For 2020, M&A activity will be fast and furious…
This week in the Cannabis IPO Insider, we shared our top 10 predictions for 2020.
We’re going to publish it for all of our members shortly, but it was only fair to give our paid subscribers in Cannabis IPO Insider access to it first.
You are free to click here and find out more about how to join.
Still, one of the predictions is so important that we had to share it with all of our members right now – the massive amount of merger and acquisition (M&A) activity we’re going to see this year.
Any growing industry will see a lot of M&A deals as companies either get big by making acquisitions or sell themselves to a big player.
Cannabis is no exception.
Strategic acquisitions this year will also address the fact that investors want results now. When acquisitions close, that puts revenue on the balance sheets that companies previously did not have.
Just take a look at Gaby Inc. (OTC: GABLF).
Thanks to several key acquisitions, it went from C$289,092 in revenue for the month ended September 30, 2018 to C$6.2 million for the month ended September 30, 2019.
That’s more than a 2,000% increase!
So, right now, we’re going to walk you through the 2020 M&A trend.
One of the Most Important Trends of 2020
For 2020, we’re going to see more selective deals.
And the large companies will be looking for one of four things when they make acquisitions:
- New territories
- High-quality growth assets
- Successful regional brands
Companies will look to build scale in the states they already operate in. They will also seek to enter new states, but with scale. They will be looking for high-quality growing assets that are attached to equally high-quality product manufacturing assets. They will be looking for successful regional brands that they can export across their platforms.
The days of buying one or two dispensaries to be able to say they entered a new state are over, as are the days of buying growhouses that only offer a promise of being completed.
The growhouse is only partially completed right now, but the acquisition is also part of Harvest Health’s plan to build scale in Nevada, the most important cannabis market in the world.
Harvest would not make that same acquisition in a state where it didn’t already have strength and big plans, and they would not buy a growhouse if they didn’t expect it to be completed.
Product Companies Will Unite
Most public companies that specialize in finished products, as opposed to growing flower or operating dispensaries, are smaller.
Look for some of these smaller companies to merge because bringing branded products companies together has several benefits.
The biggest is the ability to create top-flight partnerships in expansion states.
A California-based products company with only a few million in sales will not have the ability to negotiate a favorable licensing deal with a grower in Michigan, for example, and it will not have the scale to acquire its own facilities.
That means it may be better for both parties to join forces.
Some Mergers Will Be Distressed – Both a Risk and an Opportunity
Some cannabis firms just aren’t going to make it.
They just won’t have enough cash to survive.
For the firms with sufficient capital, they will be able to either purchase companies outright or purchase assets at dirt-cheap prices.
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However, companies on the edge of insolvency sometimes lose some of the controls that make a company trustworthy.
Acquirers will have to do extra due diligence to ensure that they are buying solutions and not problems.
Canada Will Lag the United States in M&A
The M&A wave of 2020 will primarily be an event in the United States. There will be some international mergers but, in Canada, we do not expect to see nearly as much activity as we’ll see in the United States.
Of course, there will be some exceptions.
Some of the mid-sized companies with good liquidity may seek to increase their footprints and diversify their growing operations. They’ll do that by purchasing other companies that did not raise enough capital when it was available.
Most acquisitions will have to pay for themselves very quickly this year.
But that merger would not fly in 2020 – it’s simply going to take too long to bring Origin House’s brands to the Cresco properties after the deal closes.
Acquisitions in 2020 will either have to be immediately accretive to cash flow or demonstrate that they will be accretive in the very near term.
Even a year off is too far.
Some companies will ignore what their shareholders want or not realize that investors are demanding results now. Those companies will be punished by the market.
We’ll be looking for the companies that “get it” and make smart, cheap acquisitions that fit into their long-term strategy.
On the seller side, we’ll be looking for the gems that are attractive takeover targets.
Now that you have this report, you can see why M&A activity will play such a big role in 2020.
With that in mind, we’re going to revisit one of the picks we sent out to all of our members in September 2019.
This company went on an absolute acquisition spree last year, and many of those deals will close in 2020. In September alone, the company announced seven acquisitions of Colorado-based companies.
For 2019, it’s projected that Colorado was the second-largest cannabis market in the U.S. with $1.6 billion in sales.
There’s a lot to like about this firm, but it won’t stay under the radar much longer.
Tomorrow, we will have a special video report about this company that’s usually reserved just for our Lifetime members.
We wouldn’t want you to miss it, so make sure to check your inbox around 9:00 P.M. on Wednesday.
P.S. Arizona is one of the hottest states for potential legalization this year – and companies are gearing up for it by acquiring companies in the state. You can check out our report on that here.
10 responses to “Mergers and Acquisitions Lead the Top 2020 Cannabis Trends”
January 07 2020