We’re seeing more consolidation in the cannabis industry, and that means good things are on the way for your portfolio…

North America is slowly pushing towards full cannabis legalization, which means we are going to see more publicly traded cannabis firms than ever before.

That also means if one cannabis company is especially good at something, it’s probably going to get acquired or receive an acquisition offer.

In terms of where we are in the story of cannabis, it’s still the first inning of the ball game. As the cannabis industry matures, it’s going to look a lot like the beer market. What I mean by that is you will have a few big players like Molson Coors Brewing Co., Anheuser-Busch InBev, and Constellation Brands (NYSE: STZ) dominating the industry.

To grow even further, big cannabis companies will buy smaller companies. There will still be room for smaller players to operate, but we’re going to see a lot of consolidation moving forward.

And to own these smaller players, smart executives working for the big guys are going to offer a lower premium from where the stock price is trading.

That means a company may only be willing to pay 5% or 6% more from where a stock is trading to make an acquisition.

For long-term shareholders, that’s a good thing, as it’s going to help create the nest egg that you deserve…

Why Cannabis M&A Is a Different Beast

To make a deal happen, companies in any industry have generally been willing to pay a premium, which is a higher number than what a stock price is trading for.

In other words, an acquirer is willing to value its target higher than the rest of Wall Street and pay a higher price to own them.

In the cannabis industry, we’re seeing a different philosophy.

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Smart executives see the emergence of cannabis as a long-term event and understand the benefits of small companies pairing with larger companies. The seller may have a niche in terms of where it operates, what it sells, or who buys its products.

To get to the next level, they may just need more capital or need managerial experience to make that happen.

A larger company will have the capital, resources, and management experience the smaller company needs.

By acquiring a firm, a buyer can enter a new market without having to build anything from scratch. They don’t have to create a presence or go through a lot of red tape to get a new business up and running – the firm they want to acquire has already done all of that for them.

We saw that with the Cresco Labs Inc. (CSE: CL, OTC: CRLBF) and Origin House (CSE: OH, OTC: ORHOF) merger, where Cresco paid a premium of just 4.9% to own Origin House.

Understanding how much money there is still to be made, smart sellers don’t want to cash out and be done with the company they sell. Instead, they still want to be a part of the future success the merger could create. That’s good news for shareholders, as it means management on both sides of a deal want to make your shares as valuable as possible by continuing to grow the company.

When Deals Go Wrong

We’ve seen with Green Growth Brands (CSE: GGB, OTC: GGBXF) and Aphria Inc. (NYSE: APHA) that if the deal isn’t forward-looking enough or if there’s not a massive premium willing to be paid, a deal will not happen.

Now, we’re going to see some deals that work out and some that don’t. We’re going to see some offers accepted and some rejected.

Some will be structured right – others poorly.

That’s just how M&A activity works.

The big takeaway that I need to make sure you understand is that cannabis companies can’t afford to stand still if they want to unlock massive profit opportunities.

A cannabis firm either has to make acquisitions or it has to put itself in a position to be acquired. They don’t have to accept an offer, but if a cannabis executive isn’t receiving at least a few acquisition inquires, something is wrong.

Along with my recent report on cannabis investing strategies, I hope this helps you identify more clear winners, because M&A activity is not going to slow down.

Greg Miller
Executive Director, National Institute for Cannabis Investors

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Comments

11 responses to “The Most Important Thing to Know About Cannabis M&A Activity”

  1. let me take it a step further and say this with total confidence, there will be deep discounts given to larger companies that are doing the acquiring, these deep discounts will be given by the smaller companies which will be essential for their survival. for example companies like green growth brands and medmen if they are lucky enough to be acquired it’s going to be horrible for them and their shareholders, you guys know how it works it’ll take 5 or 10 shares of these companies to equal one share of whatever they’re being acquired by and the shareholders of green growth brands and medmen for example will get left holding the bag

  2. No premiums and deep discounts will become normal there for it’s always best to own the biggest and the best the actual acquirers, harvest health and recreation curaleaf Green thumb industries cresco labs go out and buy these mso’s if you want to be a part of the winning dominating and kicking butt and taking notes

  3. Let me first say that I am as new as it gets when it come to investing in anything. I have been following several of the Main Street gurus if that’s what you want to call them. First I’ll say I’m very happy I found NICI I started doing a few deals which is great. But getting to my point here. I’m not sure I understand what happens with the stock I own in a company when it gets acquired by another company. Do my shares roll into the company that just bought the smaller company? Or do they still trade under the same ticker?

    • They get converted to shares of the company that bought them, but it can take a while for all the paperwork and approvals, etc. to go through.

  4. I am In This For The Long Term Run. This Isn’t a Sprint But a marathon race. It can be brutal some days. It seems as tho you have short & long trading options cats causing the markets to go up & down by option trading the Cannabis companies. Thank You For the wisdom you Share. If is way more than I payed for this membership & evaluating My IQ On Cannabis investing. Blessing To All.

  5. i have been investing for almost 25 years. Made some money along the way but am BLOWN away by the opportunity avaialble to investors in the Cannabis industry. Thanks Greg for all your thorough research, your ability to put into laymens terms how to enter this once-in–a-lifetime market and your passion for helping others. Blessings!!

  6. I want to invest but am i at a disadvantage because [1[ I have never invested before in anything. [2] I do not have a broker for online investing
    or indeed for any investing and [3] I live in England so am umaware of
    any tax ramifications
    Help please and thank you,
    Brian
    [Old Age Pensioner] with some marbles left

  7. Do you think Cresco Labs/ Origin House will try to acquire Ionic Brands? Ionic just signed a distribution deal with Origin House and it seems like a potential fit.

  8. I want to thank NICII, I have bought into 3 of your picks
    so far and looking at a few more to invest in.
    I have been a (Illegal and now a legal) pot smoker for 53 years.
    I haven’t had a case of the flu since my teenage years.in 2009 I was in a severe M/C accident and it took the last 10 years to get a Dr. To sign me up for medical MJ. which brought me to your company and cant wait for the next pick to invest in.rock on, its 4!20 everywhere

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