Loaded with cash and on the hunt, MSOs are prepared to unleash a massive M&A spree…
An acquisition spree is underway in the cannabis sector, and the top multistate operators (MSOs) are prepared and in position.
These leading United States cannabis companies have readied their balance sheets with hundreds of millions of dollars in cash.
In January alone, seven leading MSOs raised nearly $1 billion between them. And with cash in the vault, they’re on the hunt for acquisitions to help expand their already commanding market share.
Exactly who will sit among the leaders of tomorrow’s $100 billion U.S. cannabis market could very well get decided over the coming months. And those currently at the top will do whatever it takes to expand their lead and lock in their dominant spot.
Sitting at the very top are the cash-rich MSOs that dominate the cannabis landscape by running their companies bigger, smarter, and faster.
The rest tend to be cash starved.
They never figured out how to make more than they spent and are now lagging behind, hoping for a white knight to swoop in and save their bacon.
By combing through the laggards to pick up bargains, the hunters can better assure their leading positions.
The Buy vs. Build Decision
Those gains start by growing revenue as cheaply as possible.
[RISE OF THE ROGUE TRADERS] A group of GameStop traders ignited the revolution. And now that Wall Street’s biggest secret is officially out, everyday Americans are making their fortunes. Click here to learn their secret.
Investors aren’t willing to pay much for a dollar of revenue for a weak company. These companies have little hope in ever turning top-line revenue into bottom-line profits, and that slim hope translates into a low stock price for every dollar in revenue the company earns.
That lower stock price makes for a cheap way for a strong company to grow revenue.
It’s a classic buy-versus-build decision.
Buying that additional revenue is much cheaper than simply building more dispensaries, at least while cannabis remains federally illegal.
And to see what kind of gains are at stake for the winners, you just need to reference the age-old 80/20 rule – which is also referred to as the Law of the Vital Few.
The 80/20 Rule
In almost any industry, the top 20% of companies capture 80% of the market.
That means when the U.S. legal cannabis market hits $100 billion, $80 billion of that will be cornered by the top 20%.
Now, when I first wrote to you about the 80/20 rule, there were 32 companies in the top 20%. But in a couple of years, 20% will probably be down to just 20 companies.
If we follow this assumption, 20 cannabis companies splitting $80 billion in revenue works out to $4 billion per top 20 company per year. (Not that they will split it equally, but you get the point.)
And $4 billion is anywhere from 6X to 40X more revenue than the top MSOs currently pull in.
For example, Curaleaf Holdings Inc. (OTC: CURLF) ended last year at an annual revenue rate of around $700 million. Jushi Holdings Inc.‘s (OTC: JUSHF) fourth-quarter pace approached $100 million. Push that revenue to $4 billion, and you boost the value of these two companies between 7X and 40X.
But even those gains ignore the value-boosting effect of legalization.
With cannabis no longer a prohibited substance, the New York Stock Exchange (NYSE) and Nasdaq will list the shares of the leading MSOs. And that means all the Big Money players that are currently locked out will be free to jump into the sector.
That will usher in a very intense bidding war for cannabis stocks, making every dollar of cannabis revenue worth even more than they are today.
Curaleaf’s share of that $100 billion market could boost its stock 10-fold. For Jushi, it could drive its stock at least 50X higher. And, in this scenario, you’ll be watching one undervalued cannabis contender I’ve identified increase its value by nearly 100X.
Those 50X to 100X gains are what’s at stake for the companies hitting the top 20. And that’s why they’re loaded with cash and on the hunt.
More importantly, those same extraordinary gains are what’s at stake for you when you join the hunt with NICI Membership.
But you need to get in on the action soon. Legalization won’t wait, and neither will Big Money once the Senate clears the way.
Executive Director, National Institute for Cannabis Investors
4 responses to “Cash-Rich Multistate Operators Are on the Hunt for Acquisitions”
February 04 2021