially tight. Paxhia added that with cannabis stock prices going down and interest rates increasing, mergers and acquisitions have become even more expensive and have attracted more scrutiny from investors.
Colombo posits that large companies may be sitting on large cash reserves but are waiting to see if Congress passes federal banking reform in the next few months. If the SAFE Banking Act passes, the cannabis industry will enjoy significantly increased access to capital, which would result in higher stock prices and attract more institutional investment. Paxhia says the legislation could completely change the cannabis industry and help it accelerate its growth more organically.
Other financing methods, such as those offered by specialized banks such as REZYFi Inc., could also give the industry a hand up as operators seek to grow their footprint without resorting to the stock exchanges, which are largely out of reach for US-based cannabis firms.
NOTE TO INVESTORS: The latest news and updates relating to REZYFi Inc. are available in the company’s newsroom at https://cnw.fm/REZY
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