With today being April 20, or, as the marijuana industry likes to call it, 4/20, the annual celebration of all things cannabis, extra attention will be given to the cannabis industry.
] General industry pressure remains centered on US federal legalization, with US Majority Leader Chuck Schumer so far required to announce a detailed timetable for a promised bill. The best thing he's offered in recent weeks is simply to say that a Democratic bill will be presented "soon".
So let's get around the macro issues and delve into one of the latest micro deals that made some headlines. Because it could very well be the latest evidence of another emerging trend within the industry.
Earlier this month, Canopy Growth (NASDAQ 🙂 (TSX 🙂 announced the upcoming acquisition of Supreme Cannabis (OTC 🙂 (TSX:). The acquisition is a $ 435 million cash-and-stock deal.
Once the world's largest marijuana grower, Canopy turned to rival Canada-based company to bolster its offering of recreational, wholesale and medical offerings. The purpose of this deal apparently has more to do with quality than quantity as Canopy wanted to improve its offering of premium brands.
Supreme trades both on the Toronto Stock Exchange and the US OTC markets. a relatively small company that has seen its share price rise by nearly 50% in the last 12 months.
However, the Supreme acquisition is the final step that points to support for what many in the industry see as a trend – increased consolidation. One of the drivers that could drive this trend is the abundance of cannabis in the market. It is a dilemma that growers continue to struggle with, which is putting downward pressure on prices. But investors might see more smaller companies with solid performance records being picked up by the bigger players.
So far this year, the industry has seen a few deals pointing to the consolidation trend. The first signal came with the announcement of the Aphria (NASDAQ 🙂 (TSX 🙂 / Tilray (NASDAQ 🙂 merger, which Aphria shareholders overwhelmingly approved earlier this month. The vote by Tilray shareholders has been extended to April 30, but is expected to pass the threshold for approval.
In February, Hexo (NYSE 🙂 (TSX 🙂 saw Zenabis Global (OTC 🙂 (TSX 🙂 in a $ 235 million deal.
Unlike the blockbuster megadeals of the cannabis industry's early expansion, these relatively smaller buyouts offer specific synergies. They are seen as strategic steps to strengthen brands, market access or retail networks.
As Canopy CEO David Klein reportedly said in media interviews shortly after the announcement of the Supreme Cannabis purchase, the company is looking for strategic acquisitions and expects more consolidation, especially among Canadian-based companies. But the big moves in capital investment will be reserved for expansion into the US when the green light is finally given.
