Late Breaking News: AB InBev, the world’s largest beer company and the owner of Budweiser, and Canadian cannabis leader Tilray Inc. announced late Wednesday that the companies have entered into a partnership to research the development of non-alcoholic cannabis beverages. Cannabis Profits Daily will bring you in-depth coverage of this explosive industry development in tomorrow’s edition.
Mergers and acquisitions have a major role in the shaping of the cannabis industry. The number of mergers and acquisitions we saw in 2017 more than doubled this year.
Going into 2019, we’re going to continue to see an exponential increase.
The National Institute for Cannabis Investors has been talking about the era of consolidation since our inception, and earlier this month we saw a major proof point in Big Tobacco’s major investment in one of Canada’s most celebrated cannabis companies. Mergers and acquisitions are the major vehicle by which industry giants will enter this industry.
But M&A doesn’t exist solely for the purpose of monopolization. In fact, many of the mergers and acquisitions we’ll see will be the result of smart business moves for the mutual benefit of two companies. Helix TCS Chairman & CEO Zachary Venegas spoke a lot about this while my research team was at MJBizCon, the largest cannabis conference in the world, last month.
For smaller companies in some industry sub-segments, it could be their only way to truly compete now that cannabis companies are increasingly choosing to either bring in big money corporations from the mainstream world or narrow their focus to dominate a specific niche, like craft or organic products.
Just today, a couple of companies joined forces in response to where the industry is going. And the one name involved was a bit of a shocker, even for us.
Here’s what I’m talking about…
Some Cannabis Companies Are Still Looking to Colleagues Over Big Alcohol, Big Tobacco
Mergers and acquisitions occur for a variety of reasons including access to technology, key personnel, operational expertise, or capital. And, as I’ve noted, sometimes it’s about survival.
These could be two public companies looking to get bigger, two private firms coming together to make a successful IPO a reality, or a public-private mix.
Think about it this way: If your company is the best of the best at producing superior cannabis, that doesn’t necessarily mean your company is adept with data analytics, for example. If another company has proven its mettle in that field and is looking for the next step in expansion, a merger with your company may be the best move for all parties, including investors.
Or let’s say your company has been able to establish a moderately successful brand, but you don’t have the marketing expertise – or, perhaps, even the desire – to take your company to the next level. A company with better established logistics may purchase your company as a means of acquiring an already successful brand. An acquisition here could allow you to cash out with exceptional profits while giving the acquiring company something upon which to build.
Ideally, this symbiosis can make two decent companies one spectacular company. And being able to spot the best consolidation plays can be the difference between making huge gains and missing out entirely.
So, while big companies entering the cannabis space may dominate the mainstream headlines, we want to make sure you don’t miss important mergers and acquisitions that might otherwise fly under the radar. Take today for example…
Establish Brand Fuels Latest Multimillion-Dollar Deal
Aleafia has established itself as a vertically integrated medical cannabis company based in Ontario. Its all-stock purchase of Emblem – a company IPO expert Danny Brody took public through a highly successful IPO in December 2016 – was worth $173 million.
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With this acquisition, Aleafia will now have access to Emblem’s provincial supply agreements with Alberta, British Columbia, Ontario, and Saskatchewan, in addition to other distribution deals including a joint international venture with a company based in Germany.
The deal results in the creation of Canada’s single-largest medical cannabis clinic network, with access to 40 medical clinics and education centers. In total, that network has served nearly 60,000 patients, and counting.
Aleafia will also gain Symbl, Emblem’s flagship brand. Symbl has consistently been ranked one of the best-selling brands in Canada. We have talked extensively about the importance of branding as the cannabis industry continues to shape itself, and there’s no doubt Symbl’s reputation influenced Aleafia’s decision to buy.
While the company has incredible potential now, the Institute is not prepared to recommend Aleafia as a buy at this time. It’s too early to tell.
In truth, M&A is a process, not an event. There are still some moving pieces that will shake out over the coming days and weeks.
But today’s deal once again proves what I’ve been saying since even before the Institute launched: Mergers and acquisitions would not only continue, they would become a dominant trend that starts to define the industry. Today’s acquisition was not a one-off and not even close to a conclusion of a trend.
As that process continues to unfold, the Institute will be with you every step of the way with unmatched research and analysis to provide you with all the information you need to make the best decisions for your portfolio.
Thanks for being an important part of the National Institute for Cannabis Investors,
Executive Director, National Institute for Cannabis Investors
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8 responses to “The DNA of M&A: What Makes Good Mergers and Acquisitions”
December 19 2018